📰 Ministries reach consensus on hydropower projects in Himalayas
No new projects will be allowed in upper reaches of Ganga
•Six months after a devastating flood of rock, ice and debris gushed down the Rishiganga river in Uttarakhand and killed at least 200 and severely damaged two hydropower projects, three Central Ministries, which initially had dissenting views on the future of hydroelectric power projects have agreed to a consensus.
•According to an affidavit filed in the Supreme Court this month, as part of an ongoing case on the feasibility of hydroelectric projects in the aftermath of the 2013 Uttarakhand floods, seven—one of them being the 512 MW Tapovan project by the NTPC that was severely damaged this month—have been allowed to complete construction primarily on the grounds that they were over “50% complete.” No other new projects would be allowed in the upper reaches of the Ganga and those sanctioned would have to abide by environment regulations that prescribe a minimum flow in the river at all times of the year to preserve its health.
On the same page
•In 2016, the Union Water Ministry, then led by Uma Bharti had contested the establishment of these projects and taken a position opposed to the Environment and Jal Shakti Ministries. However, in 2019, documents show, the Ministry had changed its views to accommodate seven projects. The affidavit this month is the first formal document that reveals all three Ministries to be on the same page.
•The seven projects are the Tehri Stage 2, Tapovan Vishnugadh (which was impacted by the February flood), Vishnugadh Pipalkoti, Singoli Bhatwari, Phata Bhuyang, Madhyamaheshwar and Kaliganga 2.
•Hearings on the case are expected to continue. There have been multiple expert committees set up by the government over the years to examine the feasibility of the projects and their construction has frequently provoked agitations, most notably in recent times led by the late GD Agrawal, who went on a hunger fast and ultimately died of a heart attack in October 2018. He had pressed for the framing of a ‘Ganga act’ as well as a stop to sand mining and hydropower project construction in the upper reaches of the Ganga.
‘Illogical’
•Environmental activists say that the water Ministry’s stand and the government’s pushing ahead with the project revealed that the floods of February had failed to jolt the government into realising that hydropower development in the fragile Himalayas was “illogical”.
•“There were two projects, Singoli Bhatwari and Phata Bhuyang, which were specifically linked to the Kedarnath tragedy. Both have been allowed. The Vishnugadh project damaged in the February floods too has been allowed to progress even though 200 plus people died due to the criminal negligence of their not being a disaster warning system. The affidavit has the government admitting that the floods have damaged the tunnels and topography of the projects. All of this has changed. These projects got their environmental clearance based on very different conditions. So how are they being allowed on the same environmental clearance? ” questioned Mallika Bhanot, a critic of the hydropower development in the Himalayas. “This clearly shows the government has no intent to look at these activities in the context of climate change and anthropogenic activity,” she stated
Situation on the ground is ‘uncertain’, notes MEA spokesperson
•There was no clarity on ‘any entity’ forming a government in Afghanistan, official spokesperson of the Ministry of External Affairs (MEA) Arindam Bagchi said here on Friday.
•Addressing a press conference, he observed that India was waiting to see how inclusive would be the next government in Kabul. The situation on the ground was “uncertain”, he noted.
•“Currently, there is no clarity on any entity forming a government in Kabul. There has been a lot of stories going around about who will be represented in the government and whether the government will be inclusive, which is another question, and whether other elements of the Afghan polity will be represented in that,” he stated. Explaining that India was aware of the dialogue currently underway on government formation in Kabul, he said that the issue of recognition of the Taliban amounted to “jumping the gun” in view of the “fluid situation”.
•"We are monitoring the situation and are in touch with partner countries,” he stressed.
Airlift failure
•Mr. Bagchi’s statement came a day after India failed to airlift at least 160 Hindu and Sikh Afghans because of the prevailing chaotic conditions in the Afghan capital where the Taliban has declared that it will not allow any further evacuation of Afghan nationals.
•Officials here said India had not “paused” evacuation and would carry out airlifts at the right moment. The evacuees were at a safe place in Kabul and not harmed by the blasts that took place at the airport.
•India would continue to raise the issue of terrorism in the United Nations. It was “observing” the situation. Its current concern revolved around the safety and security of those in Afghanistan.
