Hybrid annuity model revives investments in India’s highways sector: Moody’s
Increased use of PPPs in highways supports private investment in other sectors, benefiting from govt initiatives and improving credit profiles of infrastructure firms, says Moody’s
New Delhi: The hybrid annuity model (HAM) to award road projects has encouraged investments in the sector, Moody’s Investors Service said.
Under HAM, a variant of public private partnership (PPP) launched in January 2016, the government bears 40% of the project cost and gives money to the developer. The rest comes from the developer over the execution period. The National Highways Authority of India (NHAI) collects toll and developers are given annual payments over a specified period.
“Private investment in highway projects had been declining in recent years, amid issues such as slow project approvals and cost overruns, but the Indian government’s introduction of the hybrid annuity model (HAM) in 2016— as a variation of PPPs—has triggered new investment inflows,” Moody’s said in Infrastructure - India: Highway PPPs gaining momentum, supported by government initiatives.
Increased use of PPPs in highways supports private sector investment in other sectors, benefiting from government initiatives and improving the credit profiles of infrastructure developers.
Sectors such as ports, shipping and railways have also started looking at improving the PPP framework to attract private investment to fund India’s substantial infrastructure needs, Moody’s vice-president and senior analyst Abhishek Tyagi wrote in the report.
In 2017-18, the National Highways Authority of India awarded around 3,396 km of HAM projects valued around Rs76,500 crore compared with 2,434 km and Rs36,300 crore in 2016-17.
The Moody’s report says the HAM model rebalances certain project risks between the public and private sectors. It has triggered a significant increase in projects awarded, with HAM projects accounting for around 46% of total awards in terms of highway length and 63% in terms of total value (Rs76,500 crore) in the 12 months to March 2018.
In recent months, the government has implemented measures in an attempt to attract private investment for India’s vast infrastructure needs, including in the port and rail sectors. The shipping ministry has also proposed a new model concession agreement that helps clarify the language of PPP projects and standardize them.
Moody’s also notes that the improving credit profiles of infrastructure developers is increasing their capacity to participate in PPP projects. However, their access to funding remains a key concern, with banks constrained by sector-specific exposure limits and existing stressed assets in their infrastructure portfolios.
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