Rs 10,000 cr SPV to fund core sector

RUN-UP TO THE BUDGET 2005

Funds could come from the proposed amnesty bonds.

The government is looking at a twin-track approach to funding infrastructure projects. It is planning to set up a special purpose vehicle (SPV) to fund these projects, along with a separate viability gap fund to push through projects that are economically viable, but not financially workable.

"An SPV, like a public sector unit, could be set up to raise long-term, low-cost funds from various sources for infrastructure projects. If a project is economically viable, but not financially viable, it could get viability gap funding from the government," said officials.

This funding will be provided as part of the budgetary support to the Plan. The finance ministry is reportedly not in favour of providing more than Rs 2,000 crore for the corpus. The SPV will, however, be outside the budgetary process.

The proposed 10,000 crore SPV will fund projects in roads, railways, ports, greenfield airports, power and urban infrastructure among others. Funds could come from the proposed amnesty bonds for black money, for instance. Import of capital equipment for these projects will entail use of foreign exchange reserves.

To be eligible for funding, the implementing agency for the project will have to have at least 40 per cent private equity.

"Infrastructure projects need large investments which cannot be purely budget driven. They also need long term funds, which are difficult to find in the market.

Financial viability of these projects can be ensured by providing government support to reduce project costs," said officials.

In order to facilitate such investments, the SPV, to be housed in the Finance Ministry, will provide support to joint-venture projects endorsed by ministries and for central projects approved by the appropriate authorities.

Ministries will have to formulate public private partnerships. The viability gap funding could be routed to the projects either through the Finance Ministry or through the administrative ministry, depending on the nature of the project.