CCEA approves Hybrid Annuity Model for implementing Highway Projects

The Cabinet Committee on Economic Affairs (CCEA) has given its in principle approval for the Hybrid Annuity Model for implementing the National Highway Projects.
The main objective of this model is to revive highway projects in the country by making it as one more mode of delivery of highway projects.
Key features of Hybrid Annuity Model

• Investment: Government will invest 40 per cent of the construction cost for building highways and the balance 60 per cent will come from the private developer.
• Government will investment will be based on the targeted completion of the road project in 5 equal installments.
• Recovery: The private developer will be able to recover his investment from the government by receiving annuity payments over a period of 15 years.
• Toll collection: There is a separate provision for operation and management payments by the government to the concessionaire.
• The highway toll tax will be collected by the government i.e. by the National Highways Authority of India (NHAI) unlike in the build, operate and transfer (BOT) toll model in which the private sector collects it.
• Thus, private party does not have to bear traffic and inflation risks as the project cost are also inflation indexed.

Advantages

• As there is distribution of risk between the government and private players in this model, it will speed up the construction of highways in the country.
• It will play revival in highway development sector as it brings long-term infrastructure funds like pension funds into the sector.
• It will facilitate uplifting the socio-economic condition due to increased connectivity across the length and breadth of the country due to enhanced economic activity.
• Expertise of private sector will be utilised to operate and maintain the highways and government no longer will be dependent on its limited financial resources.

Month: Current Affairs - January, 2016