"Private investment in highway projects had been declining in recent years, amid issues such as slow project approvals and cost overruns, but the Indian government's introduction of the hybrid annuity model (HAM) in 2016 -- as a variation of PPPs -- has triggered new investment inflows," says Abhishek Tyagi, a Moody's Vice President and Senior Analyst.
Moody's report explains that the HAM model adopted in India's highways sector, relative to more traditional PPPs, rebalances certain project risks between the public and private sectors. In addition, the government provides funding during the construction phase, thus addressing some of the key concerns of the earlier model.
"Other sectors, such as the port, shipping and rail sectors, have also started looking at improving the PPP framework in order to attract private investment to fund India's substantial infrastructure needs," adds Tyagi.
The new model has triggered a significant increase in projects awarded, with HAM projects accounting for around 46% of total awards in terms of highway length and 63% in terms of total value (INR765 billion) in the 12 months to March 2018.
For example, the risk of delays in project completion is relatively lower for HAM projects because of the upfront availability of the majority (at least 80%) of right of way through improved right of way risk allocation and other factors.
Finally, Moody's notes that the improving credit profiles of infrastructure developers is increasing their capacity to participate in PPP projects. However, their access to funding remains a key concern, with banks constrained by sector-specific exposure limits and existing stressed assets in their infrastructure portfolios.
Powered by Capital Market - Live News
Disclaimer: No Business Standard Journalist was involved in creation of this content
