India, ADB sign $490 Mn loan for PPP to upgrade Madhya Pradesh roads

The Asian Development Bank (ADB) and Government of India has signed a $490 million loan for public-private partnership (PPP) project for upgradation of about 1,600 km of state highways and major district roads (MDRs) from single-lane to two-lane widths, with road safety features and all-weather standards in state of Madhya Pradesh. An additional $286 million investment will be mobilised via private sector participation under PPP modality.

The state highways and major district roads provide a crucial link between rural roads and national highways, therefore, the upgradation of these roads under project will improve rural and peri-urban connectivity in state as well as improve access to markets and better services.

Key Highlights

The project continues ADB’s engagement with Madhya Pradesh’s road sector since 2002. Since 2002, ADB has provided state government with 5 loans to develop its road network, improving about 7,300 km of roads or about 11% of total network. This new project will further open a new partnership by introducing PPP via hybrid-annuity model (HAM), thereby leveraging government financing and improving sustainability of capital investments.

The project will also develop an e-maintenance system, which can record defects or required maintenance, along with a training program to develop capacity on contract implementation and project finance in Madhya Pradesh Road Development Corporation (MPRDC).

What is Hybrid-Annuity Model (HAM)?

It is a mix of engineering, procurement, construction (EPC) model and build-operate-transfer (BOT) model. This passes the responsibility of implementation, design, operation and maintenance obligations to private sector, while attracting some private sector financing. Under this model, government will release 60% of total project cost during construction, to be paid to concessionaire in portions linked to completion milestones. The remaining 40% is arranged by concessionaire in form of equity and commercial debt. Once the project is completed, government will repay concessionaire’s financial investment over a period of 10 years.

Month: Current Affairs - December, 2019