Hybrid Annuity Model for Highway Projects

Ministry of Road Transport & Highways

Government of India
January 2016
Key implementation modes

• Concessionaire responsible for designing, building, financing, operating and

transferring the project at end of concession period.
BOT – Toll • Provisions of VGF of up to 40% of total project cost by Government.
(PPP) • Commercial returns to concessionaire through collection of toll revenue at
Government regulated rates.
• Commercial risk taken by the concessionaire.

• Concessionaire responsible for designing, building, financing, operating and

transferring the project at end of concession period.
BOT - Annuity • Financial returns to concessionaire through pre-determined semi-annual
(PPP) annuity payments made by the Government.
• Government responsible for collecting toll revenue.
• Commercial risk not transferred to the concessionaire.

• Concessionaire responsible for designing, building and transferring the project

at end of construction period.
• Financial returns to the concessionaire through payments made by the
EPC Government.
• Government responsible for collecting toll revenue and maintaining road.
• Government handling financing risk, O&M risk and revenue risk .
• Considerable strain on Government finances until toll stabilizes.
Risk & Responsibility

Mode Construction O&M Traffic and toll

Authority/
EPC Authority Authority
Contractor

BOT Annuity
Private Investor Private Investor Authority
(PPP)

BOT Toll (PPP) Private Investor Private Investor Private Investor

BOT (Toll) projects challenges

 Steep decline in PPP participation was observed in 2012-13 and

2013-14 with many viable projects unable to attract even a
single bid.
 Reasons for the slowdown include:
 Over-leveraged financials for developers due to excessive
exposure to infrastructure projects.
 Lack of availability of debt products aligned with revenue stream
profile of highway projects.
 Banks reaching the ceiling as per sectoral exposure norms.
 Aggressive bidding based on unrealistic traffic projections.
 Inadequate project preparatory activities.
 Projects getting stalled during construction due to LA and
clearance related issues.
 Signs of revival are visible in the current year – 1000+ kms
awarded in last 8 months on BOT (Toll)
Need for improved connectivity is a continuing imperative

Options before MoRTH / NHAI

Shift to publicly funded EPC mode for highway projects

Constrained by existing financial resources of Government

Need for an innovative implementation model to revive interest of Private

Investors - HYBRID ANNUITY MODEL
A new risk sharing framework
Hybrid Annuity Model – Risk Allocation

Risk shared in EPC Mode Risk shared in BOT (Toll) Mode

Type of Risk Party Type of Risk Party
Financing Risk Government Financing Risk Private
O & M Risk Government O & M Risk Private
Revenue Risk Government Revenue Risk Private

Risk shared in Hybrid Annuity Model

Type of Risk Party
Financing Risk Shared between Govt and Private
O & M Risk Private
Revenue Risk Government
Hybrid Annuity Model – overview

1. Annuity payments (biannually) for 15

40% of Project Cost years
(Construction Support) 2. O&M payments
by Govt. 3. Interest payments (on reducing
balance @ Bank Rate + 3%)
COD

Hybrid Annuity Project

Toll collection Maintenance by

by Govt. Concessionaire
60% of Project Cost
arranged by
Concessionaire for
Financial Close Bid parameter- Bid Price (Life
Cycle Cost)

Construction Period Operations Period

Hybrid Annuity Model – salient features

 Bid Price – Life Cycle Cost (Net Present Value (NPV) of the
quoted Bid Project Cost + NPV of the O&M Cost for the entire
Operations period) shall be the bid parameter.

 Cash Construction Support of 40% of Bid Project Cost

shall be payable to the concessionaire by the Authority in five
equal instalments linked to project completion milestones.

 Concessionaire shall have to bear the balance 60% of the

Bid Project Cost through a combination of equity and debt
and construct the project highway.
Hybrid Annuity Model – salient features

 Semi-annual annuity payments shall be made to the

concessionaire by the Authority on completion of the project
for the Balance completion cost along with interest payment
on reducing balance

 Interest Rate for the same shall be Bank Rate +3.00%.

 Project costs shall be inflation indexed through a Price Index

Multiple - weighted average of Wholesale Price Index (WPI)
& Consumer Price Index for Industrial Workers (CPI) (IW)
in the ratio of 70:30.
Hybrid Annuity Model – salient features

 Concessionaire shall remain responsible for project

maintenance till the end of the concession period.

 Separate provisions exist for O&M payments to the

concessionaire from the Authority.

 Toll collection shall be the responsibility of the Authority.

 Concession Period shall comprise construction period,

which shall be project specific and fixed operations
period of 15 years.
Basic Parameters of the Model
Finance related concepts of Project Cost

Appointed
Commercial
Bid Date Date
Operation Date

Construction Phase O&M Phase

Award Criterion: Lowest Bid Price (NPV of the quoted Bid Project Cost + NPV
of the O&M Cost for the entire Operations period)
• Bid Project Cost : Amount quoted by the Selected Bidder (shall include civil construction
cost, physical and price contingency, risk premium and financing cost)

• O&M Cost : Amount quoted by the selected bidder for first year of O&M.
Finance related concepts of Project Cost

Appointed Commercial
Bid Date Date Operation Date

Construction Phase O&M Phase

Completion Cost
• Summation of Adjusted Bid Project Cost on each construction milestone and COD.

