Raising money. Will asset monetisation work?

The Central Government has proposed to mobilise about ₹6 trillion by way of monetising 20-plus brownfield asset classes, with the top three sectors in terms of value being roads (27 per cent), railways (26 per cent) and power (15 per cent) held by it and its PSUs.

The government will “monetise” the identified assets by letting the private sector bid for operating such assets for 25 years, for a lumpsum upfront payment. However, it will not give away title to the underlying assets.

The idea of monetising idle or underutilised brownfield public assets and deploying the revenue therefrom for funding new assets looks rather attractive in principle. But there are several concerns as well as challenges.

First, the past experience of the government’s attempt to monetise brownfield assets has not been encouraging. For example, the Indian Railways initiated on July 1, 2020, the formal process of inviting private parties to run 150 trains.

When bids were opened, there was no bidder for nine clusters while there were only two for three clusters. Even for these three clusters, the only serious bidder was the Railways’ own company IRCTC, which in effect nullifies the basic objective of unlocking private capital.

Second, public assets in sectors like airports, railways, roads, power, ports, gas pipelines, mining and telecom, which have been created with taxpayers’ money over the past 70 years, are being offered to private players via long term leases of 25-50 years.

Inter-generational equity

It raises a major issue of inter-generational equity. How does the government intend to compensate subsequent generations if it appropriates all their future earnings today? A clear articulation of a framework of inter-generational equity by way of listing new assets proposed to be created or promising to liquidate national liabilities is needed to justify such a massive monetisation of public assets.

Third, the experience of leasing out six airports for 50 years to a single bidder has created the apprehension of transferring of taxpayer-funded assets to a handful of business groups.

Fourth, prospective bidders, necessarily motivated by profit maximisation, would carry out due diligence of the assets before offering their bids.

Eventually, there could a fewer number of serious bidders. This situation might lead to a situation of monopoly, duopoly or oligopoly.

Fifth, given the nature of infrastructure services that the listed assets provide, there will be a need for putting in place an independent regulatory mechanism to protect the interests of both service providers and consumers.

This is a great challenge in that usually retired bureaucrats even without professional expertise or experience find place in regulatory mechanisms. In fact, in the case of Railways, it is reported that when a retired railway personnel was placed as a regulator, bidders got discouraged to make bids.

Sixth, assuming successful monetisation of assets and resource mobilisation, the issue arises: how the money would actually be utilised. Asset monetisation will be counted as disinvestment proceeds.

No doubt, the government intends to deploy it to finance the ₹110-lakh crore national infrastructure pipeline. However, the government cannot ignore that rating agencies tend to give high weightage on fiscal balances and that good rating attracts FDI.

There still remains the question: Which type of assets would be created? Would it be assets like more Central Vistas, bullet trains, six-lane highways, and statues of record-setting height?

Seventh, how would the successful bidders raise funds for upfront payment and subsequently for the required investment on the leased assets to make them profit yielding? Clearly, big players will have an edge over the small players.

Eighth, the past record in execution of asset monetisation, as in the case of the Railways or Air India or disinvestment, is any guide, the year-wise projection of resource mobilisation is rather unrealistic. Monetising of the listed assets, after all, would require far more detailed work than just disinvestment.

Finally, private investors’ objective being profit maximisation, would they invest on leased assets more than what is needed to maximise their profits during the lease period, or would they like to leave the assets spick and span on the expiry of lease or after sucking them dry?

Overall, brownfield asset monetising for creating new infrastructure in a highly infrastructure deficient country like India is attractive in principle. But its successful implementation is fraught with numerous conceptual and operational challenges.

Sarma is Professor at CSD, New Delhi, and Shyam Sunder is working with an Indian corporate. Views are personal

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