TRANSPORTATION

Highway construction to get on fast track! HAM projects get new lease of life

The introduction of investor-friendly changes in the model concession agreement (MCA) for highway building under the hybrid annuity model (HAM) has been welcomed by the industry, with experts saying the route is likely to become attractive for developers once again.

Among the measures taken to revive interest in HAM, which came into existence in 2015-16, is the government’s decision to double the frequency of payment of upfront construction support (40% of the project cost) to 10 from five earlier. The move to change the way interest is calculated on annuities paid to developers and reduce the equity lock-in period post the construction period to 6 months from two years are other positives expected to boost investor interest.

As is known, HAM is a kind of win-win model for both the government and the concessionaires; unlike in the Engineering Procurement and Construction (EPC) model, the government does not need to bear the entire cost of construction in HAM; and a developer’s skin in the game is far less in HAM than under the Build-Operate-Transfer (BOT) model. However, the share of HAM in the highway project awards by the National Highways Authority of India (NHAI) has been sliding, falling from a peak of 55% in 2016-17 to 28% in 2019-20.

As part of the new rules, the first tranche of upfront payment will be released after 5% of progress in construction work and the second one after 10% progress. Similarly, the last instalment of the upfront payment will be disbursed after 90% of physical progress has been achieved.

Source
financial express
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