• Balance Completion Cost shall be payable during Operations period.

Balance completion cost: Balance completion cost is the amount to be paid to
the concessionaire during the operations period arrived at by deducting from
the completion cost the price indexed construction support paid out by the
govt. during construction phase
• Interest to be paid by Authority on reducing balance of Balance Completion
Cost.
Finance related concepts

Capital Capital Support

Support • 40% of the Bid Project Cost provided by the Authority to the
Concessionaire during the construction period in the form of
‘Construction support’.
Mobilization
Advance
• ‘Construction support’ to be disbursed in 5 equal installments of
8% each.
Annuity
Payments • Timing of the above disbursement linked to percentage of physical
progress with calculations similar to EPC projects (Annexure I to
Interest Schedule G)
Payments
• Payment adjusted to variation in Price Index from the Bid Date to
Reference Index Date preceding the payment milestone.
O&M
Payments
Finance related concepts
Capital Mobilization Advance
Support • Upto 10% of the Bid Project Cost may be paid by the Authority as
Mobilization Advance.
Mobilization
Advance • The rate of interest on Mobilization Advance is equal to Bank
Rate.

Annuity • The Mobilization Advance is deducted by the Authority in 4 equal

Payments installments from each of the first four payments to be made by the
Authority.
Interest
Payments • Interest to be recovered from the 5th installment.

O&M
Payments
Funding of the initial Working Capital
Finance related concepts

Capital Annuity payments during operation period

Support • Balance Completion Cost shall be paid in pre-defined bi-annual
installments for 15 years.

Mobilization
• The first installment of the annuity payment shall be due and
Advance
payable within 15 days of 180th day of the COD.

Annuity • The remaining installments shall be due and payable within 15

Payments days of completion of each of the successive 6 months.

Interest
Payments

O&M
Payments

Balance completion cost: Balance completion cost is the amount to be paid to the concessionaire during the operations period arrived at by deducting from the completion cost the price
indexed construction support paid out by the govt. during construction phase
Annuity payment schedule – Pre determined

Annuity following Percentage of Balance Annuity following Percentage of Balance

the COD Completion Cost the COD Completion Cost
1st Annuity 2.10% 16th Annuity 3.30%
2nd Annuity 2.17% 17th Annuity 3.40%
3rd Annuity 2.24% 18th Annuity 3.50%
4th Annuity 2.31% 19th Annuity 3.61%
5th Annuity 2.38% 20th Annuity 3.72%
6th Annuity 2.45% 21st Annuity 3.83%
7th Annuity 2.52% 22nd Annuity 3.94%
8th Annuity 2.60% 23rd Annuity 4.06%
9th Annuity 2.68% 24th Annuity 4.18%
10th Annuity 2.76% 25th Annuity 4.25%
11th Annuity 2.84% 26th Annuity 4.25%
12th Annuity 2.93% 27th Annuity 4.44%
13th Annuity 3.02% 28th Annuity 4.71%
14th Annuity 3.11% 29th Annuity 4.75%
15th Annuity 3.20% 30th Annuity 4.75%

100%

Balance completion cost: Balance completion cost is the amount to be paid to the concessionaire during the operations period arrived at by deducting from the completion cost the price
indexed construction support paid out by the govt. during construction phase
Finance related concepts

Capital Interest Payments on reducing balance of Balance Completion

Support Cost
• Interest shall be payable on the reducing balance of the Balance
Completion Cost.
Mobilization
Advance
• The rate of interest shall be Bank Rate + 3 %.

Annuity • The interest shall be due and payable biannually along with each
Payments installment of Annuity payment.

Interest
Payments

O&M
Payments

Balance completion cost: Balance completion cost is the amount to be paid to the concessionaire during the operations period arrived at by deducting from the completion cost the price
indexed construction support paid out by the govt. during construction phase
Finance related concepts
Capital O&M payments
Support • The biannual payments of the O&M expenses shall be based on
cost quoted by selected bidder under its O&M Bid.
Mobilization
Advance • The installment of O&M payment shall be linked with change in the
Price Index on due date of payment with respect to Bid date.

Annuity
For instance
Payments
o Base O&M quote (half yearly) on Bid Date - Rs 1.00 crore.
o Price Index on the Reference Index Date preceding the Bid
Interest Date is 200.
Payments
o Price Index on the Reference Index Date preceding the 2nd
installment of O&M period is 250.
O&M o Price Index Multiple on the Reference Date is 1.25.
Payments o O&M Payment = Rs. 1.00 Crores *1.25 = Rs. 1. 25 crores.
Finance related concepts
Bonus on early completion
• In case Concessionaire achieves COD more than 30 days prior to Scheduled
Completion Date, the Authority shall pay the Concessionaire a bonus @ 0.5% of
Balance Completion Cost for every month by which COD precedes the Scheduled
Completion Date.

• No Bonus for first 30 days. Then on pro-rata basis for the entire duration of early
completion.

