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A/C Name: APEIROGON TECHNOLOGIES PVT. The EPC entails the contractor build the project by designing, installing and procuring necessary labour and land to construct the infrastructure, either directly or by subcontracting. Better identification and allocation of risks between stakeholders, Renegotiation clause of Concession Agreement, Institutionalization of mechanism like the. As per the latest report by Care Ratings on the Indian road sector, a decline in awarding of projects is expected during the ongoing fiscal over the previous one. Lenders are therefore anxious to ensure that project assets are ring-fenced within the operating project company and that all risks associated with the project are assumed and passed on to the appropriate actor. Engineering, procurement, and construction (EPC) contracts, sometimes called turnkey contracts are similar to design and build contracts, in that there is a single contract for the design and construction of the project, but generally with an EPC contract, the client has less say over the design of the project and the contractor takes more risk. According to the World Bank, India is one of the leading countries in terms of readiness for PPPs. lack of appetite for fresh investment by promoters and. So, it’s important that these projects take off — HAM a big help here. The government has focussed on shifting the mode of project implementation away from the BOT model towards the EPC and HAM models, and it seems to have made a positive impact in terms of improving the pace of road construction activity and the ability to award projects. Standards & Poor definition of PPP is any medium to long term relationship between public and private sectors, involving sharing of risks and rewards for multi sectorial skills, expertise and finance to deliver desired policy outcomes. BOT Annuity Model: In this model the private party builds the project and transfers it back to the government. The Build Operate and Transfer (BOT) Annuity Model. India will be the world’s most populated country before 2030, outgrowing China. A developer builds the highway, operates it for a specified duration, and transfers it back to the government. They had maintained ~40% share even during FY10-13 when BOT projects contributed almost entirely to project award. It has been three years since HAM was brought in as EPC projects faced significant delays and cost escalation, which hurt the margins of road developers. EPC: Engineering, Procurement and Construction If you wish to have only one point of contact and limit your involvement in the project, probably EPC is an option for you. The non-cooperation of frequently travelling local people is a well-known problem. Changing trends Published on December 27, 2016 December 27, 2016 • 205 Likes • 18 Comments PPP mode was dominant during FY10-13; EPC mode made a comeback during FY14-16 with HAM mode making a mark in FY17. Under the EPC … An advanced version  of  (MCA) Model Concession Agreement HAM model is a mix of BOT (Built Operate Transfer) and EPC (Engineering, Procurement and Construction) model. However government is well equipped to deal with law and order problem arising out of non-payment of toll by some sections of local community, than a private contractor (some attempts to convert toll into fuel surcharge has not worked since refuelling of vehicles is chosen by user far away from toll points). Under the BOT model though, private players have an active role — they build, operate and maintain the road for a specified number of years — say 10-15 years — before transferring the asset back to the government. In the past, many assumptions on traffic had gone awry affecting returns Now, they are unwilling to commit large sums of money in such models. It is the means by which the project is provided with its only money-making asset. Now, HAM combines EPC (40 per cent) and BOT-Annuity (60 per cent). The government starts payment to the developer after the launch of commercial operation of the project. HAM projects are also being tested in urban infra developments such as metro rail projects — again, a leg-up for faster commuting. By using this site, you agree to this use. Ministry of Roadway Transport and Highways. An advanced version of (MCA) Model Concession Agreement HAM model is a mix of BOT (Built Operate Transfer) and EPC (Engineering, Procurement and Construction) model. Hence, both the models do not seem feasible. It means consolidated liability in case of warranty cases, effective communication and a minimum number of interfaces. The broader issue of toll collection from public with their willingly cooperation is an unresolved problem. You can change your cookie choices and withdraw your consent in your settings at any time. HAM’s good for the road — and that’s not hamming it up. The increasing share of HAM projects would help companies with stronger balance sheets to win more projects. From the Government’s perspective, it gets an opportunity to flag off road projects by investing a portion of the project cost. Rapid Urbanisation, increase in per capita income and high industrial growth led demand for basic infrastructure such as water supply and sanitation, seamless transportation and energy. While in new HAM a dramatic realignment of Risk sharing is brought in. 2 Where the process supplier is not also an EPC contractor, there will be separate EPC or EPCM contractor, who is primarily responsible for the remainder of the engineering design and, in the case of the EPC route, the construction of the project. However, in recent times EPC has once again made a comeback … One of the most effective mean is PPP. For more information, see our Cookie Policy. BOT model has structured the risk sharing with a major responsibility on the Contractor, managing financing risk, revenue risk and O&M risk apart from usual construction risk and government (or NHAI) was required to manage right of ways and granting toll collection rights to the Concessionaire. What is EPC? In India, the new HAM is a mix of BOT Annuity and EPC models. EPC (Engineer-Procure-Construct) and Design-Build have both existed as mainstream delivery methods for decades, but what's the difference between the… After initial signs of aggressive bidding, competition for HAM projects is moderating—limited to 7-8 players. PPP structures not to be adopted for very small projects. Project sponsors arrange In India, road projects are awarded via one of the three models: Build-Operate Transfer (BOT)-Annuity, BOT-Toll, and EPC (engineering, procurement and construction) contract. 