National Infrastructure Pipeline (‘NIP’) explains the infrastructure vision for our nation by envisaging infrastructure investment of Rs. 111 lakh crores over five-year period from FY 2020 to FY 2025. With annual average investment of ~Rs. 22 lakh crores, this is a significant step-up (~2.5 times) vis-à-vis historical levels of spending on infrastructure.
In line with the recommendations of NIP task force report, Budget 2021-22 has laid out a three-pronged strategy for enhanced and sustainable infrastructure financing in the country. This entails
i. Creation of institutional structures.
ii. Thrust on monetization of assets, and
ii. Enhanced share of capital expenditure in Central and State budgets.
~Rs 3.8 lakh crore has been allocated as capital outlay for various infrastructure projects under Union Budget 2021-225. This is broadly in line with the recommended quantum of funding for the corresponding period, through Central budgetary resources, under NIP.
Niti Aayog, published its report on NIP as a
(i) Guidance book for Asset Monetisation (Volume I) and
(ii) Medium-term Roadmap including the pipeline of assets (Volume II).
NIP and NMP, together, are envisaged to give a comprehensive view on greenfield and brownfield investment avenues in Infrastructure.
Volume 1 is reproduced below:
Consisting of following chapters, it requires frequent reference to understand the concept and its successful implementation.
1. Infrastructure Imperative
2. Asset Monetization— Framework and Instruments
3. Asset Monetisation Experience: India and Beyond
4. Preparatory Stage
5. Transaction Stage
6. Key imperatives for Monetisation
Any one is entitled to know the barebones of this economic documentation before understanding about our infrastructure revolution.
What do we intend to do?
To achieve ambitious goals in infrastructure expansion, we use our current infrastructure assets for monetization.
What is monetization? Are we converting them into cash or what remains of our family assets saved or unaligned assets for generations?
Can I give you the narratives of a well strategized Asset Monetization program?
Assets are identified, money is taken from investors like pension funds, rich high net worth investors, both Indian and abroad, reinvested for infrastructure development and after a certain period calling as medium- term period, return to the government for further auctioning etc.
Though this article is totally based on Volume 1, I do not intend in explaining chapter wise in details since actual case studies and government departments/state government concerned involved in actual transactions will clarify the picture better. Page wise reference enables any one to read the details, if necessary.
Page 16 gives asset class, ministry/entity, key asset variable and value involved.
What are the asset class?
Roads, power transmission, power generation, airports, ports, telecom towers, optical fiber cables, railway stations, railway track, natural gas pipeline, petroleum, and products pipe- line, warehouses, and sports stadium.
Can we know the names of authorities involved?
Ministry of road transport/power, National highways authority of India, Power grid corporation, NTPC, NHPC, Airport authority of India, 12 major port trusts, BSNL, MTNL, Indian railways, Gas authority of India, Indian Oil corporation, IOCL, HPCL, BPCL, OIL, Central Warehousing Corporation, Sports ministry/youth affairs.
Value, if any? (page 25 to give full information)
132,499 km, 171,950 km transmission lines, 262 sub-stations with 444,738 MVA transformation capacity, 60,224 MW, 4,912 MW (NTPC and its JVs & subsidiaries) 7,071 MW (NHPC), 137 airports, 1535 MMTPA , 69,047 towers, optical fiber (5,25,706 km (laid under Bharatnet)), 7,325 stations, 1,26,366 track km (67,956 route length), 19,998 km of natural gas pipeline, 14,623 kms for petroleum products, 818 lakh MT of warehouse capacity, and 5 national stadia and various Regional centres.
Let us take a breath and realize that all these assets have been with us but not repeatedly used for a long time. So far, one time use only.
Governments regularly invest in new infrastructure creation by way of budgetary allocations. Asset Monetisation approach enables such assets to a whole lifecycle and system-wide perspective. New monetization of these assets and creation of new infrastructure enables one to take a long-term view and monetary benefits.
What is asset monetization?
It has two linked facets.
Lease or divestment of rights over existing assets; and reinvesting in new infrastructure.
Let me draw your attention to my Taj Palace reauctioning of lease where the newly acquired money was not reinvested by the Municipal authorities enabling creation of new assets. An old thinking.
