The Hindu Business Line : Public-private infrastructure projects — Viability gap funding capped at 20 per cent of project cost

THE Ministry of Finance has decided to cap the total Governmental assistance to 20 per cent of the total cost of the infrastructure projects constructed through public-private partnership.

The Union Budget for 2004-05 has made a provision of Rs 1,500-crore for funding such projects.

In a detailed guideline to operationalise the public-private initiative, the Ministry has said that the total viability gap financing would include assistance from the Central Government, State Government and any of their agencies. The 20 per cent cap would be calculated on the cost estimated in the preliminary project appraisal or the actual cost whichever is lower.

According to the guidelines, the viability gap funding may include capital grant, subordinated loans, operation and maintenance support grant or interest subsidy. A mix of capital and revenue support may also be considered.

To get the Government support, the implementing agency for the projects should have at least 40 per cent private equity.

It has been stipulated that the implementing agencies must be selected through a transparent and open competitive process. The viability gap support sought would be a bid parameter for selection of the implementing agency.

The projects that would be eligible for Government funding have to be in infrastructure areas such as roads, railways, seaports, airports, power, water supply, sewerage and solid waste disposal in urban areas and international convention centres.

The projects would have to be vetted by the Ministries concerned. The funding would be disbursed on the fulfilment of agreed milestones as would be provided in the funding agreements.

The eligible entities that can come up with project proposals include any public agency which could either be a Central Ministry or an agency of the Government of India, a State Government, an urban local body which own the underlying assets or a private party, with sponsorship from relevant Central or State Government agency.

Project proposal for viability gap funding must be accompanied by a preliminary project appraisal carried out by a public financial institution. A commitment letter on behalf of the lending institution agreeing to fund the project has to be provided.

The eligibility of the project for viability gap support would be intimated to the sponsors within 30 days of submission of project to the Government.

After the bidding is completed, the lead FI shall present its detailed appraisal of the technical and economic viability of the project proposed by the successful bidder for approval of the Finance Ministry.

The lead FI will be responsible for regular monitoring and periodic evaluation of project and would release viability gap funding support when due and obtain reimbursement from the Department of Economic Affairs, the guidelines have said.