Government to implement hybrid annuity model for most of the PPP road projects in the next year

Road projects in the country are going to get a mega push with the government planning to go for the new Hybrid Annuity Model (HAM) to make the PPP model more effective.

PPP model in road projects was on the verge of failure because of large number of delaying factors. Stalled projects have already added to NPA risks of the banks as the private builders are mostly financed by banks. The HAM is expected to provide rejuvenation to participation of private players in road projects.

According to the Ministry, projects worth Rs 50,000 crore are to be awarded under Public-Private Partnership mode in 2016-17. This is the largest yearly target for any year. Besides, most of the projects will be awarded under the HAM model under PPP.

HAM is a PPP format where the government and the private company shares financial cost in the ratio of 40:60 respectively. The model is considered to be an improvement of the existing toll model and other PPP variants as the government will make annual payments to the private builder to meet the project expenses. There is no reliance on tolls and thus post construction chaos is eliminated under HAM.

The NHAI has indicated that 40 per cent of the project cost will go to the builder in five equal installments during the construction period. This will considerably ease the financial burden on private builder during the project implementation phase.

The remaining 60% is expected to be met out of debt and equity to be reimbursed over 15 years. Road transportation Ministry aims to sanction 5000 km roads in the next fiscal and this will be the largest for any year as well.