Viability Gap Funding By Ashok Chawla Additional Secretary Department of Economic Affairs, Government of India 20 th December, th December, 2006

December 20, 2006 PPP Cell, Department of Economic Affairs, Ministry of Finance Infrastructure – Indicative Investment SectorInvestment (Rs. in crore) To be made by National Highways 2,20, Airports 40, Ports 50, Energy5,40,

December 20, 2006 PPP Cell, Department of Economic Affairs, Ministry of Finance New Approach Promote flow of private capital in infrastructure through Public Private Partnerships (PPPs) Progress uneven over the past few years

December 20, 2006 PPP Cell, Department of Economic Affairs, Ministry of Finance PPPs in India – Issues Political commitment Legal and regulatory framework Commercial viability Inclusive growth Acceptable risk sharing Capacity in the line organizations

December 20, 2006 PPP Cell, Department of Economic Affairs, Ministry of Finance Recent GOI Initiatives Viability Gap Funding Scheme India Infrastructure Finance Company Limited (IIFC) Capacity Building in States for PPPs

December 20, 2006 PPP Cell, Department of Economic Affairs, Ministry of Finance 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

December 20, 2006 PPP Cell, Department of Economic Affairs, Ministry of Finance 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

December 20, 2006 PPP Cell, Department of Economic Affairs, Ministry of Finance VGF Scheme – Eligible Sectors Transportation Energy Urban Infrastructure Tourism infrastructure projects Industrial infrastructure projects (eg. SEZs) Any other

December 20, 2006 PPP Cell, Department of Economic Affairs, Ministry of Finance 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.

December 20, 2006 PPP Cell, Department of Economic Affairs, Ministry of Finance 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

December 20, 2006 PPP Cell, Department of Economic Affairs, Ministry of Finance 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

December 20, 2006 PPP Cell, Department of Economic Affairs, Ministry of Finance 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

December 20, 2006 PPP Cell, Department of Economic Affairs, Ministry of Finance 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 : borrowing limit fixed at Rs. 10,000 crore

December 20, 2006 PPP Cell, Department of Economic Affairs, Ministry of Finance 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

December 20, 2006 PPP Cell, Department of Economic Affairs, Ministry of Finance Thank You