Centre to fund 20% of core sector plans

The entities constructing projects should have at least 40% private sector equity.

In an attempt to encourage investment in infrastructure projects, the Centre today said it would fund 20 per cent of the cost of approved infrastructure projects.

The draft viability gap funding norms issued by the finance ministry today says to qualify for the central support, the entities constructing the projects should have at least 40 per cent private sector equity.

The guidelines will cover projects in a large number of infrastructure sectors including roads, seaports, railways, power, water supply, sewerage and sold waste disposal in urban areas, as well as building of international convention centres.

In Budget 2004-05, the Centre has provided for Rs 1,500 crore to fund viability gap projects. The issue of the draft guidelines follows the announcement made by Prime Minister Manmohan Singh yesterday, that infrastructure would be the kingpin of the investment programme by the present government.

Viability gap projects are those which seem very useful for the community, but are unable to achieve financial closure, due to lack of an agency to underwrite the risk component of the project.

The public private partnership model firmed up by the Centre says the 20 per cent limit would be the upper limit for government support from all sources for the project. This would include funding from state governments and its agencies also.

According to the guidelines, the funding by the Centre could be as capital grants, subordinated loans, operation and maintenance support grant or as interest subsidy. It could also consider a mix of capital and revenue support for the projects.

However the projects must be endorsed or vetted by the concerned nodal ministries for being eligible for such support. Viability gap funding has been mooted by the previous NDA government also to give a fillip to infrastructure projects. But the previous government was unable to issue the guidelines.

Today's guidelines also say that the Centre would release its funding support for the infrastructure projects, based on fulfillment of agreed milestones in the completion of the project.

To ensure proper use of the funds, the Centre would pay the sum to the lead financial institution, which would initially release the viability gap funding from its own resources.

The project proposal for viability gap funding must be accompanied by a preliminary project appraisal carried out by a public financial institution. In turn the Centre would intimate the sponsors of the project, within 30 days about the eligibility of the project for such funding.