Dilip Suryavanshi supports a combination of EPC and LPVR payment model

Dilip Suryavanshi Dilip Buildcon

It seems as if there is so much more to the payment module of highway infrastructure sector in India than what meets the eye. It turns out that the recently adopted Hybrid Annuity Model (HAM) has a striking downside, which was overlooked before. If industry experts are to be believed, then HAM might lead to an inefficient project-level allocation of traffic risk and would end up creating bad loans for lenders because of inaccurate toll projections. Industrialists like Dilip Suryavanshi of Dilip Buildcon recommend adopting the Least Present Value Return (LPVR) model for it turns out to be a more flexible and reliable module.

In fact, HAM is essentially a combination of EPC and BOT models yet it fails to solve its purpose. HAM involves 40% of EPC, where NHAI pays to private players to lay roads, and 60% of BOT, where a private player finances the projects and collects revenue in terms of toll. The player builds, operates and maintains the project before transferring it to the government. This mechanism hints towards an inefficient project-level allocation of traffic risk, says Dilip Suryavanshi. Also, BOT would lead to bad loans for lenders owing to the inaccurate toll projections.

Lowest Present Value Return (LPVR), having proved its mettle in other parts of the world, most notably on Route 68 Santiago-Valparaiso highway concession in Chile in the year 1998, seems to offer a long term solution to the payment trouble.

“Under LPVR, the player who is willing to accept the lowest present value of returns is awarded the project. Of course the player is evaluated on the technical and other financial parameters as well.”, says Dilip Suryavanshi.

The project is granted with the expectation that once the quoted LPVR is reached, the concessionaire term comes to an end and the project asset gets transferred back to the government.

Furthermore, a combination of EPC and LPVR similar to the HAM model can help transfer the traffic risk away from NHAI while reducing the equity and debt burden for the private players.

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