New Government plans to provide more VGF to encourage PPPs in metro and rapid rail arena
In order to ensure that there is an increase in the number of public-private partnership (PPP) projects in the metro and rapid rail arena, the new Government plans to make the remunerative aspect of investments more lucrative by providing more viability gap funding (VGF).
According to sources, the new Government is apparently planning to provide VGF of between 30 and 35 percent, in an evident attempt to encourage PPP projects in the metro space.
The government’s apparent reasoning behind providing a 30-35 percent VGF – as against the present quantum of 20 percent – is that concessionaires can be more easily allured by a VGF that is close to one-third of the total cost of a project.
Against the backdrop of the fact that some of the PPP projects in the metro arena have witnessed an escalation in costs, a senior official of Urban Development Ministry said that a Cabinet note is “in the works” with regard to enhanced VGF and easier rules for land acquisition, as well as for allowing government-to-government pricing for land.
Meanwhile, among the PPP metro projects that have witnessed an escalation in costs is the Hyderabad metro, which is being constructed by Larsen & Toubro under PPP/build-operate-transfer model. The metro was proposed to be completed in 2017, but it has seen a project escalation of as much as Rs 2,000 crore, at current interest rates, on an estimated project cost of R16,000 crore.
Source – The Financial Express
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