As the name suggests, HAM is a hybrid, a mix of the Engineering, Procurement and Construction (EPC) and Build,Operate, Transfer (BOT) Annuity models. The HAM model was introduced in 2016 by Ministry of Road Transport and Highways to rejuvenate the Public-Private Partnership (PPP) projects in highways sector.
Basic principles of the HAM contract document are as follows:
Design and construction risks are entirely passed on to concessionaire;
Milestone payments are made during construction period, at which the concessionaire only gets the part of capital cost incurred until that point;
In case of delayed completion, there are liquidated damages for every day of delay. In addition, annuity revenues would also be delayed, and the concessionaire is effectively penalized. Conversely, on early completion, a bonus may be paid to the concessionaire and the annuity revenues can start faster; and
Balance of deferred capital cost payments, interest thereon, and O&M costs are paid as (6-monthly) annuity payments during the operation period of the project
Key Advantages of the HAM PPP model – Win-win situation
Government Authority perspective
Government keeps the deferred payment capital expenditure of up to 60% as “off balance sheet” in form of annuity payments
Wider participation from many EPC players in HAM projects since there is much lower upfront equity investment needed and hence, higher value of money to government due to increased competition
Timely project completion and on budget since the private sector has an incentive to complete and start annuity revenues and contractual incentives
Since the HAM contractor bears a risk for 15 years post-construction, the asset design and construction is expected to be of higher quality compared to EPC contracts
A higher asset quality translates as higher service levels for road users
Private Sector perspective
Lower equity requirements from the Sponsor since 40% project cost is financed by government authority. Assuming a D:E ratio of 75:25 for the remaining funding to be arranged, the effective equity contribution by Sponsor is limited to 15% of total project cost.
Provision for mobilization advances to the concessionaire at bank rate + xx%
Higher right of way availability for the project since 80% land is cleared before appointed date
Inflation-linked adjustments for project cost and subsequent annuity payments
De-linking of the construction and operations period. Due to this de-linking, the timeline for
If you are looking to bid for a HAM PPP model project, Yog Infra can help provide complete transaction advisory services with a robust bid strategy.
Contact Us at info@yoginfra.com for a discussion.