•Explaining India’s visa policy towards Afghans seeking refuge, Mr. Bagchi pointed out that the “e-emergency” visa was now open for the Afghans who have been supportive of bilateral relationship between India and Afghanistan.
•“They are currently coming here under the six-month visa regime and we will take it from here. It’s an evolving situation and making long-term plan is not the best of ideas, considering the last few days,” he added.
📰 Government to ease path for asset monetisation
Nirmala Sitharaman to chair meeting with regulators to relax investment norms.
•Finance Minister Nirmala Sitharaman will soon chair a meeting of the Financial Stability and Development Council (FSDC) to nudge financial regulators to relax and harmonise investment norms for instruments like Infrastructure Investment trusts (InvITs) to be used to monetise public assets like highways, gas pipelines and railway tracks.
•The meeting of the Council entrusted with enhancing co-ordination among financial sector regulators — RBI, SEBI, IRDA and PFRDA — assumes significance after the government unveiled the National Monetisation Pipeline (NMP) listing assets across sectors that are to be monetised for an estimated ₹5.96 lakh crore over four years.
•With the economy still not out of the woods from the COVID-19 pandemic and Ms. Sitharaman urging industry to look beyond banks and tap the markets for their financing needs, steps to ease access and encourage investments in the corporate bond market are also expected to be discussed by the FSDC.
•“An FSDC meeting has been planned for some time, and it will be convened very soon,” a top Finance Ministry official said.
•The NITI Aayog, which has steered the NMP, has emphasised the importance of expanding the investor base and scale of monetisation instruments like InvITs and Real Estate Investment Trusts (REITs), and flagged concerns about regulators taking varying stances on such investments.
•Measures announced in the Union Budget to enable InvITs and REITs to borrow money from FPIs and issue debt securities are also expected to be reviewed by the FSDC, along with the efficacy of changes implemented by individual regulators.
•Sebi, for instance, has recently reduced the minimum investment amount for InvITs and REITs to ₹10,000-₹15,000 to enable retail investors to participate. The Pension Fund Regulatory and Development Authority (PFRDA) as well as the Employees’ Provident Fund Organisation (EPFO) have permitted investments of upto 5% of their corpus in InvITs, albeit with onerous conditions.
•“The long-term nature of infrastructure projects requires active participation from investors looking at a similar return profile from their investments. However, the existing investment guidelines for insurance and pension funds limit the exposure of such funds to InvIT/ REIT assets,” the NITI Aayog has flagged in its guidebook for the NMP.
•For insurers, the Insurance Regulatory and Development Authority (IRDA) has allowed an exposure to InvITs and REITs up to 3% of their own funds size or 5% of the units issued by a single trust, whichever is lower. Mutual funds, regulated by the stock market watchdog Sebi can invest up to 10% of their assets in a single InvIT/ REIT.
•“These need to be streamlined to ensure consistency,” the Aayog has noted, besides highlighting inconsistencies across categories on the level of exposures.
•“For example: IRDA regulations do not permit investment of insurance funds in unlisted InvITs. Hence, a staggered approach for streamlining of investment guidelines and limits is envisaged to keep pace with the growth in the InvIT market starting with the allocation of insurance and pension funds towards unlisted InvITs,” it said.
•IRDA and PFRDA also mandate a high credit rating for InvITs to be eligible for their long-term investments, and the credit enhancement mechanisms for boosting the usually lower ratings of infrastructure projects may also figure in the FSDC’s deliberations.
•A Credit Enhancement Guarantee Corporation, announced in the Union Budget of 2019, is not yet operational, while a partial credit guarantee enhancement scheme from the RBI has some limitations in its present form.
•Restrictions pertaining to investments in the overall corporate bond market are also likely to be flagged at the FSDC, with Sebi recently mooting an urgent rethink from the Reserve Bank of India, IRDA and PFRDA on norms constricting debt market exposures, in order to enable a quicker economic recovery.
•While there are multiple players in the debt market, the number of participants in each investor class remains limited due to such norms, constraining the pool of liquidity available, Sebi whole time member Ananta Barua had said at a capital markets conference last month.
