Understanding Highway road project Contract Models: BOT, TOT, HAM & EPC
India's highway sector doesn't run on just one funding/contract model. Government authorities uses different approaches depending on traffic potential, financial viability, and the government's priorities. Here's a simplified explanation:
EPC - Engineering, Procurement & Construction
Government funds 100% of the project.
Contractor is only responsible to design & build the road.
No revenue or traffic risk for the contractor.
After construction, O&M is handled by the Authority.
Best when: traffic is uncertain or the project is of strategic importance.
BOT - Build, Operate, Transfer
Private company finances + builds + maintains the road.
Two variants:
- BOT (Toll): Concessionaire collects tolls directly → bears traffic risk.
- BOT (Annuity): Concessionaire gets fixed payments (annuities) from Authority → no traffic risk.
Best when: traffic is predictable (Toll) or government prefers fixed payments (Annuity).
Traffic Revenue (BOT Toll):
\[ R = \sum_{t=1}^{n} (V_t \times T_r) \times (1+g)^t \] where \( V_t \) = traffic volume in year \( t \), \( T_r \) = toll rate, \( g \) = traffic growth rate.Annuity Payment (BOT Annuity):
\[ A = \frac{P \cdot r}{1 - (1+r)^{-n}} \] where \( P \) = project cost, \( r \) = discount/interest rate, \( n \) = number of annuity periods.HAM - Hybrid Annuity Model
40% of cost paid by Government during construction.
60% of cost invested by private party (via debt & equity).
Private player gets semi-annual annuities + O&M payments for ~15 years.
No traffic risk for private party; only construction & maintenance performance risk.
Best when: balance is needed between EPC's safety and BOT's efficiency.
Government Share:
\[ G = 0.4 \times C \]Private Share:
\[ P = 0.6 \times C \] where \( C \) = total project cost.TOT - Toll, Operate, Transfer
Only for operational brownfield highways.
Investor pays upfront concession fee to Government.
Gets rights to collect tolls & maintain road for ~30 years.
Govt uses upfront money to fund new highway projects.
Best when: government wants to monetise completed assets and recycle funds.
Net Present Value (NPV) of TOT:
\[ NPV = \sum_{t=1}^{n} \frac{CF_t}{(1+r)^t} - F \] where \( CF_t \) = expected cashflow in year \( t \), \( r \) = discount rate, \( F \) = upfront concession fee.
0 Comments
If you have any doubts, suggestions , corrections etc. let me know