What is Hybrid Annuity Model to revive PPP Public Private Partnership in highway construction
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What is Hybrid Annuity Model to revive PPP Public Private Partnership in highway construction

May 23, 2019



[Applause] hello and welcome to study IQ in this lecture we will discuss about the hybrid annuity model or the H a.m. hybrid annuity model first let us see an overview of the hybrid annuity model so this was introduced in January 2016 and this is the brainchild of the Transport Minister Nitin Gadkari so what was the purpose of introducing such a model this was to revive the investments in road infrastructure projects you know for a country road infrastructure is very very important the road infrastructure does not serve as only a mode of transport but also in terms of Commerce or trade it is very important so developing that road infrastructure or rather we can say that reviving the road infrastructure was one purpose why this idea was brought about so till now about 30 highway projects have been handed over by the HM model or the hybrid annuity model so now let us see what is this model or what this hybrid annuity model what does this mean as the name suggests this is a hybrid model which means it is a mix of EPC and be ot so this is a mix of EPC and be ot what this EPC EPC is engineering procurement and construction so EP c stands for engineering procurement and construction and do t build operate and transfer so we will look into EPC and be ot in detail and we will also discuss what this hybrid model of this and then we will move on to hybrid and with remodel so first let us see what is EPC or engineering procurement and construction model so under the EPC model what happens is that the National Highway Authority of India or the NHAI NHAI pays the private players for construction so in order to lay roads the National Highway Authority of India or the NHAI pays to the private players so the National Highway Authority here based on behalf of the government so under the EPC model one important thing that you must notice that under this model the private players does not have any role in the roads on ship to all collection or maintenance so there does not have any connection with the ownership it is completely owned by the government and energy I on behalf of the government made payments to the private players for laying out the roads so under this model the EPC model the government is the sole owner government is responsible for the whole collection and also maintenance so order is the government again tall collection and maintenance is also done by the government and this name itself says EPC engineering procurement and construction so these are the areas where in which private players have a role so ownership is with the government and the payment is also done by the government on behalf of government National Highway Authority of India makes the payment so hope APC or the engineering procurement and construction models clear for you so now we move on to the Bo D model so what does Bo T we said it is build operate and transfer so under the Bo T model private players have a very important role or the most the private players play an active role in this model or under this be OT model so under the B or T model the roads are built operated and also maintained by the private players so billet operated and maintained by the private players and one thing you should remember is that under the bo d model the private players built operate and maintain this for a specific period of time so there is a time limit not for the entire period so this is for a specific period of time so this specific period of time will be mentioned in the agreement say for example it can be 10 years or 15 years so after the specific period of time the ownership will be given to the government or transferred to the government here under the beauty model you should understand that the private players will arrange the finance so in the EPC model we said that the finances arranged the National Highway Authority of India on behalf of the Government of India so here it is financed by private itself so private itself finds the sources of finance for this project so what is the revenue for the private players under the Bo T model so the private players under the bo t model they will either collect the tall revenue or that annuity fee so it is either than tall revenue or the annuity fee to all revenue you know what is tall revenue the revenue collected from the tolls a particular amount will be collected from tolls and what is enmity so if the revenue for the private players under the beauties in the form of enmity the government agrees to pay an annual fee this will be in the agreement itself so the government would in Pryor agree to pay an annual fee and according to that the government will pay enmity to the private players so under the enmity what happens is the risk for the revenue will be less for the private players because the risk of toll collection will be taken up by the government so government will be responsible for the toll collection under enmity model and therefore the risk of the private players will be less so they will be getting a particular annual fee which is prefixed by the government and the private player in the agreement and according to that agreement the enmity will be paid therefore the risk also will be less so now coming to our topic that is hybrid annuity model let us see what is hybrid enmity modeled Hanne hybrid enmity model combines both EPC and bu T which means that the engineering procurement and construction model and the build-operate-transfer model is both combined in the hybrid annuity model so this is EPC plus b OD so under the hybrid annuity model EPC ratio will be 40 percentage and b OT will be 60 percentage so this is the ratio of air in which EP c and d or t are combined so again under the ham model or the HJM model hybrid enmity model the 40 percentage under the EPC will be released by the National Highway Authority of India as in the case of the previous EPC model so National Highway Authority of India releases 40 percentage of the total project cost and this 40 percentage will be given in five stages which means the road construction whenever that at every stage of development or at five milestones this 40 percentage is given this is not given together as one sum but this is divided into five stages and given at five stages of development or five milestones of development again coming to the rest of 60 percentage it is arranged by the private player we call them as developer so the developer will arrange for rest 60 percentage of the fund of the project and usually what happens is that out of the 60 percentage the developer himself will race around 20 to 25 percentage and the rest of the amount will be collected in the form of debt so now let us see why this hybrid annuity model is important for us or for a country like India why is hybrid annuity model important so first of all the hybrid annuity model provides for better financial mechanism for the road development so better financial mechanism earlier you know it was either by the government or under the BRT system it was by the private players so this is a better financial mechanism where in which the finance part is shared by the government as well as by the private players so again there were certain challenges in the Bo T model let us see what were the challenges in the Bo T model and this challenge is there one recently adopted achaya model or hybrid enmity model first of all in the Bo T model built operating transfer model the private players were not willing to come forward and invest what was the reason because we have already seen under the bo t model the complete investment or the complete financed to be arranged by the private players so for a project like road construction the amount or the finance which is involved will be very huge and this was difficult for the private players to completely arrange this finance and what they had to do is they had to either take it in the form of equity or in the debt so racing equity or debt was also again a big task for the private players so they were not quite willing to invest in such projects that was one major challenge under the DoD model again coming to the beauty model and the challenge was that the banks were have not willing to give such huge amounts as loans so we already know that in the banking system there is a problem called the NBA or non performing asset so if the principal amount or the interest is not paid for a period of 90 days horrible that particular loan is considered as a and BA or non performing asset so the Indian banks are overcrowded with NPS and lending such a huge amount for road projects to the private players was difficult for the banks also so banks were also not willing to provide huge amounts of loans to the private players for road construction thirdly under the Bo T model we said that there are two ways of revenue collection one is de taüll revenue collection or secondly the enmity so under the tall revenue collection what happens is the private players will collect tolls and what happens with less traffic areas or roads where the traffic is less what happens the toll collection will be less so the revenue for the private players will also be less so there was a risk with the revenue of the private players so unlike in the enmity in enmity what happens is that the government will pay them and will fee which is prefixed by the government and the private players in the agreement so unlike in enmity when it comes to toll revenue what happens the private players are always at errors of revenue so if there is less traffic in a particular road the toll collection be less and therefore the revenue of the private players also will be less so these were the factors the Bo T models did not became very successful and had all this challenges so this was one reason we adopted the hybrid annuity model to overcome these challenges hybrid admitting model came as a very good solution third Levi hybrid and VG model becomes important is that under such model there is a better trade off of spreading risk between the government as well as the private place which means that the risk of the project or the risk of the cost of the project is shared between the government and the private player so thirdly the risk factor it is shared between the government and the private so there is lesser risk for the private and lesser risk for the government as well here no party will have the complete risk either the government or the private player does not take up the entire risk it is being shared fourthly the project return of this hybrid annuity model also will be high what is the reason for that the the returns of the hybrid enmity model becomes high because we have already said 40 percentage of the total cost is funded or financed by the government through the National Highways Authority of India so then 40 percentage of the project cost is actually financed by the government what will happen the percentage of that will come down so lesser percentage of that means more returns so because the percentage of debt comes down there will be more returns so this is also one important thing why hybrid enmity models become attractive again another feature of this hybrid enmity model is that it is an enmity model which means that the government will pay the private players enmity or annual fee so which means the road traffic risk for the private players is also less we have already seen in less traffic areas the private players are in a risk of getting back the returns so under this model the payment to the private players or revenue of the private players is in the form of enmity so there will be lesser traffic risk for the private players so from the government's perspective there is another advantage what is that the government is actually getting an opportunity to flag off road projects which means that here under the hybrid enmity model the government is also financing the project a portion of the finance of the 40 percentage of the finances done by the government so the government is actually getting an opportunity to flag off the road projects this means that the government will have more social returns so more social returns for the government and you must understand that infrastructural development is necessary for the growth of a country so infrastructure improves means that the country's growth is also improving so infrastructure is very important or plays a vital role in the development and growth of a country so better roads can provide better trade better ways of transport better Commerce which will add on to the output of the country in terms of GDP and employment generation in the country in the form of increased employment rates and many other factors associated with it so this is very important infrastructural development especially Road development is very important not only from the aspect of growth and development of a country when it comes to every individual better roads means smoother travel so this will add to the standard of living of every individual in the country every household in the country this will also reduce congestion after the hybrid enmity model has become successful in road transportation or Road infrastructure the government is planning to try this modeling urban infrastructure development like the Metro rails also [Applause]

