Asset Monetization
Monetization means expressing or converting something into the form of currency.
Asset
monetization
refers to the transfer of revenue rights and operational duties to the private investor
for a specified period in return for a huge chunk of money that will be further
invested in other asset creation known as “asset recycling”.
For instance,
NTPC, NHPC, or Power Grid, when they monetize their assets, instead of going to
the government and getting resources for asset creation, the revenue received
from monetized assets are used for creating more and more infrastructure in the
country.
Key Aspects in Asset
Monetization:
- The ownership of the underlying asset is not handed over to private investors.
- Brownfield – de-risk assets, stable revenue streams.
- Structured partnership under the defined contractual framework with strict KPIs and performance standards.
- The concept of asset monetization came into the limelight when Union Finance Minister, Nirmala Sitharaman announced National Asset Monetization Pipeline in the Union budget of 2021-2022.
- It has been described as one of the most ambitious efforts to try and raise funds for large-scale infrastructure development in the country in a sense to kick start the economy to take it to the next level.
- The NMP involves leasing out central government assets valued at around Rs 6 lakh crore over four years ending in 2024-25.
Brownfield de-risked assets are being identified across the key central and government industries and public sector enterprises. There are 12-line ministries and departments and more than 20 asset classes (like roads, railways, aviation, power, oil and gas, and warehousing, etc.), which will be taken into consideration under NMP.
In terms of
estimated value, the top 5 sectors i.e., Roads (27%) followed by Railways
(25%), Power (15%), oil & gas pipelines (8%) and Telecom (6%) capture 83%
of the aggregate pipeline value.
There would be
annual scheduling of this program, the objective of which is to enhance CAPEX
spending and building top-class infrastructure to have a multiplier
impact on growth and employment.
How NMP will be helping the railway and power sector to grow in the next 4 years?
The railway station can be a major creator of new economic activities. Railway trains will run better and can have the huge impact. They can compete with government trains. Therefore, railway is sitting on a lot of assets including a vast number of railway stadiums can be used around the clock for better sports activities, hill railway which is virtually running at inefficient levels, all of them can be made into top-class tourism destinations. Railway has over 265 good sheds which can be used enormously, passenger train operations can be run efficiently and there can be a huge improvement in creating world-class railway station. This will give a boost to India’s economic growth.
In case of the power
sector, number of idle solar assets with NTPC/NHPC/NLC can be used for asset
monetization; which will lead to further creation of battery and solar storage
solution for the country and with the resources raised, they can get into new
areas of growth like Green Hydrogen that will drive the power sector in
India.
Way Forward
Although the
government has tried to address many challenges, owing to infrastructure
development in the NMP framework, yet the execution of the plan is not
efficient enough. Government is good at construction but it is not so good at
operation and maintenance, there are lots of under-utilized assets which need
to be used 24*7. So, it needs to bring inefficiency.
If India wants
to achieve economic growth over a 3-decade period then the infrastructure sector
must be the central idea of the country’s growth and development programs.
Written by Anjali Soni (Guest Contributor)
References
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