Hybrid Annuity Model

By features the HAM is a mix between the existing two models – BOT Annuity and EPC. Hence to understand the HAM, we should know 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 the high financial burden for the government.
What is hybrid annuity?
In financial terminology hybrid annuity means that payment is made in a fixed amount for a considerable period and then in a variable amount in the remaining period.
The Hybrid Annuity Model (HAM)
  • In India, the new HAM is a mix of BOT Annuity and EPC models.
  • As per the design, the government will contribute to 40% of the project cost in the first five years through annual payments (annuity).
  • The remaining payment will be made on the basis of the assets created and the performance of the developer.
  • Here, hybrid annuity means the first 40% payment is made as fixed amount in five equal instalments whereas the remaining 60% is paid as variable annuity amount after the completion of the project depending upon the value of assets created.
  • As the government pays only 40%, during the construction stage, the developer should find money for the remaining amount. Here, he has to raise the remaining 60% in the form of equity or loans.
  • The private developer will recover his investment from the government by receiving annuity payments over a period of 15 years.
  • The government also offers 80 per cent of prior land acquisition and forest clearance in such projects to the developers.
  • There is no toll right for the developer.
  • Under HAM, Revenue collection would be the responsibility of the National Highways Authority of India (NHAI).
Advantage of HAM
  • Advantage of HAM is that it gives enough liquidity to the developer and the financial risk is shared by the government.
  • While the private partner continues to bear the construction and maintenance risks as in the case of BOT (toll) model, he is required only to partly bear the financing risk.
  • Government’s policy is that the HAM will be used in stalled projects where other models are not applicable.



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