Syllabus:
GS3: Investment Models.
Context:
Recently, the National Highways Authority of India (NHAI) released its first ever ‘Asset Monetization Strategy for the Road Sector’.
More on the News
- NHAI released the strategy to unlock the value of operational National Highway assets and increase the Public Private Partnership in India’s infrastructure development.
- The strategy offers a structured roadmap to raise capital via ToT, InvITs, and securitization, helping NHAI mobilize over ₹1.4 lakh crore across 6,100 km of highways under the National Monetisation Pipeline.
Asset Monetisation Strategy
- The strategy is anchored on three core pillars that include Value Maximisation of Government Road Assets, Transparency of Processes and Dissemination of investor-relevant information, and market development through deepening the investor base as well as promoting stakeholder engagement.
- NHAI Asset Monetisation strategy aligns with the Government of India’s objective under Assets Monetisation Plan 2025-30 and represents a pivotal shift towards sustainable, market-driven infrastructure financing.
National Monetisation Pipeline
- Union Budget 2021-22 has identified monetisation of operating public infrastructure assets as a key means for sustainable infrastructure financing. Towards this, the Budget provided for preparation of a ‘National Monetisation Pipeline (NMP)’ of potential brownfield infrastructure assets. NITI Aayog in consultation with infra line ministries has prepared the report on NMP.
- The pipeline has been prepared based on inputs and consultations from respective line ministries and departments, along with the assessment of total asset base available therein. Monetization through disinvestment and monetization of non-core assets have not been included in the NMP.
Toll-Operate-Transfer Model
- Toll-Operate-Transfer (ToT) Model is structured to attract private capital for management of completed assets, in exchange for toll collection rights.
- To gain these rights, the concessionaire needs to pay a lump sum amount to NHAI at the start of the concession and also undertake O&M obligations for the asset over the duration of the concession period.
- Benefits to NHAI:
- Upfront Concession Fee provided as lump sum to NHAI, leading to quick infusion of capital to fund future development of NHs.
- Efficiency in O&M with the private sector bringing best practices to enhance road user experience and safety.
- Benefits to the Concessionaire:
- No construction risk needs to be undertaken as assets are all completed, with relatively stable cash flows.
- Long concession life (15-30 years) suitable to infrastructure investors /asset managers looking for long-term investment.
- Scope for synergizing operations as a single entity across multiple projects available, as ToT projects are bid together in joint bundles.
Other Investment Models
Engineer-Procure Construct (EPC)
- Under this model, the project cost is completely borne by the government. Procurement of raw material and construction costs are met by the government.
- The private sector’s participation is minimum and is limited to the provision of engineering expertise
Build-Operate Transfer (BOT)
- Under BOT, a private entity is responsible for building, designing and operating the road and transferring it back to the government.
- Recently, NHAI revised model concession agreement (MCA) under which revenue potential of a project would be reassessed in every five years during the concession period as against every 10 years.
Build-own-operate (BOO)
- Under BOO, the private party will retain ownership of the newly constructed facility.
- On mutually agreed terms and conditions the public sector partner agrees to ‘purchase’ the goods and services produced by the project.
Infrastructure Investment Trusts (InvIT)
- InvITs, introduced in India in 2014, are SEBI-regulated pooled investment vehicles that offer investors stable returns, low risk, and tax benefits by distributing cash flows from infrastructure assets.
- In an InvIT, asset owners transfer revenue-generating SPVs to a trust, which raises funds by issuing units to investors. A Sponsor sets up the trust and appoints an Investment Manager to manage assets and ensure returns, and a Project Manager to oversee asset operations and maintenance.
Overview of Securitization
- NHAI is authorized to raise long term finance from banks by securitizing user fee receipts from toll plazas as an alternate mode of asset monetization.
- For large-scale/high value highway projects, financing through formation of SPV can be done as a mode of asset monetization.
Mains Question
Q. “Investment in infrastructure is essential for more rapid and inclusive economic growth.” Discuss in the light of India’s experience. (2021)