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Synopsis: Govt recently launched its NMP project. The article throws light on what NMP exactly is and what it is not.
Introduction
The National Monetisation Pipeline (NMP) is a bold initiative. But we should first understand what the NMP is and what it is not. The NMP is not about the sale of government-owned assets. It is not about privatisation or disinvestment. The proposal is to offer infrastructure assets that will continue to be owned by the government under a long-term concession agreement to interested private bidders.
How is NMP different from the PPP model of prev govt?
The NMP is very different from the previous govt’s public- private partnership (PPP) infrastructure development of the mid-2000s.
| PPP infrastructure development of the mid-2000s. | NMP |
| It was about attracting private parties to build, operate and then transfer ‘greenfield’ or new infrastructure projects under build-operate-transfer (BOT) concession agreements. | NMP is about leasing out brownfield infrastructure assets (such as an already operating inter-State toll highway) under a toll-operate-transfer (TOT) concession agreement. |
| The winning private bidder took not only the operating risk, but also the development and construction risk of the project, such as a toll road, from scratch. | Concessionaire does not need to take any of the construction risk. |
| It was a complex and messy process. It involved the acquisition of land, securing environmental and other regulatory approvals. All this led to a huge volume of disputes for which there was no readily available resolution mechanism. | The process promises to be much simpler and cleaner than what was required in the PPP programme. In such an arrangement, no acquisition of land is involved. |
| To be successful in the BOT bids required a proven ability to navigate and manage the system. | For success under the bidding process of the NMP, what will be required is operational experience in running a particular class of infrastructure assets and a strong understanding of the potential cash flows generated over the life of the concession. |
What steps must govt take to ensure NMP’s success?
Flexible contracts: Given the long tenure of these concession agreements for assets, they must be designed to allow for some flexibility so that each party has the opportunity to deal with unforeseen circumstances (such as climate-related disasters) and to prevent needless litigation.
Key performance indicators: Contracts must also incorporate clear key performance indicators expected of the private party and clear benchmarks for assets as they are handed over by the government in the start of the concession. This is key to avoiding disputes about potential additional capital expenditures that might be required to keep the asset operational.
| Must Read: National Monetisation Pipeline (NMP) project – Explained |
Effective implementation: No matter how well a contract is crafted, it still needs to be implemented effectively. Experience shows that there is a tendency for government departments to inject opacity into the implementation of concession agreements so that they have more power over the concessionaire. To avoid this, it would be useful if the responsibility for administering the concession agreements did not lie directly with the line ministries and/or their agencies.
Robust dispute resolution mechanism: It is vital to put in place a robust dispute resolution mechanism. An institution such as ‘3 PPP India’, first mooted in the 2014 Budget, is needed. It would also be advisable to set up an Infrastructure PPP Adjudication Tribunal along the lines of what was recommended by the Kelkar Committee (2015) to create suitably specialised dispute resolution capacity.
The govt could start with sectors that offer the greatest cash flow predictability and the least regulatory uncertainty before expanding the experiment. It could also ensure that resources raised from the NMP are used to fund new asset creation under the National Infrastructure Pipeline. This will ensure credibility.
Source: This post is based on the article “Decoding asset monetisation” published in The Hindu on 8th Sep 2021.
