Govt plans higher Viability Gap Funding to attract private investment in highways

The matter was discussed at a high-level meeting held recently at NITI Aayog.

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Government is looking to provide additional funds to highway builders to make projects under the Public-Private Partnership (PPP) mode more financially viable, where private players recover their investments through toll collection.

At present, such funding, known as Viability Gap Funding (VGF), is capped at 40 per cent of the project cost. It is learnt that under the proposed plan, VGF beyond this cap would be paid by highway authorities in installments, through annuity payments.

The matter was discussed at a high-level meeting held recently at NITI Aayog. A framework for the revised VGF mechanism will be developed, as govt is keen to attract more private investment in the infrastructure sector, sources said.The timing of the proposal is significant, considering that NHAI and highways ministry are finalising an overhaul of the contract document for projects built under Build Operate and Transfer (BOT-Toll) mode to attract more private investment in the highway sector.Officials said the govt has modified several provisions in the contract document to make the highway sector more lucrative. More changes are being made after getting feedback from private highway builders and project financing entities, including a proposal to make 95 per cent of land available before start of construction work in BOT-Toll projects.

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