Session II

Topic - Understanding the Role of National

Monetization Pipeline Policy 

By – Shruti Chaturvedi
Research Assistant
Date –24.12.2021
 Monetization
What is Monetization?
 
Converting non-revenue generating thing into revenue generating.

When something which has a value associated with it or when an asset is converted into a form of
money, then that process is termed as Monetization.

 Basically, monetizing is ‘to utilize’ (something of value) as a source of revenue generation.

Most Common Monetization strategies are – Paid Product or services, advertisements, Freemium etc

Example – Social Media Monetization, Commercial Monetization

What is Asset Monetization?
● Asset monetization means giving on lease, the ownership of the assets remains with the owner.
● A public asset can be any property owned by a public body. These include roads, railways, pipelines,
stations, mobile towers etc.
● Asset Monetisation is a process of raising revenue from the assets by monetizing them.
Examples of Asset Monetization in the past :
         
●   The Toll Operate Transfer TOT model by the NHAI - National Highway Authority of India has monetized
around 1400 km of toll roads through the TOT concessions generating revenue of Rs 17,000 crore. NHAI
also decided to monetise its highway through InvITs.
● Airport Authority of India was able to successfully monetize six brownfield AAI airports raising upfront
proceeds and expanding the private investment in the same. 
● Indian railway also launched the strategic foray into PPP in station redevelopment and running of
passenger trains.

https://youtu.be/sj2kXFEqQ3I
Disinvestment and Privatization
The action of an organization or government to sell or liquidate assets either partially or fully is
known as disinvestment. It can be called the opposite of investment.

So the government in this case reduces its stake.

There are three types of Disinvestment 

● Minority 
● Majority 
● Total Disinvestment or Privatization

● If the government sells a small portion and its stake remains 51% or more it is a minority
disinvestment.
● If the government sells a major portion and its stake remains 49% or less it is a majority
disinvestment. (Implies the transfer of management)
● If the government sells 100% of the stake to the buyer, then it is a total disinvestment also
known as privatization.
https://dipam.gov.in/past-disinvestment - Refer to see the list of PSUs that were Disinvested in the recent years.
Privatization

 
The transfer of ownership, property or business from the government to the private sector is
termed privatization. The government ceases to be the owner of the entity or business.
It can happen only when government sells more than 51% of their stake.

In Asset Monetization, it involves giving the hold of revenue rights whereas in privatization it
involves giving the hold of ownership as well as revenue rights. Asset monetization has a
development motive whereas privatization has a profit motive.
Why Asset Monetization? 

1)To help raise the necessary capital for the government expenditure and to manage the government's fiscal
deficit, the government takes such steps. Asset monetization generates new sources of revenue by unlocking the
economic value of poorly used assets.

2) Monetization of new infrastructure.

Monetization of infrastructure assets will have a two-pronged benefit—it will yield appropriate returns for the
concerned PSU and promote balanced regional development.

3) Involving the Private Players. 

The government of India in the recent past has developed infrastructure programs. In most of the sectors, it is
driven by the public sector  and  now India holds one of the largest brownfield stocks of fixed assets. Though the
public sector is able to develop or generate new infrastructure, they miserably fail in managing and operating
them.
Brainstorming Activity

Brownfield Assets – Under-utilized assets that are ready to be in operation. Brownfield

Investments refers to an investment made in an existing active project or even an
inactive project with an existing developed facility or infrastructure.

Consider yourself as a part of the government body of a developing nation where you
are planning to improve the education as well as the health sector of the country by
developing innovative infrastructure. For that you are planning to monetize some of
the brownfield assets. Give examples of the possible brownfield assets which can be
used in this program and also mention few regulatory points for the private players.
What is the National Monetization Pipeline?

The Government of India announced NMP on 23rd August, 2021. This will be implemented over the next four
years. 

It aims to attract investment worth INR 6 lakh crore by monetizing its core assets in the 13 strategic sectors
through this pipeline, including railways, roadways, power generation etc.

It aims to unlock value in brownfield projects by engaging the private sector, transferring to them the revenue
rights and not ownership rights and using the funds generated for the new infrastructure creation.
The government has clarified that while the rights will be transferred to private players, the ownership will be
retained by the government.

Video - https://youtu.be/2L2CnIS3XME
Figure 1 - Infrastructure Asset Monetisation Cycle Figure 2 - Sectoral Distribution for the Plan
 Where are the benefits of monetization greater?

❖ Under-utilised Assets or Brownfield Assets

❖ Well- utilised Assets

Suppose a port or any stadium or any empty piece of land is not being used efficiently because of various
reasons like poor marketing or management and less developed. In that case, if the government decides
to lease off these assets to the private players in the market that will help the government in managing
their expenses as the private players will make the payment to the government equivalent to the current
value of that asset. It will be a win-win situation because the government will receive a “fair” value for its
assets and the private players get a return on their investment. Along with that it will have benefit the
economy.
 ❖ Well-utilised Assets
Situations can be different in monetising where the assets are properly utilised, suppose a highway
that has good traffic. In that case private players will have less incentives to invest and improve
efficiency. In that case they just have to look into operations and management. In this case, private
players will pay a price to the government equivalent to present value minus its own returns. The
government earns badly needed revenues but these could be less than what it might earn if it
continued to operate the assets itself. There is no improvement in efficiency.
 Why is governance better with Private players?

What could be the possible reason for the better services under private ownership than publicly owned?

● One, managers are better monitored in the private sector than in the public sector.

