Govt revamps VGF scheme for infra projects, extends it till 2024-25
12 November 2020
The union cabinet has approved a revamp of the viability gap funding (VGC) scheme for financial support to public private partnerships in infrastructure projects and extension of the scheme for a further five years.
A meeting of the Cabinet Committee on Economic Affairs (CCEA), chaired by Prime Minister Narendra Modi, on Wednesday approved continuation and revamp of the scheme till 2024-25 with a total outlay of Rs8,100 crore.
The revamped scheme is mainly related to introduction of two sub-schemes for mainstreaming private participation in social infrastructure, namely, social sector schemes such as waste water treatment, water supply, solid waste management, health and education sectors etc. These projects face bankability issues and poor revenue streams to cater fully to capital costs. The projects eligible under this category should have at least 100 per cent operational cost recovery. The central government will provide maximum of 30 per cent of the total project cost (TPC) as VGF and state government/sponsoring central ministry/ statutory entity may provide additional support of up to 30 per cent of TPC.
VGF support will also be given to demonstration/pilot social sector projects in the health and education sectors where there is at least 50 per cent operational cost recovery. In such projects, the central government and the state governments together will provide up to 80 per cent of capital expenditure and up to 50 per cent of operation and maintenance (O&M) costs for the first five years. The central government will provide a maximum of 40 per cent of the TPC. In addition, it may provide a maximum of 25 per cent of operational costs of the project in first five years of commercial operation.
Since the inception of the scheme, 64 projects have been accorded 'final approval' with total project gost of Rs34,228 crore and VGF of Rs5,639 crore. Till the end of financial year 2019-20, VGF of Rs4,375 crore has been disbursed.
The scheme aims at promoting PPPs in social and economic infrastructure leading to efficient creation of assets and ensuring their proper operation and maintenance while making the economically/socially essential projects commercially viable. The scheme would be beneficial to public at large as it would help in creation of infrastructure.
The new scheme will come into force within one month of the approval of cabinet. Proposed amendments under the revamped VGF scheme would be suitably incorporated in the guidelines for the scheme.
A revamped VGF scheme is expected to attract more PPP projects and facilitate private investment in the social sectors (health, education, waste water treatment, solid waste management, water supply etc). Creation of new hospitals, schools will create many opportunities to boost employment generation.
The revamped scheme will be financed from budgetary support of the ministry of finance.
The Department of Economic Affairs, Ministry of Finance 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, Under the existing scheme, VGF up to 40 per cent of the total project cost is provided by Government, of India (Gol) and the sponsoring authority in the form of capital grant at the stage of project construction (20 per cent + 20 per cent).