India approves hybrid annuity model for road PPP projects

Subscribe to our newsletter and get the latest news and business opportunities in your inbox
India approves hybrid annuity model for road PPP projects

The Indian Cabinet Committee on Economic Affairs, chaired by the Prime Minister Shri Narendra Modi, has given its approval for the Hybrid Annuity model as one of the modes of delivery for implementing the highway projects. The main object of the approval is to revive highway projects in the country by making one more mode of delivery of highway projects. 

There are three other formats to award road projects in the country:

  • Build-operate-transfer (BOT) annuity, under this model a developer builds a highway, operates it for a specified duration and transfers it back to the government, which pays the developer annuity over the period of concession.
  • BOT-toll, under this model a concessionaire generates revenue from the toll levied on vehicles using a road.
  • Engineering, procurement and construction (EPC), under which a developer will execute engineering design, procure equipment, materials and build a project, while the government provides the money.

By adopting the hybrid annuity model as the mode of delivery, all major stakeholders in the PPP arrangement would have an increased comfort level resulting in revival of the sector through renewed interest of private investors in highway projects and this will bring relief thereby to users in the area of the respective project. 

While the private partner continues to bear the construction and maintenance risks as in BOT (Toll) projects, it is required only to partly bear financing risk. Further, the developer is insulated from revenue/traffic risk and the inflation risk, which are not within its control. 

An important feature of the Hybrid Annuity Model for highways development is the rational approach adopted for allocation of risks between the PPP partners, the Government and the private partner (investors).

Since the need for improved road connectivity was a continuing imperative, the Ministry of Road Transport & Highways had to increasingly resort to the public funded Engineering, Procurement and Construction. EPC mode was the preferred mode of delivery for highway projects in 2013-14 and 2014-15. 

However, there is an inherent limitation in implementing projects on EPC mode as such implementation is restricted by the financial resources available with the Government. In that context, Ministry of Road Transport & Highways intended to introduce an alternative mode of delivery in order to sustain the pace of implementation of highway projects through optimum utilization of available financial resources. Accordingly, it was decided to consider the Planning Commission MCA for Hybrid Annuity Projects.

List of country news

Country news

  • January 26, 2016

    I Squared acquires Indian toll road

    Cube Highways and Infrastructure, an investment platform funded by I Squared Capital and IFC, is in the process of acquisition of Western UP Tollway Ltd. Read more
  • January 20, 2016

    RFP launched for Mopa Airport PPP in India

    Maharashtra state government, in India, Read more
  • January 04, 2016

    Welspun sells stake in road project to IDFC infra fund

    Welspun Enterprises Ltd has sold a 37% stake in the Dewas-Bhopal road PPP project, in India, to the India Infrastructure Fund II, a fund managed by IDFC Alternatives for INR 6,620 million (around US$107.8 million), including debt. Read more
  • December 21, 2015

    Brookfield evaluates acquiring Reliance Infra

    According to sources, Brookfield Asset Management is mulling to acquire Indian road assets from Reliance Infrastructure. Preliminary discussions between both parties for the assets have been initiated.  Read more
  • June 20, 2013

    India Infrastructure Finance Company launches first infra debt fund in India

    Local sources comment that India Infrastructure Finance Company Limited (IIFCL) has launched its first infrastructure debt fund (IDF) with $1 billion raising target. The IDF will complement commercial banks in providing the required long-term funding to infrastructure sector and help in addressing their asset liability mismatch. Read more

Share this news

Join us

In order to get full access to News section, you must have a full subscription. You can check all the benefits of becoming a member and purchase a subscription on our membership page.