● Two, incentives are vastly superior in the private sector. Let us take up these points in turn.
In private firms, management relies a great deal on incentives and perks that encourage high performance.
This is in line with their primary value of maximising profit.
In the public sector, however, limits are applied to awarding high performance. With 
the fundamental value of societal well being, employees are encouraged by their honourable desire to serve
the public.
Examples
1) BALCO - In the year 2001, the government of India struck its first disinvestment deal in which they sold 51%
stake of BALCO to Sterlite Industries Ltd. It has significantly increased in its efficiency and expanded its market
and domain into new products.

2) VSNL - Videsh Sanchar Nigam Limited was disinvested by the government of India in which they sold the
majority of the stake to the Tata Group.

3) HZL - Hindustan Zinc Ltd is one of the most successful turnaround stories after divestment. The company
reported seven-fold rise in its revenue within five to six years after divestment. The Company’s revenue for the
FY- 2018 stood at around INR 22000 crore from INR 1500 crore in FY-2000.

4) IPCL - Indian Petrochemicals Corporation was acquired by Reliance Industries (RIL). The revenue of IPCL got
more than doubled within four years after acquisition.
Steps taken by the government Recently

Air India privatisation

⮚ The long awaited sale of India’s national carrier Air India is now done. The Tata group has
snapped up the loss making airline four years after the government announced its intention to
sell.
⮚ Air India was always a hard sell given its colossal losses and debt despite continuous infusion of
funds.
⮚ Recently, the government approved the highest price bid of Talace Pvt Ltd. A wholly owned
subsidiary of Tata Sons Pvt Ltd. For sale (Disinvesting) of 100% equity shareholding of
Government of India in Air India.
⮚ It is hoped that with Air India passing into the private sector, its operation and cost will get
streamlined services on board will improve and basic services like wi-fi will also be made
available.
⮚ A successful turnaround of Air India could also help the Indian Economy as it will create a
multiplier effect on the economy.
 Challenges Ahead in the Process

Realizing Adequate Value - One of the most critical challenges is whether adequate value from the assets will be
realized or not. This factor totally depends on the quality of the bidding process and whether enough private
players are attracted to bid.

Ensuring sufficient participation from bidders: In order to ensure that asset monetization doesn’t lead to
favouritism, it requires to make the bidding conditions such that the people eligible to bid are not a small,
predetermined set. However, because of the capital intensity of the project, not everybody is going to be able to
bid. Even so, you can ensure that there is sufficient participation.

Execution Risk: There will be execution risk in such a large programme. However, this is exactly why the National
Monetisation Pipeline is not adopting a one-size-fits-all approach.
Issue of Taxpayers’ Money: The taxpayers have already paid for these public assets — and, so, why
should they pay again to a private party to use them.

Monopolistic Outlook: A few business houses will corner the bulk of the assets offered under NMP.

Right and targeted policy planning and implementation: There is a need to systematically adopt these
initiatives across varied asset classes and streamline the frameworks and modalities of such
alternatives in a programmatic manner which can be readily absorbed, evaluated and replicated.
Impact of Disinvestment on Consumers

Private Players have the profit motive and thus they do not consider much about the public or the
development aspect. When most of the sectors including roads, railways, power generation, airports etc
will be in control of the private players, there is a high possibility of user charges going up for consumers
until and unless the government specifies certain rules and regulations for the private players.

Without a proper regulatory mechanism put in place user charges are likely to increase. There is also a
possibility of markets being segmented as services will be price based meaning better services provision
against higher costs.

Also Corporates would be inclined towards reducing the operation cost by cutting the wages of the
employees.
References
https://thewire.in/economy/how-will-asset-monetization-help-the-government

http://www.bsepsu.com/historical-disinvestment.asp

https://www.civilsdaily.com/news/asset-monetisation-execution-is-the-key/

https://www.niti.gov.in/asset-monetisation-holds-key-value-creation-infrastructure

https://economictimes.indiatimes.com/news/economy/finance/nhai-to-be-flag-bearer-of-centres-rs-6-lakh-crore-asset-monetisation-plan/articleshow/85682342.cms?from=mdr

https://www.india-briefing.com/news/national-monetisation-pipeline-funding-infrastructure-by-leasing-assets-23013.html/

https://www.drishtiias.com/daily-updates/daily-news-analysis/national-infrastructure-pipeline-1

https://trak.in/tags/business/2021/04/14/air-india-will-be-100-privatised-by-september-will-tata-become-the-new-owner-of-air-india/

https://trak.in/tags/business/2020/12/31/big-setback-for-air-india-employees-as-investor-cancels-bid-due-to-legal-issues/

https://www.ndtv.com/business/government-to-complete-air-india-bharat-petroleum-disinvestment-in-2021-22-2507838

https://www.business-standard.com/article/economy-policy/govt-will-finish-air-india-bpcl-privatisation-this-fiscal-dipam-secretary-121081100629_1.html

https://www.legalserviceindia.com/legal/article-4672-privatization-of-air-india-it-s-legal-and-economic-impact.html

https://ctweblogs.wordpress.com/2007/12/19/privatization-way-to-go-balco-success-story/

http://www.csstc.org/reports/egm/P4/Presentation_India.htm

https://blog.ipleaders.in/privatization-air-india-economic-legal-implications/

https://www.mondaq.com/india/oil-gas-electricity/1018632/privatisation-of-bpcl-odds-of-it-becoming-a-success-story

https://www.pubtexto.com/journals/journal-of-economic-and-business-studies/fulltext/disinvestment-of-psus--an-indian-case-study-of-air-india

https://www.theindiaforum.in/article/india-s-privatisation-drive

https://www.civilsdaily.com/burning-issue-asset-monetization-holds-the-key-to-value-creation-in-infrastructure/
Thank you!