Moodys Investors Service says that the increased use of public-private partnerships (PPPs) in Indias highway sector supports private sector investment in other sectors, benefiting from government initiatives and the improving credit profiles of infrastructure developers.
Private investment in highway projects had been declining in recent years, amid issues such as slow project approvals and cost overruns, but the Indian governments introduction of the hybrid annuity model (HAM) in 2016 -- as a variation of PPPs -- has triggered new investment inflows, says Abhishek Tyagi, a Moodys Vice President and Senior Analyst.
Other sectors, such as the port, shipping and rail sectors, have also started looking at improving the PPP framework in order to attract private investment to fund Indias substantial infrastructure needs, adds Tyagi.
Moodys report explains that the HAM model adopted in Indias highways sector, relative to more traditional PPPs, rebalances certain project risks between the public and private sectors. In addition, the government provides funding during the construction phase, thus addressing some of the key concerns of the earlier model.
For example, as a result of improved right of way risk allocation, the risk of delays in project completion is relatively lower for HAM projects because of the upfront availability of the majority (at least 80%) of right of way and other factors.
The new model has triggered a significant increase in projects awarded, with HAM projects accounting for around 46% of total awards in terms of highway length and 63% in terms of total value (INR765 billion) in the 12 months to March 2018.
In recent months, the government has implemented measures in an attempt to attract private investment for Indias vast infrastructure needs, including in the port and rail sectors.
The Ministry of Shipping has also proposed a new model concession agreement that that helps clarify the language in and standardize PPP projects.
Finally, Moodys notes that the improving credit profiles of infrastructure developers is increasing their capacity to participate in PPP projects. However, their access to funding remains a key concern, with banks constrained by sector-specific exposure limits and existing stressed assets in their infrastructure portfolios.