Toll-cum-annuity model for NH bids put in fast lane

New Delhi: The Centre may soon invite bids for certain national highway projects under the toll-cum-annuity model to enhance project bankability, improve efficiencies, and boost investor confidence.

The new initiative-a mix of build-operate-transfer (BOT) and hybrid annuity model (HAM)-will be part of the revised model concession agreement (MCA) being worked upon by the road ministry to optimise risk allocation between stakeholders, people aware of the deliberations told ET.

The need for a new funding model has emerged after some projects proposed under the BOT route failed to attract investors despite repeated bids.


The National Highways Authority of India (NHAI), under the road ministry, recently made a presentation to stakeholders on the changes being considered to the existing MCA to make it more attractive, the people said. ET has seen a copy of the presentation.

Under the model, while toll collection will be retained by the concessionaire, the Centre will provide upfront support ranging from 10% to 25% during the construction period for projects with viability gap funding of 40-70%.

While the lowest annuity shall be the sole award criteria, the new model won't be applicable to projects that are fully toll-viable or strategic projects of national importance.

"Revising the concession agreement is an ongoing process," said a senior government official. "We hope the current changes will help minimise financial risks to the concessionaire and revive private sector participation."

The toll-cum-annuity model will have a fixed concession period of 20 years, including the construction period, against BOT projects where it varies across projects.

The government will also provide financial support of 10% of the total project cost in projects where viability gap funding (VGF) is up to 50%, 20% support for VGF up to 60%, and 25% for VGF up to 70%.

Under HAM, the government pays private developers a fixed, periodic amount for construction and maintenance over a set concession period. Under BOT, a private entity receives government concessions to finance, construct, operate, and maintain a highway for a specific period-typically 20-30 years-before transferring it back to the government.