Damages for Delay in Completion of Construction

• If COD does not occur prior to the 91st day after the Scheduled Completion Date,
Concessionaire shall pay damages to the Authority @ 0.2% of the amount of
Performance Security for each day delay until COD is achieved

• .
Balance completion cost: Balance completion cost is the amount to be paid to the concessionaire during the operations period arrived at by deducting from the completion cost the price
indexed construction support paid out by the govt. during construction phase
Important inclusions in Concession Agreement

Conditions
• No Party allowed to waive some Conditions Precedent, esp.
Precedent
pertaining to the availability of land.
Performance
Security • Timeline for fulfilling the Condition Precedent by each party is 150
days from signing of CA.
Right of Way
• Timeline for submitting the Performance Security by
Concessionaire is 30 days from signing of CA.
Financial
Close • Authority will procure all Applicable Permits relating to
environmental protection and conservation in respect of the land
Termination forming part of the Right of Way and handed over to the
concessionaire.

Others
Important inclusions in Concession Agreement

Conditions
• Authority will procure forest clearance for the entire Right of Way
Precedent
handed over to the concessionaire including tree cutting.
Performance
Security • Authority will procure approval of the General Arrangement
Drawings for the road over bridges/under bridges at level crossings
on the Project.
Right of Way

• During the Development Period, the Concessionaire shall maintain

Financial the existing Project road.
Close

Termination

Others
Important inclusions in Concession Agreement
Condition Performance Security Amount
Precedent • Performance Security to be 5% of the Bid Project Cost
C

Performance Additional Performance Security

Security • If the Bid Project Cost quoted by Bidder is lower by more than 10%
of the estimated project cost, the Bid shall be considered as
Right of Way unbalanced bid.

• In case of unbalanced bid, the Concessionaire shall provide an

Financial
Close Additional Performance Security to the Authority along with the
Performance Security.

Termination
• The Additional Performance Security shall be the 10% of difference
in estimated project cost and the Bid Project Cost.
Others
Important inclusions in Concession Agreement

Condition Procurement of the site

Precedent • Prior to the Appointed Date, Authority shall have granted vacant
access and Right of Way such that construction of the Project to
Performance the extent of at least 80% (eighty per cent) of the length thereof is
Security
possible.

Right of Way • Appendix for Balance Land shall not to include any land which is a
critical element of the Project without which the Completion
Financial Certificate or Provisional Certificate may not be granted.
Close
• Land not handed over within 180 days will be considered to be
Termination outside the scope of the project

Others
Important inclusions in Concession Agreement

Condition Financial Close

Precedent • Concessionaire shall achieve Financial Close within 150 days, in
respect of Total Project Cost.
Performance
Security

Right of Way

Financial
Close

Termination

Others
Important inclusions in Concession Agreement

Condition Termination for Concessionaire Default

Precedent • Termination – Construction Period - based on the last Payment
Milestone achieved which is in terms of the Physical Progress
Performance made by the Concessionaire in the Project
Security
Payment Milestone Termination Payment
1st Payment Milestone NIL
Right of Way 2nd Payment 50% of Debt Due or 9% of Bid Project Cost , whichever is lower
Milestone
3nd Payment Milestone 60% of Debt Due or 16% of Bid Project Cost , whichever is lower
4th Payment Milestone 70% of Debt Due or 24% of Bid Project Cost , whichever is lower
Financial 5th Payment Milestone 80% of Debt Due or 32% of Bid Project Cost , whichever is lower
Close

• Termination - Operation Period - an amount equal to 65% of

Termination
Annuity Payments remaining unpaid including interest thereon up
to the Transfer Date.
Others
Important inclusions in Concession Agreement

Condition Termination for Authority Default

Precedent • Termination – Construction Period - Debt Due payment
calculated as per the table below less Insurance Cover;
Performance
Payment Milestone Basis of calculation for Debt Due payment
Security st
1 Payment Milestone Debt Due or 9% of Bid Project Cost , whichever is lower
2nd Payment Milestone Debt Due or 18% of Bid Project Cost , whichever is lower
3nd Payment Milestone Debt Due or 27% of Bid Project Cost , whichever is lower
Right of Way 4th Payment Milestone Debt Due or 33.75% of Bid Project Cost , whichever is lower
5th Payment Milestone Debt Due or 40.50% of Bid Project Cost , whichever is lower

Financial
Close and 150% (one hundred and fifty per cent) of the Adjusted Equity;

• Termination - Operation Period - an amount equal to sum of

Termination
Annuity Payments remaining unpaid for and in respect of the
Concession Period, including interest thereon up to the Transfer
Others Date.
Important inclusions in Concession Agreement

Condition Termination for Force Majeure - Events

Precedent
Provisions based on Payment Milestones achieved in terms of the
Performance Physical Progress made by the Concessionaire during construction
Security period and annuity payments remaining unpaid during the Operation
period exist.
Right of Way

