Latest news with #EngineeringProcurementandConstruction
New Indian Express
4 days ago
- Automotive
- New Indian Express
HAM-handed or not? Kerala road collapses raise questions on how national highways are built
The recent collapse of multiple stretches of under-construction national highways in Kerala has not only sparked a heated debate about construction quality, but also about the mode under which they have been built. The Congress party has been quick to criticise the Hybrid Annuity Model (HAM), under which a majority of these roads were built, alleging inflated costs, poor quality and high contractor profits. Should other highway construction modes have been considered instead? What do experts have to say? National Highway projects are executed on mainly three modes—Build Operate and Transfer (BOT), Hybrid Annuity Model (HAM) and Engineering Procurement and Construction (EPC). In an EPC (Engineering, Procurement, and Construction) mode, the Government pays private players to build roads, and gives them no role in ownership, toll collection, or maintenance. In the BOT (Build, Operate, Transfer) mode, private players build, operate, and maintain roads for a specified period, arranging finances and collecting tolls or annuity fees. The HAM (Hybrid Annuity Model) mode, meanwhile, is a combination of EPC and BOT, where 40% of the project costs are funded by the government and 60% by the developer. HAM aims to balance risks between developers and the government, providing a more sustainable financial mechanism for road development. But has it ended up being HAM-handed instead? Why HAM came into play In the early 2000s, the National Highways Authority of India (NHAI) relied on the Build-Operate-Transfer (BOT) model to build roads without spending much money. Private contractors built the roads, collected tolls, and handed them back to the government after 20-30 years. However, by 2014, the BOT model had collapsed due to unrealistic traffic projections, delayed land acquisition, and hesitant financiers. The Hybrid Annuity Model (HAM) was introduced in 2016 to revive private-sector investment in the road sector, which had dwindled due to the challenges faced by the BOT model. Under HAM, the government provides 40% of the project cost as construction support during the construction period, while the remaining 60% is paid as annuity payments over the operations period, along with interest, to the concessionaire. This model aimed to expedite National Highway construction by rekindling private developer interest in highway projects. Another major factor behind the introduction of HAM was the growing liabilities of the NHAI. Its debt burden increased rapidly and touched Rs 3.35 lakh crores by 2024, putting the authority in a tight spot. Interestingly, NHAI's debt did not reflect in the Union Government's total debt as it had an "Autonomous" status. Suprio Banerjee, Vice President and Co-Group Head, ICRA Ltd told The New Indian Express that the HAM model was introduced in 2016 to address the challenges faced by road developers in execution and funding tie-up for BOT-toll projects and to encourage private sector participation. "Since its introduction, the road ministry has awarded more than 19,000 km length of projects under the HAM model to more than 100 developers with a cumulative BPC (bid project cost) of more than Rs 5 lakh crore till March 2025. The awarding also improved over the years with healthy share of awards in HAM mode since FY2021," he added. "Banks weren't funding BOT projects, and financial closure wasn't happening. The assumption of 8-10% annual traffic growth was off, as parallel road, air, and rail infrastructure development affected it. EPC was draining NHAI's coffers, so they introduced HAM. HAM is a win-win for all three stakeholders - government, contractors, and banks - as the risk is shared among them. It picked up well..." said Ankita Shah ,Vice President at Elara Capital. Contractors gaining 100% profit without any risk? But after several stretches of road, including service roads, collapsed under the rains in Kerala, the Congress party released a scathing critique of the Hybrid Annuity Model (HAM). The Congress claimed in a social media post that the Build-Operate-Transfer (BOT) model has been largely defunct since 2016, with most projects now being executed under the Hybrid Annuity Model (HAM) or Engineering, Procurement, and Construction (EPC) model. They pointed out that the HAM model essentially amounts to companies lending to the government at an interest rate 3% higher than the bank rate. The party also highlighted that EPC contracts reveal the true cost of construction, including the contractor's profit, which typically assumes a standard operating profit margin of around 20%. Citing the example of the Azhiyur to Vengalam stretch of NH-66, the post noted that the original contractor was awarded the contract for Rs 1,838.1 crore but the work was subcontracted for Rs 971 crore. This raises questions about the risk taken by the company and the excessive profits earned. The X handle @INCKerala highlighted that the contract for the Azhiyur-Vengalam project excludes the cost of operation and maintenance (O&M) for 15 years, which will be paid separately by NHAI to the company, adjusted for inflation annually. Specifically, the contractor has quoted an annual O&M amount of Rs 8.65 crore