📰 Indian astrophysicists spot rare merger of three jumbo black holes
The study has been published as a letter in the ‘Astronomy and Astrophysics’ journal
•A rare merging of three supermassive black holes has been spotted by a team of astrophysicists in India. They were observing the merging of two galaxies named NGC7733 and NGC 7734 in our celestial neighbourhood when they detected unusual emissions from the centre of the latter and a curious movement of a large bright clump within it, having a different velocity than that of NGC7733. Inferring that this was a separate galaxy, the scientists named it NGC7733N. There are supermassive blackholes, which are several million solar masses in size, at the centres of galaxies, and these are known as Active Galactic Nuclei. Since they “accrete“ matter, they often have a glow around them which can be observed using light spectroscopy.
•All three merging black holes were part of galaxies in the Toucan constellation. They are quite far away when you think that our nearest galactic neighbour – the Andromeda galaxy is 2.5 million light years away. Yet the paper describes these as nearby galaxies. “In Astronomy everything is relative. When we study solar system we say Mercury is closer and Jupiter is far… Compared to our nearest neighbour Andromeda galaxy, the galaxies NGC7733, 7734 and 7733 N are quite far away, but compared to the size of universe they are nearby galaxies,” says Jyoti Yadav, a PhD student at Indian Institute of Astrophysics and the first author of the paper published as a letter in the journal Astronomy and Astrophysics.
•The study used data from the Ultraviolet Imaging Telescope (UVIT) onboard the first Indian space observatory ASTROSAT, the European integral field optical telescope called MUSE mounted on the Very Large Telescope (VLT) in Chile and infrared images from the optical telescope (IRSF) in South Africa.
•In an email to The Hindu, Mousumi Das from Indian Institute of Astrophysics, an author of the paper says that they were studying the active galactic nuclei in the two massive barred spiral galaxies NGC7733 and NGC7734 and that the detection of the third was surprising. “It was a bit like buy two and get one free,” says Dr Das. “The PI of the project confirmed our suspicions using spectroscopic data from a European telescope called MUSE in Chile.”
•The group observed these galaxies with a near infrared telescope in South Africa. “Then, later on, because they appeared interesting, we also observed them with the UVIT [onboard ASTROSAT]” says Dr Das. “We also found optical data in the MUSE archive. So, we did not have to do the optical spectroscopy.”
Final parsec
•In a Press Information Bureau release, the team explains that if two galaxies collide, their black hole will also come closer by transferring the kinetic energy to the surrounding gas. The distance between the blackholes decreases with time until the separation is around a parsec (3.26 light-years). The two black holes are then unable to lose any further kinetic energy to get even closer and merge. This is known as the final parsec problem. The presence of a third black hole can solve this problem. “The two can come closer when another black hole or a star passes by and takes away some of their combined angular momentum,” explains Dr Das. Thus, the dual merging blackholes merge with each other in the presence of a third.
•Many Active Galactic Nuclei (AGN, supermassive black hole at the centre of a galaxy) pairs have been detected in the past, but triple AGN are extremely rare, and only a handful has been detected before using X-ray observations. “Multiple accreting black holes [AGN] maybe more common in our universe and especially common in galaxy groups. So the growth of black holes may be driven by such mergers in groups,” she says. This is only the third detection of such a system.
•“What is striking about this work is the use of several telescopes around the world (and one in space) to determine the presence of 3 AGN. In fact, this use of multiple telescopes and observing bands is essential to carry out good astronomical research. This also demonstrates how astrophysics is a truly collaborative science,” says Preeti Kharb who is with National Centre for Radio Astrophysics - Tata Institute of Fundamental Research (NCRA-TIFR), Pune, who was not involved in this work.
📰 India adds 557 new species to its fauna: Zoological Survey of India
407 new species, 150 new records documented from the world’s 8th highest ‘mega biodiverse’ country
•India has added 557 new species to its fauna, which includes 407 new species and 150 new records, reveals Animal Discoveries 2020, a document published recently by the Zoological Survey of India (ZSI). The number of faunal species in India has climbed to 1,02,718 species.
