Cabinet approves continued PPP with VGF for infra projects
ECONOMY & POLICY

Cabinet approves continued PPP with VGF for infra projects

The Cabinet Committee on Economic Affairs chaired by Prime Minister Narendra Modi has approved continuation and revamping of the scheme for financial support to public-private partnerships (PPPs) in infrastructure viability gap funding (VGF) scheme until 2024-25 with a total outlay of Rs. 8,100 crore.

The revamped scheme is mainly related to introduction of following two sub-schemes for mainstreaming private participation in social infrastructure: Sub scheme -1 (infrastructure and other): This would cater to social sectors such as waste water treatment, water supply, solid waste management, health and education. Projects in these industries face bankability issues and poor revenue streams to cater fully to capital costs. The projects eligible under this category should have at least 100% operational cost recovery. The central government will provide maximum of 30% of the total project cost (TPC) of the project as VGF and state government or sponsoring central ministry or statutory entity may provide additional support up to 30% of TPC.

Sub scheme -2 (health and education): This sub-scheme will support demonstration/pilot social sectors projects. The projects may be from health and education sectors where there is at least 50% Operational Cost recovery. In such projects, the Central Government and the State Governments together will provide up to 80% of capital expenditure and up to 50% of operation and maintenance (O&M) costs for the first five years. The Central Government will provide a maximum of 40% of the TPC of the project. In addition, it may provide a maximum of 25% of operational costs of the project in first five years of commercial operations.

Background: The Department of Economic Affairs at the Ministry of Finance had introduced "the Scheme for Financial Support to PPPs in Infrastructure (Viability Gap Funding Scheme)” in 2006 with a view to support infrastructure projects undertaken through PPP 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, hi this existing Scheme, VGF up to 40% of TPC is provided by the Government of India and the sponsoring authority in the form of capital grant at the stage of project construction (20% + 20%).

Since the inception of the scheme, 64 projects have been accorded 'final approval' with total project cost of Rs 34,228 crore and VGF of Rs 5,639 crore. Till the end of FY2019-20, VGF of Rs 4,375 crore has been disbursed.

Implementation: The new scheme will come into force within one month of the approval of the cabinet. Proposed amendments under the revamped VGF scheme would be suitably incorporated in the guidelines for the scheme.

Source: Government of India PIB

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