PROJECT SUSTAINABILITY GRANT FUND (PSGF)

The Government of Tamil Nadu is providing capital grant / viability gap funding to Urban Local Bodies (ULBs) with an objective to achieve financial sustainability of urban infrastructure projects which directly benefit urban population. The funding sources are mainly from the externally aided projects assisted by International Bank for Reconstruction and Development (The World Bank), German Development Bank (KfW), Japan International Cooperation Agency (JICA), Asian Development Bank (ADB) and by Government of Tamil Nadu (GoTN).

The Government of Tamil Nadu (GoTN) has created Project Sustainability Grant Fund (PSGF). The PSGF is a non lapsable fund created by GoTN to provide grant for implementing urban infrastructure projects in the State of Tamil Nadu. The Fund is operational from 1st April, 2015. The Fund is managed by Tamil Nadu Urban Infrastructure Financial Services Limited (TNUIFSL).

OBJECTIVES:

The PSGF is capital grant to support implementation of urban infrastructure projects and provide grant for operation of credit enhancement mechanism. The PSGF will be used to assist eligible applicants for the following:

• to provide capital grant for implementation of urban infrastructure projects which directly benefit the urban low income population;
• to provide viability gap funding with an aim to achieve financial sustainability of urban infrastructure projects which directly benefit urban population;
• to provide grant to operate credit enhancement mechanisms for issue of bonds, debt instruments and other borrowings.

FUND SIZE, SOURCE & ALLOCATION

The corpus for the Fund will be provided by Government of Tamil Nadu through various sources as detailed below:

• the external aided projects assisted by World Bank, KfW, ADB and JICA through annual budgetary allocation, based on the lines of credit in operation;
• the external aided projects assisted by World Bank, KfW, JICA and such other funding institutions through annual budgetary allocation, which may be availed from time to time;
• the transfer of available funds from Grant Fund-I under TNUDP III, KfW Grant Fund –I under SMIF-TN Program, SMIF-TN-II-1 Program, SMIF-TN-II-2 Program and JBIC Grant Fund-I under TNUIP to the PSGF;
• the interest from deposits, investments and any other income earned or accruing to the PSGF shall form part of its corpus and shall be applied for the objective for which the Fund is created;
• other sources and means as ordered by the Government form time to time.

ELIGIBILTY CRITERIA

All categories (Corporations, Municipalities and Town Panchayats) of ULBs in the State of Tamil Nadu and Chennai Metropolitan Water Supply & Sewerage Board (CMWSSB) are eligible to avail financial assistance in the form of grant for implementation of urban infrastructure projects. All ULBs in the State of Tamil Nadu, Tamil Nadu Urban Development Fund (TNUDF) & Water and Sanitation Pooled Fund (WSPF) are eligible to avail financial assistance for operating credit enhancement mechanisms for issue of bonds, debt instruments and other borrowings.

The financial assistance as capital grant / viability gap grant under the PSGF will be provided to the eligible applicants for implementation of eligible urban infrastructure projects subject to the following conditions:

• more than 20% of project beneficiaries shall be the people living below the poverty line / urban low-income population;
• 80% of property tax in the case of ULBs / water and sewerage tax in the case of CMWSSB should have been collected in the pervious three financial years prior to the year of application for assistance in the form of grant for the project;
• all loan dues should have been paid to the lenders as on the date of application for assistance in the form of grant for the project.

In case of the projects which directly benefit the people living below the poverty line / urban low-income population, the justification for the use of the PSGF should be substantiated in the grant application by indicating the number of targeted people living below the poverty line / urban low-income population & the total population in the project area and expected impact on the improvement of the living standard of the targeted people living below the poverty line / urban low-income population.

The financial assistance, to operate credit enhancement mechanisms in the form of bond service fund / credit enhancement fund / other forms of cash collateral for issue of bonds, debt instruments and other borrowings by the eligible applicants, will be provided subject to the following conditions:

• all loan dues should have been paid to the lenders as on the date of application for assistance to operate credit enhancement mechanism and;
• average Debt Service Coverage Ratio (DSCR) should be above 1.25 for the entire tenor of the proposed bond program.

All urban infrastructure projects assisted under the external lines of credit are eligible for capital grant / viability gap grant under the PSGF subject to the compliance of other conditions prescribed in this guideline. The financial assistance for capital grant / viability gap grant under the PSGF for other urban infrastructure projects which are not covered above shall be decided by the Government based on the recommendations of the Sanctioning Committee, from time to time.

The urban infrastructure project include the sub-projects implemented with the objective of creation of urban infrastructure, provision of urban utilities, facilities and services, up-gradation of the living standards of urban population and improvement in the delivery of urban services to such population such as water supply, sanitation & sewerage, solid waste management, storm water drainage, roads & bridges, bus stands, office complex, commercial complex, restoration & improvement of water bodies, street lighting, climate adaptation measures, improvements to burial grounds, park & play ground, energy efficiency and cost reduction projects.

The capital grant / viability gap grant shall not exceed 50% of the cost of the project (excluding interest during construction). Norms, if any, prescribed in external aided schemes shall be adhered to in this regard. However the Sanctioning Committees will have the flexibility to decide the quantum of grant based on the necessity of the project, assessment of financial viability of the project and the financial strength of the respective applicant.

In the case of grant for operating credit enhancement mechanism the grant should not exceed 25% of the issue size of the bonds, debt instruments and other borrowings.

APPLICATION AND APPRAISAL

Application for capital grant / viability gap grant / credit enhancement grant by the eligible applicant shall be submitted to TNUIFSL. Council Resolution / Board resolution for availing capital grant, copy of the Detailed Project Report and other necessary details have to be provided with the application. In the case of bond issue, detailed proposal has to be submitted along with the application.

SANCTION AND DISBURSEMENT OF GRANT

The recommendation of TNUIFSL shall be considered by the Sanctioning Committee for approval. Based on the approval of the Sanctioning Committee, TNUIFSL shall intimate the amount of grant sanctioned to the applicant and prescribe conditions as may be required for proper utilization of grant for the implementation of the project.

The capital grant / viability gap grant shall be disbursed to the eligible applicant, in one or more installments on acceptance of the terms & conditions of grant sanction by the applicant and based on the progress of project. The grant for operating credit enhancement mechanisms shall be kept and maintained in the form and manner prescribed in the credit program.

PROCUREMENT PROCEDURES

Procurement procedures for the implementation of urban infrastructure projects shall be in accordance with the guidelines prescribed by / agreed with the funding agency. In the case of other urban infrastructure projects which are not covered above the procurement procedures as prescribed under Tamil Nadu Transparency in Tenders Act,1998 and Tamil Nadu Transparency in Tenders Rules, 2000 and Tamil Nadu Transparency in Tenders (Public Private Partnership Procurement) Rules, 2012 (amended up to date) on shall be adhered to.

PERFORMANCE DURING 2019-20

A sum of Rs.425.00 crores has been received from Government during the financial year 2019-20 and a sum of Rs.302.35 crores has been disbursed to various ULBs during the financial year 2019-20.