Financial
Close

Termination

Others
Important inclusions in Concession Agreement

Condition Provisional Certificate

Precedent • Provisional Certificate may be issued for operating part of the
Project, if the Concessionaire has completed construction of 100%
Performance
Security of the Site made available to the Concessionaire up to 180 days
from the Appointed Date.
Right of Way

Financial
Close

Termination

Others
Important inclusions in Concession Agreement

Condition Reduction in Scope of Project

Precedent
• On direction by the Authority, the Independent Engineer to assess
Performance the civil cost of the reduced Scope, as per the schedule of rates
Security applicable on the Bid Due Date

Right of Way • The civil cost of the reduced Scope shall be multiplied by the factor
[1.15] to arrive at the estimated cost of reduced Scope. This
Financial percentage shall be the calculated as (Estimated Project Cost
Close divided by civil construction cost estimated by Authority)

Termination • The estimated cost of reduced Scope shall then be multiplied by

the ratio of Bid Project Cost to Estimated Project Cost to arrive at
Others the Total Cost of Reduced Scope.
Important inclusions in Concession Agreement

Condition Buildings for Traffic Aid Posts

Precedent Construction of Buildings for Traffic Aid Posts should be the obligation
of the Concessionaire.
Performance
Security
Buildings for Medical Aid Posts
Construction and operation of Buildings for Medical Aid Posts should
Right of Way
be the obligation of the Concessionaire. The concessionaire is also
responsible for reimbursing recurring expenditure on medical aid
Financial posts
Close
State Support Agreement
Termination A provision related to State Support Agreement has been included.

Others
Procedure for appraisal and approval of projects under Hybrid
Annuity Model
Estimated project cost 115% of Base Civil Cost1

Interest rate on balance annuities Bank Rate +3%

Estimated Bid Project Cost Calculated corresponding to Equity IRR

of 15%

Estimated Bid Price Use estimated bid project cost and O&M
cost (1st year) as inputs in bidding
evaluation excel sheet

1. Based on NHAI's circular No. RW/NH-37011/15/2015-PPP

33
Projects approved under the Model (I/II)
NHDP Total Cost in
Sl No Name of Project NH No Length in km Configuration
PHASE Rs. Cr.
1 Binjabahal-Telebani IV 6 77.608 4-lane 913.72
2 Patna-Buxar III 30 & 84 125.00 4-lane 3759.24
Govindpur(Rajgunj)-Chas-West
3 IV 32 56.889 2/4-lane +PSS 549.45
Bengal Border
4 Singhara –Binjhabahal IV 6 104.176 4-lane 1143.24
5 Waranga-Warda (Package-I) IV 361 67.58 679.31
4 lane
6 Waranga-Warda (Package-II) IV 361 78.23 4-lane 781.82
7 Waranga-Warda (Package-III) IV 361 70.09 4-lane 719.61
Tuljapur-Ausa including Tuljapur
8 IV 361 67.428 4-lane 618.23
bypass
Chutmalpur-Ganeshpur and
72A
9 Roorkee-Chutmalpur-Saharanpur- IV 104.755 4-lane 1390.0
& 73
Yamunanagar
10 Rampur-Kathgodam III 87 93.226 4-lane 1046.83
11 Lucknow-Sultanpur IV 56 125.900 4-lane 1276.0
12 Meerut-Bulandshahr IV 235 61.190 4-lane 641.30
13 Nagpur Bye-pass VII 73 61.300 4-lane 923.8
14. Talaja to Mahuva IV 8E 45.460 4-lane 675.64
15 Mahuva to Kagavadar IV 8E 40.02 4-lane 633.07
16 Kagavadar to Una IV 8E 40.98 4-lane 594.74
17 Una to kodinar IV 8E 40.95 4-lane 659.51
Delhi-Dasna-Hapur (part of Delhi-
18. - 24 49.293 14-lane 2824.17
Meerut Expressway)
19. Ner Chowck-Kullu IV 21 74.975 4-lane 4371.32
20. Shimla-Solan III 22 50.50 4-lane 2552.27
Projects approved under the Model (II/II)
NHDP Total Cost in
Sl No Name of Project NH No Length in km Configuration
PHASE Rs. Cr.
21. Kharar-Ludhiana V 95 76.014 6-lane 1333.81
22. Kodinar-Veraval IV 8E 40.78 4-lane 927.15
New link from Sahibganj bypass to
NH-
Manihari bypass including 4-lane
23. 133B & 21.885 4-lane 2082.63
Ganga bridge and construction of
131A
Manihari bypass
24. Phagwara-Rupnagar IV 95 80.82 4-lane 1186.71
Elevated Highway between
25. Samrala Chowk to Ludhiana VII 95 12.951 4-lane 934.28
Muncipal Limit
Linking
NH-95
26. Laddowal bypass VII 17.041 4-lane 419.98
with
NH-1
27. Cuttack-Angul III 42 112.00 4-lane 1575.38
28. Greenfield Udaipur bypass V 8 23.883 6-lane 659.69
Total 1820.924 35872.9
Hybrid annuity – Illustrative example
Pre construction phase

