Appendix A: How is asset recycling different from privatization?
| Parameter | Privatization | Asset Recycling |
| Objective | - Takes a short-term view on selling or divesting the assets with focus on realization of proceeds
- Privatization often involves full divestment of assets with no intent to reinvest or manage proceeds.
| - Takes a long-term view on monetizing the assets and re-investment of the proceeds for development of new infrastructure assets
- Asset recycling may also involve divestment; however, it is framed within a broader strategy for reinvestment in public infrastructure, ensuring long-term value creation and public benefit. The key difference lies in the use of proceeds.
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| Asset Ownership | - Generally, there is loss of asset-ownership or control on the asset
| - Asset recycling allows for a range of mechanisms for the transfer of ownership and control of the asset.
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| Re-investment of proceeds | - There is no/ limited policy objective or programmatic intervention for utilization of proceeds.
| - The utilization of proceeds for development of new infrastructure completes the virtuous cycle of asset recycling.
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| Public perception | - Generally, a negative public perception as privatization is seen as “selling” of public assets to the private sector.
| - With right messaging, asset recycling is perceived as a preferred “alternative funding” source for development of new infrastructure assets (as in the case of Australia).
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Appendix B: Asset monetization and PPPs through direct contractual agreements
It is important to note that direct contractual agreements for asset monetization may also fall under the domain of public-private partnerships (PPPs) in some jurisdictions. However, there are some differences between direct contractual agreements for asset monetization and PPPs.
| Parameter | Direct Contractual Agreements (for Asset Monetization) | Direct Contractual Agreements (for Public-Private Partnerships) |
| Policy Objective | - Monetizing government-owned assets to free-up the capital invested in existing assets.
- Efficiency gains through private sector participation from private sector being responsible for the operations of the assets.
| - Access private sector financing to develop or re-develop infrastructure assets
- Leveraging private sector experience and expertise in construction and/or operations of infrastructure assets.
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| Asset Class | - Brownfield assets which have demonstrated stable operations and revenue stream/s.
- Operating assets with design, construction, development, and financing risks substantially removed.
| - Predominantly greenfield assets and may also involve brownfield assets that require capex investments (expansion or upgrades).
- Design, construction, development, and financing risks are allocated to the private sector given the private sector’s expertise.
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| Risk Allocation | - Operational risks, and in particular, patronage/demand risk allocated to the private sector.
- Assets sufficiently de-risked of the attendant development and/or construction risks.
| - Risk allocation varies from project to project and would typically include development/construction risks being transferred to the private sector. Revenue risk may or may not allocated to the private sector.
- Other key risks vary with the choice of procurement model (such as DBFOT, O&M, etc.)
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| Commercial Principles | - Revenue model is largely on a user-pay (i.e., not dependent on Government payments or subsidies) basis.
- Proceeds are paid by the private sector to the Government for the concession, either with an up-front payment or periodic payments over the term of the concession.
| - Revenue may be generated based on either users-pay or availability-based payment.
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