More use of PPP model in highway sector supports pvt infra investment: Moody's

Increased use of public-private-partnerships (PPPs) in India's highway sector supports private infrastructure investment, Moody's Investors Service said today.

"...Indian government's introduction of the hybrid annuity model (HAM) in 2016 -- as a variation of PPPs -- has triggered new investment inflows," the rating agency said in a statement.

Private investment in highway projects had been declining in recent years, amid issues such as slow project approvals and cost overruns, but HAM has resulted in new investments, Moody's said in a report titled 'Infrastructure - India: Highway PPPs gaining momentum, supported by government initiatives'.

Abhishek Tyagi, Moody's vice president and senior analyst, said, "Other sectors, such as the port, shipping and rail sectors, have also started looking at improving the PPP framework in order to attract private investment to fund India's substantial infrastructure needs."

The report explained that the HAM model adopted in India's highways sector, relative to more traditional PPPs, rebalances certain project risks between the public and private sectors.

 

"In addition, the government provides funding during the construction phase, thus addressing some of the key concerns of the earlier model. For example, as a result of improved right of way risk allocation, the risk of delays in project completion is relatively lower for HAM projects because of the upfront availability of the majority (at least 80 per cent) of right of way and other factors," a statement by the agency said.

The new model has triggered a significant increase in projects awarded, with HAM projects accounting for around 46 per cent of total awards in terms of highway length and 63 per cent in terms of total value in the 12 months to March 2018, it said.

In recent months, the government has implemented measures in an attempt to attract private investment for India's vast infrastructure needs, including in the port and rail sectors, it added.

"Finally, Moody's notes that the improving credit profiles of infrastructure developers is increasing their capacity to participate in PPP projects. However, their access to funding remains a key concern, with banks constrained by sector-specific exposure limits and existing stressed assets in their infrastructure portfolios," it said.