Saturday Brain Storming Thought (146) 01/01/2022
COMPILED BY ER. AVINASH KULKARNI
ASSET RECYCLING
Asset recycling is a new phrase describing corporatization, marketization, and privatization of government assets
An asset is recycled when a government, corporation, or bank either sells or borrows against its physical assets to get money for investment in new capital
Asset Redeployability
Asset re deployability is the extent to which assets have alternative uses outside the firm
Less re-deployable assets have a lower liquidation value
Asset Deployment
Asset deployment is a capability of oracle asset tracking
The purpose of asset deployment is to signal the completion of operational tasks, to update item statuses in the oracle install base, and initiate the asset creation and update processes in oracle projects and oracle assets
Oracle assets
Oracle assets simplify asset management and accounting complexities
It lowers the cost of asset ownership and secures your assets while giving you a global view
Asset Relocation
Asset relocation is more than opening return shipments to be restocked to inventory
Components of Asset recycling
1) monetizing existing infrastructure assets through sale or lease to the private sector followed by
2) investing in new infrastructure using the proceeds received from asset Monetisation
3) Asset recycling holds out the possibility of providing new infrastructure without adding to public debt while maintaining or potentially improving existing service delivery
Requirements of Asset Recycling
1) clear policy
2) a regulatory and institutional framework
3) transperant processes
4) political commitment
5) consideration of long-term nature (>25 years) and involvement of public assets
6) selecting quality assets, monetization, and investment models
7) private sector risk appetite
8) financing market capacity
9) management of proceeds
10) stake-holders consultation, procurement, and equitable risk allocation processes
Importance of Asset Recycling
It has emerged as a viable option for raising much-needed money to fund India’s infrastructure build-out
Operating infrastructure assets with stable cash flows for long tenures attract long-term investors such as pension and insurance funds
Asset recycling has emerged as one of the options for governments to facilitate private participation in infrastructure development
Australian Model of Asset Recycling
1) select mature brownfield asset
2) receive funds and determine allocation of funds
3) reinvest greenfield assets
The Australian government had a two-year window to identify which assets they wanted to sell or lease, apply for a grant, and reach an agreement with the federal government
For this purpose, the Abbott government offered to provide the states with a bonus grant comprising up to 15% of the value of the divested or leased asset proceeds, provided that the proceeds were invested in infrastructure
Brownfield Asset
Brownfield assets mean government-owned assets
Greenfield Asset
Greenfield asset means assets that proceed into economic growth-enhancing infrastructure
Implementation of Asset Recycling Programs
1) preparing and sharing a compendium of lessons learned and guidance materials
2) creating an asset recycling enabling environment as a part of the infrastructure investment framework
3) assessing and building a pipeline of suitable public assets across sectors including documenting the track record of key performance indicators, latent risks etc
4) developing different asset recycling models taking into account the private sectors role and capacity, regulatory framework tax regime for foreign investors etc
5) financial structuring and market sounding with the private sector – investors, asset managers, lenders etc
6) De-risking investments through risk mitigation and credit enhancement instruments to attract competitive financing
7) investing as an anchor thereby conducting due diligence and enabling risk-sharing
8) developing climate transition conducted with MDB concessional finance used as an incentive for governments to co-mingle monetized proceeds
MDB means Multilateral Development Banks
Co-mingle means to mix together things of different types
NHAI’s Asset Recycling plan
The concept, implemented by NHAI through the toll-operate-transfer (TOT) model, culminated in a bid offer of Rs 9,681 crore, about 50% above NHAI’s estimate of Rs 6,500 crore
This was for the Monetisation of a bundle of Nibe highways with an aggregate length of about 680 kM
Under the TOT model, the concessionaire pays a one-time concession fee upfront, and gets the right to toll the project stretch for the predetermined 30 years concession period, while being obliged to maintain and operate the highways to prescribed standards
Every 10 years, the actual traffic growth is reviewed against the initial projections, and the concession period duration is adjusted accordingly
Asset class for asset recycling
1) Roads
2) Power transmission
3) power generation
4) national thermal power
5) airports
6) ports
7) Telecom towers
8) optical fibre cable
9) railway stations
10) railway tracks
11) natural gas pipeline
12) petroleum and products pipeline
13) warehouses
14) sports stadium
Considerations for contractual structuring an asset recycling
1) transfer of public assets including land
2) delegation of governmental authority to collect and appropriate user charger that are levied by force of law and must therefore be reasonable, protection of users interest and the need to secure value for public money
3) provision of services to users in a monopoly or semi-monopoly situation, which imposes a special obligation on the government to ensure adequate service quality
4) sharing of risks and contingent liabilities by the government, as applicable
TOT bundles bid out by NHAI to date
1) TOT Bundle 1
Aug 2018
682 kM
Rs 9,681 crores
2) TOT Bundle 2
Feb 2019
586 kM
Bid cancelled
3) TOT Bundle 3
Nov 2019
566 kM
Rs 5,011 crores
4) TOT Bundle 4
Sep 2020
401 kM
Bid cancelled
5) TOT Bundle 5A-1
Jan 2021
54 kM
Rs 1,011 crores
6) TOT Bundle 5A-2
Jan 2021
106 kM
Rs 1,251 crores
