What is meant by Hybrid Annuity Model? How do the recent changes in the model contribute to the development of road sector in the country? Explain (200 Words)
Refer - Financial Express
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IAS Parliament 3 years
KEY POINTS
Hybrid Annuity Model (HAM)
· It has been introduced by the Government to revive Public Private Partnership in highway construction in India.
· The government will contribute to 40% of the project cost in the first five years through annual payments (annuity). The remaining payment will be made on the basis of the assets created and the performance of the developer.
Contribution to the road sector
· The recent changes in model concession agreement with a shift to the marginal cost of funds based lending rate (MCLR) from bank rate for computing interest on annuities is a positive development.
· There will be a natural hedge between the annuity inflows and interest costs, thereby reducing the interest rate risks to a large extent, and that too without any delay.
· This is a positive move that will protect the returns of the HAM developers and improve its overall attractiveness.
· The other major revision is the grant payment from the authority which will now be paid in 10 instalments instead of five. Thus, the spacing between the payment milestones is reduced.
· This will improve the cash conversion cycle for the contractors executing the HAM projects as their payments are back to back in nature. With improved attractiveness, HAM is expected to remain the mainstay for public-private partnership projects in the road sector.
Dev 3 years
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IAS Parliament 3 years
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Priya sabalkar 3 years
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IAS Parliament 3 years
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