•Among the new species, some interesting species discovered in 2020 are Trimeresurus salazar, a new species of green pit viper discovered from Arunachal Pradesh; Lycodon deccanensis, the Deccan wolf snake discovered from Karnataka; and Sphaerotheca Bengaluru, a new species of burrowing frog named after the city of Bengaluru. The list also includes Xyrias anjaalai, a new deep water species of snake eel from Kerala; Glyptothorax giudikyensis, a new species of catfish from Manipur; and Clyster galateansis, a new species of scarab beetles from the Great Nicobar Biosphere.
•Among the new records, Myotis cf. frater, a bat species earlier known from China, Taiwan and Russia, has been reported for the first time from Uttarakhand in India; and Zoothera citrina gibsonhilli, an orange-headed thrush earlier known from southern Myanmar to south Thailand (central Malay peninsula), which was reported for the first time from India based on a collection made from the Narcondam island in the Andaman & Nicobar Islands.
•Of these 557 species, invertebrates constitute the majority with 486 species, while 71 species belong to vertebrates. Among invertebrates, insects dominated, with 344 species, whereas pisces and reptiles dominated among vertebrates.
•Among the States, the highest number of new species were discovered from Karnataka (66 species), followed by Kerala (51 species). Also in 2020, 46 new species were discovered from Rajasthan and 30 from West Bengal.
•In terms of new records or species recorded in the country for the first time, Arunachal Pradesh had the highest (20 new records). In the Andaman & Nicobar Islands, 25 new species were discovered and 16 new records documented in 2020.
•Of the 557 new species discovered, scientists and researchers from the ZSI contributed 121 new species and 86 new records in 2020.
•Data analysis of the 2010-2020 decade reveals that a total of 4,112 species — 2,800 new species and 1,312 new records — were added to Indian fauna. It’s also interesting that scientists of the ZSI contributed to 34% (948 species) of the newly described and 68% (898) of the newly recorded species in the last 10 years. The ZSI, which was set up by British zoologist Thomas Nelson Annandale, in 1916, has been publishing Animal Discoveries since 2007.
•Commenting on the publication, Dhriti Banerjee, Director, Zoological Survey of India, said that the discovery and description of a species is a long-drawn process and can take years, from the collection of a specimen to identifying and matching the specimen with other records in repositories, and finally publishing the details in a journal.
•Dr. Banerjee pointed out that 2020 has been tough year for scientists due to the COVID-19 pandemic as they could not survey protected areas, where a greater diversity of fauna exists. Dr. Banerjee said that with the encouragement of the Ministry of Environment Forest and Climate Change, the ZSI will in the years to come add new species and new records to India’s faunal repository.
•The ZSI publication shows that India is a mega biodiverse country, rich in biodiversity, with 23.39% of its geographical area under forest and tree cover. “India is positioned 8th in mega biodiversity countries in the world with 0.46 BioD index which is calculated by its percentage of species in each group relative to the total global number of species in each group,” the document adds.
📰 Assam’s Deepar Beel Wildlife Sanctuary breathes easy after eco-sensitive zone notification
Deepar Beel is the State’s only Ramsar site and an Important Bird Area.
•On August 25, the Ministry of Environment, Forest and Climate Change notified the eco-sensitive zone of the Deepar Beel Wildlife Sanctuary on the south-western edge of Guwahati.
•Deepar Beel is one of the largest freshwater lakes in Assam and the State’s only Ramsar site besides being an Important Bird Area. The wetland has for decades been threatened by a railway track — set to be doubled and electrified — on its southern rim, a garbage dump, and encroachment from human habitation and commercial units.
•The notification specified an area “to an extent varying from 294 metres to 16.32 km” as the eco-sensitive zone, with the total area being 148.9767 sq. km.
•But being adjacent to “fast-developing Guwahati”, the sanctuary is “facing immense biotic pressure by way of human settlements and ever-increasing development activities”, the notification said.
•The wetland expands up to 30 sq. km in summer and reduces to about 10 sq. km in the winter. The wildlife sanctuary measures 4.1 sq. km within this wetland.
