The Road Transport Ministry’s decision to roll out 13 projects worth ₹14,442 crore under a hybrid annuity model has gone down well with toll road developers.

Developers have shied away from the BOT (build operate and transfer) model due to the slowdown in the economy, which not only hampered fund-raising, but also hit toll collection, due to lower traffic flow. The poor cash flows burdened existing projects’ ability to service debt.

Over 20 road projects worth more than ₹22,000 crore failed to draw bidders in 2013-14.

The new hybrid model is a mix of the EPC (engineering, procurement and construction) and the BOT models.

The BOT model is either a toll or annuity-based one, and in both cases, the road needs to be built by the private partner or concessionaire.

The concessionaire recovers his investment from the toll collection.

In the annuity mode, the concessionaire gets a fixed and more importantly assured payment from the government.

Assured return

This assured return frees the concessionaire’s dependency on the toll collected on the highway. The government shoulders the responsibility of revenue collection. Further, the government will pay 40 per cent of the project cost to the concessionaire during the construction phase in five equal instalments of 8 per cent each.

The government will provide 90 per cent of land and the related environment and forest clearance (earlier 80 per cent).

The balance of 60 per cent needs to come from the concessionaire. Operation and maintenance of the toll road also rests with the concessionaire.

Rajhoo Bbarot, Chairman and Managing Director, Atlanta Ltd, said the hybrid model is viable and companies see value in bidding for such projects. In the hybrid annuity model, one need not bring 100 per cent of finance upfront and since 40 per cent is available during the construction period, only 60 per cent is required to be arranged for the long term.

Moreover, there is no risk of tolling as well as traffic uncertainty. Developers will start participating in this type of projects, otherwise, the enterprise and lenders have practically no appetite for BOT projects, he said.

Yogesh Jain, Managing Director, PNC InfraTech, said overall, the model should give impetus to active private sector participation.

Further, 40 per cent grant in form of capital support would substantially reduce the debt portion and interest thereof. The lenders will have a great comfort in financing the project. Ideally, the annuity period should be around 10 years, he felt.

Amitabh Sharma, Partner, Khaitan &Co, said the model is not altogether new.

A few years back, some north-eastern States had his model wherein the financial support was as high as 60-80 per cent. Further, even in BOT projects, the government does provide viability gap funding to the concessionaire.

More clarity needs to come in terms of bidding criteria and evaluation parameters for award of projects.

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