No highway project was awarded under the hybrid annuity model (HAM) so far this fiscal, but the National Highways Authority of India (NHAI) may award around 2,000 km through the HAM route in the remaining period of 2019-20.
The authority has a total awards target in all categories of 6,000 km in the current fiscal. Last fiscal, 834-km projects were awarded under HAM out of the total awards of 2,222 km. Crisil has said NHAI could award around 4,000 km highway projects in the current fiscal.
"Though there had been no project awards through HAM so far in the current fiscal, a lot of projects will come up for awards through the HAM route soon. We should award around 1,500-2,000 km highway projects through HAM in the current fiscal," a source in NHAI said.
Under HAM, NHAI pays 40% of the project cost upfront and remaining 60% over a period of 15 years to the developer; the developer, therefore, needs to find money for the 60% construction cost at the initial stage and his equity share turns out to be less than 10% in most cases.
In the first half of the current fiscal, NHAI has awarded 843 km highways and all of that was awarded through the engineering, procurement and construction (EPC) route. Awards through BOT have come to a naught for the last two years. In the BOT model, the developer collects tolls to recoup investments. Under the EPC model, the project cost is completely borne by the government.
"Apart from HAM, we will also try to bid out some projects through the BOT route and we have already invited proposal for annual pre-qualification for construction of 4/6 lane highway stretches of about 950 km," the source said.
Increased risk aversion among a pool of investors that has anyway been limited, lenders' wariness, issues related to last-mile land acquisition and cash flow problems of operational projects have all resulted in drying up of new HAM projects.
In FY19, projects awarded through HAM slowed down to around 834 km of the overall 2,222 km of projects awarded by NHAI. In 2017-18, it was 3,236 km. The decline is majorly due to delays in Right of Way (land acquisition) and financial tie-ups, IndRa had said, adding that the appetite of the private players reduced due to a large number of HAM projects that were on offer in FY18-FY19.
Banks are also wary of HAM due to the very low equity contribution by developers. As far as private investors are concerned, cash flow issues have emerged for operational HAM projects owing to the recent reduction in bank rates. This has reduced their appetite for new projects.