Viability gap funding in key infrastructure sectors

By Akshay Jaitly, Amar Narula and Aniket Prasoon, Trilegal
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The Scheme and Guidelines for Financial Support to Public Private Partnerships in Infrastructure, 2008 issued by the Department of Economic Affairs of the Ministry of Finance provide an avenue for obtaining financial support from the government for infrastructure projects that are considered economically essential but commercially unviable.

Akshay Jaitly Partner Trilegal
Akshay Jaitly
Partner
Trilegal

The government can provide up to 20% of the project cost as viability gap funding (VGF) and the host state government can provide an additional 20% of the project cost. The VGF guidelines envisage that a project must be undertaken on a public-private partnership (PPP) basis. Under the VGF guidelines, a PPP project must fulfil the following criteria to be eligible for a VGF grant:

(a) Concession and contract for the project must be awarded to a private sector company;

(b)The private sector company must be selected by the relevant central government ministry, state government or statutory authority through a competitive bidding process;

(c) The project should be developed, financed, constructed, maintained and operated by the private sector company;

(d) The project must fall under the eligible sectors specified under the VGF guidelines;

(e) The project should provide a service against the payment of a pre-determined tariff or user charge; and

(f) The relevant ministry, state government or statutory authority requiring the VGF should certify, with reasons that the: (i) tariff or user charge cannot be increased to eliminate or reduce VGF; (ii) concession period cannot be increased to reduce the VGF; and (iii) capital costs are reasonable and based on the standards and specifications normally applicable to such projects and the capital costs cannot be further restricted for reducing the viability gap.

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Akshay Jaitly is a partner in the Delhi office of Trilegal where Amar Narula and Aniket Prasoon are associates. Trilegal is a full-service law firm with offices in Delhi, Mumbai, Bangalore and Hyderabad. The firm has over 120 lawyers, some of whom have experience with law firms in the US, the UK and Japan.

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