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Ksenia Kondratieva Hybrid annuity model (HAM) projects — which are expected to constitute 60 per cent of the projects awarded by NHAI going forward — have seen prudent bidding from road developers, according to Crisil.
Introduced in January 2016 to revive investments in road infrastructure projects, HAM projects have seen good interest from road developers. However, only a limited number of companies are able, and willing, to bid for such projects.
HAM is a hybrid between EPC (engineering, procurement and construction) and BOT (build, operate, transfer) models, where NHAI (National Highway Authority of India) releases 40 per cent of the total project cost and the balance 60 per cent has to come from the developers.
The developers, in turn, invest up to 25 per cent as equity and raise the balance as debt.
Industry watchers note that mid-sized road developers such as Dillip Buildcon, IRB Infrastructure, PNC Infratec, MEP Infra and others are actively bidding for HAM projects as they are relatively less leveraged compared to industry giants like Gammon, Rinfra and ITNL, among others, who had previously bid aggressively in the BOT space.
Limited bidders
According to Crisil, the number of bidders for HAM remains limited at 5-10 per project compared with almost 30 seen for BOT projects in FY11 and FY12. As banks are cautious and tend to shy off projects not backed by experienced sponsors with strong financials, only those developers with healthy financials bid for HAM projects, the agency noted.
“Banks are limiting their exposure to 35 per cent (in HAM projects) compared with 70 per cent in the traditional BOT projects. NHAI contributes 40 per cent of the costs, so the gap in funding is expected to be closed by the sponsor. Additionally, banks are seeking corporate guarantees for a large number of projects to safeguard their interests,” said Sachin Gupta, Senior Director, Crisil Ratings.
Promising volumes
Another factor responsible for the bidding prudence, according to experts, is the large volume of road projects targeted by the Centre under its ambitious Bharatmala project. The high visibility of projects — at around 35,000 km valued at ₹5.35 lakh crore — to be implemented over five years is likely to obviate the desperation to grab projects, Crisil noted.
The bid project cost per km has remained at ₹23-25 crore. Further, the L1 (lowest) bids are on average 15 per cent higher than NHAI’s estimated EPC costs, though the difference between L1 and L2 bidders has doubled to 8 per cent last fiscal from 4 per cent in FY17.
Crisil notes that HAM has become the preferred contract for the NHAI, rising from less than 10 per cent of awards in FY16 to nearly 50 per cent in FY18. The represents an order award value growth from ₹7,000 crore to ₹76,500 crore in just three years.
Last financial year, the Ministry of Road and Transport (MoRTH ) awarded projects of around 17,000 km, of which 7,397 km was awarded by NHAI. This is 70 per cent higher than in the previous fiscal, according to analysts.
MoRTH has targeted to award 20,000 km in the current fiscal, up by 25 per cent from last fiscal. The Centre aims to construct 45 km per day during the current fiscal, against 27 km achieved in FY18.
According to experts, the competitive intensity in the road sector in general, and the HAM space in particular, has reduced as a result of a large order backlog created by many players over the past two years. Also, a very limited number of players having the bandwidth to bid for more projects.
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