Centre ready to go extra mile for core projects: FM

Finance Minister P Chidambaram on Saturday assured state Governments that the Centre would look into the possibility of being flexible while considering proposals for viability gap funding

Finance Minister P Chidambaram on Saturday assured state Governments that the Centre would look into the possibility of being flexible while considering proposals for viability gap funding (VGF).

Replying to a query raised by Kerala at the conference of chief secretaries on public private partnerships where a particular port project did not meet requirements for VGF laid out by the Centre as the state wants VGF to be given as a “soft loan” for the initial few years of the project, the FM said the Finance Ministry “will look into the issue”. VGF is an important policy instrument of the Centre aimed at improving the viability of an infrastructure project. Unlike some lucrative projects where a developer is assured of a steady cash flow, there are some projects—which are important for the state or for the nation—that do not have the required or assured cash flows making the project an unviable proposition for private investment.

In order to make these projects viable, the Centre, under the VGF, can chip in up to 40 per cent of the project cost. However, the calculation for VGF is based on the entire concession agreement period and is extended as a grant.

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Some states like Kerala pointed out that VGF had been designed only for road projects and did not have the required flexibility to meet financing requirements of port projects. It was pointed out that the PPP appraisal committee did not consider its particular port project for VGF as it did not meet the required conditions. The states, on their part, said they needed money only for the initial few years and thereafter were confident that the project would have a good revenue stream. Added to this, they want this money to be given as a loan and not as a grant.

While the Centre is expected to make the required modifications in the VGF scheme, it has also made it clear to states that VGF will not go beyond 40 per cent.

The FM reiterated the importance of creating a shelf of infrastructure projects through PPP. At last year’s conference of chief secretaries, the FM had told officials from the states and the Centre to work on building a shelf of projects that could then be executed in a PPP mode.