1
construction phase
Pre Construction Construction phase O&M phase

Bid Date Appointed Date

1st Jan 2015 1st July 2015

Bid date

• Price index 200

• L1 Bid project cost - INR 1150 Cr
• Annual O&M bid INR 2 cr.
Construction phase - Capital support without mobilization
advance
BPC1 - 1150 Cr
Construction Support 460 Cr 2
Pre Construction phase Construction phase O&M phase
1 2 3 4 5

Bid Date Appointed Date Commercial Operation Date

1st Jan 2015 1st July 2015 27th Dec 2017
Instalments
% work as per Adjusted
Date completed Price Index original BPC1 instalments
1

1 26 Apr 2016 20% 210 92 Cr 96.6 Cr

2 04 Aug 2016 40% 215 92 Cr 98.9 Cr

3 01 Jan 2017 60% 220 92 Cr 101.2 Cr Construction

support is
4 31 May 2017 75% 225 92 Cr 103.5 Cr price
indexed
5 08 Oct 2017 90% 230 92 Cr 105.8 Cr

Total 460 Cr 506 Cr

X Payment milestone
1. BPC – Bid project cost
Construction phase - Capital support with mobilization
advance of 115 Cr
BPC – 1150 Cr Mobilization advance
given on 30-Sept-2015
2
Pre Construction phase Construction phase O&M phase
1 2 3 4 5

Bid Date Appointed Date Commercial Operation Date

1st Jan 2015 1st July 2015 27th Dec 2017 Net
Instalments payment
% work Price as per MA11 apart from
Date completed Index adjusted BPC adjusted MA11
1 26 Apr 2016 20% 210 96.6 Cr 28.75 Cr 67.9 Cr

2 04 Aug 2016 40% 215 98.9 Cr 28.75 Cr 70.2 Cr

3 01 Jan 2017 60% 220 101.2 Cr 28.75 Cr 72.5 Cr

4 31 May 2017 75% 225 103.5 Cr 28.75 Cr 74.8 Cr

5 08 Oct 2017 90% 230 105.8 Cr 10.62 Cr22 95.2 Cr

Total 506 Cr 125.6 Cr 380.4 Cr

X Payment milestone
1. MA – Mobilization Advance 2. the last installment is the interest on mobilization advance compounded annually on the bank base rate (8.5% for this example)
Construction phase – Completion cost and starting balance
for payment during O&M phase
BPC1 - 1150 Cr
2
Pre Construction phase Construction phase O&M phase

Bid Date Appointed Date Commercial Operation Date

1st Jan 2015 1st July 2015 27th Dec 2017
Adjusted Balance
Price Completion payment Completion
% of BPC Index Cost instalments Cost
1 20% 210 241.5 Cr 96.6 Cr 144.9 Cr

2 20% 215 247.3 Cr 98.9 Cr 148.4 Cr

3 20% 220 253 Cr 101.2 Cr 151.8 Cr

4 194.1 Cr 103.5 Cr 90.6 Cr Total to be paid in

15% 225
O&M phase
5 15% 230 198.4 Cr 105.8 Cr 92.6 Cr
--
6 10% 235 135.1 Cr 135.1 Cr
Total 1269.31 Cr 506 Cr 763.3 Cr
X Payment milestone
Balance completion cost: Balance completion cost is the amount to be paid to the concessionaire during the operations period arrived at by deducting from the completion cost the price
indexed construction support paid out by the govt. during construction phase
O&M phase—Annuity and interest payments

3
Pre Construction phase Construction phase O&M phase
1 2 3 4 5

... n = 30
Bid Date Appointed Date Commercial Operation Date
1st Jan 2015 1st July 2015 27th Dec 2017

Annuity + Interest payment11 O&M payment

Time of Annuity Annuity Starting Reducing Interest Price Original Adjusted

payment Schedule payment balance balance payment Index Instalment Instalment

1 180 days 2.10% 16.0 Cr 763.3 Cr 747.3 Cr 43.9 Cr 250 1 Cr 1.25 Cr

from COD
2 + 6 months 2.17% 16.6 Cr 747.3 Cr 730.7 Cr 43.0 Cr 255 1 Cr 1.28 Cr
3 + 6 months 2.24% 17.1 Cr 730.7 Cr 713.6 Cr 42.0 Cr 260 1 Cr 1.30 Cr
4 + 6 months 2.31% 17.6 Cr 713.6 Cr 696.0 Cr 41.0 Cr 260 1 Cr 1.30 Cr
5 + 6 months 2.38% 18.2 Cr 696.0 Cr 677.8 Cr 40.0 Cr 265 1 Cr 1.33 Cr
...

