In an attempt to encourage investment in infrastructure projects, the Centre on Wednesday said it would fund 20 per cent of the cost of approved infrastructure projects.
The draft norms for viability-gap funding -- funding for projects that are unable to achieve financial closure because there is no agency to underwrite the risk -- issued by the finance ministry on Wednesday says to qualify for central support, the entities building 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, ports, railways, power, water supply, sewerage and solid waste disposal in urban areas, as well as building of international convention centres. In Budget 2004-05, the Centre provided for Rs 1,500 crore (Rs 15 billion) to fund viability gap-projects.
The draft guidelines follow the announcement made by Prime Minister Manmohan Singh on Tuesday that infrastructure would be the main focus of the government's investment programme.
The public-private partnership drawn up by the Centre says the government support from all sources for the project will be capped at 20 per cent. This includes funding from state governments and their agencies also.
The funding by the Centre could be through capital grants, subordinated loans, operation and maintenance support grants or interest subsidy.
The government might also consider a mix of capital and revenue support for projects. However projects must be vetted by the nodal ministries concerned for becoming eligible for support. Viability gap funding was 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.
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