Hybrid Annuity Model (HAM) projects account for more than 50% of the NHAI awards in the past two years and are estimated to account for 45-50% of NHAI awards in FY2023e. Earlier, the bids were awarded on the basis of the lowest assessed Bid Price which shall be a summation of the Net Present Value (NPV) of Bid Project Cost (BPC) during the Concession Period and bid Operations & Maintenance cost (O&M) during the operations period. MoRTH through a circular dated May 23, 2022, changed the bid parameter to BPC alone while doing away with the quoting of O&M cost. In lieu of this, the bidder would be paid a fixed percentage of BPC as O&M during the operations period. As per an ICRA note, this is a positive as the change in the bid parameter will work as a positive for the bidders, ensuring long-term commitment to the HAM projects.
Giving more insights, Rajeshwar Burla, ICRA says, “O&M is a critical aspect in HAM projects as the future annuities depend on proper upkeep of the road and its failure is a serious risk for lenders and NHAI. In order to book profits upfront along with the increasing competition has resulted in some of the developers resorting to quoting abysmally low O&M bids. Based on ICRA’s sample study of HAM projects, the quoted O&M cost as % of BPC varies from a low of 0.07% to 3.13%. The median O&M cost as a % BPC stood at 0.38% and the cash flows for median O&M cost are 47% lower than the proposed fixed O&M payments. A developer has to bid at 0.72% of BPC as O&M cost for receiving the same O&M payments as the proposed fixed O&M schedule. Further, the fixed payments are in line with the maintenance requirement of the project and are likely to enable the SPV to maintain the project stretch. From this perspective, linking O&M payments to bid project cost is an excellent move and a win-win for all stakeholders.The skin in the game for the developers also gets addressed for them to stay committed to these projects for a longer tenure.”
