1. Scheme for Financial Support to Public Private Partnerships in Infrastructure (Viability Gap Funding Scheme)
Cabinet Committee on Economic Affairs (CCEA) in its meeting of July 25, 2005 approved the Scheme for support to Public Private Partnerships in Infrastructure. The Scheme for Financial Support to PPPs in Infrastructure (Viability Gap Funding scheme) of the Government of India is administered by the Ministry of Finance and provides financial support in the form of grants, one time or deferred, to infrastructure projects undertaken through PPPs with a view to make them commercially viable. The Government of India provides total Viability Gap Funding up to twenty per cent of the total project cost; normally in the form of a capital grant at the stage of project construction. The Government or statutory entity that owns the project may, if it so decides, provide additional grants out of its budget up to further twenty percent of the total project cost.
In pursuance of the decision of the Cabinet, it has been decided to constitute an Empowered Committee and Empowered Institution for approving financial assistance to such projects which satisfies all the eligibility criteria indicated in the Scheme Notification dated August 18, 2005 . The Scheme requires the project authorities to seek ‘in-principle’ approval of the Empowered Institution/Empowered Committee prior to seeking bids and obtain the final approval after the selection of the bidder. The approvals to projects are given prior to invitation of bids and actual disbursement takes place once the private entity has expended his portion of the equity. Thus, there is necessarily a time lag involved between grant of in-principle approval and disbursement of grant. The intervening stage involves finalisation of document, prequalification of bidders, financial bids being called, selection of bidder, financial closure and commencement of construction. In a PPP project, this process involves a minimum of 12 to 18 months.
The Composition of the Empowered Institution is as follows:
- i. Additional Secretary (Economic Affairs)
- ii. Additional Secretary (Expenditure)
- iii. Representative of Planning Commission (now NITI Aayog) not below the rank of Joint Secretary
- iv. Joint Secretary in the line Ministry dealing with the subject (v) Joint Secretary (FT), DEA -- Member Secretary
Viability Gap Funding up to Rs. 100 crore (Rupees one hundred crore) for each project may be sanctioned by the empowered Institution, subject to the budgetary ceilings indicated by the Finance Ministry. Empowered Institution will also consider other proposals and place them before the Empowered Committee.
The composition of Empowered Committee is as follows:
- i. Secretary (Economic Affairs)
- ii. Secretary (Planning Commission)(now CEO NITI Aayog)
- iii. Secretary (Expenditure)
- iv. Secretary of the line Ministry dealing with the subject
The Empowered Committee is responsible for:
- Sanctioning Viability Gap Funding up to Rs. 200 crore (Rs. Two hundred crore) for each project subject to the budgetary ceilings indicated by the Finance Ministry. Amounts exceeding Rs. 200 crore may be sanctioned by the Empowered Committee with the approval of Finance Minister;
- Determining the appropriate formula that balances needs across sectors in a manner that broad bases the sectoral coverage and avoids pre-empting, of funds by a few large projects;
- Determining the inter-se allocation between any on-going Plan Scheme providing viability gap funding and this Scheme; and,
- Providing clarifications or instructions relating to eligibility of a project for such support as and when requested by Empowered Institution.
- The PPP projects may be posed by the Central Ministries, State Government or Statutory Authorities (like Municipal Authorities and Councils), which own the underlying assets;
- To be eligible for financing under the scheme, the PPP projects should be implemented, i.e. developed, financed, constructed, maintained and operated for the Projects term by a Private Sector Company to be selected by the Government or a statutory entity through a transparent and open competitive bidding process;
- The criterion for bidding should be the amount of Viability Gap Funding required by the Private Sector Company for implementing the project where all other parameters are comparable;
- The project should provide a service against payment of pre-determined tariff or user charge;
- This Scheme will apply only if the contract/concession is awarded in favour of a private sector company in which 50% or more of the subscribed and paid up equity is owned and controlled by a private entity*;
- The approval to projects is given prior to invitation of bids and actual disbursement takes place once the private entity has expended his portion of the equity; and
- The final VGF is determined through the bidding.
* Amendments in the Guidelines for Financial Support to Public Private Partnerships in Infrastructure vide F.No. 12/47/2014-PPP dated April 22 , 2015 Notification dated April 22, 2015 , the following amendments have been made to the VGF guidelines:
- The definition of a Private Sector Company stated in para 2 (Definitions) of the Scheme for Support to PPP, Annex-I to the Guidelines may be read as follows: "Private Sector Company means a company which is not a Government Company as defined under section 2(45) of the Companies Act, 2013."
- Clause 3.4 of the Guidelines under the heading ‘Applicability’ is amended and may be read as follows: "3.4. The Scheme will apply only if the Contract/Concession is awarded in favour of a private sector company".
Eligible Sectors: The sectors eligible for Viability Gap Funding under this Scheme are:
- a. Roads and bridges, railways, seaports, airports, inland waterways;
- b. Power;
- c. Urban transport, water supply, sewerage, solid waste management and other physical infrastructure in urban areas;
- d. Infrastructure projects in Special Economic Zones and internal infrastructure in National Investment and Manufacturing Zones;
- e. International convention centers and other tourism infrastructure projects;
- f. Capital investment in the creation of modern storage capacity including cold chains and post- harvest storage;
- g. Education, health and skill development, without annuity provision;**
- h. Oil/Gas/Liquefied Natural Gas (LNG) storage facility (includes city gas distribution network);
- i. Oil and Gas pipelines (includes city gas distribution network);
- j. Irrigation (dams, channels, embankments, etc);
- k. Telecommunication (Fixed Network) (includes optic fibre/ wire/ cable networks which provide broadband /internet);
- l. Telecommunication towers;
- m. Terminal markets;
- n. Common infrastructure in agriculture markets; and
- o. Soil testing laboratories.
