THE SCHEME FOR FINANCIAL SUPPORT TO PPPS IN INFRASTRUCTURE (VIABILITY GAP FUNDING SCHEME)

Subject : Economy

Context :The Cabinet Committee on Economic Affairs has approved Continuation and Revamping of the Scheme for Financial Support to Public Private Partnerships (PPPs) in Infrastructure Viability Gap Funding (VGF) Scheme till 2024-25.

Concept :

• Background: The Department of Economic Affairs, Ministry of Finance introduced “the Scheme for Financial Support to PPPs in Infrastructure” (Viability Gap Funding Scheme) in 2006.
• The revamped Scheme is mainly related to introduction of following two sub-schemes for mainstreaming private participation in social infrastructure:

Sub scheme–1:

• This would cater to Social Sectors such as Waste Water Treatment, Water Supply, Solid Waste Management, Health and Education sectors etc.
• The projects eligible under this category should have at least 100% Operational Cost recovery.
• The Central Government will provide maximum of 30% of Total Project Cost (TPC) of the project as VGF and State Government/Sponsoring Central Ministry/Statutory Entity may provide additional support up to 30% of TPC.

Sub scheme–2:

• 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 upto 50% of Operation & Maintenance (O&M) costs for the first five years.

Viability Gap Funding (VGF) Scheme

• Viability Gap Finance means a grant to support projects that are economically justified but not financially viable.
• The scheme is designed as a Plan Scheme to be administered by the Ministry of Finance and amount in the budget are made on a year-to-year basis.
• Such a grant under VGF is provided as a capital subsidy to attract the private sector players to participate in PPP projects that are otherwise financially unviable.
• Projects may not be commercially viable because of the long gestation period and small revenue flows in future.
• The VGF scheme was launched in 2004 to support projects that come under Public-Private Partnerships.