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.