Hybrid annuity model for highways draws bidders
According to a report by rating agency ICAR, the hybrid annuity
model for awarding highway contracts introduced by the government last
year, has begun to find some traction after an initial lukewarm response from
infrastructure players.
Background:
The Cabinet Committee on Economic Affairs had given its approval
for the Hybrid Annuity Model as one of the modes of delivery for implementing
the Highway Projects in January this year. This had paved the way for
construction of 28 projects worth Rs. 36,000 crore this fiscal year.
All about the Hybrid Annuity Model:
Who will invest?
Under this model, the government will invest 40% of the
construction cost for building highways and the balance will come from the
private developer. The government will invest money in five equal installments
based on the targeted completion of the road project.
Recovery:
The private developer will recover his investment from the
government by receiving annuity payments over a period of 15 years.
Toll collection:
Under this model, the highway toll tax will be collected by the
government unlike the build, operate and transfer (BOT) toll model where the
private sector collects it. So, there is no revenue or traffic risk on the part
of the developer.
Significance:
- This will speed up the construction of roads in the country by renewing interest of private developers in highway projects as the risk will be distributed between the government and the private players.
- It is a fairly sensible risk-sharing model because it requires the private sector to focus on areas which bring in efficiency mainly in capital cost, project completion time and quality.
- This model will also bring in long-term infrastructure funds like pension funds into the sector.
- This model is also expected to double the speed of highway construction in the country as the government will no longer will be dependent on its limited financial resources and the expertise of private sector will be utilised to operate and maintain the roads.