Let me quote from the report, certain details of monetization.
“Asset Monetisation can be undertaken through a range of instruments/ tools. This section summarizes some of the few models, which have been utilized and have proven to be effective in monetising brownfield assets.
Monetisation models which are currently being explored/ availed may broadly be categorized into two approaches: (i) Direct Contractual Approach and (ii) Structured Financing models.”
What are the details of direct contractual approach?
We are already aware of two models which have been tried as under:
What about states?
In June 2020, Maharashtra State Road Development Corporation (MSRDC) awarded the tolling rights of Mumbai Pune Expressway and old Mumbai-Pune corridor (NH-48) to IRB Infrastructure Developers for a total consideration of Rs 8,262 crore comprising upfront payment of Rs 6,500 crore and the balance in staggered instalments over a period of three years.
Infrastructure Investment Trust
Infrastructure Investment Trust (InvIT) is an innovative trust-based financial instrument, which enables participation in infrastructure financing through a stable and liquid instrument. InvITs provide an opportunity to invest in infrastructure assets with predictable cash flows and dividends. InvITs have been introduced in India in 2014 and are employed by infrastructure asset owners to pool in money from a diverse set of investors against pay-out of cash flow generated by the assets on a periodic basis.
Let us also look at global InvITs and their mode of operation.
InvITs – Globally private institutional funds have complemented debt funds in financing infrastructure investment. There has been a global consensus on the potential for tapping large institutional investors (including pension funds, sovereign wealth funds etc.) as well as retail investors towards infrastructure asset class, especially with lower risk levels (brownfield assets).
Let me quote two specific instruments used in U.S.A.
Yieldcos and Master Limited Partnerships (MLPs).
InvITs are established are trusts under the Indian Trust Act, 1882 and regulated under the SEBI (Infrastructure Investment Trusts) Regulations, 2014.
They are very popular, and the following actual data would fascinate us.
India has seen several InvIT transactions over the last 4-5 years.The total Assets Under Management (AUM) across the 8 active InvITs43 is around Rs. ~1.4 lakh crore.
Bulk of the assets are under toll roads (Rs. 47,500 crore), followed by telecom (Rs. 42,000 crore), gas pipeline (Rs. 16,500 crore) and power transmission (Rs. 14,000 crore).
Recently, public sector asset owners such as PowerGrid and NHAI have initiated greater adoption of the instrument.
The details are:
1) IRB InvIT Fund – IRB Infrastructure Developers – Toll roads – public – listing month May 2017 – Assets under management – Rs 6500 Crores.
2) India Grid Trust of Sterlite Power – Transmission – Public listing month June 2017- Assets under management – Rs 15000 Crores.
3) IndInfravit Trust – L&T IDPL Roads- Private- June 2018- Rs 10,500 Crores.
4) India Infrastructure Trust – Brookfield Gas pipeline- Private- March 2019- Rs. 14,500
5) Oriental Infra Trust – Oriental Structural Engineering Pvt. Ltd. Toll roads -Private- June 2019- Rs. 11,000
6) IRB Infrastructure Trust- Toll roads- Private -Feb 2020- Rs. 22,500
7) Tower infrastructure Trust – Reliance & Brookfield Telecom towers- Private- Sep 2020 – Rs 42,000
8) Digital Fibre Infrastructure Trust- Fibre Optic- Private- Oct 2020 Rs.1,500 Crores.
9) Powergrid InvIT- Power Transmission -Public- May 2021- Rs.7,800 Crores.
REAL ESTATE INVESTMENT TRUST
The market capitalization of REITs (and number of publicly traded REITs in bracket) in select countries is given below:
|United States||US$ 1232 billion||194|
|Singapore||US$ 76 billion||44|
|Japan||US$ 148 billion||62|
|Hong Kong||US$ 35 billion||11|
|India||US$ 4 billion||1|
|Malaysia||US$ 9 billion||18|
While attracting the maximum foreign funds in our nation, time has come to us to merge with world economy by adopting the best economic practices of the world to maximize the investments of large public funds like pension funds, high net-worth individual funds etc.
