For new projects, NHAI back to build -operate -transfer model

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Last Updated16/07/2022

National Highways Authority of India (NHAI) will now fund projects through private investments and plans to offer at least two highway upgradation projects to private players using build-operate-transfer (BOT) model.

Under it, a private player is granted a concession to finance, build and operate a project for a specified period of time
Developer recoup investments by user charges or tolls charged from customers using the facility, and thereby taking on a certain amount of financial risk.
BOT model was preferred model for road projects, accounting for 96% of all projects awarded in 2011-12.
Interest in BOT projects started to wane, road construction shifted to engineering, procurement and construction (EPC) mode.
EPC model: government pays entire cost, insulating contractor entirely from financial risk.

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Since the pandemic, NHAI resorted to offering projects under the Hybrid Annuity Model (HAM).
It ensures funds to company building the road, insulating it from financial risk to a certain extent.
HAM model funding:
40 per cent of the project cost is paid by government as construction support to the private developer.
Remaining 60 per cent is to be arranged by the developer.

As part of incentives, government will assess revenue potential of a project every five years during the concession period as against every 10 years earlier.
Significance: Concession period is extended early in contract tenure, ensuring surety of revenue for private company.