For new projects, NHAI back to build-operate-transfer model

Source: The post is based on the article “For new projects, NHAI back to build-operate-transfer model” published in Indian Express on 15th July 2022.

What is the News?

National Highway Authority of India(NHAI) plans to offer at least two highway up-gradation projects to private players using the Build-Operate-Transfer(BOT) model under Public-Private Partnership during the third quarter of 2022.

What is the Build-Operate-Transfer(BOT) Model?

A build-operate-transfer (BOT) contract is a model used to finance large projects, typically infrastructure projects developed through Public-Private Partnerships(PPP). 

Under BOT, an entity—usually a government—grants a concession to a private company to finance, build and operate a project. 

The company operates the project for a period of time (perhaps 20 or 30 years) with the goal of recouping its investment and then transferring control of the project to the government.

How is the NHAI planning to implement the BOT Model?

The government has decided to assess the revenue potential of a project every five years during the concession period as against every 10 years earlier. 

This would mean that the concession period (or period till which road developers can collect toll) is extended early in the tenure of the contract, ensuring the surety of revenue for the private company.

What are the other Important PPP Models?

Engineering, Procurement, and Construction(EPC) Model

Under this model, the cost is completely borne by the government. Government invites bids for engineering knowledge from private players. Procurement of raw materials and construction costs are met by the government. 

The private sector’s participation is minimum and is limited to the provision of engineering expertise. A difficulty of the model is the high financial burden on the government.

Hybrid Annuity Model(HAM)

HAM is a mix of the EPC (engineering, procurement and construction) and BOT (build, operate, transfer) models.

Under the HAM model, 40% of the project cost is paid by the government as construction support to the private developer, and the remaining 60% is to be arranged by the developer.