•Romila Boro, a sexagenarian resident of Chakardeo, the sanctuary’s “guardian village”, hopes the notification will bail the constricted wetland out. But she is sad that the “good news” has come eight years too late. It was in 2014 that her husband Koliya Boro was run over by a speeding train while trying to stop from hitting an approaching herd of elephants. He was one of the earliest conservationists of the area.
•“The zonation should help, but Deepar Beel’s water has become toxic and it has lost many of its aquatic plants that elephants would feed on. The wetland can breathe easier only if the railway track is diverted,” said Chakardeo dairy farmer and green guard Pramod Kalita.
•“No new commercial hotels and resorts shall be permitted within 1 km of the boundary of the protected area or up to the extent of the eco-sensitive zone, whichever is nearer, except for small temporary structures for eco-tourism activities,” the notification said.
No sawmills’ expansion
•Disallowing new sawmills or the expansion of existing sawmills in the vicinity, the notification said a new wood-based industry may be set up in the eco-sensitive zone using 100% imported wood stock.
•Among activities prohibited in the eco-sensitive zone are hydroelectric projects, brick kilns, commercial use of firewood and discharge of untreated effluents in natural water bodies or land areas.
•Deepar Beel has long been used as a sponge for Guwahati’s sewage via a couple of streams. The wetland has also suffered from seepage of toxins from a garbage dump at Boragaon adjoining it.
•“The wetland of Deepar Beel constitutes a unique habitat for aquatic flora and avian fauna. About 150 species of birds have been recorded in the sanctuary, out of which two are critically endangered, one endangered, five vulnerable and four near-threatened,” the notification said.
•“Elephants regularly visit the wetland from adjoining Rani and Garhbhanda Reserve Forest and the wetland is an integral part of the elephant habitat. Besides these, 12 species of reptiles, 50 species of fish, six species of amphibians along with 155 species of aquatic macro-biota have been recorded in the sanctuary,” it said.
•“City wastes as well as industrial effluents causing serious problem to the ecological and environmental values of the rich wetland that create a threat to all life forms and ecosystems in the Deepar Beel,” it added, also noting the railway track along the wetland’s southern boundary with concern.
•Wildlife specialist Bibhab Talukdar said if the implementation of the rules is weak, it does not really matter if the eco-sensitive zone extends 10 km or 10 metres beyond a protected area.
•“Deepar Beel needs the unabated movement of wild elephants and birds and it should be a smart model of the balance between developmental projects and maintaining the ecological processes of a wetland that is essential for human wellbeing,” he said.
📰 Filled to the nines: On Supreme Court’s appointment spree
Appointment spree in SC is welcome, and augurs well for diversity and representation
•It is not often that nine judges are appointed to the Supreme Court at one go. In a welcome sign of cooperation between the judiciary and the executive, the President of India has signed warrants of appointment within days of the five-member Collegium recommending eight High Court judges, including three women, and a lawyer for elevation. It is nearly two years since Supreme Court appointments were made, and some vacancies have been around for quite some time now. The latest round of appointments possibly signifies the onset of an era in which the two branches agree more and agree faster on the Collegium’s recommendations. The strength of the Bench goes up to 33, in a court that has a sanctioned complement of 34 judges. The presence of three women and the fact that different High Courts are getting representation are positive features and augur well for increasing diversity on the Bench. In particular, Justice B.V. Nagarathna’s elevation at this point of time means that she may become the first woman Chief Justice of India (CJI). The trend of appointing members of the Bar directly to the Supreme Court continues with the honour going this time to former Additional Solicitor-General, P.S. Narasimha, who is also in line to be Chief Justice by efflux of time.
•A notable candidate whose name does not figure in the list is Justice Akil Kureshi, Chief Justice of the Tripura High Court, who is fairly high in the all-India seniority list of High Court judges. That the finalisation of the recommendations came about after the retirement of Justice Rohinton Nariman — and a change in the composition of the Collegium with it — may indicate that the names were the outcome of a compromise. It is not idle speculation to say that Justice Kureshi’s candidature may have been behind stagnation in the appointment process for a long time. Two years ago, a proposal by the Collegium to name Justice Kureshi as Chief Justice of the Madhya Pradesh High Court was recalled for accommodating the Centre’s sensitivities. He was later assigned to the Tripura High Court. In the larger scheme of things, the omission of individuals may not matter much, but it must not become a practice to sidestep suitable candidates without sufficient cause solely to accommodate the executive’s reservations. After all, the opaque collegium system is sustained only by the belief that it is a bulwark against executive intervention. This raison d’être should not be lost sight of. Going forward, one would wish for fewer spells of impasse in judicial appointments, quicker processing of names, and greater consideration to social and regional representation.
