Answer & Enrich Your Learning:
Build Operate and Transfer (BOT) Annuity Model:
- Under BOT annuity, a developer builds a 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.
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 the high financial burden for the government.
Hybrid Annuity Model (HAM):
- In financial terminology hybrid annuity means that the government makes payment in a fixed amount for a considerable period and then in a variable amount in the remaining period.
- This hybrid type of payment method is called HAM in the technical parlance.
- Hybrid Annuity Model (HAM) has been introduced by the Government to revive PPP (Public Private Partnership) in highway construction in India.
- Launch of the new model is due to many problems encountered as associated with the existing ones.
- Large number of stalled projects are blocking infrastructure projects and at the same time adding to Non-Performing Assets (NPAs) of the banking system.
The Hybrid Annuity Model (HAM):
- In India, the new HAM is a mix of BOT Annuity and EPC models.
- As per the design, the government will contribute to 40% of the project cost in the first five years through annual payments (annuity).
- The remaining payment will be made on the basis of the assets created and the performance of the developer.
- Here, hybrid annuity means the first 40% payment is made as fixed amount in five equal installments whereas the remaining 60% is paid as variable annuity amount after the completion of the project depending upon the value of assets created.
- As the government pays only 40%, during the construction stage, the developer should find money for the remaining amount.
- Here, he has to raise the remaining 60% in the form of equity or loans.
- There is no toll right for the developer.
- Under HAM, Revenue collection would be the responsibility of the National Highways Authority of India (NHAI).
Advantages of HAM:
- Advantage of HAM is that it gives enough liquidity to the developer and the financial risk is shared by the government.
- While the private partner continues to bear the construction and maintenance risks as in the case of BOT (toll) model, he is required only to partly bear the financing risk.
- Government’s policy is that the HAM will be used in stalled projects where other models are not applicable.