India’s road projects under the hybrid annuity model (HAM), awarded by the Ministry of Road Transport and Highways (MoRTH), are making steady progress. According to a report by Crisil Ratings, over 90% of the total project length currently under construction is being built on schedule.
This timely execution, combined with robust debt protection measures, has strengthened the credit risk profiles of these projects, making them a reliable investment for stakeholders.
Importance of HAM Road Projects in India
In the past five years (excluding 2024), nearly 25% of road projects awarded by MoRTH have followed the HAM model. This highlights its growing importance in India’s road infrastructure development.
HAM’s success is largely due to its unique features. For instance, at least 80% of the right-of-way (ROW) must be available before the appointed date is declared. Additionally, provisions such as de-scoping and de-linking of project sections without ROW and mechanisms for inflation and interest-rate hedging further ensure smooth execution.
Timely Completion of Projects
Crisil’s analysis shows that about 66% of the project length under construction is either on schedule or ahead of time. Another 26% of the projects are slightly delayed or waiting for approval to extend timelines. These delays are usually caused by factors beyond the control of concessionaires, such as unavailability of ROW, heavy rainfall, or mining bans.
Only 8% of the project length under construction faces significant execution challenges, making it a minor concern compared to the overall progress.
Once completed, HAM road projects typically demonstrate strong credit profiles. This is largely due to structural advantages such as steady cash flows from a central counterparty, which ensures timely payments.
Crisil’s analysis of its rated portfolio shows that the debt coverage metrics for HAM projects are strong, with an average debt service coverage ratio of 1.3 to 1.4 times. These metrics further support the creditworthiness of these projects, making them attractive to investors and lenders.
Challenges and Increasing Competition
While credit risk profiles of HAM projects have remained stable, the increasing popularity of the model has brought challenges. Relaxation in bidding norms has led to a surge in competition, with the number of bidders more than doubling over the last four years.
This increased competition could potentially impact project margins and execution timelines. However, the strong structural benefits of HAM continue to outweigh these challenges, ensuring its sustained relevance in India’s road infrastructure development.
India’s HAM road projects are setting a benchmark for timely execution and financial stability. With over 90% of projects progressing smoothly and strong credit profiles ensuring reliable cash flows, the hybrid annuity model has proven to be a successful approach to road development.
As the sector continues to grow, addressing challenges like competition and minor execution delays will be crucial to maintaining this momentum. The HAM model is poised to play a pivotal role in India’s infrastructure growth, driving progress in road connectivity and economic development.
