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- Mar 8, 2024
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The Indian government is increasing its spend on infrastructure development in the country with close to 205 projects being worked upon by the National Highways Authority of India (NHAI). Also, 18 of these projects cover close to 800km. These projects are worth Rs 13,500 crore (approximately) and will be executed on a variation of the Public Private Partnership (PPP) model.
Under this variation of the PPP model, the Indian govt will initially contribute to 40 per cent of the cost of a highway project. The govt will pay this amount in five equal instalments. A private developer will then collect the remaining amount through means like loans or equity. Upon completion of the project, the govt will pay the remaining 60 per cent amount to the developer. What this results in is the absence of toll collection on the part of the private developer. NHAI will do the revenue collection work, however, as this move may offer more transparency in the process.
Raghav Chandra, the Chairman of the NHAI, said the State Bank of India (SBI) and NHAI arrived at a framework for resolving three projects that were languishing since 2011, requiring a spend of Rs 1,100 crore. Chandra also stated that NHAI would bid out close to 30,000km of highway projects in the next three years. Chandra, while talking about challenges of other PPP model variations, said that there had been too many uncertainties in the past. He talked about instances in 2010-12 where aggressive bidding led to the termination of 23 projects.
A variation of the PPP model is the Build Operate and Transfer (BOT). In this model, a private developer is tasked with building a highway, operating for a specified period of time and handing it over to the govt subsequently. The govt pays its part to the developer once commercial operations of the project commence. However, Chandra said that this has been unsuccessful as well.
The new projects have been taken up with Hybrid Annuity Model (HAM) variation of PPP model. This model combines the BOT and Engineering, Procurement and Construction (EPC) variations. It helps in reducing the govt's financial risk by splitting it with a private developer while providing the latter with sufficient liquidity.
The other PPP models are BOT toll and EPC models. The BOT toll model entails collection of toll by a private developer to recover costs and handing it over to the govt once the specified period for toll collection is over. The EPC model has govt bear all costs of constructing the highway with private developers being roped in for providing engineering expertise.
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