Photo: Mint
Photo: Mint

NHAI likely to drop BOT, focus on hybrid annuity, EPC projects

The HAM model had been introduced to kickstart road projects that had stalled under the previous regime

Mumbai: With liquidity tightening in the banking system and funding becoming scarce for large infrastructure projects, industry experts estimate that the national roads authority will more or less jettison the toll build-operate-transfer model for new roads in favour of plain vanilla EPC projects and, to a lesser extent, hybrid annuity models.

“Tolls have been fluctuating for the last 2-3 years and everybody has burnt their fingers with the BOT model," said Vijay Agrawal, executive director, Equirus Capital. “Lenders aren’t willing to lend to such projects either and even if they do, they ask for corporate guarantees from promoters. I don’t think developers are willing to take these risks on like they did in the past."

“With banks not funding to toll BOT projects any more, you won’t see any more interest from private developers for them," Agrawal added. “Both developers and banks are not considering the BOT model due to problems with land acquisition, the construction risk and then toll risks post-construction. Even NHAI doesn’t want to pursue this anymore and so the BOT model is nearly dead."

The National Highways Authority of India (NHAI) introduced the Hybrid Annuity Model (HAM) in January 2016. Under HAM, the government commits to spend up to 40% of the project’s cost, while the developer brings in the remaining, funded through a mix of debt and equity. Here, the asset remains under NHAI’s ownership and it collects the toll, while the developer receives an annuity.

The HAM model was introduced by Union minister Nitin Gadkari to kickstart road projects that were stalled for lack of funding. It took away a part of the construction risk and the whole traffic risk that made developers nervous.

The model worked for a while, but now signs of stress are showing. Ratings agency Crisil estimated in its 2018 infrastructure yearbook that there is an existing debt burden of 60,000 crore at the project level, which does not leave room for absorbing future risks.

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