X Annuity Payment milestone

1. Interest rate = bank base rate (8.5%) + x% (3%) = Assumed to be 11.5% for this example
 O&M phase— Bonus on early completion

Scheduled completion date – 27 Dec 17 Actual completion date – 12 Nov 17 Days: 45 days (1.5 months)
3
Pre Construction phase Construction phase O&M phase
1 2 3 4 5

... n = 30
Bid Date Appointed Date Commercial Operation Date
1st Jan 2015 1st July 2015 27th Dec 2017

Annuity + Interest payment11 O&M payment

Time of Annuity Annuity Starting Reducing Interest Price Original Adjusted

payment Schedule payment balance balance payment Index Instalment Instalment Bonus
1 180 days 2.10% 16.0 Cr 763.3 Cr 747.3 Cr 43.9 Cr 250 1 Cr 1.25 Cr 5.17
from COD

0.5% of 60%
Net payment: 16.0 + 43.9 +5.17 = 65.07 of BPC for
every month
of
advancement

X Annuity Payment milestone

1. Interest rate = bank base rate (8.5%) + x% (3%) = Assumed to be 11.5% for this example
 O&M phase— Penalty on delayed completion

Scheduled completion date – 27 Dec 17 Actual completion date – 26 Apr 18 Delay: 120 days

3
Pre Construction phase Construction phase O&M phase
1 2 3 4 5

... n = 30
Bid Date Appointed Date Commercial Operation Date
1st Jan 2015 1st July 2015 27th Dec 2017

Annuity + Interest payment11 O&M payment

Time of Annuity Annuity Starting Reducing Interest Price Original Adjusted

payment Schedule payment balance balance payment Index Instalment Instalment Penalty
1 180 days 2.10% 16.0 Cr 763.3 Cr 747.3 Cr 43.9 Cr 1 Cr 1.25 Cr 13.8
from COD
250

Net payment:16.0 + 43.9 – 13.8 = 46.1 0.2% of 5%

of BPC for
every day of
delay beyond
91 days

X Annuity Payment milestone

1. Interest rate = bank base rate (8.5%) + x% (3%) = Assumed to be 11.5% for this example
Construction phase – Termination payment on account of the
concessionaire default
BPC1 - 1150 Cr
Construction Support 460 Cr 2
Pre Construction phase Construction phase O&M phase
1 2 3 4 5

Bid Date Appointed Date Commercial Operation Date

1st Jan 2015 1st July 2015 27th Dec 2017
Instalments
% work as per Adjusted
Date completed Price Index original BPC1 instalments
1

1 26 Apr 2016 20% 210 92 Cr 96.6 Cr

2 04 Aug 2016 40% 215 92 Cr 98.9 Cr

3 01 Jan 2017 60% 220 92 Cr 101.2 Cr

Termination
4 31 May 2017 75% 225 92 Cr 103.5 Cr

Termination payment:
16% of BPC = 184 cr;
Debt due = 60% of Debt2 = 289.8
X Payment milestone
1. BPC – Bid project cost 2. Assuming Debt inflow is in proportion to the work done
Construction phase – Termination payment on account of the
Authority deault
BPC1 - 1150 Cr
Construction Support 460 Cr 2
Pre Construction phase Construction phase O&M phase
1 2 3 4 5

Bid Date Appointed Date Commercial Operation Date

1st Jan 2015 1st July 2015 27th Dec 2017
Instalments
% work as per Adjusted
Date completed Price Index original BPC1 instalments
1

1 26 Apr 2016 20% 210 92 Cr 96.6 Cr

2 04 Aug 2016 40% 215 92 Cr 98.9 Cr

3 01 Jan 2017 60% 220 92 Cr 101.2 Cr

Termination
4 31 May 2017 75% 225 92 Cr 103.5 Cr

Termination payment:
27% of BPC = 310.5 cr;
Debt due = 60% of Debt2 = 289.8 + 150 % of Adjusted equity
X Payment milestone
1. BPC – Bid project cost 2. Assuming Debt inflow is in proportion to the work done
Queries on Hybrid Annuity MCA
 Queries raised by stakeholders (I)
No. Issues MoRTH response
Financial Close must be defined as
commitment by Concessionaire to fund
the entire capital cost through equity and
No changes are required. The ’Financial Covenants’ part of the Model
debt. In the event the progress
Concession Agreement (MCA) for the Hybrid Annuity Model has been
1 milestone payments are delayed, the
developed in an equitable manner with rational risk distribution
Concessionaire must be able to bring
between the authority and the concessionaire.
in the entire debt and equity required
to progress the project, barring a
Termination event
Progress Milestone must be de-linked
from Physical Progress to remove
discretionary intervention by IE and Linking progress milestones to physical progress is necessary in order
Authority, and to be determined by to ensure that expenditure booked for a project is commensurate with
2
financial progress of the project. This progress on ground. Accordingly, the same has been addressed
would also enable all development through Clause 23.4 and Annexure I to Schedule G of the Model
costs, besides physical progress costs,
to be comprehensively accounted for
Payment of 60% of Bid Project Cost The rationale for the current structuring of the annuity payments is
3 during O&M period must be through broadly based upon a decision of the CoS that structuring of annuities
equal semi-annual payments should match the expected revenue stream of highway projects
 Queries raised by stakeholders (II)
No. Issues MoRTH response

Concessionaire to provide for all

costs in determination of the Bid Currently envisaged ‘Bid Parameter’ that includes a combination of Bid
4
Project Cost, which shall be the bid Project Cost and O&M Cost remains unchanged.
parameter.

There shall be no separate payments

5 for interest and O&M costs by The current structuring of the Model to remain unchanged.
Authority.