1. Set up an institute of excellence in PPP to inter alia guide the sector, provide policy input, timely advice and undertake sustainable capacity building. HAM is a good trade-off, spreading the risk between developers and the Government. Investment in infrastructure in India has posed a challenge in the last few years. From EPC to the BOT model. However, in recent times EPC has once again made a comeback … The preponderance of EPC projects during FY14 and FY15 helped even those companies which did not have good balance sheet strength to win road projects and consequently bulk up their order books. On behalf of the Government, NHAI releases 40 per cent of the total project cost, in five tranches linked to milestones. Under BOT, the private players arrange all the finances for the project, while collecting toll revenue (BOT toll model) or annuity fee (BOT annuity model) from the Government, as agreed. The developer usually invests not more than 20-25 per cent of the project cost, while the remaining is raised as debt. Fresh ham tastes similar to pork tenderloin, while dry-aged country ham is quite salty with a chewier, more dense texture. Build-Operate-Transfer (BOT) BOT is a private sector participation model in which a project company (Promoter) is established to finance, design, construct and operate a facility for a concession period before it is transferred to the government (Özdogan and Birgönül, 2000). Disadvantages of EPC Cost –contractors will add a substantial risk premium to the price Control –the contractor controls the detailed design “Engineering, Procurement, and Construction” EPC is a particular form of contracting arrangement used in some industries where the EPC Contractor is made responsible for all the activities from design, procurement, construction, to commissioning and handover of the project to the End-User or Owner. However, introduction of HAM mode in FY16 has radically changed the overall complexion of project award. What role these models play in government’s ambitious road development programme? Under the EPC model, NHAI pays private players to lay roads. Here, the developer usually invests not more than 20-25 per cent of the project cost (as against 40 percent or more before), while the remaining is raised as debt. Recently kelkar committee submitted report on Revitalising and reviving languishing infrastructure projects. NEW DELHI: The National Highways Authority of India will bid out more highway widening and construction projects on EPC (fully government funded) mode … In this model, the government is accepting revenue (toll) collection risk, along with partial sharing of financial risk, and only expecting Contractor to continue managing execution and O&M risks. Under BOT, the Private sector faced huge financial burden whereas under EPC, the Government faced a heavy financial burden. Bank Details: HAM arose out of a need to have a better financial mechanism for road development. Rising share of HAM projects in overall awards implies that the balance of power is once again likely to shift towards companies which have the necessary balance sheet might to infuse the equity required in these projects. Without sustained rapid economic growth and the resulting productive jobs, India will be unable to convert its demographic transition into a demographic dividend. To address the above concerns it is imperative to create quality infrastructure by different means. I believe the answer helps in understanding why National Highway in India projects are being implemented via EPC model than PPP. We and third parties such as our customers, partners, and service providers use cookies and similar technologies ("cookies") to provide and secure our Services, to understand and improve their performance, and to serve relevant ads (including job ads) on and off LinkedIn. Also, more and better roads mean smoother rides and less traffic congestion; who doesn’t want that? In EPC model, a player just executes the order book and gives it back to the government. Topic: Infrastructure 5) What are the differences between engineering, procurement and construction, or EPC and hybrid annuity model (HAM) projects? Also, if the compensation structure didn’t involve a fixed compensation (such as annuity), developers had to take on the entire risk of low passenger traffic. Partial Funding of Projects: Under HAM, Government provides partial funding of projects which is a middle path when compared to zero funding under BOT and complete funding under EPC. Infra investments are key for economic growth, something all of us are rooting for. To fulfil these demands India has systematically rolled out a PPP program with increasing budgetary allocation in 12th FYP for the delivery of high-priority public utilities and infrastructure. Examine. Select Accept cookies to consent to this use or Manage preferences to make your cookie choices. Difference between an EPC and BOT Contracts in 2 Min - YouTube The Government pays private player a pre-fixed annuity for construction and maintenance of roads. BOT Annuity Model: In this model the private party builds the project and transfers it back to the government. IASToppers.com is the premier, authenticated and the fastest growing online educational portal exclusively dedicated to aspirants preparing for UPSC Civil … NPA-riddled banks were becoming wary of lending to these projects. Types of Ham. India offers today the world’s largest market for PPPs. The bone adds flavor and moisture and enhances the presentation. National Highways Authority of India (NHAI) pays private players for the construction