The Indian government’s Viability Gap Funding (VGF) Scheme is a strategic initiative to support Public Private Partnership (PPP) projects in infrastructure. This scheme is designed to bridge financial gaps that make projects commercially unviable, encouraging private sector participation in critical infrastructure development. This article will provide a concise overview of the scheme’s objectives, funding structure, and implementation processes.
Objective: Bridging Financial Gaps in Infrastructure Projects
The primary objective of the VGF scheme is to make Public-Private Partnership (PPP) projects in infrastructure commercially viable by providing financial support to bridge gaps in capital funding.
Scope: Applying to Diverse Sectors
The scheme is applicable to a wide range of sectors, including:
* Roads, railways, seaports, airports, and inland waterways
* Power, urban transport, and water supply
* Special Economic Zones and manufacturing infrastructure.
* International convention centers, tourism infrastructure and cold chains.
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Education, health and skill development projects.
Key Features of the VGF Scheme:
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Financial Support: The scheme provides a one-time or deferred grant to reduce the funding gap in PPP projects.
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Targeted Sectors: Support is provided for a broad range of sectors, including traditional infrastructure, as well as social sectors like health and education.
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Transparency: Projects are awarded through open competitive bidding to ensure transparency.
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Public Private Partnerships: The scheme is specifically designed for projects based on a contract or concession agreement between a government/statutory entity and a private sector company.
Funding Structure: Grants and Operational Support
The VGF Scheme provides financial support in the form of capital grants, or operational grants, depending on the sector and requirements of a specific project. The grant amount is typically structured as follows:
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Social Sector Projects (Sub-scheme 1): Grant up to 30% of the total project cost.
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Pilot Projects in Health and Education (Sub-scheme 2): Grants up to 40% of the total capital cost and up to 25% of the net present value (NPV) of O&M for the first five years.
* Other sectors: Grants up to 20% of the total project cost.
Project Approval and Implementation: A Structured Process
The process involves several key stages:
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The project proposer must submit a comprehensive proposal to the PPP Cell of the Department of Economic Affairs (DEA).
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The DEA distributes the proposal for comment to various members of the Empowered Committee (EC).
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The EC evaluates the proposal and gives “in principle” approval or requests revisions to the proposal.
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After ‘in-principle’ approval the implementing body conducts competitive bidding to select a private sector partner for the project.
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The Lead Financial Institution (LFI) conducts a financial appraisal of the project.
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The Empowered Committee reviews and grants final approval to the project, or makes changes as required.
Monitoring and Oversight: Ensuring Compliance
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The Lead Financial Institution is responsible for regular monitoring, periodic evaluation and compliance.
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LFI also submits quarterly reports to the Empowered Committee.
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The scheme outlines procedures for recovery of VGF in terminated projects.
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An independent third party will also conduct evaluation of the scheme’s effectiveness periodically.
Governing Bodies: Key Decision Makers
The scheme is overseen by:
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Empowered Committee (EC): A high-level committee chaired by the Secretary of Economic Affairs that reviews project proposals and makes approvals.
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Project Management Agency (PMA): Provides support for day-to-day management of the scheme and the project proposals.
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Lead Financial Institution (LFI): Appraises projects, monitors compliance, and facilitates financial disbursements.
Conclusion
The Viability Gap Funding (VGF) Scheme for Public-Private Partnerships is a critical mechanism for developing infrastructure projects in India. It combines the expertise of the government and the private sector while ensuring a transparent and efficient process for project implementation and financial viability. By bridging the funding gap, this scheme aims to attract private sector participation in crucial infrastructure projects that contribute to national growth and socioeconomic development.