📰 Near and present: On the Afghan crisis and India
India does not have the luxury of distance from the ticking bomb in its neighbourhood
•The suicide bombing at Kabul airport which claimed close to 100 lives has shattered any residual optimism the world had that the West pulling out forces and handing the country over to the Taliban, as part of negotiations in Doha, would result in a more peaceful Afghanistan. Instead, what the complex attack claimed by the Islamic State-Khorasan (IS-K) has proven is that no matter what assurances the Taliban’s new regime or its benefactors in Pakistan may provide, they are unable or unwilling to stem the terror threat emanating from the country, despite being provided key intelligence inputs about the attack. There are also suspicions of some collusion within the Taliban regime, as the Haqqani group that is securing Kabul and the airport periphery, is a UN designated terror entity that has carried out attacks with the IS-K in the past. That the U.S. maintains that it continues to “coordinate” with the Taliban on security should further set the seal on any idea of investigations or operations against the Taliban. As this is an alarming scenario, the Government must now acknowledge and prepare for the threats to India. The situation will further enhance India’s already hostile continental flanks, in consonance with threats from Pakistan at the LoC and support to cross-border terrorism, as well China’s LAC aggressions.
•New Delhi must also focus on diplomacy to highlight its concerns, beginning with the UN where India will have a salient role. As a UNSC member, and President, India must ensure that the UN’s most powerful body does not appear helpless in the face of the Taliban’s challenge, and must make the red lines clear for the kind of government it must guarantee — including one that recognises human rights, adopts some form of representation for its people, and distances itself from terror groups. Chief among these will be the need to ensure that the Haqqani group, including its chief Sirajuddin Haqqani who is the Deputy to Taliban chief Haibatullah Akhundzada, is not included in the official power structure. The group has been responsible for terror and suicide attacks on Indian consulates and the Embassy in particular in 2008-09. As Chairman of the 1988 Sanctions Committee that lists 135 Taliban members as designated terrorists, India must stand firm on any move to ease sanctions on them, including travel, funds access and weaponry. The UN General Assembly (UNGA)’s accreditation committee must also decide on whether to allow a future Taliban-led government to occupy Afghanistan’s seat. Given Prime Minister Narendra Modi’s visit to the U.S. later in September, where he is expected to address the UNGA, and then the Quad summit, it is important that India’s position on the Afghan situation and its impact on Indian security are articulated strongly. While briefing MPs, External Affairs Minister S. Jaishankar said the Government is pursuing a “wait and watch” policy, but that assumes the luxury of distance from the ticking time bomb in India’s neighbourhood, which New Delhi does not have.
📰 Asset monetisation — execution is the key
The Government’s plan needs an Asset Monetisation Monitoring Authority to evaluate the execution
•The government has announced an ambitious programme of asset monetisation. It hopes to earn ₹6 trillion in revenues over a four-year period. At a time when the government’s finances are in bad shape, that is money the government can certainly use. Getting asset monetisation right is quite a challenge, though.
•In asset monetisation, the government parts with its assets — such as roads, coal mines — for a specified period of time in exchange for a lump sum payment. At the end of the period, the assets return to the government. Unlike in privatisation, no sale of government assets is involved.
•By monetising assets it has already built, the government can earn revenues to build more infrastructure. Asset monetisation will happen mainly in three sectors: roads, railways and power. Other assets to be monetised include: airports, ports, telecom, stadiums and power transmission.
First, under-utilised assets
•Two important statements have been made about the asset monetisation programme. One, the focus will be on under-utilised assets. Two, monetisation will happen through public-private partnerships (PPP) and Investment Trusts. Let us examine each of these in turn.
•Suppose a port or airport or stadium or even an empty piece of land is not being used adequately because it has not been properly developed or marketed well enough. A private party may judge that it can put the assets to better use. It will pay the government a price equal to the present value of cash flows at the current level of utilisation.
