Centre Clears New Financing Model For Highway Projects

The union government approved the hybrid annuity model for building national highways.

  • The government plans to build 28 national highway projects worth Rs.36,000 crore this fiscal year.

About Hybrid Annuity Model

  • Under the public-private partnership (PPP) model, the government will invest 40 per cent of the construction cost for building highways and the balance will come from the private developer.
  • The government will invest money in five equal instalments based on the targeted completion of the road project.
  • The private developer will recover his investment from the government by receiving annuity payments over a period of 15 years.
  • Under this model, the highway toll tax will be collected by the government unlike the build, operate and transfer (BOT) toll model where the private sector collects it. So, there is no revenue or traffic risk on the part of the developer.

Benefits of the move

  • It will revive highway projects in the country by making one more mode of delivery of highway projects.
  • It is a fairly sensible risk-sharing model because it requires the private sector to focus on areas which bring in efficiency mainly in capital cost, project completion time and quality.
  • This model will bring in long-term infrastructure funds like pension funds into the sector.

Why the model will speed up construction?

  • It will double the speed of highway construction in the country as the government will no longer will be dependent on its limited financial resources and the expertise of private sector will be utilised to operate and maintain the roads.
  • It will speed up the construction of roads in the country by renewing interest of private developers in highway projects as the risk will be distributed between the government and the private players.

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