A new PPP model for road development
The government has approved the new Hybrid Annuity Model (HAM) for road projects, to accelerate highway construction in the country. The government stated that under the new model, the lender, the developer and concessionaire would have an increased comfort level due to sharing of costs with the government. The move seeks to encourage increased participation by the private sector in highway construction projects.
Road development was earlier carried out under BOT (Build, Operate and Transfer) Model in which, the project proponent was expected to bear the entire project cost. It had 2 variants BOT-Annuity and BOT-Toll. Under the BOT-Annuity variant, the developer gets fixed payments from the government, while the government collects the toll levied on the road. Under the BOT-Toll variant, the developer collects the toll.
To overcome issues facing the BOT model, the government came up with the Engineering Procurement and Construction (EPC) model in which the cost was completely borne by the government. However, with limited governmental resources it drastically slowed down the rate of highway construction. Hence, the government has now come up with Hybrid Annuity Model (HAM) to strike a balance between BOT and EPC.
Highway construction in India slowed due to slow growth in traffic and delays in land and environmental clearances, which shot up project costs exponentially. Consequently, private players began to shied away from new projects.
Hybrid Annuity Model is a form of public-private partnership(PPP) in which the government contributes to the project cost through fixed installments, across the project duration. It reduces the financial burden on the developer as part of the project cost is borne by the government. It is expected to revive the growth in road construction by encouraging private developers to take part in road projects.
The Rs.7000 crore Delhi-Meerut expressway is likely to be the among the initial projects to be awarded under the Hybrid Annuity Model.
The National Highway Authority of India (NHAI) will be responsible for collection of toll under HAM, thus reducing traffic risk on developers. Unlike EPC model where the government had to make the complete payment within 3 years during construction phase of the project, in HAM the payments will be much more staggered. This will substantially increase the number of projects government can undertake simultaneously.
