In a move aimed at attracting private investment into the stressed highways sector, the Union cabinet on Wednesday approved a new hybrid annuity model, where the government provides 40% of the construction cost and the developer invests the rest.
It will also help put the out of favour public private partnership (PPP) model for road construction back on track.
The Rs 7,566 crore Delhi-Meerut expressway, whose foundation stone was laid by Prime Minister Narendra Modi early this month, is the first project that has been bidded out on this new model. Besides, the ministry has received 10 bids for three more projects.
The new model will not only result in reduced equity investments by developers, but will also reduce initial capital outflow for the National Highways Authority of India (NHAI). Besides, the new model also mandates NHAI to acquire 90 % of land and all the necessary environment clearance before awarding a project. This was not specified earlier.
The earlier PPP model mandated that developers tie up 100% of the investment through a mix of equity and debt. But with a slowdown in the economy, private developers were finding it difficult to raise funds for investment. In the last three years 21 PPP project worth Rs 27,000 crore failed to get bids.
Under the new “hybrid annuity” model, not only would 40% of the cost be supported by NHAI in five equal installments, the government would also bear the revenue risk in projects where the traffic flow turns out lower than anticipated leading to reduced toll collection. Earlier, in build-and-operate (BOT) projects both traffic and, operations and maintenance risk had to be borne by the developer.
Thirteen projects worth Rs 14,442 crore have already been identified. With private investment in highways drying up, the road ministry had also started awarding projects on EPC (Engineering Procurement Construction) mode where the government had to fund the whole project.
“There is an inherent limitation in implementing projects on EPC mode as it is restricted by the financial resources available with the government,” a press statement issued by the government said.