Hybrid Annuity Model (HAM)

The Hybrid Annuity Model ( HAM) is a variant of Public Private Partnership (PPP). Through this model, the government bears 40 per cent of the cost of the project and the balance 60 per cent is arranged by the developer and the developer usually invest not more than 20-25 per cent of the project cost and the remaining is raised as debt.HAM is one of the modes of delivery for implementing the highway projects. The main object of the approval is to improve the condition of highway projects.

By adopting the model as the mode of delivery, all major stakeholders in the PPP arrangement –the authority, lender and the developer, concessionaire would have an increased comfort level resulting in improvement in the condition of the sector through renewed interest of the privates developers/investors in highway projects and this will bring relief to citizen/travellers in the area of a respective project.

It will facilitate uplifting of the socio-economic condition of the entire nation due to increased connectivity across length and breadth of the country leading to enhanced economic activity.

Came into force

The decision to implement Hybrid Annuity Model (HAM) was taken by CabinetCommittee on Economic Affairs (CCEA). CCEA has delegate authorityfor deciding on the mode of delivery of highway projects to Ministry of Road and Transport & Highway.HAM was launched by government in January 2016.

Features

An important feature of the HAM for highways development is the rational approach adopted for allocation of risks between PPP partners – the government and the private partner(developer/investor). Theprivate partners continue to bear the construction and maintenance risks. There is no toll right for developers. National Highway Authority of India collects toll on these projects and pays the developer a fixed annual fee for specific period.The developer is protected from traffic risk and the inflation risk, which are not within its control. HAM gives enough liquidity to the developer.

Why it is important?

First of all, the private investor had to fully arrange for its finances whether it is from debt or through equity contribution. Non Performing Assets (NPA) make banksworst performer, so  banks did not want to lend in these projects. Also, if the compensation structure didn’t involve a fixed compensation ( such as annuity), then the developer had to take on the entire risk of low passenger traffic. And then, developers not want to invest in these project.

HAM’s role in Nation’s growth

National Highway Authority Of India contribute 12% to the growth in the country.