Viability gap funding

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Viability gap funding

  1. 1. Viability Gap FundingViability Gap Funding ByBy Ashok ChawlaAshok Chawla Additional SecretaryAdditional Secretary Department of Economic Affairs, Government of IndiaDepartment of Economic Affairs, Government of India 2020thth December, 2006December, 2006
  2. 2. December 20, 2006 PPP Cell, Department of E Infrastructure – Indicative Investment Sector Investment (Rs. in crore) To be made by National Highways 2,20,000 2012 Airports 40,000 2010 Ports 50,000 2012 Energy 5,40,000 2012
  3. 3. December 20, 2006 PPP Cell, Department of E New Approach  Promote flow of private capital in infrastructure through Public Private Partnerships (PPPs)  Progress uneven over the past few years
  4. 4. December 20, 2006 PPP Cell, Department of E PPPs in India – Issues  Political commitment  Legal and regulatory framework  Commercial viability  Inclusive growth  Acceptable risk sharing  Capacity in the line organizations
  5. 5. December 20, 2006 PPP Cell, Department of E Recent GOI Initiatives  Viability Gap Funding Scheme  India Infrastructure Finance Company Limited (IIFC)  Capacity Building in States for PPPs
  6. 6. December 20, 2006 PPP Cell, Department of E 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
  7. 7. December 20, 2006 PPP Cell, Department of E 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
  8. 8. December 20, 2006 PPP Cell, Department of E VGF Scheme – Eligible Sectors  Transportation  Energy  Urban Infrastructure  Tourism infrastructure projects  Industrial infrastructure projects (eg. SEZs)  Any other
  9. 9. December 20, 2006 PPP Cell, Department of E 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.
  10. 10. December 20, 2006 PPP Cell, Department of E 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
  11. 11. December 20, 2006 PPP Cell, Department of E 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
  12. 12. December 20, 2006 PPP Cell, Department of E 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
  13. 13. December 20, 2006 PPP Cell, Department of E 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
  14. 14. December 20, 2006 PPP Cell, Department of E 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
  15. 15. December 20, 2006 PPP Cell, Department of E Thank You

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