Payments for road projects to start during construction

Projects worth Rs 14,442 cr announced under hybrid annuity model

Moving away from the existing public-private road construction model, the government will now make payments to operators during the construction period under the proposed hybrid annuity model. The ministry of road transport and highways has announced 13 projects worth Rs 14,442 crore under the new model.

Under the existing annuity model, the government used to release payments after the completion of projects.

Hybrid annuity is a mix of government (engineering, procurement and construction or EPC) and private (build, operate and transfer or BOT) models. The hybrid model seeks to invoke the right mix of risk-sharing of both EPC and BOT models.

The government’s new initiative for the road construction sector is to shore up investor sentiment through a greater risk-apportioning to self, an assurance that the private sector needs. “With this model, the government is optimising its investment, while ensuring the concessionaire also gets optimally involved in the project,” said an infrastructure analyst at a top consultancy firm.

The BOT model is of two types — toll and annuity — with both entailing the construction from concessionaires (private players). BOT toll implies investment recovery from toll collection on highways, while BOT annuity involves fixed payments from the government to the private party. With assured periodic returns, the annuity model has the concessionaire forego dependency on the traffic on the highway, while the toll model involves the risk of traffic.

For the hybrid annuity model, however, the total project cost risk is shared between both parties and the revenue generation risk is borne by the government, while the risk for operations and maintenance is taken up by the private party.

The model entails 40 per cent of the project cost to be provided by the government to the concessionaire (private party) during the construction period in the form of five equal instalments of eight per cent each. The remaining 60 per cent of the project cost will have to be made available by the concessionaire. The government would be required to obtain 90 per cent of land and the concomitant environmental and forest permits.

The government would also be tasked with toll collection and revenue collection, while the operation and maintenance of the highway would be handled by the private party.

Under the BOT toll model, the private sector has been accused time and again of under-reporting revenues.

On the other hand, the private sector has maintained the government had been lax in ensuring safety and compliance at toll gates.