Management for Professionals

Abhinav Mittal
Puneet Agrawal
Shuchi Agrawal

Hybrid Annuity
Model (HAM)
of Hybrid
Public-Private
Partnership Projects
Contractual, Financing, Tax and
Accounting Discussions
Management for Professionals
The Springer series Management for Professionals comprises high-level business
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Abhinav Mittal · Puneet Agrawal ·
Shuchi Agrawal

Hybrid Annuity Model

(HAM) of Hybrid
Public-Private Partnership
Projects
Contractual, Financing, Tax and
Accounting Discussions
Abhinav Mittal Puneet Agrawal
YOG INFRA ALA Legal Advocates and Solicitors
Singapore, Singapore New Delhi, India

Shuchi Agrawal
Chartered Accountant
New Delhi, India

ISSN 2192-8096 ISSN 2192-810X (electronic)

Management for Professionals
ISBN 978-981-19-2018-9 ISBN 978-981-19-2019-6 (eBook)
https://doi.org/10.1007/978-981-19-2019-6

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Foreword

I have glanced through the book Hybrid Annuity Model (HAM) of Hybrid
Public-Private Partnership Projects—Contractual, Financing, Tax and Accounting
Discussions authored by Mr. Abhinav Mittal, Mr. Puneet Agrawal and Ms. Shuchi
Agrawal.
Hybrid Annuity Model, also called HAM, has emerged as a bankable contrac-
tual model for promoting Public-Private Partnerships (PPP) in the transport sector
in India. This book provides a good coverage of various aspects of this PPP model
from contractual, taxation and accounting perspectives.
Hybrid Annuity Model is being used in several high-value PPP contracts in
the country, and it is essential for stakeholders to understand the various nuances
of such contracts for successful implementation for these projects. Developers
engaged in implementing these projects should be familiar with various condi-
tions of the Model Concession Agreement which have been covered in detail as
a part of the book. The accounting treatment of such HAM projects is explained
through various provisions of Indian Accounting Standards. Since HAM contracts
involve construction spread over several years and involve annuity payment period
spanning across several years, the relevant income tax and GST implications have
been explained with help of relevant case laws.
I have gone through the hard work carried out by the authors in coming out
with this textbook covering all these aspects from a practical point of view. The
authors have painstakingly used a case-study approach with numerical examples,
which can help the industry to gather more practical insights regarding the projects
awarded under HAM.

v
vi Foreword

The highlight of this textbook is that the professionals, who have been working
in infrastructure sector for several years, have tried to answer several common
queries of developers and regulators concerning HAM PPP model and have tried
to give practical solutions. The landscape for research and improvement is never
ending, but this work of the authors would, in my view, be of immense help for
the regulators, trade as also to the practitioners in the field.
In my view, this book would be a valuable tool in the hands of those deal-
ing with projects awarded under the HAM PPP model to find solution to various
problems which confront them on day-to-day basis.
I wish the authors all the best.

June 2022 Vipin Sanghi

Acting Chief Justice
High Court of Delhi
New Delhi, India
Preface

Public-Private Partnerships (PPPs) have been widely accepted around the globe
to encourage private sector participation in development of infrastructure sector
and to bring efficiency in delivery of public services. Many countries already have
some experience using PPPs for procurement of infrastructure, and development
for such projects is supported by large Multilateral Development Banks (MDBs)
and Development Finance Institutions (DFIs).
The concept of Hybrid PPPs was initially promoted with an objective to utilize
the grant financing available from state/federal governments and the commer-
cial bank financing available via involvement of the private sector participants in
such infrastructure projects. Such hybridization enabled the reduction in perceived
financial risk or bankability of such projects, thus catalysing larger infrastructure
developments which were not financially viable on their own.
One such Hybrid PPP model is Hybrid Annuity Model (HAM) implemented
in roads sector in India. This book analyses how HAM gave a new lease and life
to Public-Private Partnership (PPP) projects in India. In past six years of notifica-
tion of this PPP model since 2016, road projects in India have seen participation
from more than 50 private sector players (most of them being first-time devel-
opers) with more than 250 projects awarded by National Highways Authority
of India (NHAI). This book provides a complete multidimensional review and
detailed analysis of financial, commercial, legal, tax and accounting aspects for
HAM-based PPP projects in India.
This book would help the user to understand the contractual structure between
different stakeholders under the Hybrid Annuity Model (HAM) along with the
consequent risk allocation framework, various obligations of the concession-
aire/private sector participant and the government authority as well as the key
advantages from the perspective of both parties while delivering such HAM-based
PPP projects.
In Part I of the book, the authors have given an introduction about the evolution
of Hybrid Annuity Model in India and the timeline of events through which the
government has been improving upon the contractual structure and risk allocation
of this PPP model. This chapter would be extremely beneficial for readers to gain
an understanding of how industry feedback has influenced the evolution of this