Impact of Change in Scope, including

Reduction in Scope, must be on a one-
Compensation for any Change in Scope- whether increased scope or
6 time determination basis and must not
cause adjustments to the revenue reduction have been rationally addressed in the Model.
stream of the project.
Termination Payments must be
calculated with 100% project cost as Termination payment calculations to remain unchanged. In fact, the
a basis with adjustments made for Model has provisions for Termination Payments by the Authority in
progress payment already made to case of Concessionaire events of default during the construction
7
the Concessionaire. This would period, which the current MCAs for BOT (Toll) and BOT (Annuity)
provide security to cover the funding for projects do not have. Therefore the Model provides for added comfort
entire project cost and improve
level for lenders.
bankability.
 Queries raised by stakeholders (III)
No
Issues Suggested Measures MoRTH response
.

While it is understood that Bank Rate does not

 Bank funding does not have any reflect the actual lending rate, the reason for
Interest on Balance
linkage / correlation with Bank Rate choosing the same for interest calculation
Annuity Payment is linked
8.  Interest to be linked to SBI Base Rate under the Model is that there are a large number
to Bank Rate + % (currently
(In Old CA, Interest was linked to SBI of banks who lend to roads & highways sector
10.75%)
PLR and it was felt that the basis for calculation of
interest should be bank agnostic.

The provision is NOT new. Such provision

 Debt Serviceability of project could get exists in the recent Planning Commission MCA
Deemed Performance affected which may hinder Financial document templates for BOT (Toll) and Annuity
Security Close projects.
 After release of the  Security cover is also reduced for the
Performance Security, lender
NHAI shall have first and  Damages pertaining to delay in Provision of Deemed Performance Security has
9.
exclusive charge on the construction and O&M are already been considered to ensure that adequate fund
equivalent amount in the provided for in the Concession is available in the Escrow Account for fulfilling
escrow account for the Agreement requirements pertaining to damage and other
remaining Concession  Keeping Deemed Performance payments that may arise after the original
period security shall amount to double Performance Security is returned to the
protection concessionaire.
 Queries raised by stakeholders (IV)
No Issues
Termination Payment linked to
Completion Cost instead of Actual
Project Cost
 Termination Payments in the CA
are linked to Bid Project Cost 
during Construction period and
Annuities (i.e. 60% of Completion 
Cost ) during Operations period,
instead of Actual Project Cost.
Further, during operations period,
10. termination payment in case of
concessionaire’s default is 65 % of
Annuity Payments, which restricts
funding by Banks
 Debt Due during construction
period on account of
Concessionaire’s Default, is
covered on a graded scale but
does not cover the entire Debt
Outstanding in any stage, creating
a shortfall
Suggested Measures MoRTH response
A considered view has been taken on the
Termination Payment to be matter. It may be noted that the Bid Project Cost
linked to Actual Project Cost is market determined and should ideally reflect
In a downward inflationary the Actual Project Cost on ground.
scenario, there could be a
possibility that the Actual Provision for Termination Payment due to
Project Cost is higher than concessionaire event of default during the
the Completion Cost, construction period should increase the
resulting in lower comfort level of lenders significantly. No such
Termination Payment. provisions exist in the BOT (Toll) MCA.
 Debt Due should be entirely However, it is rational enough that in case of
covered during Construction termination during construction due to
period in all cases of concessionaire default, the
Termination. concessionaire/lenders should bear a
reasonable haircut.
 Queries raised by stakeholders (V)
No Issues
Back-ended Annuity Payments
 Annuity payments are back-
11.
ended considering back-ended
repayment schedule
Suggested Measures MoRTH response
Please refer to the current version of the MCA
available on the MoRTH website which includes
 Pure equal annuities as
a rationalized payment schedule. The annuity
compensation could help
payments have been aligned with typical
attract bidders improving the
revenue profile for highway projects as also
return profile of the project
recommended by Committee of Secretaries
(CoS).

