Through EPC Route NHAI to award more projects, as both road developers and banks find it difficult to spend the money required for more projects under the hybrid annuity model (HAM). The National Highways Authority of India (NHAI) is likely to award more of road projects under the engineering, procurement and construction (EPC) method this fiscal, as both road developers and banks find it difficult to spend the money required for more projects under the hybrid annuity model (HAM).
Financial closure of HAM projects is proving a concern as developers struggle to finance them, while banks, which have been placed under the prompt corrective action (PCA) framework, are limited in the amount of loans they can extend. As a result, a majority of project awards are likely to be under the EPC mode. Under HAM, NHAI contributes 40% of the project cost while the remaining portion has to be funded by the developer in the form of both debt and equity.
According to Edelweiss, the focus on EPC will be positive as road companies would not be required to cough up equity required for such projects. However, some road developers have a different viewpoint. Even for EPC projects, we are finding it difficult to procure the performance and mobilisation bank guarantees. With developers struggling to finance projects, analysts say many developers are in talks with financial institutions for forging partnerships. According to Edelweiss, “Such partnerships may result in the two parties sharing the burden of equity infusion for HAM projects during the construction stage with the financial institutions buying out the developer post the commercial operations date (COD). In fact, there have already been two such deals, with both Dilip Buildcon and MEP Infrastructure Developers selling their portfolio of six HAM projects each.
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