Set against the backdrop of fiscal pressures amplified by adverse Covid-19 measures, the Central Government has launched the National Monetisation Pipeline (NMP), inviting private sector investment into infrastructure to help grow its economy. This runs in parallel to the existing National Infrastructure Pipeline that was launched in 2019.
A total of 2.86 lakh route-km of Bharatnet fibre assets is proposed to be bid out through the PPP model by the Department of Telecommunications through nine packages comprising 16 states.[i] Under one of these packages, the Kerala-Karnataka package has been proposed as a Licensed Service Area for Bharatnet optical fibre assets[ii] concerning BSNL and BBNL. This is up for monetisation through investment, and the proceeds would be used to create new infrastructure. This initiative is a significant opportunity for the private sector to capitalise on and drive financial returns from significant infrastructure sectors. The monetisation of assets of fibre-optic cables laid across the country would allow the private players to utilise this better to give more services to the consumers with
BharatNet – Infrastructure Investment Opportunity in Kerala
In Kerala, private sector companies can consider Telecom infrastructure as a potential investment opportunity.
Bidding is expected to open up in FY22, and the package will be structured on Public-Private Partnership (PPP) mode with grant or premium as the bidding parameter. Since the PPP model is proposed, Capex investment[iv] is prescribed for estimating the Indicative Monetisation Value[v].
Once the project has been awarded, the proposed Capex outlay will be implemented over two years from such date. The actual investment could be lower than the proposed Capex, wherein grants could be used to meet some part of the Capex investment. The bidding parameter shall be based on Grant or Premium.
The project is proposed through Design-Build-Finance-Operate-Transfer (DBFOT) and implemented via a Special Purpose Vehicle. The Government proposes to give the assets selected using a competitive bidding process, wherein parties would enter into a Concession Agreement with the Authority over the pre-agreed Concession Period. The private parties would then transfer the same back at the end of the Concession Period.
It is envisaged that there would be a Concession Period of 25 years, which includes the construction period from the appointed date and fulfilment of conditions precedent. After its expiry, the project facilities would be handed over to the Authority at no cost.[vi]
Recycled Assets & Proposed Benefits under NMP
The NMP opens up only the Government’s ‘brownfield’ infrastructure assets, which to private sector investment are at low risk.
The Government proposes private investment in Roads, Ports, Airports, Telecom, Railways, Warehousing, Energy Pipelines, Power Generation, Power Transmission, Hospitality and Sports Stadiums; it has also included assets from Mining and Housing Redevelopment. [vii] The NMP has excluded Land, Building, and pure-play Real Estate assets from the purview of private sector inclusivity.
The potential benefits include:
- With considerably lower risks, the decision to open up ‘brownfield’ assets instead of ‘greenfield’ ones are sound.
- Concessions and leases will be put in place to incentivise investment, though private sector investors will not be given ownership of the asset.
- Creation of infrastructure, employment opportunities, stable cash flow and economic boost.
Return on Investment for Private Sector
The return on investment for private operators will depend on the type of concession agreement that the Government offers. These agreements are based on the asset and its relevant package.
- Since the NMP proposes a Public-Private Partnership model, it would require some suitable changes. Generally, PPPs are not very favourable towards the private sector[viii]. Therefore, bringing in better conditions would be ideal for making the NMP a success.
- One meaningful change would be the option to renegotiate the concession agreement. This would ensure a fair benefit to both parties, especially the private sector.
By giving incentives and tax reliefs, the Government could potentially attract more investment. Thus, if implemented well, the National Monetisation Pipeline could benefit both the Government and the private sector.
Disclaimer: This blog contains information available in the public domain and may be subject to changes.
[i] Volume II: Asset Pipeline, National Monetisation Pipeline, Niti Aayog (Available at: Vol_2_NATIONAL_MONETISATION_PIPELINE_23_Aug_2021.pdf (niti.gov.in))
[ii] Bharatnet Project was launched on October 2011 to provide high-speed broadband connectivity, using optical fibre, to rural India. This flagship initiative was initially named National Optical Fibre Network (NOFN).
[iii] Arpit Sharma, ‘BSNL Monetisation Plan Will Usher in Good Things for the Public Telco’, (Available at: BSNL Monetisation Plan Will Usher in Good Things (telecomtalk.info) )
[iv] Capex stands for Capital Expenditure, which refers to a company’s investment in an asset.
[v] The indicative monetisation value is the monetary value expected to be realised by the government, either by upfront accruals or private sector investment.
[vi] Id, n 1
[viii] Interview, Government needs to create comprehensive PPP model to ensure success of National Monetisation Pipeline: Vinayak Chatterjee (Available at: https://www.moneycontrol.com/news/business/interview-government-needs-to-create-comprehensive-ppp-model-to-ensure-success-of-national-monetisation-pipeline-vinayak-chatterjee-7383631.html)