Step in Rights of both NHAI and

Entitlement of the Lenders along with the
Lenders
Authority to step into Project Agreements as
 As per CA, Step in rights is
 Priority of step-in rights to per MCA provisions (Cl 5.2.4) should increase
available to both the lenders and
NHAI, if any, should involve the comfort level of lenders. No such provisions
NHAI
12. provision for paying off exist in the BOT (Toll) MCA.
 However, in case both the
Lenders dues prior to Step-
parties decide to exercise its
in It may also be noted that Project Agreements
step in rights, NHAI shall have
include ‘Financing Agreements’ and therefore
the sole right to step in to the
lenders’ risk perception is further reduced.
Project agreements
 Queries raised by stakeholders (VI)
No Issues Suggested Measures MoRTH response
For any reduction in scope, the Bid Project Cost
would be reduced by the [115%] of the civil
cost of the Reduction in Scope assessed by the
 109.3% is an arbitrary
Independent Engineer as per Cl 16.6.1 of the
assumption. IE could vet the
MCA.
savings in cost on account
of reduction
Reduction in Scope leads to Rationale for the same - while appraisal of
 Savings in Project Cost
reduction in Bid Project Cost by projects under the Model, a centage of 15% is
could be paid by the
13. 109.3% of Civil Cost of Reduction in uniformly considered on civil cost. Therefore,
Concessionaire as one time
scope and O&M Costs shall also be for any reduction in scope, equivalent reduction
adjustment with no revision
revised in the Bid Project Cost should be 115% of the
in Bid Project Cost and O&M
civil cost of the reduction in scope.
 Lenders to be intimated on
account of any change of
Current dispensation is rational. Upon
scope
Reduction of Scope and subsequent revision of
Bid Project Cost, all the payments would be
calculated as per the revised Bid Project Cost.
 Queries raised by stakeholders (VII)
No Issues Suggested Measures MoRTH response
.
Right of Way
 Construction works for Land given As per Cl 10.3.2 of the MCA, on/before the
within 182 days of Appointed Date  Unencumbered contiguous Appointed Date, the Authority should provide
shall be completed on or before land with 3E in place shall land (RoW) such that the Concessionaire is not
SCOD be considered for the prevented in any manner from undertaking
 Obligation to provide 80% land purpose of 80% construction of the Project to the extent of at
14.
shall mean construction can be  For balance land, 3G should least 80% (eighty per cent) of its length.
.
carried out on at least 80% of the be in place and the same
length of the project shall be handed over within As regards balance land, land not available after
 Concern with regards to 90days as per existing DCA 180 days from Appointed Date is required to be
discontinuous stretch, which terms for other BOT projects reduced from the scope of work of the
affects construction works, has not concessionaire as per Cl 10.3.4 of the MCA.
been addressed
 Weightages could be The current dispensation of the IE deciding
Milestones linked to Physical progress
decided at the time of Bid weightage of all the items in due consultation
 Milestone achievement has
based on NHAI’s Estimated with the Authority during finalization of design
15. been linked to Physical
Project Cost, in order to as per provided format - is for addressing
progress based on weightages
avoid any ambiguity / project specific requirements in a customized
decided by IE
dispute later manner with due flexibility.
 Queries raised by stakeholders (VIII)
No. Issues MoRTH response
There is a variance with reference to the
period of appointment of Independent
Engineer as provided in Clause 21.1 of
Concession Agreement and Schedule M.  While
Clause 21.1 provides for appointment of IE for the
The variance has been noted and changes will be made
16. construction period plus one year, article 4 of
accordingly
Schedule M stipulates appointment of IE for up-to
3 years only. For example, for a Project having
Construction Period of 3 Years, in Clause 21.1
stipulates the appointment for 4 years and in
Schedule M it is 3 years, which is contradictory.
Hybrid annuity – Exercise
Exercise 1 - Evaluating the lowest bidder

Bidder A Bidder B Bidder C

Bid project
cost (Cr.)
1000 950 1150

Base O&M
quote
(Annual) 16 24 0
(Cr.)

Who would have the lowest NPV and win the bid?
Exercise 2 – Calculating construction support to
concessionaire

Bid project cost (Cr.) 1000  

Price Index 200  
     
Construction support    
Payment milestone Price index Construction support
1st 210
2nd 215 What should be the
payout to the
3rd 220 concessionaire during
construction period?
4th 225
5th 230
Total  
Exercise 3 – Calculating the completion cost and annuity
payout for the concessionaire
Bid project cost (Cr.) 1000
Price Index 200

Completion cost calculation

Project part Price index Completion cost Annuity Principal
20% 210
20% 215 What is the
20% 220 principal
What is the final amount to be
15% 225 completion cost of the
15% 230 paid during the
project? O&M phase?
10% 235
Total  
Exercise 4 – Calculating annuity & interest payments for the
concessionaire
Annuity
S.No. Annuity Payment Starting balance Ending balance Interest payment
Schedule
1 2.10%
2 2.17%
3 2.24%
4 2.31%
5 2.38%
6 2.45%
7 2.52%
8 2.60%
9 2.68% What are the annuity & interest
10 2.76%
11 2.84% payments to the concessionaire
12 2.93% during the O&M phase?
13 3.02%
14 3.11%
15 3.20%
Exercise 5 – Termination payment

Case 1 – Termination on account of Case 2 – Termination on account of

authority authority
Termination occurs between 3rd & 4th Termination occurs between 4th & 5th
payment milestone payment milestone

Payment Payment
Termination payment Termination payment
milestone milestone
1st payment 1st payment
NIL Lower of debt due or 9% of BPC
milestone milestone
2nd payment Lower of 50% of debt due or 9% 2nd payment
Lower of debt due or 18% of BPC
milestone of BPC milestone
3rd payment Lower of 60% of debt due or 16% 3rd payment
Lower of debt due or 27% of BPC
milestone of BPC milestone
4th payment Lower of 70% of debt due or 24% 4th payment Lower of debt due or 33.75% of
milestone of BPC milestone BPC
5th payment Lower of 80% of debt due or 32% 5th payment Lower of debt due or 40.5% of
milestone of BPC milestone BPC

+ 150% of Adjusted equity