FinMin moots 40% solution for public-pvt projects

Official sources said that under PPP, the government’s intention is to kickstart unviable infrastructure projects by extending grants in the form of viability gap funding up to a maximum of 40 per cent of the capital cost.

While the finance ministry can fund up to 20 per cent of the project cost, the nodal ministry can extend up to 20 per cent, thereby taking the total amount to a maximum of 40 per cent.

The infrastructure projects under PPP include, ports, airports, roads, power projects etc. While some promoters (Gurgaon-Delhi Expressway, Jawaharlal Nehru Port Trust) are giving money to the government (negative grant), there are other non-lucrative projects that directly need government support to make them viable.

PPP and viability gap funding would be critical for promoters of these latter projects, sources said.

Under the plan, the finance ministry, along with the concerned ministry, would lay down the parameters for executing the project and would set milestones for the promoters.

Based on the project specifications and the user chargers, the promoter (also called the concessionaire) would then approach the finance ministry for the funding.

Once convinced on the promoter’s need for the funding and the milestones set out, the government would give a commitment to meet the funding requirement for the project.

Officials pointed out that this does not mean that the cash grant is given to the promoter upfront but only a promise to extend the amount is made to the promoter of that particular project. It is based on this promise that the promoter can seek funds from banks or financial institutions to execute the project.

The rider put by the finance ministry is that the promoter along with his financer (be it banks or financial institutions) would have to first put their money into the venture before the grant is released from the government. This release can be at any stage of the project life cycle – it can be in the initial years or even after five years of operation.

The finance ministry and the nodal ministry that forwards the project proposal would constantly monitor the project progress based on the milestones and the terms and conditions set out in the bid documents.

Under the PPP viability gap funding, Finance Minister P. Chidambaram has already earmarked Rs 1,500 crore in his Budget for 2005-06.

However, official sources said that actual disbursal from this corpus is only expected in the next financial year.