** Scheme for Support to Public Private Partnerships in Infrastructure - eligible sectors (This notification is related to Medical College) vide F.No 3C/1/2012-PPP dated November 4, 2013 Notification dated November 4, 2013 , it has been clarified that, as regards medical colleges, VGF would be admissible only if the proposed medical college is located in one of the backward districts identified under various schemes of GoI, provided there is no medical college in that district as on the date of in-principle approval of VGF by the competent authority.
The Guidelines for Financial Support to PPPs in Infrastructure notified by Ministry of Finance, Department of Economic Affairs are provided below:
- Scheme for Support to Public Private Partnerships in Infrastructure Notification dated July, 2005
- Guidelines for financial support to Public Private Partnership Projects in Infrastructure under the Viability Gap Funding Scheme of GOI Notification dated January 23, 2006
- Guidelines for determining eligibility of proposals for financial support to Public Private Partnerships in infrastructure under the Viability Gap Funding Scheme
- Tripartite Agreement to be entered under the Scheme for Financial support to PPPs in Infrastructure Download Agreement Notification dated May 23, 2008
- A compendium of guidelines for Financial Support to PPPs in Infrastructure, is available below:
The following amendments have been made to the VGF guidelines:
- Scheme for Support to Public Private Partnerships in Infrastructure - eligible sectors (This notification is related to storage including cold chains and post harvest storage)
- Scheme for Support to Public Private Partnerships in Infrastructure - eligible sectors (This notification is related to education, health and skill development)
- Scheme for Support to Public Private Partnerships in Infrastructure - eligible sectors (This notification is related to Special Economic Zones and internal infrastructure in National Investment and Manufacturing Zones) Notification dated February 02, 2012
- Scheme for Support to Public Private Partnerships in Infrastructure - eligible sectors (This notification is related to Oil/Gas/LNG storage facilities, Oil and Gas pipelines, Irrigation, Telecommunication (Fixed Network), Telecommunication Towers, Terminal markets, Common infrastructure in agriculture markets and Soil testing laboratories)
- Scheme for Support to Public Private Partnerships in Infrastructure - eligible sectors (This notification is related to Medical College) Notification dated November 4, 2013
- Amendments in the Guidelines for Financial Support to Public Private Partnerships in Infrastructure Notification dated April 22, 2015
2. India Infrastructure Project Development Fund (IIPDF)
The India Infrastructure Project Development Fund (IIPDF) provides financial support for quality project development activities. The Sponsoring Authority will, thus, be able to source funding to cover a portion of the PPP transaction costs, thereby reducing the impact of costs related to procurement on their budgets.
The Union Finance Minister in the Budget Speech for 2007-08 announced in the parliament the setting up of a Revolving Fund with a corpus Rs. 100 Crore to quicken the process of project preparation. Accordingly the corpus fund titled India Infrastructure Project Development Fund (IIPDF) has been created in Department of Economic Affairs, Ministry of Finance, Government of India with an initial corpus of Rs. 100 Crore for supporting the development of credible and bankable Public Private Partnership (PPP) projects that can be offered to the private sector. The IIPDF has been created with initial budgetary outlay by the Ministry of Finance, Government of India.
The main objectives of the scheme are as follows:
- The IIPDF is available to the Sponsoring Authorities for PPP projects for the purpose of meeting the project development costs which may include the expenses incurred by the Sponsoring Authority in respect of feasibility studies, environment impact studies, financial structuring, legal reviews and development of project documentation, including concession agreement, commercial assessment studies (including traffic studies, demand assessment, capacity to pay assessment) etc. required for achieving technical close of such projects, on individual or turnkey basis, but would not include expenses incurred by the Sponsoring Authority on its own staff.
- The Sponsoring Authority will, be able to source funding to cover a portion of the PPP transaction costs, thereby reducing the impact of costs related to procurement on their budgets.
- The proposals for assistance under the Scheme have to be sponsored by Central Government Ministries/Departments, State Governments, Municipal or Local Bodies or any other statutory authority;
- To seek financial assistance from the IIPDF, it would be necessary for the Sponsoring Authority to create and empower a PPP Cell to not only undertake PPP project development activities but also address larger policy and regulatory issues to enlarge the number of PPP projects in ‘Sponsoring Authorities’ shelf;
- The IIPDF will contribute upto 75% of the project development expenses to the Sponsoring Authority as an interest free loan. The balance 25% will be co-funded by the Sponsoring Authority;
- On successful completion of the bidding process, the project development expenditure would be recovered from the successful bidder. However, in the case of failure of the bid, the loan would be converted into grant; and
- In case the Sponsoring Authority does not conclude the bidding process for some reason, the entire amount contributed would be refunded to the IIPDF.
Detailed guidelines for India Infrastructure Project Development Fund are available below: