Page 29 - BFSI CHRONICLE 10 th Issue (2nd Annual Issue ) 23062 COPY.indd

BFSI Chronicle, 2 Annual Issue, 10 Edition July 2022
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the project. More than one promoter group annuity payment.
may join together as sponsors, in case of
very large projects. Similarly, a new model viz Toll Operate
Transfer (TOT) has been introduced, whereby
3) Financial Institution /Lenders. completed operational road projects are being
Considering the large size of the projects assigned to private patties with toll collection
and high cost involved the promoters rights, against upfront payment to NHAI and
rely upon banks and other institutions for this has gained importance in the National
funding the project ,apart from bringing Monetization Pipeline.
their own funds. Viability of the project E. Project Appraisal:-
becomes crucial the lending institutions
In addition to the promoter’s contribution
have to do elaborate appraisal to assess the of funds, long term debt funds are important
cash flows and repayment capabilities from for construction of such projects which are
the project . Generally the funding is done
generally sanctioned under a consortium
an non-recourse basis primarily relying arrangement by commercial banks and other
upon cash flows generated from the project
Financial Institutions besides sector specific
as the main security for debt repayment NBFCs (like REC, PFC, IREDA etc).
instead of relying upon the strength of
balance sheet of the promoter group. The technical feasibility and economic viability
of each project is required to be assessed. Since
D. Allocation of risk – various PPP models Infrastructure projects are large in size, they
The primary objective behind PPP structure is involve comparatively longer construction
that the allocation of risks is done in an optimal period and therefore interest on loans during
manner so that each risk is allocated to the party construction period (IDC) forms an important
best suited to handle the same in an effective part of cost of project, besides the construction
manner. The arrangement of PPP is to bring in cost/EPC cost. The total cost of the needs to be
financial investments/resources from private carefully assessed and closely monitored.
sector and ensure cost effective construction
and efficiency in delivery of services. From lenders ‘ perspective, in addition to the
Deb Equity ratio , timely completion of the
The various PPP project models , include 1) project and the generation of adequate cash
Build Own Operate (BOO), 2) Build own operate flows assumes greater importance and therefore
transfer, (BOOT), 3) Build Operate Transfer Debt service coverage ratio (DSCR) and
(BOT) which are suitable to Air Ports ,power Internal rate of return (IRR) are calculated as
projects, and road projects respectively as they a part of financial appraisal. The various risks
assign different rights and responsibilities to involved include sponsor risk, construction
different parties of the contact as per specific risk, market risk, regulatory risk etc and they
requirements need to be assessed properly and suitable
In the recent past, a new model called HAM mitigation steps are required to be taken.
i.e Hybrid Annuity Model has become more F. Documentation and Compliances:-
popular in the ROAD sector, since in this case
Taking into consideration the various
40 % of the construction cost is contributed stakeholders involved, proper documentation
by NHAI, besides a predetermined assured

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