vii
viii Preface

particular PPP model and how the government agencies need to be flexible in their
approach to ensure greater acceptability and bankability of notified PPP models to
help enhance private sector participation in infrastructure delivery.
In Part II of the book, the authors have discussed the key elements of
HAM-based road PPP projects including the contractual structure, risk allocation
framework, roles and responsibilities of the various agencies involved and advan-
tages. This part also provides a review of all HAM projects implemented till date
and how it has become the preferred mode of private participation in delivery of
road projects in the country. This part further discusses the key considerations for
project finance and the growing interest from local and international investors who
have been active in the secondary market/acquisitions of such projects.
In Part III of the book, the authors have used a novel case-study-based
approach with 100+ numerical examples throughout this part of the book to
explain and discuss contractual/commercial, taxation (direct and indirect taxes) and
accounting aspects of Hybrid Annuity Model (HAM). A detailed financial model
was prepared for the case study of Project Highway which was the bid financial
model used for a real-life project, and the values therein were subsequently modi-
fied. This financial model is used to explain the various concepts and computations
in subsequent chapters in Part III of the book. This would be extremely beneficial
for government agencies, private sector developers, investors and project financiers
across the globe.
The book contains detailed chapters on Model Concession Agreement (MCA)
review, taxation (including direct taxes such as income tax and indirect taxes such
as Goods and Services Tax (GST)) and accounting aspects (with regards to appli-
cability of Indian Accounting Standards Ind AS 115). Further, all the concepts
regarding these aspects of any HAM-based road PPP project are well explained
with the help of a model case study of Project Highway along with detailed
numerical examples and computations.
In Part IV of the book, the authors have further provided examples of success
of Hybrid PPPs for infrastructure development across multiple countries glob-
ally through case studies of similar public-private partnership models. Through
these case studies, the readers will gain an understanding of the different contrac-
tual structures, risk allocation, roles and responsibilities of various stakeholder,
payment mechanism and key learnings from such projects.
This book is one-of-kind book with a 360° coverage of financial, commercial,
taxation and accounting aspects of the Hybrid Annuity Model (HAM), a successful
model of private sector participation in the roads sector in India. It is a one-stop
guide for multiple stakeholders involved in the development of crucial infrastruc-
ture sector in India and globally. HAM has proved very successful for PPPs in
road sector in India, and it is being further adopted in water sector as well. Writ-
ten by deal practitioners with a case-study approach and illustrative numerical
calculations, this book provides a complete quantitative and qualitative analysis
for readers.
Preface ix

Further, the international case studies on Hybrid PPPs across the globe give the
reader a unique perspective and serve as a useful guide to government agencies
and private sector alike on risk allocation, transaction structuring and payment
mechanism about such PPP models.
The target audience for this book include private sector players/developers who
would find it very useful for their internal teams who have either won or are plan-
ning to bid for such projects as well as commercial lenders and investors who are
looking to finance such projects in the long term. This book would also be useful
for researchers, academia and deal practitioners since it covers financial, contrac-
tual, tax and accounting aspects of the Hybrid Annuity Model in a comprehensive
manner.

Singapore Abhinav Mittal, CFA

New Delhi, India Puneet Agrawal
New Delhi, India Shuchi Agrawal
Contents

Part I Introduction
1 Evolution of Hybrid PPPs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.1 Evolution of Hybrid Annuity Model (HAM) in India . . . . . . . . . . 4
1.2 Key Principals—Hybrid Annuity Model (HAM) . . . . . . . . . . . . . . . 7
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2 Hybrid Annuity Model (HAM)—Timeline . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.1 Key Circulars/Notifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Part II Hybrid Annuity Model (HAM) for Roads Sector, India

3 Contractual Structure and Risk Allocation Framework . . . . . . . . . . . . 27
3.1 Contractual Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.2 Risk Allocation Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Reference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
4 Success of HAM in the Indian Context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
4.1 HAM as Preferred PPP Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
4.2 HAM Projects Awarded—A Quantitative Analysis . . . . . . . . . . . . . 38
4.3 Key Players/Stakeholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
4.4 HAM Projects Awarded—List of Projects . . . . . . . . . . . . . . . . . . . . . 40
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
5 Project Finance and Secondary Market Transactions . . . . . . . . . . . . . . 67
5.1 Project Finance—Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
5.1.1 Special Purpose Vehicle (SPV) . . . . . . . . . . . . . . . . . . . . . . . . 67
5.1.2 Lender Due-Diligence Process . . . . . . . . . . . . . . . . . . . . . . . . 68
5.2 Financial Close for HAM Based Road PPP Projects
in India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
5.2.1 The Positives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
5.2.2 The Hurdles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
5.2.3 Updates to Model Concession Agreement
in November 20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

xi
xii Contents

5.2.4 Commercial Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

5.2.5 Development Finance Institutions (DFIs) . . . . . . . . . . . . . . 71
5.3 Emerging Trend—Acquisitions/Secondary Market
Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
5.3.1 Recent Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
5.3.2 Profile of Major Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77

Part III 360° Review of Hybrid Annuity Model (HAM)

6 Case Study—Project Highway . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
6.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
6.2 Key Assumptions—Project Highway . . . . . . . . . . . . . . . . . . . . . . . . . . 82
7 Contract Review—Model Concession Agreement (MCA) . . . . . . . . . . . 89
7.1 Model Concession Agreement (MCA)—Introduction . . . . . . . . . . 90
7.2 Development and Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
7.3 Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
7.4 Force Majeure and Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
7.5 Changes to Model Concession Agreement (MCA)—June
22 Update . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
7.5.1 Changes in Bidding Process . . . . . . . . . . . . . . . . . . . . . . . . . . 114
7.5.2 Changes in O&M Payments . . . . . . . . . . . . . . . . . . . . . . . . . . 114
8 Tax Review—Indirect Taxes—GST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
8.1 Project Highway Case Study—Summary . . . . . . . . . . . . . . . . . . . . . . 124
8.2 Levy and Exemption of GST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
8.2.1 Levy of GST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
8.2.2 Exemption from GST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126
8.3 Taxability of Milestone Payments Received During
Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126
8.3.1 Meaning of Works Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . 126
8.3.2 Composite Supply of Works Contract Treated
as Supply of Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
8.3.3 Rate of Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
8.3.4 Time of Supply in Respect of Milestones Payment
Received by Concessionaire . . . . . . . . . . . . . . . . . . . . . . . . . . 129
8.3.5 Value of Taxable Supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132
8.4 Taxability of Mobilization Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
8.5 Taxability of Operation and Maintenance Payments . . . . . . . . . . . . 135
8.5.1 Rate of Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136
8.5.2 Time of Supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137
8.6 Taxability of Annuity Payments During Operation Period . . . . . . 138
8.6.1 Government Notifications and Recommendations
of GST Council . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138
8.6.2 Importance/Relevance of Recommendations
of GST Council . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
Contents xiii

8.6.3 Case Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143

8.6.4 Taxability of Interest on Annuity Payments
During Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146
8.6.5 Later Developments in Respect of the Taxability
of Annuity Payments Made by NHAI in Respect
of Construction of Road . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147
8.6.6 NHAI Circular Post the 43rd Meeting of GST
Council . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153
8.7 Refund on Account of Inverted Duty Structure . . . . . . . . . . . . . . . . 155
8.7.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155
8.7.2 Construction and Maintenance
of Roads—HAM Based PPP
Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156
8.7.3 Notification No. 15/2017-CT(Rate) Dated 28 June
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157
8.7.4 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164
8.7.5 Formula for Claiming Refund of Unutilized ITC
in Case of Inverted Duty Structure . . . . . . . . . . . . . . . . . . . . 164
9 Tax Review—Direct Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167
9.1 Project Highway Case Study—Summary . . . . . . . . . . . . . . . . . . . . . . 167
9.2 Section 43CB of the IT Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169
9.3 Method of Accounting—Section 145 of the IT Act . . . . . . . . . . . . 171
9.4 Income Computation and Disclosure Standard III
(ICDS III)—Construction Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . 174
9.4.1 Scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174
9.4.2 Combining and Segmenting Construction
Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176
9.5 Meaning of Contract Cost and Contract Revenue . . . . . . . . . . . . . . 179
9.5.1 Contract Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179
9.5.2 Contract Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182
9.5.3 Recognition of Contract Revenue and Expense . . . . . . . . 186
9.5.4 Changes in Estimates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189
9.5.5 Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190
9.5.6 Treatment of Borrowing Costs . . . . . . . . . . . . . . . . . . . . . . . . 192
9.6 Income Computation and Disclosure Standard IV
(ICDS IV)—Revenue Recognition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193
9.6.1 Scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193
9.6.2 Recognition of Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194
9.7 Applicable Rate of Income Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194
9.7.1 Tax Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194
9.7.2 Optional Rate of Tax—Subject to Fulfillment
of Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195
9.7.3 Minimum Alternative Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196
9.7.4 Exercise of Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197
xiv Contents

10 Accounting Review—Ind AS and Revenue Recognition . . . . . . . . . . . . 199

10.1 Project Highway Case Study—Summary . . . . . . . . . . . . . . . . . . . . . . 199
10.2 Applicability of Indian Accounting Standards . . . . . . . . . . . . . . . . . . 201
10.3 Ind AS 115: Revenue from Contracts with Customer . . . . . . . . . . 204
10.3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204
10.3.2 Annexure D of Ind AS 115 . . . . . . . . . . . . . . . . . . . . . . . . . . . 204
10.4 Five (5) Step Model for Applying Ind AS 115 . . . . . . . . . . . . . . . . . 206
10.4.1 Revenue Recognition in Terms of Ind AS 115 . . . . . . . . . 206
10.4.2 Step I: Identify the Contract with the Customer . . . . . . . 207
10.4.3 Step II: Identify the Performance Obligations . . . . . . . . . 209
10.4.4 Step III: Determine the ‘Transaction Price’ . . . . . . . . . . . . 214
10.4.5 Step IV: Allocate the Transaction Price
to the Performance Obligations . . . . . . . . . . . . . . . . . . . . . . . 221
10.4.6 Step V: Recognize Revenue as or When
Performance Obligations are Satisfied . . . . . . . . . . . . . . . . . 225
10.5 Financial Asset—HAM Based PPP Projects . . . . . . . . . . . . . . . . . . . 235
10.5.1 Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235
10.5.2 Recognition of Financial Asset . . . . . . . . . . . . . . . . . . . . . . . . 236
10.5.3 Measurement of Financial Asset . . . . . . . . . . . . . . . . . . . . . . 238
10.6 Contract Asset and Contract Liability—HAM Based PPP
Projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239
10.6.1 Contract Asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240
10.6.2 Contract Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241

Part IV International Experience of Hybrid PPPs

11 Success of Hybrid PPPs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249
11.1 Hybrid PPP approaches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249
11.2 International Case Studies—Introduction . . . . . . . . . . . . . . . . . . . . . . 250
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251
12 Ireland—N1/M1 Dundalk Bypass . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253
12.1 N1/M1 Dundalk Bypass—Project Information . . . . . . . . . . . . . . . . . 254
12.1.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 254
12.1.2 Key Features of the Project . . . . . . . . . . . . . . . . . . . . . . . . . . . 254
12.2 Project Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 254
12.3 Risk Allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 256
12.4 Key Learnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261
13 Philippines—Clark International Airport . . . . . . . . . . . . . . . . . . . . . . . . . . 263
13.1 Clark International Airport—Project Information . . . . . . . . . . . . . . 264
13.1.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 264
13.1.2 Key Features of the Project . . . . . . . . . . . . . . . . . . . . . . . . . . . 265
Contents xv

13.2 Project Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265

13.3 Risk Allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 266
13.4 Key Learnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 270
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 270
14 UK—Thames Tideway Tunnel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271
14.1 Thames Tideway Tunnel—Project Information . . . . . . . . . . . . . . . . . 271
14.1.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271
14.2 Project Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272
14.3 Risk Allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273
14.4 Key Learnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 278
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 278
About the Authors

Abhinav Mittal has more than 12 years of experience in financial advisory across
multiple infrastructure sectors including power, renewable energy, water, waste
management, transport, urban and social infra projects. His geographic experience
spans across Asia, Middle East and Africa. He brings experience in PPP Trans-
actions, Project Finance (debt raise and restructuring), Financial Modelling and
Capacity Building. He works with governments, private sector clients and Develop-
ment Finance Institutions (DFIs) including Asian Development Bank, The World
Bank and Private Infrastructure Development Group. He is Managing Director of
YOG INFRA which is an infrastructure focussed financial advisory firm with an
objective to drive economic growth and make positive social impact through sus-
tainable infrastructure development. He has completed his Engineering from NIT
Warangal, MBA (Finance) from XIMB and is a CFA charter holder from CFA
Institute, USA.

Puneet Agrawal has more than 16 years of experience in providing legal services.
He is an arguing counsel appearing in high courts and tribunals, specializing in tax
and commercial law. He is actively engaged in providing legal and tax consultancy
to corporates including public sector undertakings (PSUs)/State-owned Enterprises
(SOEs) and Fortune 500 companies. He is a Member of Supreme Court Bar Asso-
ciation, Delhi High Court Bar Association, Sales Tax Bar Association and ITAT
Bar Association in India. He is a visiting faculty in the Institute of Chartered
Accountants of India (ICAI) and has already co-authored four books on taxation.
He completed his B.Com. (Hons) from SRCC, is a qualified Chartered Accountant
and a practicing Lawyer.

Shuchi Agrawal has more than 10 years of experience in advisory, business

consulting and providing solutions to complex transactions across multiple infras-
tructure sectors with a strong focus on urban infrastructure and real estate
developments. She is statutory auditor of various HAM SPVs. In the past, Shuchi
has worked with EY and Lakshikumaran and Sridharan, which are leading advi-
sory firms in India. Shuchi has advised global multinational companies (MNCs)
with focus on Infrastructure, Healthcare and Real Estate. She completed her
B.Com. (Hons), LLB, and is a practicing Chartered Accountant.

xvii
Acronyms

AD Appointed Date
BOT Build-Operate-Transfer
BPC Bid Project Cost
CC Completion Certificate
CoD Commercial Operation Date
CP Condition Precedent
CPI Consumer Price Index
D:E Debt: Equity Ratio
DEA Department of Economic Affairs
DFI Development Finance Institution
DSCR Debt Service Coverage Ratio
EPC Engineering, Procurement and Construction
FC Financial Close
FM Force Majeure
GoI Government of India
GST Goods and Services Tax
IBWCA Interest Bearing Working Capital Advance
IE Independent Engineer
Ind AS Indian Accounting Standards
InvIT Infrastructure Investment Trust
IP Intellectual Property
IPE Indirect Political Event
ITC Input Tax Credit
KPI Key Performance Indicator
LLCR Loan Life Coverage Ratio
MCA Model Concession Agreement
MCLR Marginal Cost of Funds-Based Lending Rate
MDBs Multilateral Development Banks
MoRTH Ministry of Roads, Transport and Highways
NHAI National Highways Authority of India
NMCG National Mission for Clean Ganga
NPE Non-Political Event
NPV Net Present Value
O&M Operation and Maintenance
xix
xx Acronyms

PCC Provisional Completion Certificate

PE Political Event
PFI Private Finance Initiative
PIM Price Index Multiple
PPP Public-Private Partnership
R&R Resettlement and Rehabilitation
REIT Real Estate Investment Trust
RFP Request for Proposal
RoW Right of Way
SCOD Scheduled Commercial Operation Date
SEBI Securities and Exchange Board of India
SPV Special Purpose Vehicle
STP Sewage Treatment Plant
VfM Value for Money
VGF Viability Gap Funding
WPI Wholesale Price Index
List of Figures

Fig. 3.1 Contractual Structure—HAM based PPP road project . . . . . . . . . 28

Fig. 4.1 NHAI awarded road projects from FY 2018 till FY 2020 . . . . . . 38
Fig. 4.2 Number of HAM projects—state-wise distribution . . . . . . . . . . . . 40
Fig. 12.1 Contractual Structure—N1/M1 Dundalk Bypass, Ireland . . . . . . . 256
Fig. 13.1 Hybrid PPPs in Philippines—An illustration . . . . . . . . . . . . . . . . . . 264
Fig. 13.2 Contractual Structure—Clark International Airport,
Philippines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 266
Fig. 14.1 Thames Tideway Tunnel, UK—An illustration . . . . . . . . . . . . . . . . 272
Fig. 14.2 Contractual Structure—Thames Tideway Tunnel, UK . . . . . . . . . 274

xxi
List of Tables

Table 2.1 Key circulars/notifications for HAM in India . . . . . . . . . . . . . . . . 10

Table 3.1 Obligations of Concessionaire and Government
Authority—HAM PPP project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Table 3.2 Risk Allocation Framework—HAM PPP project . . . . . . . . . . . . . 32
Table 3.3 Key Advantages—HAM PPP project . . . . . . . . . . . . . . . . . . . . . . . 34
Table 4.1 Summary status of HAM projects tendered till date . . . . . . . . . . 39
Table 4.2 List of Key Players for development of HAM based
road PPP projects in India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Table 4.3 List of HAM projects awarded by NHAI (as of March
22) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Table 5.1 HAM PPP concession agreement—enhancement
in bankability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Table 5.2 List of commercial banks—Debt finance for HAM PPP
projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Table 5.3 List of development finance institutions—financing
support for HAM PPP projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Table 5.4 List of secondary market transactions—HAM PPP
projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Table 7.1 Model Concession Agreement (MCA)—List of Articles . . . . . . 90
Table 7.2 Key Articles—PART III of Model Concession
Agreement (MCA) for HAM PPP projects . . . . . . . . . . . . . . . . . . 92
Table 8.1 Case Study Summary—Project Highway—estimated
costs and revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124
Table 11.1 International Case Studies on Hybrid PPPs—Summary . . . . . . 251
Table 12.1 Project Information—N1/M1 Dundalk Bypass . . . . . . . . . . . . . . . 255
Table 12.2 Key Stakeholders—N1/M1 Dundalk Bypass, Ireland . . . . . . . . . 257
Table 12.3 Risk Allocation—N1/M1 Dundalk Bypass, Ireland . . . . . . . . . . 258
Table 13.1 Project Information—Clark International Airport,
Philippines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265
Table 13.2 Key Stakeholders—Clark International Airport,
Philippines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 267
Table 13.3 Risk Allocation—Clark International Airport,
Philippines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 268

xxiii
xxiv List of Tables

Table 14.1 Project Information—Thames Tideway Tunnel, UK . . . . . . . . . . 273

Table 14.2 Key Stakeholders—Thames Tideway Tunnel, UK . . . . . . . . . . . . 274
Table 14.3 Risk Allocation—Thames Tideway Tunnel, UK . . . . . . . . . . . . . 276
 Part I
Introduction
Evolution of Hybrid PPPs
1

Public Private Partnerships (PPP/P3) have been widely accepted globally to

encourage private sector participation in development of infrastructure sector and
to bring efficiency in delivery of public services.
The implementation model for any PPP project depends on the context of the
sector and the purpose/users for the project. The private sector participation can
take place across the infrastructure project life cycle and may include design,
construction, finance and/or maintenance of the asset depending upon the PPP
modality employed. Similarly, the payment mechanism from to the private sector
may also vary as availability based payments, usage based (incorporating elements
of market or demand risk) or a mix of both.
The term PPP originated in the UK in the late 1990s. Initially, a system called
PFI (Private Finance Initiative), which focuses on utilization of private capital, was
introduced in the UK. Thereafter, the basic concept of PPP was established as a
general term referring to various kinds of public-private partnerships, including
PFI. PPP thereby spread from Europe to countries all over the world.
The projects tendered through PPP typically achieve more value for money
(VfM). Many countries already have some experience using PPPs for procure-
ment of infrastructure; and development for such projects are supported by large
Multilateral Development Banks (MDBs) and Development Finance Institutions
(DFIs) like Asian Development Bank (ADB), the World Bank, European Bank of
Reconstruction and Development (EBRD), European Investment Bank (EIB) etc.
Recently, two such development finance institutions were formed namely, Asian
Infrastructure and Investment Bank (AIIB) and New Development Bank (NDB).
The concept of hybrid PPPs was initially promoted with an objective to utilize
the grant financing available from state/federal governments and the commer-
cial bank financing available via involvement of the private sector participants in
such infrastructure projects. Such hybridization enabled the reduction in perceived
financial risk or bankability of such projects, thus catalyzing larger infrastructure
developments which were not financially viable on their own.

