Road projects awarded by the Ministry of Road Transport and Highways (MoRTH) under Hybrid Annuity Model (HAM) are moving at a satisfactory speed as more than 90% of the project length in construction is being constructed in time. According to a report put out by Crisil Ratings, this level of timely execution shows that the HAM model works well for India, which is now at the core of the country’s infrastructure development strategy.
This report shows that the HAM road projects are slowly but surely going forward, which is a good indicator of the road infrastructure of the country. With more than 90% of the HAM projects implemented according to the planned timeline, the prospect of the road infrastructure in India is constantly improving. This successful implementation is due to the strategic features of the model, which reduces risks and ensures financial sustainability for all stakeholders.
What is Hybrid Annuity Model (HAM)?
Hybrids Annuity Model, or HAM, is a PPP model developed by MoRTH with the aim of fast-tracking the development of infrastructure in India, particularly road infrastructure. Under the HAM, the government funds upfront a part of the project cost up to 40% while the private sector partner will fund the rest and execute the construction process. This phase ensures annuity payments to the private sector by the government that gives a smooth cash inflow during the operational phase of the project.
This model combines the best features of the traditional BOT model and the EPC model. Hence, it offers a rather attractive mix of risk sharing and financial security for private players.
Crisil Report Key Findings:
More than five years of road projects under the HAM model show that most of these projects are on schedule and financially sound. Here are the key takeaways:
90% On Schedule: More than 90% of the road projects under the HAM model are progressing according to their planned timelines. This efficiency underscores the viability of the model in meeting the infrastructure demands of the nation.
Debt protection metrics : These projects have an exceptional debt protection metric. That makes the credit profile better and these average DSCRs that lie between 1.3 and 1.4, implying that the level of financial stability is excellent in those entities.
Timely Execution: This explains 66% of the overall project time that is completed either within or ahead of schedule. Delay happens only due to external factors like when the ROW is being acquired or when natural interruptions happen, like heavy rains, bans on mining, and so on.
Minor Delays: This leaves them at a minor delay wherein the remaining 26% awaits approval for the extension of timeline. These delays are neither caused by the project developers nor the concessionaires; it is an external constraint caused by land acquisition constraints and unforeseen events.
Minimum Challenges: About 8% of projects will have very high execution-related challenges that may pose a risk of missing the completion timelines. Such a small number of challenging projects is a testament to the success of the HAM model.
Why HAM is Successful
The reasons for the success of HAM road projects lie in the following key provisions, which reduce risks and promote timely execution:
- ROW Availability HAM provides that at least 80% ROW should be made available before the appointed date of the project. Hence, construction would not start behind schedule due to ROW concerns.
- De-linking and De-scoping: Those projects for which the ROW has not received are de-linked, that is, only those elements of the project are taken further for construction which are ready, thereby resulting in lesser delays and easier process.
- Hedging Inflation and Interest Rates: The model also provides provisions for adjusting inflation and interest rates. This protects against fluctuations in financial costs and ensures sustainability of cash flows.
- Predictable Cash Flows: Perhaps one of the fundamental structural advantages the HAM model benefits from is predictable cash flow because of a stable payment coming directly from the government to these private sector partners engaged with those projects.
Future Projection: On the Rise
Hybrid Annuity Model has gained much acceptance in the last few years. In the last four years, the bidders have multiplied more than two-fold that reflects this model gaining peoples’ confidence. Relaxation in norms of bidding would help multiply the pool of bidders leading towards increased competition and efficiency in the sector.
Conclusion: A Bright Future for India’s Infrastructure
Steady progress in road projects under the Hybrid Annuity Model, or HAM, indicates good progress for India’s infrastructure sector. More than 90% of the project length has been on schedule so far, and the model seems to be a successful and sustainable method of upgrading the country’s road network. The future of road development in India is never as bright as it is at present with the model picking up momentum.
Using an economic structure that is sustain able; implementing risk reduction measures while promptly following all the steps ensures HAM will provide improvement in connectivity, economic development as well as road safety across entire India.
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Also read : MoRTH: Revolutionizing Highway Construction with AIMC Technology