The Union government is set to re-adopt the Build-Operate-Transfer (BOT) model, shifting from the Hybrid Annuity Model (HAM) for executing highway projects. The move represents a strategic change geared towards encouraging private sector involvement and easing the fiscal burden on the exchequer.
Back to BOT: Encouraging Private Investments
The BOT model encourages private investment upfront, providing relief to the Centre’s exchequer by reducing the need to invest public money in such projects. This change comes after the HAM model, introduced in 2015 to promote private participation, encountered resistance from banks, who flagged lending issues for these projects.
HAM blends elements from Engineering, Procurement and Construction (EPC) and BOT formats. Its hybrid nature provided an initial boost to private participation, however, it soon fell out of favour due to financial complications.
Public-Private Partnership (PPP) Models: A Comparative Overview
PPP models play a critical role in infrastructure development, with different models varying based on factors such as level of investment, ownership control, risk sharing, technical collaboration, duration, and financing. These include BOT, Build-Own-Operate (BOO), Build-Operate-Lease-Transfer (BOLT), Design-Build-Operate-Transfer (DBFOT), Lease-Develop-Operate (LDO), Operate-Maintain-Transfer (OMT), and others.
| PPP Models | Ownership | Risk Sharing | Examples |
|---|---|---|---|
| BOT | Private during contract, then transfers to public | Shared | National highway projects by NHAI |
| BOO | Private | Mostly private | Various industries |
| BOLT | Private during lease, then transfers to public | Shared | Infrastructure projects |
| DBFOT | Private | Mostly private | Varied infrastructure projects |
| LDO | Public | Mostly private | Airport facilities |
Diving Deeper into the Models
In the BOT model, the private partner is responsible for designing, building, operating (during the contract period), and transferring the facility back to the public sector. This model has been extensively used in national highway projects contracted out by NHAI under PPP mode.
The BOO model grants full ownership of the new facility to the private party. On mutually agreed terms and conditions, the public sector partner agrees to buy the goods and services produced by the project.
The BOLT model involves a private entity receiving a government concession to build (and possibly design) a facility, own it, lease it to the public sector, and then transfer ownership to the government at the end of the lease period.
In the DBFOT model, the private party takes on the entire responsibility for the design, construction, finance, and operation of the project for the period of concession.
Lastly, the LDO model is mostly used in the development of airport facilities, wherein either the government or the public sector entity retains ownership of the newly created infrastructure facility and receives payments as per a lease agreement with the private promoter.
The Hybrid Annuity Model (HAM), in which the central government bears 40% of the project cost and the remaining is arranged by the developer, while initially successful, has now led the government back to the BOT model for its highway projects.
