Govt gives nod for hybrid annuity model for highway projects

28 Jan 2016 Evaluate

In a bid to revive public-private-partnership (PPP) mode and attract more investments in roads projects, the government has approved hybrid annuity model for building roads. The decision was taken by the Cabinet Committee on Economic Affairs (CCEA), chaired by Prime Minister Narendra Modi. The main objective of the approval is to revive highway projects in the country by making one more mode of delivery of highway projects.

The hybrid annuity model is a mix of engineering, procurement and construction (EPC) and build-operate-transfer (BOT) formats, with the government and the private companies sharing the total project cost in the ratio of 40:60 respectively. Under this model, the government will provide 40 per cent of the project cost to the developer to start work, while the remaining investment has to be made by the developer. Adopting such a model for projects not found viable on BOT (Toll) mode, shall be more effective in terms of maximizing the quantum of kilometers implemented within the available financial resources of the government.

The new model will increase financial comfort for all the major stakeholders in the PPP arrangement, namely the authority, the lender and the developer, resulting in revival of the sector through renewed interest of private developers/investors in highway projects and this will bring relief thereby to travelers in the area of a respective project. The model further will facilitate upliftment of the socio-economic condition of the entire nation due to increased connectivity across the length and breadth of the country leading to enhanced economic activity.

Under the new model, projects will be financed only to a certain extent by the private investor. This investment will be recovered through annuity payments by the government over a specified period. The balance percentage of the project cost is provided by the government during the construction period. In addition, the new model will ease the burden on the government coffers, as it will reduce dependence on the public funded EPC mode for development of highway projects.Further, the private partner will continue to bear the construction and maintenance risks as in BOT (Toll) projects, it is required only to partly bear financing risk. The developer is insulated from revenue/traffic risk and the inflation risk, which are not within its control.

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