Why in news?
Transport ministry is promoting the Hybrid-Annuity Model
What is HAM?
- HAM is a mix of the Engineering, Procurement and Construction (EPC) and Build, Operate, Transfer (BOT) models.
- HAM combines 40% EPC and 60% BOT-Annuity.
- It was introduced in January 2016 to recover investments in road infrastructure projects
- About 30 highways projects have been awarded under HAM by the National Highway Authority of India (NHAI).
How it works?
- Under the EPC model, NHAI pays private players to lay roads.
- The private player has no role in the road’s ownership, toll collection or maintenance.
- Under the BOT model, private players have an active role.
- They build, operate and maintain the road for a specified number of years, before transferring the asset back to the government.
- The toll revenue collection arrangement is known as BOT-Annuity.
- Essentially, the toll revenue risk is taken by the government, while the private player is paid a pre-fixed annuity for construction and maintenance of roads.
What is its significance?
- It helped to have a better financial mechanism for road development.
- It is a good trade-off, spreading the risk between developers and the Government.
- This helps cut the overall debt and improves project returns.
- The annuity payment structure means that the developers aren’t taking ‘traffic risk’, that is they are not depending on the toll traffic alone for their returns.
- From the Government’s perspective, it gets an opportunity to flag off road projects by investing a portion of the project cost.
Source: Business Line
