Q.37 “Hybrid Annuity Model of the PPP recently announced by the GoI for the road sector is a timely modification of the existing model.” Give your comments with suitable illustrations.

Ans. Promoting road projects in the country has emerged into a major problem. Since the sector was opened for the private investment, the government has launched several model to attract investment to the sector— these models had run into myriads of difficulties over the time. To promote the cause, the GoI announced a new model by late January 2016—the ‘hybrid annuity model’ (HAM). It is a timely improvisation of the existing model— major features of it are given below:

• Investment participation to be in the ratio of 40:60 by the GoI and the private sector.

• Private sector to construct and hand over the road projects to the GoI.

• Toll collection will be the responsibility of the GoI.

• GoI will pay a fixed amount of ‘annuity’ to the private player for the defined period of time as per the contract.

• Private player to be selected through ‘competitive bidding’—the player asking for the lowest annuity to get the contract.

• GoI to cover all the risks related to regulatory clearance, land acquisition, compensation, commercial, traffic.

The HAM is a mix of the existing EPC and BOT-Annuity models. The present model was ‘engineering, procurement and construction’ (EPC) in which the risks related to clearance, land acquisition, commercial and traffic all were borne by the GoI together with the 100 per cent funding. Toll collection was the government responsibility (which the government may decide to not collect). The was given to the lowest bidder. In fact, this model

was hardly different from a normal contract. In it, there was no scope of attracting private investment to the fund-scarce road sector, this is why a replacement was needed.

Before the EPC model, India was having the ‘build-operate-transfer- annuity’ (BOT-Annuity) model till 2010. The PPP model was based on ‘annuity’ payment to the private player by the GoI with the latter covering no commercial and traffic risks. Toll collection was the responsibility of the government. The contract was given to the player which asked for the lowest annual annuity.