Centre may hike viability gap funding to 30%

With the public-private participation (PPP) model failing to take off in a big way, especially with regard to implementation of infrastructure projects under the Jawaharlal Nehru National Urban Renewal Mission (JNNURM), the Union urban development ministry has favoured an increase in the viability gap funding (VGF) from the present 20 per cent to 30 per cent.

The move, when the Union finance ministry gives the go-ahead, is expected to fast track urban infrastructure projects in the 63 mission cities identified across the country under JNNURM "" the UPA government's ambitious programme aimed at converting the cities into dynamic growth centres by involving the private sector.

VGF was mooted as a special scheme to support the financial viability of infrastructure projects that are economically justifiable but not commercially feasible in the immediate future.

The scheme envisages an upfront grant of up to 20 per cent of the project cost for state or central public-private partnership (PPP) projects that are being implemented by a private sector developer who is selected through competitive bidding.

VGF is applicable to projects in the sectors of roads, Railways, seaports, airports, power, water supply, sewerage and solid waste management.

However, the Centre's experience has been different. Urban development secretary M Ramachandran told Business Standard: "The urban infrastructure projects are not drawing investors from the private sector on the expected lines. The finance ministry has sanctioned 20 projects under the VGF scheme so far, but there is nothing that pertains to urban infrastructure development. We are trying to ascertain reasons for the lack of interest."

According to Ramachandran, the PPP model is working moderately only in a few sectors like roads and ports.

While requests for VGF is coming for mega projects like Metro rail, water supply, sewerage and solid waste management have not been able to draw the private sector, he pointed out.

"In this backdrop, we have suggested an increase in the VGF for urban infrastructure projects to 30 per cent. We have told the finance ministry that the additional 10 per cent will be borne by us. VGF is a great tool to expedite projects," he said.

So far, some 314 projects have been approved for 57 cities across the country under the JNNURM and the activity generated in these cities is worth Rs 27,000 crore.

Though the urban development ministry plans to change the face of the cities through the PPP model by using VGF, the official machinery, which is engaged in field operations is sceptical.

Bangalore Water Supply and Sewerage Board (BWSSB) chairperson Latha Krishna Rau pointed out: "Sewerage and storm water drains are difficult areas to draw private investors and bankers. This is not an infrastructure where the private sector are assured of fast returns. To simplify it, sewerage lines are not parking complexes or roads where the private sector is interested."

Unless there is a change in the mindset of the investors or the Central government chips in with additional grants, projects like sanitation will find it difficult to take off.