SPV for core sector to start work by November

The government today thrashed out a compromise on the special purpose vehicle (SPV) to fund infrastructure projects. With another month required to finalise the legalities, the SPV is likely to start evaluating projects by November 2005

"The committee today considered and finalised two notes - one on the SPV and another on the procedure for public-private partnership in road projects. They will go to the Cabinet Committee on Economic Affairs next Thursday for approval," Finance Minister P Chidambaram said after a meeting today..

Sources said the Planning Commission and the finance ministry had divergent views on whether the entity would refinance existing project, companies which would be eligible for funding, the counter-guarantees to be provided, and the presence of government nominees on the board of the SPV, which would be a non-banking finance company.

Infrastructure projects like the rail freight corridor, Delhi and Mumbai airport upgradation, and road and port projects would be eligible for funding via the SPV.

"Top priority will be given to public-private partnerships and public sector projects, but private sector projects are not ruled out," said sources in the Planning Commission, which had opposed inclusion of private sector projects.

"Nothing is rigidly ruled out, but priorities have been set," they said on whether refinancing would be allowed.

The SPV, announced in the Budget for 2005-06 will have an initial paid-up capital of Rs 10 crore, but the authorised capital has been fixed at Rs 1,000 crore.

The SPV will raise money from various sources. As it would not be direct government lending, it would not be reflected in the fiscal deficit, but would be a part of the contingent liabilities of the government, said sources.

They added that the government would not provide a counter-guarantee to the amount lent by the SPV. "The government would guarantee the money raised by the SPV from the market. But, no counter guarantee would be provided to the SPV for its lending.

It would be expected to appraise projects and fund those which would be able to repay the amount they borrow," the sources said.

The SPV would provide only a portion of the debt to a company, parallel with financial institutions.