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04 SEPTEMBER, 2017 (MAINS)

TODAYS ANSWER WRITING CHALLENGE FROM GS- III

Q1. The Cabinet Committee on Economic Affairs recently gave its approval for the Hybrid Annuity Model as one of the modes of delivery for implementing the Highway Projects. Enumerate the salient features of the Hybrid Annuity Model (HAM). Mention the advantages of the Hybrid Annuity Model over the other PPP models for road construction in India? (200 words)

Please write the answer in comments section

  • Osho Korde

    The basic features of the existing PPP models.

    1. The Build Operate and Transfer (BOT) Annuity Model

    Under BOT annuity, a developer builds the highway, operates it for a specified duration and transfers it back to the government. The government starts payment to the developer after the launch of commercial operation of the project. Payment will be made on a six month basis.

    2. BOT Toll Model

    In this toll based BOT model, a road developer constructs the road and he is allowed to recover his investment through toll collection. This toll collection will be over a period of nearly 30 years in most cases. There is no government payment to the developer as he earns his money invested from tolls.

    3. Engineering, Procurement and Construction (EPC) Model

    Under this model, the cost is completely borne by the government. Government invites bids for engineering knowledge from the private players. Procurement of raw material and construction costs are met by the government. The private sector’s participation is minimum and is limited to the provision of engineering expertise. A difficulty of the model is that financial is the high financial burden for the government

    Advantages :
    1. Private player has to arrange for only 60% of project cost. Exposure and risk reduces
    2. All regulatory clearances risk, compensation risk, commercial risk and traffic risk is borne by government, so risk for private sector is minimal
    3. Govt. has to cough up only 40 % of initial funding
    4. Operation and maintenance by private player. Better expertise, better quality of services
    5. Finally comfort to lenders ( banks ) through assured annuity payments