Rohit Kumar Singh, joint secretary in the ministry of road transport and highways, is one of the architects of the newly-launched hybrid annuity model for construction of highways. In an interview with Surya Sarathi Ray, he dwells on the merits of the model. Excerpts:

How many projects do you want to award through the hybrid annuity model in the current year?

To begin with, we are rolling out 20 projects with total length of about 1,400 km and entailing investment of R55,000 crore. Bidding for some of these projects has started, including for the Delhi-Meerut Expressway.

There were reports that two projects proposed to be awarded through the model have received no bids.

The report is incorrect. There was only one project in Himachal Pradesh that did not attract bids last month. When you adopt a new model, there would always be apprehensions, specially when it requires large investment. We did a lot of homework from our side — we started with stakeholders’ session as early as on February 18 and we had several rounds of discussions. Last month, we had a detailed workshop. In retrospect, I think we should not have gone with the first project with that model in a difficult area.

After that, I have had discussions with stakeholders, bankers and concessionaires and now they are ready to bid. I’m confident of investors’ interests in the Meerut expressway project.

What are the merits of the hybrid annuity model?

This model has emerged out of a necessity. After examining PPP projects which were on the decline, we identified two problems and one of them was the non-availability of sufficient equity in the market. Therefore, we shifted to EPC in 2014, but it was felt that the PPP model needed to be revived to reduce the cost of road construction to the government. Of the $1 trillion that we had planned to spend in the infrastructure sector during the current Plan period, 50% was supposed to come from the private sector. But we have so far achieved only 34% (private investment) even as the overall investments stay below the projection. If you have to get back the private sector into the highway game, we need to have innovative models. So in consultations with the bankers and developers, we developed the hybrid model.

For a R1,000-crore project, to give the investors the comfort level they need, the government will invest R400 crore and the remaining R600 crore the developer has to bring in as both debt and equity. So if you compare with the typical BOT project, as against R300 crore equity to be brought in by the private developer in a R1,000- crore project, now the equity requirement is R120-R180 crore. This is, of course, linked to physical milestones.

The second issue in the BOT model was that there were no safeguards for developers in case of default by the developers. In the hybrid model, if more than 40% of the project is completed, and there is a default due to some reason attributable to concessionaires, then the lenders would get to recover at least a part of the debt. So the comfort level of lenders and banks has gone up. There will be some hair-cut which the developers will have to take, but still, they would find this model attractive.

The third thing about the hybrid annuity model is that the traffic risk is not with the concessionaires. In this model, toll is collected by the government and the annuities are pre-fixed. Annuities increase as the period increases. It will start with 2.1% and goes up to 4.7% of the money the developers have put it in.

Are their examples of such model abroad ?

This is just a variant of PPP model and even in the committee appointed by the finance minister headed by Vijay Kelkar,in which I am a member, the common theme was that according to the market dynamics, we should tweak the PPP model and only the risk that the market is capable of taking should be passed on to the market. If some risk can be best managed by the sovereign, it should be kept with the sovereign — for instance, the traffic risk in this case. The cost of uncertainties over environment and forest clearance and land acquisition should also be kept away from the investors. Going by the response we are receiving from the stakeholders, I’m sure this model is bound to succeed.