Viability Gap Funding for Infrastructure projects revamped

The Department of Economic Affairs, Ministry of Finance introduced "the Scheme for Financial Support to PPPs in Infrastructure" (Viability Gap Funding Scheme) in 2006 with an objective of supporting infrastructure projects undertaken through Public Private Partnerships (PPPs) mode that are economically justified but commercially unviable due to large capital investment requirements, long gestation periods and the inability to increase user charges to commercial levels.

On December 7, 2020, the Department has released a notification for continuation and revamping of the scheme till the financial year 2024-25.

The revamped scheme introduces 2 sub-schemes enabling private participation in social infrastructure –

  1. The first sub-scheme caters to social sector projects such as water supply, solid waste management, waste water treatment, health and education. The VGF amount shall be given to projects that have at least 100% operational cost recovery and the amount shall be equivalent to the lowest bid for capital grant, subject to maximum of 30% of the total project cost.
  2. The second sub-scheme supports demonstration projects in Health and Education sectors where there is at least 50% Operational Cost recovery. The amount of VGF under this scheme shall be equivalent to the lowest bid, but subject to a maximum of 40% of the Total Project Cost as capital grant and maximum of 25% of Operational Cost for the first 5 years of commercial operations. In such projects, the State Governments together with the Central Government may provide upto 80% of the capital expenditure and upto 50% of Operation and Maintenance costs for the first five years.

The new scheme, applicable with immediate effect, allows for funding up to Rupees 200 crore to be sanctioned by an Empowered Committee (EC) headed by the economic affairs secretary, while projects requiring over Rupees 200 crore would be approved by the EC with the approval of the finance minister.

The Scheme can be accessed at: https://dea.gov.in/sites/default/files/Scan%20of%20Revamped%20VGF%20Guidelines%20alongwith%20all%20Annexures-compressed.pdf

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