National Monetization Pipeline: Far from selling out assets, family silver is being burnished

10:28 AM Aug 25, 2021 | S Murlidharan

The Narendra Modi government’s decision to monetise idle infrastructure assets of railways, roads, airports and pipelines among others, under the arguably grandiose National Monetization Pipeline (NMP) is laudable. It is also the first serious attempt to finding a solution to the capex funding gap the nation has been facing for long--what with disinvestments ending up like a deflated balloon every year-end and scope for raising taxes practically non-existent.

Starting with Rs 88,000 crore in the ongoing financial year, the government hopes to garner Rs 6 lakh crore by 2025 in aggregate, through this innovative fund raising program. The Opposition predictably has cried sellout and used other political gutter phrases to denounce the Modi government’s embryonic initiative. But the truth is, it is anything but a sellout. What is envisaged is leasing of the idle and relatively docile infrastructure assets. There is a parallel---securitization.


Securitization process: How it works


Securitization is a process whereby funds locked up in long-term mortgages are unlocked so that they can be recycled for faster nation building.

A special purpose vehicle (SPV) is created which buys the receivables, backed by mortgages of various maturities, at a discount from a home loan company which grants further loans with the help of funds thus unlocked. The SPV obviously cannot produce the requisite funds out of thin air. So it issues long-term bonds on the strength of the pool of EMIs or receivables spanning say 20 years, assuming this to be the average tenure of home loans. This becomes a virtuous cycle producing multiplier effect, not possible if the home loan company waited patiently for EMIs to trickle in for recycling.

Working idle assets to full potential

Monetization envisaged by the Modi government is also an attempt at working idle assets to their full through the process of unlocking, with the only difference being the process is not securitization, but operations leasing. Like securitization, the NMP would also produce a multiplier effect what with the lease rentals being used to bankroll government’s infrastructure projects. The devil, however, as they say is in the details and implementation because otherwise, like the successive government’s disinvestments programs, this one too can end up as a pipe dream.

For highways, there is already sound concession agreements that can serve as templates for NMP mutatis mutandis. In other spheres, the respective ministries together with the Law ministry should draw up a comprehensive operational lease agreement, which among other things protects employment. The Opposition’s shrill criticism has a ring of truth insofar as employment is concerned. Private bidders obviously would try to cut costs so that after paying the lease rentals to the government, they end up with a tidy profit. Their first target obviously is the excessive staff. The government indeed would be at its wit’s end walking this tight rope.

The top five sectors by value under the government’s asset monetization programme are roads (27 percent), railways (25 percent), power (15 percent), oil and gas pipelines (8 percent) and telecom (6 percent). Among projects, the government plans to lease are 26,700km of roads, 90 passenger trains, 400 railway stations, 28,608 circuit km transmission lines, 286,000km of Bharatnet fibre network and 14,917 towers owned by state-run Bharat Sanchar Nigam Ltd and Mahanagar Telecom Nigam Ltd.

Govt seems to have done its homework

The government for once seems to have done its homework well as testified by the pains taken to spell out the minutiae insofar as identification of idle infrastructure assets are concerned, thus effectively silencing the charge of sellout. Far from selling the family silver, they (the idle ones) are only being burnished.

His Holiness Shankaracharya Jayendra Saraswati of Kanchipeet once exhorted Hindus not to build more temples but use the existing ones that are languishing. That subtle and sublime message seems to have been heeded by the government, except that it plans to build more infrastructure projects with the proceeds of lease rentals from the hitherto languishing assets. That NMP has been dovetailed with the other back-to-back seemingly grandiose plan of the government---Rs 100 lakh crore infrastructure push by 2025 is commendable.

Come to think of it, the government which bungled the arguably rational demonetization program of November 8, 2016 with its spectacular unpreparedness for remonetization, has this time round got its act together. But then it would be foolish to celebrate prematurely. The NMP is still in its embryonic stage. It has to be fleshed out and made operational with water-tight and foolproof operational leasing agreements. And it has to be hard-sold to those interested in toll-operate-transfer (TOT) as against the by-now familiar build-own-operate-transfer (BOOT) model.

(The writer is a senior columnist and tweets @smurlidharan)

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