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  2. I would rank her 2nd best teacher in study IQ. English is very simple. Easy to understand. And, most importantly, she repeats things. So time available to grasp things increases. 👍👍

  3. Hybrid Annuity Model offers a classic example of Public Private Partnership. It is visibly clear that the model has certain advantages over the EPC and BOT model for building key infrastructure projects like Roads, highways, metro Dry ports etc.
    Under HAM as 40% of funds would be raised by government the private players risk of going bankrupt following the possible failure of the project also gets shared besides the fact that government has certain stakes in a project would also reduce the lending by banks which they would have ought to make under the BOT model for a specific project.
    Largely what would be the key take aways through HAM models is that it would encourage private developers to collaborate with government in joint ventures to reap possible profits in relatively less risky way as payments would be assured to them in the form of annuity or annual reimbursements from the government.
    Such models are very likely to emerge successful provided the project being undertaken is driven by a vision and far sightedness.
    Subsequently it be extended to other key infrastructure development areas as well. Increased investments in roads and highways etc. is the need of the hour if India were to robustly transport it's cargo to dry ports, seaports, ease congestion, cut down logistics cost and make it's goods more globally competitive besides co benefits of generating employment and increasing consumption levels of households.

  4. following things i have noticed about this teacher :
    1. makes a simple topic complex
    2. too much concerned about make up rather than working on her annoying voice .

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