By features the HAM is a mix between the existing two models – BOT Annuity and EPC. Hence to understand the HAM, we should know the basic features of the existing PPP models.
1. The Build Operate and Transfer (BOT) Annuity Model
- Under BOT annuity, a developer builds the 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.
2. BOT Toll Model
- In this toll based BOT model, a road developer constructs the road and he is allowed to recover his investment through toll collection.
- This toll collection will be over a period of nearly 30 years in most cases.
- There is no government payment to the developer as he earns his money invested from tolls.
3. 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.
What is hybrid annuity?
In financial terminology hybrid annuity means that payment is made in a fixed amount for a considerable period and then in a variable amount in the remaining period.
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 instalments 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.
- The private developer will recover his investment from the government by receiving annuity payments over a period of 15 years.
- The government also offers 80 per cent of prior land acquisition and forest clearance in such projects to the developers.
- There is no toll right for the developer.
- Under HAM, Revenue collection would be the responsibility of the National Highways Authority of India (NHAI).
Advantage 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.
Hello ias4sure
the definition of EPC model given on this page (HAM model page) and on the EPC model page (http://www.ias4sure.com/wikiias/gs3/epc-model/ ) are contradicting to each other. Please make the required changes or clarify this issue.