for this project. Further scrutiny, the party said, reveals that the actual construction cost of the Azhiyur-Vengalam stretch is approximately Rs 23.7 crore per kilometre, less than half of the awarded amount of Rs 45 crore per kilometre. This stark difference underscores the windfall profits enabled by the Hybrid Annuity Model (HAM) over 15 years, despite construction costs aligning with those of EPC projects, the Congress went on to allege. The post emphasised that executing projects through EPC, with the government taking loans directly, would be significantly cheaper. KPCC General Secretary (Organisation) M Liju told The New Indian Express, "Think about the overall loot happening in the name of highway construction. It would have been much cheaper if all projects were executed through EPC, with the government taking loans directly. The 60% annuity payment is essentially a loan from companies to the government at a higher interest rate than the bank rate. Instead of directly taking a loan at Bank rate of 8%, NHAI takes a loan from construction companies at 11%. What's the risk taken by the company to warrant such lucrative rewards?" Costlier, but still the better option? Interestingly, speaking at a panel discussion a senior official of the National Highways Authority of India (NHAI) had highlighted some months earlier that the HAM is costly to the government, involving upfront grants and repayment of funds with interest. According to Suprio Banerjee, "A HAM project requires more funding from developers compared to EPC projects, but less than BOT-Toll projects. However, the authority can recover some costs through toll collection, as it retains toll rights under HAM." He further noted that over the last three years, EPC has been the preferred route, accounting for 65-70% of total road awards, while HAM projects comprised 25-30%. Although HAM's share declined to around 13% in FY2024, it's expected to rebound to over 25-27% in FY2026, driven by projects above Rs 500 crore being awarded in BOT (HAM or Toll) mode. In a paper Comparative Study of Bot And Ham Models of Public Private Partnership published in the International Journal of Research in Advent Technology, Nikhil Kumar and Akash Agrawal argue that compared to BOT model, HAM turns out to be a better alternative for the highway construction project. Here, the risk allocation is minimum and financial burden is also shared to a great extent to both public and private and moreover such HAM projects have a better future. "The main reason which has made HAM so popular is its ability to handle risk with regard to financial management. In this aspect government is liable to pay only 40% of the overall cost in five instalments and the rest 60% is the burden of the private party. They can raise the fund by means of equity, loans or any debt and the financial support is given to them only when a certain target is achieved in due course of time otherwise penalty would be imposed over them," the paper says. "The cost of building remains the same across EPC, BOT, and HAM projects; the difference lies in how the investment is recovered. In HAM, no single party bears the entire risk, as both the promoter and the government have a stake. In contrast, EPC and BOT models carry counterparty risks," Ankita Shah said. "The success of these models ultimately depends on traffic volume, which can be unpredictable due to changing government policies and circumstances. For instance, toll plazas are often kept open during elections, affecting revenue. In HAM, the government shares the risk. The future of road construction likely lies in a mix of all three models, with BOT suitable for high-traffic stretches and EPC for socially necessary projects with lower traffic volume," she added.
The Print
11-07-2025
- Automotive
- The Print
NHAI to bid out 124 road projects worth Rs 3.4 lakh crore in FY26
Gorakhpur – Kishanganj – Siliguri(476 Km) project will be taken up for bids by NHAI under the Hybrid Annuity Model (HAM) mode, while Tharad-Deesa-Mehsana-Ahmedabad – Pkg 1(106 km) project will be taken up for bids by NHAI under Build Operate and Transfer (BOT) model. The total length of the highways likely to be taken up for bids by NHAI in 2025-26 is 6,376 km. New Delhi, Jul 11 (PTI) State-owned National Highways Authority of India (NHAI) has said it plans to bid out 124 highways and expressways projects worth Rs 3.4 lakh crore in 2025-26. The NHAI said Capacity Augmentation of Pampore (Srinagar) to Qazigund section of NH-44(48 km) by construction of service road , grade seperated structures will be be taken up for bids under Engineering Procurement and Construction (EPC) model. National Highways s projects are executed on mainly three modes — Build Operate and Transfer (BOT),Hybrid Annuity Model (HAM) and Engineering Procurement and Construction (EPC). Concession period for projects including maintenance on Build Operate and Transfer (BOT) is 15 to 20 years and on Hybrid Annuity Model (HAM) is generally 15 years. Concessionaire is responsible for maintenance of the respective NHs stretches within the concession period of the project. Only in case of EPC projects, Defect Liability period (DLP) is 5 years for the bituminous pavement works and 10 years for concrete pavement BKS BKS This report is auto-generated from PTI news service. ThePrint holds no responsibility for its content.
