Highway Road Projects Contract Models: BOT, TOT, HAM and EPC

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.

Flowchart of Highway road projects Contract Models

flowchart TD A[NHAI Projects] --> B[EPC] A --> C[BOT] A --> D[HAM] A --> E[TOT] C --> C1[BOT - Toll] C --> C2[BOT - Annuity]

Funding Share Comparison