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Wednesday, 24 Feb 2016
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Hybrid Annuity Model to pepup PPP projects

The current government seems to be in a hurry to increase the length of highways across the country to 1.5 lakh km from the existing 1 lakh km in the next four years. In December 2015, the Ministry of Road Transport and Highways (MORTH) had announced that it has drawn up concrete plans to award Rs 28,000 crore worth of highways projects in 2016 under the newly conceived hybrid annuity model. These projects when implemented will add around 1,500 km of highways.

 

Amrut-India

 

Road building activity slowed down considerably in the last couple of years, due to poor participation from private developers. The various models of PPP tried by the road ministry failed to enthuse the developers. One of the major problems faced by the private developers was convincing the financers to lend them. Most of these developers were already carrying huge amount of debts in their balance sheets. To overcome, the government started awarding projects on EPC basis.

 

As the government cannot fund the entire proposed highways, it had to find some mode of PPP, which will suit the fund starved private developers. In January 2016, the government approved a new model called Hybrid Annuity Model (HAM) to encourage investments in the highways sector.

 

Key features of HAM

 

 

  • The Bid parameter is the Life Cycle Cost i.e. NPV of the quoted Bid project cost plus NPV of the O&M cost for the entire O&M period.
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  • The Concessionaire receives 40 per cent of project cost from the Authority during the construction period as ‘Construction Support’ thereby reducing his exposure and risk.
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  • The Concessionaire is responsible for designing, building, financing 60 per cent of the project cost, operating and transferring the project at the end of operations period i.e. 15 years.
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  • Amount financed by the concessionaire during construction period is to be recovered from the Authority through annuity payments along with interest payments on reducing balance method.
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  • O&M responsibilities are with the concessionaire with separate provisions for O&M payments.
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  • Provision exists for inflation-adjusted project cost over time.
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    Road projects under HAM

     

    MORTH has cleared 18 highway projects in Feb 2016 having a cumulative length of 982 km to be built at an estimated cost of Rs 16,614 crore. As many as 11 of these projects would be developed through HAM. As in November 2015, the first project under HAM which was for four-laning of the Solan-Kaithalighat section in Himachal Pradesh, did not attract a single bidder. The 23-km stretch was to be built with an investment of Rs.522 crore.

     

    In December 2015, Welspun Enterprises bagged the Package I of the Delhi-Meerut Expressway Project which is to be developed through the Hybrid Annuity Model (HAM) from National Highways Authority of India (NHAI). Several major infrastructure companies had submitted bids for the Rs 4,800 crore Delhi-Meerut Expressway project which had been divided into three stretches and bid out separately. Ashoka Buildcon and Welspun Group had bid for the 8.7 km stretch between Nizamuddin in Delhi and the UP border which will have a major bridge and is estimated to cost Rs 796 crore.

     

    Bids invited under HAM

    In February 2016, National Highways Authority of India (NHAI) has invited bids for six-laning of the greenfield proposed Udaipur Bypass of 23.883 km (between NH-76 at existing 118.500 km at Debari to NH-8 287.400 km at Kaya Village) of Kishangarh-Udaipur-Ahmedabad stretch under NHDP Phase-V (Package-IV) in Rajasthan on Hybrid Annuity Mode (HAM). The estimated cost of the project is Rs 668.42 crore.

     

    NHAI also invited bids for four-laning of Phagwara-Rupnagar Section of NH-344A (Design Chainage) of 80.820 km Punjab on Hybrid Annuity Mode (HAM). The estimated cost of the project is Rs 1215.50 crore.

     

    MORTH has invited bids for four-laning of Kashedi (Khawati)-Parshuram Ghat section of NH-17 (New NH-66) (total length 42.330 km) in the State of Maharashtra under NHDP Phase IV on Hybrid Annuity Mode. The estimated cost of the project is Rs 585.07 crore.

     

    In January 2016, NHAI invited bids for four/six-laning of Kharar to Ludhiana Section of NH-95 (New NH-05) from Kharar km 10.185 (Design Chainage) to Samrala Chowk, Ludhiana km 86.199 (Design Chainage) in the State of Punjab on Hybrid Annuity Mode. The estimated cost of the project is Rs 1,472.61 crore.

    Quote of the week:

      Nitin-Gadkari
    "By adopting the model, all stakeholders in the PPP arrangement - the NHAI, lender and the developer would have an increased comfort level resulting in revival of the sector through renewed interest of private investors”  

    - Nitin Gadkari, Minister of Road Transport and Highways
     
     
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