By S&S Co. Advocates & Solicitors · Published 9 February 2026 · Informational content, not legal advice: see our disclaimer
What VGF Is Meant to Address
Certain PPP infrastructure projects, particularly in sectors with long gestation periods or capped user charges, such as some urban transport, water supply or social infrastructure projects, are not commercially viable on user-fee revenue alone. The Viability Gap Funding (VGF) scheme, administered by the Department of Economic Affairs, Ministry of Finance, provides capital grant support of up to a specified percentage of total project cost to bridge this viability gap, making otherwise unviable PPP projects bankable.
The Appraisal Process
A project seeking VGF support must be appraised and recommended by the relevant sectoral ministry or state government, and then considered by the Empowered Institution or Empowered Committee under the VGF scheme guidelines, which examines the project's PPP structure, the competitive bidding process proposed for selecting the private partner, and the extent of viability gap genuinely requiring grant support. VGF is intended to supplement, not substitute for, a project's own revenue-generation potential and private investment.
Disbursement Conditions and Milestones
VGF grants are typically disbursed in tranches linked to project milestones: a portion during construction, tied to physical progress certified by an independent engineer, and a further portion after commercial operations date, sometimes structured as deferred annuity-style support rather than a single upfront payment. Project sponsors should build VGF disbursement milestones into their financial model and lender documentation, since a delay in achieving a certified milestone can delay the corresponding VGF tranche and affect project cash flows.
Common Compliance Pitfalls
Recurring compliance issues include: failure to maintain the specific asset-ownership and revenue-sharing structure approved at the appraisal stage without prior approval for material changes; inadequate documentation of the competitive bidding process used to select the concessionaire, which the VGF scheme guidelines require to be transparent and competitive; and delay in submitting utilisation certificates and independent engineer progress certifications required to trigger each disbursement tranche.
Frequently Asked Questions
Can VGF be combined with other central or state capital grants for the same project?
This depends on the specific scheme guidelines applicable to the project and sector: some combinations are permitted subject to an overall cap on total government support as a percentage of project cost, and sponsors should confirm the applicable ceiling with the appraising authority before assuming stackability.
Does a change in the concessionaire (through assignment or a lender's step-in right) affect VGF disbursement?
It can: most VGF sanctions are tied to the specific project structure and concessionaire approved at appraisal, so a change in the concessionaire entity typically requires prior intimation to, and in many cases approval from, the sanctioning authority to avoid disruption to remaining disbursement tranches.
Who bears the risk if VGF disbursement is delayed despite milestones being achieved?
This is a matter of contract and project-financing structure: sponsors should ensure their financing documents and concession agreement address how a VGF disbursement delay (as distinct from a milestone non-achievement) affects debt service and any authority support obligations.
References & Further Reading
This article references the following statutory provisions. Readers should always verify current rules, fees and timelines against the applicable statute and rules as amended, since these are revised from time to time.
- Scheme for Financial Support to Public Private Partnerships in Infrastructure (Viability Gap Funding Scheme), Department of Economic Affairs, Ministry of Finance, as amended.
- Guidelines for Formulation, Appraisal and Approval of PPP Projects, Department of Economic Affairs.