•By making the necessary investment, the private player can reap the benefits of a higher level of cash flows. The difference in cash flows under government and those under private management is a measure of the improvement in efficiency of the assets. This is a win-win situation for the government and the private player. The government gets a ‘fair’ value for its assets. The private player gets its return on investment. The economy benefits from an increase in efficiency. Monetising under-utilised assets thus has much to commend it.
Those well utilised
•Matters could be very different in monetisation of an asset that is being properly utilised, say, a highway that has good traffic. In this case, the private player has little incentive to invest and improve efficiency. It simply needs to operate the assets as they are.
•The private player may value the cash flows assuming a normal rate of growth of traffic. It will pay the government a price that is the present value of cash flows minus its own return. The government earns badly needed revenues but these could be less than what it might earn if it continued to operate the assets itself. There is no improvement in efficiency.
•Suppose the private player does plan to improve efficiency in a well-utilised asset by making the necessary investment and reducing operating costs. The reduction in operating costs need not translate into a higher price for the asset than under government ownership. The cost of capital for a private player is higher than for a public authority. A public authority needs less equity capital and can access debt more cheaply than a private player. The higher cost of capital for the private player could offset the benefit of any reduction in operating costs.
•As we have seen, the benefits to the economy are likely to be greater where under-utilised assets are monetised. However, private players will prefer well-utilised assets to assets that are under-utilised. That is because, in the former, cash flows and returns are more certain. Private incentives in asset monetisation may not accord with the public interest.
Valuation and issues
•There are other complications. It is very difficult to get the valuation right over a long-term horizon, say, 30 years. Does anybody know what would be the growth rate of the economy over such a period? For a road or highway, growth in traffic would also depend on factors other than the growth of the economy, such as the level of economic activity in the area, the prices of fuel and vehicles, alternative modes of transport and their relative prices, etc. If the rate of growth of traffic turns out to be higher than assessed by the government in valuing the asset, the private operator will reap windfall gains.
•Alternatively, if the winning bidder pays what turns out to be a steep price for the asset, it will raise the toll price steeply. The consumer ends up bearing the cost. If transporters have to pay more, the economy suffers. There is also the possibility that roads whose usage is currently free are put up for monetisation. Again, the consumer and the economy bear the cost. It could be argued that a competitive auction process will address these issues and fetch the government the right price while yielding efficiency gains. But that assumes, among other things, that there will be a large number of bidders for the many assets that will be monetised.
•Lastly, there is no incentive for the private player to invest in the asset towards the end of the tenure of monetisation. The life of the asset, when it is returned to the government, may not be long. In that event, asset monetisation virtually amounts to sale. Monetisation through the PPP route is thus fraught with problems.
Another way of going about it
•The other form of monetisation the government has indicated is creating Infrastructure Investment Trusts (InvIT) to which monetisable assets will be transferred. InvITs are mutual fund-like vehicles in which investors can subscribe to units that give dividends. The sponsor of the Trust is required to hold a minimum prescribed proportion of the total units issued. InvITs offer a portfolio of assets, so investors get the benefit of diversification.
•Assets can be transferred at the construction stage or after they have started earning revenues. In the InvIT route to monetisation, the public authority continues to own the rights to a significant portion of the cash flows and to operate the assets. So, the issues that arise with transfer of assets to a private party — such as incorrect valuation or an increase in price to the consumer — are less of a problem.
The pathway
•What conclusions can we draw from the above? First, a public authority has inherent advantages on the funding side. In general, the economy is best served when public authorities develop infrastructure and monetise these. Second, monetisation through InvITs is likely to prove less of a problem than the PPP route. Third, we are better off monetising under-utilised assets than assets that are well utilised. Fourth, to ensure proper execution, there is a case for independent monitoring of the process. The government may set up an Asset Monetisation Monitoring Authority staffed by competent professionals. The authority must put all aspects of monetisation under the scanner — valuation, the impact on price charged to the consumer, monetisation of under-utilised versus well-utilised assets, the experience across different sectors, etc. — and document the lessons learnt.
