
With bankers still somewhat wary of lending to the roads sector, just 17 of the 32 projects awarded in the hybrid annuity mode, have achieved financial closure. This is despite the fact that the original model has been tweaked to make lenders more comfortable. The 17 projects cover approximately 1,200 km of roads and entail an investment of close to Rs 12,000 crore. The government had conceived the hybrid annuity model (HAM) with a view to minimising risks for the promoters.
The responsibilities of acquiring the land, estimating the traffic and collecting the toll all lie with the National Highways Authority of India (NHAI).
In the current year, the government hopes to award 4,000 km of roads via the PPP (public, private partnership) route; the majority of this —around 3,000 km — is proposed to be awarded as HAM projects.
In 2016-17, HAM projects were awarded for a stretch of 2,434 km while BOT(build-operate-transfer) projects accounted for just 422km. Close to 1,450 km were to be built via the EPC (engineering, procurement and construction) mode.
Bankers are concerned the promoters are taking on very little risk. Given that 40% of the project cost comes as a grant from NHAI, the concessionaire’s equity contribution is reduced to just 15% of the remaining 60% of the project cost which is effectively just 9%.This, lenders believe, amounts to having virtually no skin in the game.
The government, has however, not changed the capital structure. However, to reassure lenders NHAI will disburse its contribution in the early stages of construction rather than in the later stages as was originally proposed.
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Several HAM projects have been awaiting approvals from lenders for many months now; given financial closure needs to be achieved within 150 days of the concession agreement being signed, some of these could lapse. While some may be resurrected, around five projects, sources in the roads ministry, say, have been cancelled.
Meanwhile, some analysts are concerned about NHAI’s ability to raise funds in the market; in 2016-17, borrowings were well below the target of `59,000 crore. “Given the mixed response of lenders to hybrid annuity projects, a move towards EPC projects in FY18, would further test such ability of NHAI,” analysts at Kotak Institutional Equities (KIE) wrote in a note.
The hybrid annuity model was introduced by Nitin Gadkari, minister for road transport, highways and shipping, in early 2015 to revive private sector investment in the roads sector by re-allocating risks. The government collects the toll and pays the developer an annuity from which the latter recovers his investment and interest costs.