Viability Gap Funding For Infrastructure

Viability gap funding for Infrastructure twenty per cent of the total project cost
as estimated in the preliminary project

9.116 Infrastructure projects have long
appraisal, or the actual project cost,
gestation periods and, in most cases, are not
whichever is lower.
financially viable on their own. It may not be
possible to fund the very large investment (vi) The implementing agency must be
requirements of these projects fully from the selected through a transparent and open
budgetary resources of the Government of competitive process. The main criterion
India alone. In order to remove this for selection will be the extent of viability
shortcoming and to bring in private sector gap funding required by the private partner
resources and techno-managerial efficiencies, to successfully implement the project.
the Government is promoting Public Private The extent of viability gap funding shall
Partnerships (PPP) in infrastructure be determined on the basis of the net
development through a special facility present value of the actual viability gap
funding required. For this purpose and
envisaging support to PPP projects through
for all calculations under these
‘viability gap funding’. Primarily, this facility is
guidelines, the rate of discount shall be
meant to reduce capital cost of the projects
the rate of interest on 10-year gilts on the
by credit enhancement, and to make them
date of submission of the bid.
viable and attractive for private investments
through supplementary grant funding. Funding
Provisions for this facility is made on an year
9.118 Viability gap funding can take various
to year basis.
forms, including but not limited to capital grant,
Criteria subordinated loans, O&M support grants or
interest subsidy. A mix of capital and revenue
9.117 The criteria for eligibility for funding support may also be considered.
are:
— The funding is to be disbursed
(i) The project must be implemented, i.e. contingent on agreed milestones,
constructed, maintained and operated preferably physical, and performance
during the project term, by an entity with levels being achieved, as detailed in
at least 40 per cent private equity. funding agreements.
(ii) The project must belong to one of the — The funding is to be provided in
following sectors: installments, preferably in the form of
a. Roads, railways, seaports, airports; annuities, and with at least 15 per cent
of the funding to be disbursed only
b. Power;
after the project is fully functional.
c. Water supply, sewerage and solid — In the first year of the facility, funding is
waste disposal in urban areas and to be allocated to projects on a first-
d. International convention centers. come, first served basis subject to
(iii) The projects should have been vetted/ meeting the eligibility criteria.
endorsed by the concerned line ministries Appraisal and approval procedures
in the Government India.
9.119 An Empowered Committee has been
(iv) All central projects should have received set up in the Department of Economic Affairs
requisite Government approval at the under the Additional Secretary (EA) to
appropriate level. consider and authorize sanction of funds up
(v) The total Government support required to Rs. 50 crore beyond which approval of
by the project, including support from the the Finance Minster will be required. The
Government of India under this facility, or projects may be posed by any (a) public
any other sources of the Government of agency at the center, state or urban local
India and its agencies, must not exceed body which owns the underlying assets; (b)
Infrastructure 219
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private agency, with sponsorship from the open competitive bidding indicating the extent
relevant central or state government agency. of viability gap funding that is actually
Project proposals must be accompanied by required. The lead financial institution will
a preliminary project appraisal (covering (a) present its detailed appraisal of the technical
techno-economic viability of the project, (b) and economic viability of the project as
financial appraisal and project financing proposed by the successful bidder, for the
arrangements, and (c) extent and nature of consideration of the Committee. The transfer
viability gap funding proposed) and a of viability gap funds and the schedule of
commitment letter on behalf of the lending such transfers will be approved by the
institutions. After approval of the project by Committee. The lead financial institution will
the Committee within 30 days of submission, undertake regular monitoring and evaluation
the project will be put to bid by the public of project compliance with agreed milestones
agency concerned through transparent and and performance levels.
220 Economic Survey 2004-2005
website : http:/indiabudget.nic.in

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Viability gap funding for Infrastructure twenty per cent of the total project cost

as estimated in the preliminary project

220 Economic Survey 2004-2005

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