India’s previous attempts to develop infrastructure assets through PPP have failed.
The NMP is an important attempt to attract investment in the developed asset.
But, can the same bureaucracy that caused hurdles in PPP projects in the past be trusted to monetise assets?
There are two common observations about the functioning of Indian governments.
First, political will is not enough; the success of government policies depends as much on bureaucracy.
Second, there are some extra-committed bureaucrats, who get claps for adding Midas touch to projects, many of which prove to be a trap for politicians.
The “touch” is visible in the Rs 6 lakh crore National Monetisation Pipeline (NMP). Asset monetisation is an old agenda, and its success is as important for the economy as the introduction of Goods and Services Tax (GST) or insolvency code (IBC). The government should, therefore, have done better by keeping it tidy and avoiding loopholes.
What is monetisation?
By definition, monetisation means unlocking money already invested or getting positive yield out of idle investments. For example, you can monetise your idle investment in real estate by giving it on rent. The Rs 35,000 crore (6 per cent of estimated NMP value) realisation plan from the telecom sector falls in this category.
Over the years, India’s public sector telecom companies like BSNL created a wide array of infrastructure – like mobile towers, optic fibre cable (OFC) networks etc. – across the length and breadth of the nation. Unfortunately, most of such assets are today underutilised as users are switching to private providers for ease of service.
Similarly, billions of dollars are pumped into BharatNet that is creating an optical fibre cable (OFC) network to ensure high bandwidth data connectivity to every Panchayat. This writer witnessed project implementation in remote villages in Northeast India. It could trigger local development but didn’t, because the infrastructure is used only for government purposes, which is minimal.
Allowing the private sector to use these idle capacities, will therefore not only fill government coffers but will benefit trade and commerce immensely. In the past, government infrastructure was used by private providers on an ad-hoc basis. Now there will be competitive bidding.
Not only telecom. The plan to monetise roads (27 per cent of NMP), oil and gas pipelines (11 per cent), warehousing (5 per cent), railways infrastructure (25 per cent), power transmission infrastructure (8 per cent) all perfectly fit the definition and are a win-win.
It makes sense to allow the private sector to use idle capacities in oil and gas pipelines that crisscross the country. Forcing private players to create its own infrastructure, doesn’t hold good for the economy. It will create a pile of underutilised infrastructure, bringing either lower returns to the lender or escalating the price of deliveries to the user.
Why should the government stay invested in a stretch of highway and recover money through tolls for 25 years? If a private investor or Investment Trust (InvIT), pays back the government upfront and recovers the money through tolls, the government can focus on building more highways.
Outsourcing is monetisation?
Unlocking investments is the core of the NMP. A look at the proposals will reveal roughly 90 per cent of the total realisation plan belongs to this category. The question remains about a smaller section of proposals that are pure “outsourcing of operations”.
Take the case of the proposed realisation of Rs 28,747 crore (5 per cent of NMP) from mining. Leaving auction of coal assets (which fulfils monetisation criteria, as there were investments in identifying these reserves) aside; the list includes the award of mine developer and operator (MDO) contracts, building coal silos, mechanised loading facility etc.
MDO is nothing but an outsourced miner. Coal India (CIL) currently sources roughly 70 per cent of its production from mining contractors, but most of them are small. In layman’s language, a large private miner who can handle a wider set of tasks on its own is called MDO. The model has been pushed for the last 15 years, with limited success. CIL has two such MDOs in its fold.
Whether large or small, the basic rules of outsourcing production are the same. They enter into contracts to mine coal for CIL at a substantially lower cost. While CIL’s own employees keep busy demanding high salaries doing nothing, some poorly paid private labourers do the job for them. Where is the scope of monetisation in this?
Like any large organisation, CIL outsources many such operations. CIL pays for Silos, mechanised loading facilities and even rail lines. Because no one is interested in investing in them. Others (including railways) build and operate it and pay CIL back through predetermined arrangements. Is it monetisation? If so, it is already there but not included in the list.
Not only in mining, similar operation and maintenance outsourcing opportunities are listed in the monetisation plan in ports. What went missing, however, is the huge real estate monetisation opportunity in old ports, like Kolkata, with vast stretches of unutilised land assets in the heart of the city.
Inflating the number doesn’t help
Clearly, an extra-committed bureaucracy went all out to inflate numbers for quick appreciation. The pitfalls will be felt by the politics.
Firstly, in India, even Leftist politicians use the best of private services, be it an iPhone or Vodafone. When in power, they also disinvest (refer to disinvestment of Great Eastern Hotel in Kolkata), but the political class works overtime to ensure that “private” remains a taboo subject. Naturally, the bigger the NMP number, the more the Opposition will shout.
India’s previous attempts to develop infrastructure assets through public-private partnerships (PPP) have failed. The NMP is an important attempt to attract investment in the developed asset. The government worked for it for the last couple of years and tested the water by introducing InvITs, which are well received by the market.
But the task ahead is not easy. It is to be seen, if the rush to monetise assets, find adequate takers.
Also, the railway bureaucracy has been successfully preventing attempts to invite private participation for decades. In July, they practically killed the bid to run 151 private trains. Can we trust the same bureaucracy to monetise rail assets?
For the government, it’s a tight rope walk. They are blamed for proposing NMP. They will also be held accountable for failing to reach the monetisation target. How does it help the government to inflate numbers or attract an extra bit of criticism by including some corporate outsourcing entries as monetisation?