The government has decided to introduce Hybrid Annuity Model (HAM) to revive PPP (Public Private Partnership) in highway construction. What is hybrid annuity model? Do you think HAM will be better than other models such as Build Operate and Transfer (BOT) or Engineering, Procurement and Construction (EPC) Model? Discuss.
Hybrid Annuity Model (HAM) – Is It better Than BOT & EPC Model – Hello Friends Welcome to studydhaba.com . Here We are sharing HAM,BOT And EPC Model for Highway Construction .
The highways sector in India has topped the list of stalled infrastructure projects and existing PPP models are not adequate to resolve the crisis. Thus the government has introduced Hybrid Annuity Model (HAM) to rejuvenate PPP in general and infrastructure sector in particular.
Different Types of PPP Model:
The Build Operate and Transfer (BOT) Annuity Model
- Under BOT annuity, a developer builds the highway, operates it for a specified duration and transfers it back to the government.
- The government starts payment to the developer after the launch of commercial operation of the project.
- Payment will be made on a six-month basis.
BOT Toll Model
- Under BOT toll model, a road developer constructs the road and he is allowed to recover his investment through toll collection.
- This toll collection will be over a period of nearly 30 years in most cases.
- There is no government payment to the developer as he earns his money invested from tolls.
Engineering, Procurement and Construction (EPC) Model
- Under this model, the cost is completely borne by the government.
- Government invites bids for engineering knowledge from the private players.
- Procurement of raw material and construction costs are met by the government.
- The private sector’s participation is minimum and is limited to the provision of engineering expertise.
- A difficulty of the model is that financial is the high financial burden for the government.
Salient Features of Hybrid Annuity Model (HAM)
- Hybrid Annuity Model is a hybrid of EPC and BOT model.
- Under this model, the Government and the Private Company will share the total project cost in the ratio of 40:60 respectively.
- In HAM, the government will contribute to 40% of the total cost of the project in the first five
years through annual payments (i.e. annuity). The developer should raise the remaining 60% in
the form of equity or loans.
- Under HAM, there is no toll right for the private developer. Revenue collection would be the
responsibility of the National Highways Authority of India (NHAI) and the cost incurred by the
private players will be repaid to the in 15 to 20 years.
How Hybrid Annuity Model is an Improvement over other PPP models?
- Partial Funding of Projects: Under HAM, Government provides partial funding of projects which is a middle path when compared to zero funding under BOT and complete funding under EPC. Under BOT, the Private sector faced huge financial burden whereas under EPC, the Government faced a heavy financial burden.
- Less Capital Requirements for the private players: Under HAM, the initial capital to be invested by the developer is less compared to BOT model. Inflation is also incorporated in the project cost at different stages and thus when there is a sudden increase in cost of the project; it will be accounted and compensated by the Government.
- Financial Risk of private players Minimised: Under HAM, a fixed annual payment with a profit margin will be provided by the Government to the private players. This reduces the financial risk faced by the private developers.
- Traffic Risk in BOT Toll model Minimised: Collection of toll depends on the traffic of vehicles. The volume of traffic is not assured and hence the toll money may not be enough to recover the amount invested by the private player. Under the HAM model, since the toll will be collected by the Government, the private partner’s risk will be minimised.
- Rewards for early completion of projects: Under HAM, a bonus amount will be provided to the developer if the project is completed on time. This will be an additional incentive for the developers for early completion of the project thus avoiding stalled projects.
- Provision for easy Government clearances: Under HAM model, necessary land
acquisition and environmental clearances will be provided by the Government on time.
Hybrid Annuity Model is a step in the right direction for alleviating the menace of stalled
projects. The implementation of projects under this model must be expedited for the revival of