Hybrid annuity model for highways draws bidders

The hybrid annuity model for awarding highway contracts introduced by the government last year, is beginning to find some traction after an initial lukewarm response from infrastructure players, ratings agency ICRA said in a report on Thursday.

“After initial teething problems with no bids for the first project under the Hybrid Annuity Model (HAM) and modest participation (average of three bids for the first few projects) during January-March 2016, NHAI (National Highways Authority of India)’s aggressive promotion of the model, through awareness campaigns to lenders and developers has yielded positive results,” ICRA said in its report on Indian Road Sector.

The first bid

It said some of the recent bids witnessed good participation, as high as nine-ten bidders per project. The first bid under the hybrid annuity model, for four-laning of the Solan-Kaithalighat section in Himachal Pradesh had received no bids. Under this public-private partnership (PPP) model, the government invests 40 per cent of the construction cost for building highways over a period and the balance comes from the private developer. The government will invest money in five equal instalments based on the targeted completion of the road project.

Also, unlike the build, operate and transfer (BOT) toll model, government will collect the highway toll tax. The private developer will recover his investment from the government by receiving annuity payments over a period of 15 years. The government also offers 80 per cent of prior land acquisition and forest clearance in such projects to the developers.

Aggressive promotion through awareness campaigns yielded positive results

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