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The National Highways Authority of India (NHAI) is all set to debut the hybrid annuity model (HAM) for award of highway projects by November this year. Taking a step in this direction, the NHAI has formulated a model concession agreement (MCA) under the new model and sent it to the ministry of road transport and highways for approval.
The government is looking at awarding 576 km of national highway projects under the new model in the current financial year for which detailed project reports (DPRs) have been prepared.
For 2015-16, the NHAI has identified 12 road projects, entailing an investment of Rs 15,905 crore and spanning Delhi, Uttar Pradesh, Himachal Pradesh, Jharkhand and Maharashtra. Further, for 2016-17, the government has identified 15 road projects - at a total length of 1,105 km - and entailing an investment of Rs 12,185 crore.
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"Since, we are executing the project on the hybrid annuity model for the first time, we need to have a model concession agreement document, which will be the basis for executing the agreement between the government and the concessionaire. Now, the MCA is ready and we have sent it to the ministry for approval. We expect to get it approved by the ministry in a month's time and will invite tenders. Hopefully, we are expecting to award the contracts by November this year," said a senior official in the NHAI.
The HAM 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. The government also shoulders the responsibility of revenue collection. The NHAI will collect toll and refund the amount in instalments over a period of 10 years in 20 equated instalments.
This new model will reduce financial burden on the concessionaire during project implementation phase. Compared to EPC projects, the shift to HAM would also ease cash flow pressure on the NHAI.
Senior NHAI official added that the hybrid model will be a win-win for developers as well as the government. In the current situation where developers lack capital, the move to lower the upfront costs is significant. Given the certainty of cash flows in the annuity model, developers can obtain more leverage from banks. This model is likely to ease financial burden on the exchequer too, as it lowers their upfront contribution for the project compared to EPC.
The major road projects, which will be awarded through HAM, are the 68 km long Wardha-Yeotmal-Waranga (Pkg-1, Maharashtra), 50 km long Delhi-Hapur (Delhi/Uttar Pradesh), 67 km Tuljapur-Ausa (Maharashtra), 57 km Govindpur-Chas-Jharkhand/West Bengal border.
In India, road projects are awarded via one of the three models: Build-Operate-Transfer (BOT)-Annuity, BOT-Toll, and engineering, procurement and construction (EPC). In the BOT-Annuity case, the risk of the developer gets reduced since it constructs the road and maintains it, and gets fixed payment from the government. In BOT-Toll, the developer not only has to construct and maintain the road, but also has to recover his money by collecting toll; here an additional traffic risk has to be borne by the developer. In an EPC contract, only the construction risk is with the developer.
