Model Concession Agreement Hybrid Annuity

He also stated that the changes in the standard concession agreement with a deferral of the marginal cost-based Lending Rate (MCLR) bank interest rate for the calculation of interest on pensions are a very positive development. Since the average MCLR replaces the bank interest rate, there will be natural coverage between annuity inflows and interest costs, which will significantly reduce interest rate risks. This is a positive step that will protect the performance of HAM developers and improve the overall attractiveness of the model, Burla noted. In order to address the key issues faced by stakeholders under the existing concession agreement and to increase the availability of road projects on the basis of the hybrid model (HAM), the Ministry of Road Transport and Highways adopted a revised concession-type agreement for new HAM-based road projects on 10 November 2020. In the TOT model, the right to collect and usurp royalties for certain operational projects of national highway (NH) built with public funds is granted to concessional dealers (developers/investors) predetermined with a prepayment of a lump sum to NHAI. This transfer of rights is based on the potential for toll revenue from identified NH projects. The operating and maintenance obligations (O-M) of these projects must be met by the dealer until the concession deadline. Dealers of such projects are designated as part of a pre-defined implementation framework and approved as part of a transparent and consistent procurement process. The Ministry of Road Traffic and Highways has adopted a hybrid annuity model for the implementation of highway projects in order to encourage private sector participation through appropriate incentives. The goal is to maximize the amount of highway projects implemented in the government`s available financial resources. Under this model, 40% of the project costs must be paid by the government as a “construction aid” for the private developer during the construction period, and 60% of the balance in the form of annuity payments during the concession period, as well as interest on the amount owed to the dealer. There is a separate provision for government payments made by the government to the dealership. The private party is not obliged to bear the risk of trafficking.

All payments were indexed by a multi-price index, which is a weighted average of WPI and CPI (IW) at 70:30 bases. This reduces the risk of inflation for the developer. Interest rates on annuities for HAM projects are considerable and amount to about 45% of total inflows during the concession period. The main changes introduced in THE revised HAM concession-type concession agreement are: interest rates for future HAM projects are now indexed to the average one-year marginal cost of funds based on a credit rate of the five major commercial banks planned, as opposed to the interest rates payable under the existing agreement. . The government approved the proposal to allow NHAI to monetize publicly funded NH projects, which are in service and generate toll revenue for at least two years after the cod through the transfer (ToT) model, subject to case-by-case approval by the MoRth/NHAI competent authority.