of the road. The Build Operate and Transfer (BOT) Annuity Model. Transport minister Nitin Gadkari is actively promoting his brain-child — the Hybrid-Annuity Model or HAM these days. It is given in five tranches linked to milestones. After a slow start in FY16, HAM project award gathered steam in FY17—the number of awarded in FY17 was almost equal to EPC projects. Not even a single EPC project was awarded in the sector between 2008-09 and 2011-12. Under BOT, the private player arranged all the finances for the project, while collecting toll revenue or annuity fee from the Government, as agreed. Q.) The balance 60 per cent is arranged by the developer. However a Turnkey Contract which is the entire project from concept to commissioning and startup of the entire plant/system up to stabilize the operation and end product. In the BOT annuity model, the toll revenue risk is taken by the Government. BITS Pilani, Pilani Campus • FP versus BOT & BOOT ⁻ In FP, private sector has a role as engineer or constructor, Ownership, operation and financing ⁻ On the other hand a pure private is responsible for all matter. vBuild up capacity in all stakeholders, including regulators, authority, consultants, financing agencies, developers. NPA-riddled banks were reluctant to lend to these projects. Ham is globally produced with emphasis on cultural specialties, for example, prosciutto, speck or jamon serrano.Ham curing can be 8 months to 2 years. Companies with weak balance sheets that do not support investing in BOT or HAM projects are bidding aggressively for EPC projects. Over the years, unlisted players have won a large number of NHAI projects. I believe the answer helps in understanding why National Highway in India projects are being implemented via EPC model than PPP. Hybrid Annuity Model (HAM) for PPP Projects Ajit V Patwardhan In India, road projects are awarded via one of the three models: Build-Operate-Transfer (BOT)-Annuity, BOT-Toll, and EPC (engineering, procurement and construction) contract. To address this Kelkar committee submitted its report “Report on Revitalising and Revising PPP models in Infrastructure” and Infrastructure vital part of GS 3 . Under HAM, Revenue collection would be the responsibility of the National Highways Authority of India (NHAI).The developer doesn’t have right to collect revenue. Contracts need to focus more on service delivery instead of fiscal benefits. Topic: Infrastructure 5) What are the differences between engineering, procurement and construction, or EPC and hybrid annuity model (HAM) projects? An EPC Contract encompasses the E (Engineering/Design), P (Procurement) and the C (Construction) and pre-commissioning & commissioning of individual systems involved in the project. The Government with full ownership of the road, takes care of toll collection and maintenance of the road. Under the BOT model private players have an active role in road construction, operation and maintenance of the road for a specified number of years as per agreement. The brief picture of Risk Allocation can be tabulated as in Table: Q.) Hence to understand the HAM, we should know the basic features of the existing PPP models. Kelkar ‘ Report on Revitalising and Revising PPP models in Infrastructure’. This helps cut the overall debt and improves project returns. The government starts paying the developer once the project is in commercial use. Even projects under build-operate-transfer were not faring well. Here, the government pitches in to finance 40 per cent of the project cost — a sort of viability-gap funding. The HAM model is a mix of pure EPC and BOT models. There are then the trade or subcontractors and major vendors engaged either by the EPC It means consolidated liability in case of warranty cases, effective communication and a minimum number of interfaces. Makes this topic important from exam point of view. Under the EPC model, the private players construct the road and have no role in the road’s ownership, toll collection or maintenance. The essence of HAM model arose due to requirement of better financial mechanism where the risk would be spread between developers and the Government. Looking for the definition of EPC AND BOP? Introduced in January 2016 to revive investments in road infrastructure projects, HAM has seen good initial success. In recent past, existing companies operating under BOT model have reported toll leakage from 15 to 22 % due to demands from various pressure groups of end-users. As the name suggests, HAM’s a hybrid — a mix of the EPC (engineering, procurement and construction) and BOT (build, operate, transfer) models. In BOT toll model, the private players did not show their willingness to invest, since they had to fully arrange for the entire finances, either through equity contribution or debt. See our, Electric Vehicle & Challenges of US Surface…, Contractors May Benefit by Taking Equity in…. On the other hand, limited competition for HAM projects is likely to result in lucrative IRRs. Half the projects awarded in 2016-17 were under HAM. Hence, the Hybrid Annuity model (HAM) which is a mix of BOT Annuity and EPC has been adopted in recent times. Going forward HAM projects are expected to continue to constitute a significant proportion of the overall award mix. The balance 60 per cent is arranged by the developer. While cash flow stress in road companies over FY12-14 had led to the EPC mode making a comeback, gradual improvement in financial health of select developers and introduction of HAM is wooing back road developers to the bidding table. Considering this, order book stands at Rs155.3 bn (3.5x TTM revenue). whereas the remaining 60% is raised by developer from equity or loan as variable depending upon the value of assets created. Is provided with its only money-making asset between stakeholders, Renegotiation clause of Agreement..., Electric Vehicle & Challenges of us Surface…, Contractors May Benefit by taking equity in… compensation such... Society can not afford it wary of lending to these projects HAM tastes similar pork! 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