The government's liability on account of annuity payments for highway construction has touched a whopping Rs 83,794 crore. This is more than three times the value of the projects awarded under the annuity mode, which involves fixed periodic payments by the government.
The government has so far awarded 41 projects to a total to Rs 24,386 crore. The average annual annuity outgo of the government on this account is Rs 5,263 crore.
Build Operate and Transfer (annuity) is one among the two Public-Private Partnership (PPP) modes on which the National Highways Authority of India (NHAI) awards projects. The other is BOT (toll).
Unlike the BOT toll model, where the private operator takes on the risk of toll collection, the government mitigates the risk of toll income in the annuity model by guaranteeing six monthly payments over the concession period, which normally goes up to 18 years.
At present, NHAI awards projects covering 2,000 km under the annuity model every year. "The government liability figure should be seen in the context that the developers also maintain the roads over the concession period. Besides, this allows the government to get private sector to bear the burden upfront," said a senior government official who did not want to be quoted.
Among the 41 projects awarded on annuity, eight are under the first phase of the National Highways Development Programme (NHDP), 20 are under the second phase of NHDP, 11 are under the third phase and one under the fourth phase of the NHDP. The rest is under the Special Accelerated Road Development Project for the North East.
NHAI had earlier planned to award projects worth Rs 20,000 crore on annuity basis in the next financial year but that is set to change. But new Road Transport Minister C P Joshi has insisted on awarding projects on other modes than on annuity and the finance ministry has put a cap on the annuity outgo of NHAI.
Joshi’s insistence echo the view prevalent in the large section of the government, which believes that awarding projects on BOT (annuity) is becoming an expensive venture for them.
The wings of the government are in favour of taking road projects on engineering procurement contract (EPC) basis than paying so much to the contractor on annuity.
| HEADED NORTH | |||
| Phase/project | Value | Amount committed | Annual outlay |
| NHDP-I | 2,353 | 8,635 | 575 |
| NHDP-II | 13,912 | 49,177 | 3003 |
| NHDP-III | 4,559 | 1,332 | 3907 |
| NHDP IV | 2,798 | 9,596 | 581 |
| SARDP-NE | 762 | 3,062 | 194 |
| Source: Union Budget 2011-12 (figures in Rs cr) | |||
Public-Private Partnership Appraisal Committee (PPPAC), an inter-ministerial committee that approves subsidy for pay outs to infrastructure projects by way of viability gap funding, is also opposed to the BOT annuity mode of bidding.
The government pays contractors upfront in the EPC mode. Prior to opening up of the road sector, highway contracts were given out on EPC. National Highways Authority of India now awards less than 20 per cent of its projects on EPC basis. The build, operate and transfer (BOT) model was introduced to bring in private investment into construction through tolling and annuity modes.
