Hybrid Annuity Model was launched in January 2016. Transport Minister Nitin Gadkari was responsible for framing and implementation of this investment model for infrastructure building in the country.
From the UPSC Exam perspective, this topic is of paramount importance as in Budget 2022-23, a lot of focus was placed on the building up of the infrastructure of India. Hence, we will look at what HAM or Hybrid Annuity Model is.
The topic has a high probability of being asked as a Current Affairs Question in IAS Prelims. Visit the attached link to attempt practice quizzes on current affairs.
The candidates can go through the relevant topics useful for their upcoming exams from the links provided below:
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What is Hybrid Annuity Model?
This Hybrid Annuity Model is a mixture of EPC and BOT.
What is EPC?
- EPC stands for Engineering, Procurement, and Construction and refers to that method of infrastructure growth wherein government pays private companies or players to lay roads.
- However, the private entity has no further responsibility in the toll collection, maintenance, or road’s ownership. Instead, the government assumes responsibility for these.
What is BOT?
- Under the BOT (Build, Operate, Transfer) model of infrastructure construction, private entities play a prolonged and vital role. They are responsible for building, maintaining and operating the roads and transferring the asset back to the government after 10-15 years.
- In BOT, the private entity is responsible for constructing these roads and collecting toll revenue or annuity fees (BOT-Annuity) from the Indian government.
What is HAM?
- HAM or Hybrid Annuity Model combines EPC And BOT-Annuity.
- EPC constitutes 40%, and BOT-Annuity constitutes 60% of this model.
- NHAI or the National Highway Authority of India gives up to 40% of the total project cost, in 5 tranches after the achievement of certain milestones, whereas a road developer will have to raise the remaining 60% of the project’s cost.
- Around 20-25% of the project cost will be their sole equity investment, while the authorities will raise the remaining as debt.
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Features of HAM Model
Some features of this HAM model are:
- The Indian government will select this project concessionaire through a transparent, open and competitive bid mechanism where Life Cycle Cost will be the sole bid parameter.
- Concessionaires will be responsible for project maintenance till the end of the concession period.
- Toll collection will be the government’s responsibility.
Why is Hybrid Annuity Model (HAM) in India Important?
- HAM model succeeded where the BOT model failed. Under the BOT model, private players were not willing to come forward and invest since they had to raise the whole sum of money either through equity or debt. Banks were wary of lending to these players.
- Moreover, in the absence of fixed compensation, private entities had to rely on passenger traffic, which was a risk. Hence, private players were reluctant to invest in this model.
- HAM is important because it divides the risk of any project between a private player and the government. In addition, an annuity payment structure implies that developers are not taking on ‘traffic risk’.
- This scheme is favourable for the Indian government as they can flag off-road projects and earn better social returns.
- Here we have summed up all about the hybrid annuity model for UPSC. HAM is all about faster commuting, faster travel, etc. Hence, it is an essential topic for the IAS exams. To know more about HAM, you can check the resources from various government sites.
Candidates can visit the linked article and get the detailed list of government schemes in India, important for general awareness and the current affairs section of various competitive exams.
Frequently Asked Questions about Hybrid Annuity Model (HAM)
Who will pay for Operations and Maintenance under HAM?
NHAI will pay money to the concessionaire depending on the amount quoted, which will be inflation-indexed.
What will be the rate of interest payment?
Authorities will pay interest at 3% + the bank’s interest rate.
What is the BOT (Toll) mode?
A road developer builds the roads and can recover their expenses via toll collection.
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