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Viability Gap Funding

Viability Gap Funding. By Ashok Chawla Additional Secretary Department of Economic Affairs, Government of India 20 th December, 2006. Infrastructure – Indicative Investment . New Approach. Promote flow of private capital in infrastructure through Public Private Partnerships (PPPs)

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Viability Gap Funding

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  1. Viability Gap Funding By Ashok Chawla Additional Secretary Department of Economic Affairs, Government of India 20th December, 2006

  2. Infrastructure – Indicative Investment PPP Cell, Department of Economic Affairs, Ministry of Finance

  3. New Approach • Promote flow of private capital in infrastructure through Public Private Partnerships (PPPs) • Progress uneven over the past few years PPP Cell, Department of Economic Affairs, Ministry of Finance

  4. PPPs in India – Issues • Political commitment • Legal and regulatory framework • Commercial viability • Inclusive growth • Acceptable risk sharing • Capacity in the line organizations PPP Cell, Department of Economic Affairs, Ministry of Finance

  5. Recent GOI Initiatives • Viability Gap Funding Scheme • India Infrastructure Finance Company Limited (IIFC) • Capacity Building in States for PPPs PPP Cell, Department of Economic Affairs, Ministry of Finance

  6. Scenario for implementing PPPs • The new initiative seeks to cover PPPs where • private sector provides infrastructure services for a fee under a concession agreement • concession is granted on the basis of a transparent bidding process • the bidder is asked to quote the quantum of grant required (positive or negative) • the bidder is assured of a stable environment through a concession agreement PPP Cell, Department of Economic Affairs, Ministry of Finance

  7. Viability Gap Funding Scheme • Viability Gap Funding (VGF) Scheme to address the following concerns: • Address the issue of ‘affordability’ of user fee • Leverage government grant to improve commercial viability of projects • Promote user pay principle • Ensure market based selection of promoter • Promote concept of developer (in place of contractor) and address project life cycle costs PPP Cell, Department of Economic Affairs, Ministry of Finance

  8. VGF Scheme – Eligible Sectors • Transportation • Energy • Urban Infrastructure • Tourism infrastructure projects • Industrial infrastructure projects (eg. SEZs) • Any other PPP Cell, Department of Economic Affairs, Ministry of Finance

  9. VGF Scheme – GOI Support • Funding by GOI limited to 20% of Project Cost. • If required, an additional 20% can be made available by the sponsoring Ministry/agency • GOI funding normally as capital grant during construction. PPP Cell, Department of Economic Affairs, Ministry of Finance

  10. VGF Scheme – Disbursement of Grant • Grant to be disbursed after the private sector company has subscribed and expended its equity contribution • Grant will be released in proportion to the disbursement of the remaining debt • Grant released through the Lead Financial Institution PPP Cell, Department of Economic Affairs, Ministry of Finance

  11. VGF Scheme - Approval Process • For speedy appraisal, Empowered Institution and Empowered Committee set up • Viability Gap Funding up to Rs. 100 crore for each project will be sanctioned by the Empowered Institution • Proposals up to Rs. 200 crore will be sanctioned by the Empowered Committee, and • Amounts exceeding Rs. 200 crore will be sanctioned by the Empowered Committee with the approval of Finance Minister • Limits likely to be revised upwards PPP Cell, Department of Economic Affairs, Ministry of Finance

  12. VGF Scheme - Status • Status available on website: pppinindia.com • Proposals received: 35 • Sectors: Highways, MRTS, Solid Waste Management, Railways, Power • Grant of “in principle” approval: 17 PPP Cell, Department of Economic Affairs, Ministry of Finance

  13. IIFC • Commercially viable projects that face problem in raising long term debt • Leverage GOI guarantees to meet the long term debt needs of infrastructure projects • Supplement funding by banks and IFIs • GOI guarantees to IIFC to raise funds in the market • 2005-06: borrowing limit fixed at Rs. 10,000 crore PPP Cell, Department of Economic Affairs, Ministry of Finance

  14. Capacity Building • Develop shelf of projects • ‘Infrastructure’ & ‘PPP’ be entered as subjects in the Rules of Business Transaction and assigned to one Department for focus with ‘PPP Cells being created for greater focus • Infrastructure departments to set own financial targets of attracting private investment through PPP and these be monitored and reviewed as ‘Plan outside of Plan’-as part of XI Plan • GOI assistance for capacity building – consultants, database, training – assistance from ADB, WB PPP Cell, Department of Economic Affairs, Ministry of Finance

  15. Thank You PPP Cell, Department of Economic Affairs, Ministry of Finance

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