VIABILITY GAP FUNDING (VGF) & OTHER FINANCING:

Viability Gap Funding is the quantum of financial support provided by the central
government in the form of capital grant at the stage of project construction & is
limited to the 40% of capital cost of the project.
The General Financial Rules (GFR) is applicable for procurement of goods &
services mentioned in the contract.
In 2006, the Government set up India Infrastructure Finance Company Ltd. (IIFCL)
to provide long-term debt up to 20 per cent of the project costs to infrastructure
projects. Upto one-half of the lending by IIFCL can also be in the form of
subordinated debt, which often serves as quasi-equity. [4]
CONCESSION PERIOD:

Concession period is decided on project to project basis depending upon the

existing and growth in projected business after implementation of the project.

IMPORTANCE OF LEGAL CONSULTANTS:

Success of any contract depends upon how sound the contract is. Drafting
contract documents and bid documents play vital role, as these are the
documents which elaborate the contractual obligations, define regulations to be
followed, terms and conditions, procedures, concessions, lease agreements,
licenses and provide assistance in bidding, evaluation & forming the contracts.

RISK ALLOCATION:
Risks are distributed between the parties that are best suited to manage them.
However project risk is normally assigned to the private player to the extent, it is
capable to manage. The purpose is of doing so is to increase the innovation
leading to efficiencies in cost and services [2].
CONCESSION FEE:
Concession fee is a fixed sum of Rs. 1 per annum for the concession period.
Where the bidders do not seek any grant, instead willing to make a financial offer

to the government, they are free to quote a premium on the concession fee in
the form of a share in revenues from user fee. In addition, share revenue quoted
for the initial year could be increased for each subsequent year by an additional
subsequent year. The rationale behind the above fee structure is that in the
initial years, debt service obligations of the private entity is more and substantial
& over the years concessionaire have increasing surplus in its hand on account of
declining debt service on the one hand & rising revenues on the other hand. [3]
FINANCIAL CLOSE:
In order to complete the project on time, it is required that the financial
availability must be confirmed by the private partner within 180 days
(extendable up to 120 days on payment of penalty) for finance close, failing
which bid security will be liable for forfeited.

FORCE MAJEURE CLAUSE:

Concessionaire is protected against any political actions/instability, which may
have adverse effect on the project.
KEY TO SUCCESSFUL PPPs:

Statutory & Political environment

Public sector organization structure

Detailed contract

Guaranteed Revenue Scheme

Stakeholder support

Careful selection of Private partner

Optimum risk allocation

AUDIT:
Upon completion, the project is audited by Comptroller & Auditor General of
India (CAG) & based on the guidelines issued by International Organization
of Supreme Audit Institutions (INTOSAI), among others.