Sandeep Upadhyay, MD & CEO - Centrum Infrastructure Advisory Ltd
While Engineering Procurement & Construction (EPC) model will continue to thrive and dominate the interest evinced from majority of the road construction companies it may not be the most efficient model to roll out projects given NHAI's limited financial bandwidth vis-à-vis the huge development plan envisaged. MORTH has set an ambitious target of laying more than 40 km per day in FY 2016-17 which is significantly higher than the current pace of execution. The target to award contracts in the road sector has been set at 25,000 km in FY17 as against 10,000 km awarded in the last financial year. In order to meet these targets the total outlay for road and highways has been pegged at Rs.97,000 cr for FY17 in the recent Union Budget.
Taking cue from the current subdued market situation, NHAI recently launched the Hybrid Annuity Model (HAM) which is a mix of EPC and BoT (Annuity) Model wherein the government intends to minimize financing risk with 40% of the Project cost funded as Grant during construction and the balance 60% financed on the private sector player's balance sheet primarily against Annuity payments to be received over 15 years or so. While on one hand, HAM to a large extent has neutralized risks around financing, inflation, cost escalation etc. on the other hand it offers a unique model of bidding for projects as a combination of CAPEX and OPEX parameters. The key takeaway being this flexibility could be potentially leveraged to align with an optimum asset monetization structure in future.