Confusion over SPV for core project funding

The finance ministry's note on a special purpose vehicle (SPV) set up to fund core infrastructure projects has caused confusion in a number of ministries.

The confusion is because the SPV is seen as replicating the existing lending mechanism available to fund these projects.

The note says only those projects which are commercially viable, and those which have received viability gap funding and have become viable, will be eligible for funding.

"With no guidelines available as yet on the viability gap fund, the only projects which will qualify for funding will be the ones which are commercially viable. Therefore, they do not need the special funding," said officials.

"A large number of infrastructure projects are not financially viable. They need the viability gap funding simultaneously to complete the financing picture. In fact, the viability gap funding is required before the SPV is set up. Or else, it is a mere substitute for the existing system," an official said.

The note also says the SPV may lend directly to projects as part of a consortium, provide take-out financing or refinance projects.

"This means that road projects, which can become viable with longer-term debt, will not be eligible for financing," he added.

Finance Minister P Chidambaram, in his Budget speech, had said, "The SPV will lend funds, especially the debt of longer-term maturity, directly to eligible projects, to supplement other loans from banks and financial institutions."

"This clearly rules out the re-financing option mentioned in the draft note," said an official. He added that take-out financing ought to be arranged, but the SPV should only make bridging provisions.