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Asset Monetisation Case Study

The government is planning a big push for its public sector undertaking (PSU) asset monetization program in the upcoming Budget. The program will focus on a two-pronged strategy of strategic sale of loss-making PSUs sitting on large tracts of land, and sale of non-core assets including surplus land parcels of profitable PSUs like ONGC and NTPC. Several loss-making PSUs together hold over 3,000 acres of prime land identified for monetization. The asset monetization program aims to raise additional resources for the government through commercial utilization and sale of idle public assets.

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341 views6 pages

Asset Monetisation Case Study

The government is planning a big push for its public sector undertaking (PSU) asset monetization program in the upcoming Budget. The program will focus on a two-pronged strategy of strategic sale of loss-making PSUs sitting on large tracts of land, and sale of non-core assets including surplus land parcels of profitable PSUs like ONGC and NTPC. Several loss-making PSUs together hold over 3,000 acres of prime land identified for monetization. The asset monetization program aims to raise additional resources for the government through commercial utilization and sale of idle public assets.

Uploaded by

Mahi Yadav
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Article 2C: 1) Monetizing land assets for Government

The central and state governments are faced with an acute challenge of
raising revenues. With the Central Government committed to lowering Direct
taxes and rationalizing Indirect Taxes through implementation of GST,
resources are becoming scarcer. The Government needs to come up with
newer ways of managing its cash flows without burdening the common man.

One of the most underutilized assets in the country is Land. Asset


monetization is basically a business transaction that converts a
dead/idle asset into an income generating one. This “unlocking of value”
where economic benefits can be derived from embedded operational assets
should be undertaken only after due diligence and the viability and benefits
are demonstrated

An approach that is process-driven to monetizing the realty assets of


Government (land and buildings) could help drive significant annuity revenues
for the government. For instance, around 4000 sq kilometres of land is lying
idle with state government PSUs itself.

For example, government-run company MTNL, which operates telecom


services in Delhi and Mumbai, has a reported 250 acres of land in two of the
biggest metros in India. Partnering with a company that can help lease the
office space to companies could help the struggling company with a healthy
annuity income. BSNL is reported to have carried out some work for
identifying and monetizing land parcels across the country. Both the telecom
companies under the Communications Ministry could focus on a turnaround
strategy after such rental income can add cushion to their balance sheet.

There has been a move in the past to monetise surplus land parcels with
government owned companies. According to one estimate, 60 sick
government companies together owned nearly 50,000 acres of land that could
be monetised. Opposition from labour unions is often cited as one problem
that has plagued the effort. If all the workers can be part of the solution and
can see their own benefit in the changes that are sought to be brought about,
it may be possible to get their buy in.

Land parcels like these can be used to bring around a sea change in the
residential or commercial landscape of major cities. Should it be so devised,
they could be used for budget housing projects with some commercial real
estate opportunities so that it can be monetised too. If the government does
go ahead with a project of this kind, it will need to be executed with clockwork
precision so that the cost does not spiral out of control. The social implications
of such a landmark could set a benchmark for various state governments too,
if executed well.

The government can consider a lease-only model so that it can reap the
benefits of annuity income. If one successful project can be showcased, its
learning can be used to drive other similar projects in states.

Earlier efforts to raise resources through disinvestment have kicked up storms


over allegations of assets being undervalued and the process being fixed. In
order to prevent a repeat of the past, sufficient checks and balances should be
incorporated in such an exercise and all the stakeholders including the public
should be sensitised. If properly implemented then monetisation of land can
be a game changer for Government revenues.
Article 2C 2) Big push likely for PSU asset monetisation in Budget

Senior government officials said that the new asset monetisation


programme will hinge on a two-pronged strategy.
NEW DELHI: Governments asset monetisation programme involving
sale of surplus land parcel and other non-core assets of public sector
enterprises (PSEs) is expected to be big focus of Budget 2019-20 that is
constrained to look at various innovative models to mobilise additional
resources amidst a slowing economy.

Senior government officials said that the new asset monetisation


programme will hinge on a two-pronged strategy. One involving strategic
sale of loss making and defunct PSEs sitting on large tracts of land that
could be commercially utilised. 

The second part of the strategy will be to get even existing profit making
PSEs such as ONGC, NTPC, SAIL, BHEL, Airports Authority of India
(AAI), PowerGrid, to sell some of their non-core assets, including
manufacturing units and surplus land to realise funds that could be
invested in new projects where private investments is not forthcoming.

"There are huge tracts of land in prime areas that could realise good
commercial value on sale. Some of the land parcels are with loss making
and defunct PSEs that could offer good revenue to the government
under the strategic sale route. A portion of this land can also be used for
making affordable housing for poor," said a government official asking
not to be named.

"Though the asset monetisation scheme was announced in 2016, it


never took off due to differences over the scale and end use of such
assets.
DIPAM and Niti Aayog, the government's think-tank, have already
started the exercise to identify projects that would be put up under the
scheme. The consultants would assess their valuation and decide on a
mechanism to sell them.
The plan could take up land parcels such as surplus land available with
NTPC on its now closed Badarpur power plant in Delhi. Though an eco-
park is proposed over 884 acre of land, sources said some way to
commercialise extract the prime land could be explored. Also, erstwhile
Videsh Sanchar Nigam Ltd's (VSNLs) surplus land measuring 773.13
acres located at five locations in four cities, namely, Pune, Kolkata, New
Delhi and Chennai could also be put up under asset monetisation.

At a meeting of officials from DIPAM, Niti Aayog, oil ministry and other
departments recently, a decision has been taken to monetise non-core
assets of ONGC and BPCL. This will involve sale of the sports club
owned by Bharat Petroleum Corporation Limited (BPCL) in Chembur,
Mumbai and few of the golf courses of ONGC with priority sale of two at
Ahmedabad and Vadodara being located on prime land. ONGC also
owns a few more golf courses -- in Ankleshwar (Gujarat), Rajahmundry
(Andhra Pradesh) and on.
 
Moreover, six CPSEs, including IDPL, HMT, Hindustan Antibiotics,
Scooters India and Tungabhadra Steel Products, have more than 3,000
acres of prime land that may be monetised. The entire sale proceeds
from these loss-making entities would flow to the Centre. Huge land
parcels are also available with Port Trusts.
The whole plan on asset monetisation is being finalised based on its
success in the highway sector where National Highway Authority of India
(NHAI) has been successful in getting good investor interest in some of
its operational road projects. In fact, Niti Aayog has favoured reverse
BOT (build, operate and transfer) model for all state-run infrastructure
projects so that these projects are sold out and allowed to be run by the
private sector.

"We should look at finding buyers for some of our idle and deadwood
projects rather than handing over those where PSUs have worked hard
to get clearances and create a market," said a PSUs head not wishing to
be named.
NTPC is already looking at selling or closing down some of its old power
plants that have depleted value for it. For SAIL, the plan is to identify
private sector investors for its loss-making units.

Questions:

1. What do you mean by asset monetisation?


2. Discuss the two-pronged strategy for asset monetisation adopted
by GOI?
3. Discuss the arguments in favour of asset monetisation
programme.
4. Which assets have been identified by the government for
monetisation?

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