11/12/2018 What is HAM in India?

- The Hindu BusinessLine

All you wanted to know about...HAM

MUTHUKUMAR K

      1

BL18_THINK2_SLATE1

Transport minister Nitin Gadkari is actively promoting his brain-child — the Hybrid-Annuity Model or
HAM these days. Introduced in January 2016 to revive investments in road infrastructure projects, HAM
has seen good initial success. About 30 highways projects have been awarded under HAM by the National
Highway Authority of India (NHAI) at a total cost of about ₹28,000 crore. Half the projects awarded in
2016-17 were under HAM.

What is it?
As the name suggests, HAM’s a hybrid — a mix of the EPC (engineering, procurement and construction)
and BOT (build, operate, transfer) models. Under the EPC model, NHAI pays private players to lay roads.
The private player has no role in the road’s ownership, toll collection or maintenance (it is taken care of by
the government). Under the BOT model though, private players have an active role — they build, operate
and maintain the road for a speci ed number of years — say 10-15 years — before transferring the asset
back to the government.

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11/12/2018 What is HAM in India? - The Hindu BusinessLine

Under BOT, the private player arranged all the nances for the project, while collecting toll revenue or
annuity fee from the Government, as agreed. The annuity fee arrangement is known as BOT-Annuity;
essentially, the toll revenue risk is taken by the government, while the private player is paid a pre- xed
annuity for construction and maintenance of roads.

Now, HAM combines EPC (40 per cent) and BOT-Annuity (60 per cent). On behalf of the government,
NHAI releases 40 per cent of the total project cost. It is given in ve tranches linked to milestones. The
balance 60 per cent is arranged by the developer. Here, the developer usually invests not more than 20-25
per cent of the project cost (as against 40 percent or more before), while the remaining is raised as debt.

Why is it important?
HAM arose out of a need to have a better nancial mechanism for road development. The BOT model ran
into roadblocks with private players not quite forthcoming to invest. First of all, the private player had to
fully arrange for its nances — be it through equity contribution or debt. NPA-riddled banks were
becoming wary of lending to these projects. Also, if the compensation structure didn’t involve a xed
compensation (such as annuity), developers had to take on the entire risk of low passenger traf c. In the
past, many assumptions on traf c had gone awry affecting returns Now, they are unwilling to commit
large sums of money in such models.

HAM is a good trade-off, spreading the risk between developers and the Government. Here, the
government pitches in to nance 40 per cent of the project cost — a sort of viability-gap funding. This
helps cut the overall debt and improves project returns. The annuity payment structure means that the
developers aren’t taking ‘traf c risk’. From the Government’s perspective, it gets an opportunity to ag off
road projects by investing a portion of the project cost. While it does take the traf c risk, it also earns
better social returns by way of access and convenience to daily commuters.

Why should I care?

Infra investments are key for economic growth, something all of us are rooting for. So, it’s important that
these projects take off — HAM a big help here. Also, more and better roads mean smoother rides and less
traf c congestion; who doesn’t want that? HAM projects are also being tested in urban infra developments
such as metro rail projects — again, a leg-up for faster commuting.

The bottomline
HAM’s good for the road — and that’s not hamming it up.

A weekly column that puts the fun into learning

Published on July 17, 2017

TOPICS Infrastructure and construction

Slate

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11/12/2018 What is HAM in India? - The Hindu BusinessLine

A weekly column that puts the fun into learning

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Ram 295 points

R
a year ago

good move

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