Hybrid Annuity Model

The Union Transport Ministry is planning to complete all the stalled highway projects under a new model called Hybrid Annuity Model. This model was proposed last year and is a mix of BOT (Built Operate Transfer) and EPC (Engineering, Procurement and Construction) model.

Comparing the models

Currently, there are three different models in India for awarding the National Highways Projects viz. BOT-Annuity, BOT-Toll and EPC.

In BOT-Annuity, the developer constructs the road, maintains it and gets the fixed payment from the government. This model needs frequent government payments, which are guaranteed though deferred sometimes. Since the annuity contract is of long term (15-20 years), this model has not been much attractive at all places.

Difference between BOT (Toll) and BOT (Annuity) is that in the case of BOT (Toll), the traffic/commercial risks are borne by the concessionaire and the investment is sustained by toll revenues. Tolls are not feasible at every place. For example, toll is not feasible in rural / semi-urban areas. Further, since collection of toll depends on traffic, the developer faces so called traffic risk in this model. In case of EPC model, the developer faces only the construction risk.

How the New Model would work?

Under the new model, Government would provide upfront around 40% of the project cost to developer to start the work and remaining 60% would be borne by the private player. Once the project is completed, the NHAI will collect toll and refund the private players in instalments for 15-20 years. This implies that the toll collection job will be done by NHAI. This model is being cited beneficial because of the following:

  1. Compared to the BOT Annuity / EPC projects, it would ease the cash flow pressure on the government.
  2. Compared to BOT Toll model, the traffic risk is not associated with the concessionaire, it gives him some comfort level to lend from the banks.

The Government expects to attract more private investment under the new model as the developer has to meet 60 percent of financial cost of the project.

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