There are 3 REIT project transactions worth Rs 66,500 Crores during April 2019 – Feb 2021.
Let us immerse ourselves with global asset monetization by studying some country wise details.
An introduction from page 50 of the book sets the tone of discussion.
i. Infrastructure investment requirement, globally, has been estimated at USD 94 trillion during the period 2016 to 2040. Of which, ~50% alone is required in Asia (with China, India and Japan being major contributors). While governments lead the initiative of meeting the massive infrastructure deficit, it is widely accepted that governments alone cannot fund this level of infrastructure investment requirement.
ii. Asset recycling is considered as an alternative strategy where there is a considerable public asset base comprising of mature brownfield or surplus or under-utilized assets–which is leveraged for raising upfront capital for investment in new assets or for revitalization of existing assets.
There is already an established track record of investment by institutional investors and funds in mature economic infrastructure projects such as toll roads, ports and airports in North America, Europe, and Australia. More recently, such investments have been seen in Asia-Pacific region as well.
Let us recollect the achievements of some other nations so that we get motivated, actually do the investments, and join the global community in its endeavor to achieve more economic benefits.
AUSTRALIA’S ASSET RECYCLING INITIATIVE (ARI)
One can refer page 50 of the book for detailed study. Some statistical vibes to motivate our efforts.
Is it so?
So far, three of Australia’s eight states and territories participated in the scheme.
By 2018, 12 major public assets were rolled out under ARI across New South Wales, Victoria, the Northern Territory, South Australia, and the Australian Capital Territory.
Approximately, AUD 3 billion in incentive payments were paid to participating states and territories over the life of the scheme.
This helped in unlocking over USD 17 billion in new infrastructure development across Australia.
Page 52 contains 6 project details.
They are New South Wales 100% lease, 99 years proceeds, 10.273 million Australian dollar, Port of Melbourne 50 years lease, 9.700 million AS, New South Wales 50.4 % lease 99 years proceeds 7.624 million AS, Victoria 40 years concession proceeds 2.60 million AS, Northern Territory 99 years proceeds 16.2 million AS.
The above details nail the facts that simple lease with long term implications entitle the state authorities, ports or any one with long duration contract to monetize their proceeds than visualizing proceeds from state budgets.
Indonesia from page 54, and Indiana toll road concession on page 58, do help us to widen our vision.
We now learn how the asset monetisation process needs to be a sustainable strategy towards improving infrastructure delivery and strengthening the public sector balance sheet. Towards this, the public sector entity needs to institutionalize an efficient and effective framework for creating a marketable and sustainable asset monetisation plan.
The public sector agencies need to follow a structured process along the following lines for the Preparatory stage:
1. Step 1 – Preparation of an asset monetisation and financing plan
2. Step 2 – Asset screening and packaging
3. Step 3 – Transaction preparation and structuring
4. Step 4 – Approval process.
At the end of the Preparatory stage, the public sector agency would have a ‘transaction ready’ asset for monetisation.
Details are available for these processes on pages 62-66 of the book.
Chapter 5 takes through transaction stage which is described as under (pages 67-75) with the following captions:
The book rightfully justifies the key imperatives for monetization which are enclosed under Chapter 6.
Some of them are:
6.1 RECENT INITIATIVES BY GOVERNMENT OF INDIA (pages 77-83)
A. Increased adoption of Financing Instruments key amendments pertaining to InvIT/ REIT
B. Enabling Asset Monetisation by Public Sector Entities
Other Relevant Aspects
Amendments to Regulations for InvIT and REIT by SEBI
Amendments to TOT framework
Model Concession Agreements (MCAs)
6.2 KEY IMPERATIVES
Pillar 1: Expanding the investor base and scaling up instruments.
Pillar 2: Strengthening demand-side actions.
Pillar 3: Creating effective frameworks to aid monetisation.
This book by Niti Aayog enables us to cross decades of slow growth by leaps and bounds since it talks about what we can do to monetize the assets that we invested over decades and lying idle or yielding virtually nil return. With the access of huge investments, we need to give good regulatory set up to oversee the investments and enable a good return for investments.
Now is the time to act and gain immensely.
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