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 3
A. Mittal et al., Hybrid Annuity Model (HAM) of Hybrid Public-Private Partnership
Projects, Management for Professionals,
https://doi.org/10.1007/978-981-19-2019-6_1
4 1 Evolution of Hybrid PPPs

Box: Hybrid PPPs in the European Union (EU)

The concept of hybrid PPP’s was first introduced in the European Union
(EU) in early 2000s. A hybrid PPP model is defined by the EU as a PPP
structure where EU funds were used to finance a specific element of the
infrastructure project [1]. In hybrid projects, funds can be combined under
a single contract for the entire infrastructure project; or a part of the infras-
tructure project is financed from the EU funds, while the privates partner
finances the construction of the remaining part of the infrastructure project.
In either case, the private sector would typically operate and maintain the
entire project on a long-term. Hybrid projects are used in many areas namely,
roads, waste, urban and social infrastructure sectors.
It was seen in the case of hybrid projects; involvement of a private partner
improved effectiveness and value for money (VfM) while the involvement
of EU played a very important role in enhancing credit worthiness of
the project. In addition, it was ensured that the initial cost of the project
feasibility studies were paid and institutional supported provided for such
projects.
Source European Union (EU), Public Information

Evolution of Hybrid PPPs also find its roots in innovative financing models
wherein new and involving models beyond commercial debt finance that are able
to attract private and institutional capital into the infrastructure sector develop-
ment for public delivery. Such innovate and hybrid PPP models are driven by the
increased demand for infrastructure (which results in an infrastructure gap between
current spending and required spending) as well as sustainability considerations for
infrastructure development and the need to reduce the impact of climate change.
In the subsequent section, we discuss how Hybrid Annuity Model (HAM)
evolved in India to revitalize the private sector participation in roads sector
in the country; and it has led to an increase in the pace of award and con-
struction of national highways apart from de-risking the developers and lenders
from inherent shortcomings associated with conventional toll and annuity based
Build-Operate-Transfer (BOT) PPP model.

1.1 Evolution of Hybrid Annuity Model (HAM) in India

Hybrid Annuity Model (HAM) is a mix of traditional Engineering Procure-

ment Construction (EPC) and a full PPP Build-Operate-Transfer (BOT) annuity
scheme—hence the term hybrid. HAM model was introduced to rejuvenate the
Public-Private Partnership (PPP) in roads sector (construction of national and state
highways) to mitigate the project financing risk being faced by private sector in
1.1 Evolution of Hybrid Annuity Model (HAM) in India 5

erstwhile BOT model; and to also encourage EPC players to deliver highway
projects as developers instead of construction contractors.
A brief summary description various models of private sector participation in
the roads sector in India, is below.

1. Engineering Procurement Construction (EPC) model

Engineering Procurement Construction or EPC/Turnkey projects are awarded
with full payment by government authority for road construction, without any
deferred payouts mechanism. The obligations of the EPC contractor are till
project commercial operation date (CoD); and the government authority has
the responsibility for operation and maintenance of the project.
Another variant of such contracts is Modified Design-Build contracts. In this
particular PPP model, along with the construction/EPC obligation, the private
sector also had the operation and maintenance (O&M) obligation for a period
of around 5–7 years.

2. Build-Operate-Transfer (BOT) model

The Build-Operate-Transfer (BOT) model was widely used for long-term pri-
vate sector participation in the roads sector in India; can be further categorized
in two models based on the allocation of market risk to public or private sector.
(a) BOT-Toll—These operate on a user-charge recovery base (e.g., tolls) which
may also be supported by some form of capital cost support or viability gap
fund from the public sector. Thus, the revenue risk transfer is completely
passed to the private concessionaire.
(b) BOT-Annuity—These relate to projects, where it is infeasible for siz-
able cost recovery through user charges. No construction-stage payments
are made, and payments are made through contracts based on availabil-
ity/performance payments over an extended length of time (10–15 years
post construction).

3. Hybrid Annuity Model (HAM)

As mentioned earlier. HAM is a blend of EPC and BOT models. A substantial
cost of the project (40%) is paid during the construction stage and the balance
of payments are made in an annuity mode (linked to concession agreement
based on availability of the road asset) over an extended period of time of
about 15 years.

The subsequent chapters further detail the timeline of evolution of HAM in India,
key principals, contractual structure, risk allocation and detailed discussion on the
contractual, commercial, taxation and accounting aspects of this particular PPP
model.
6 1 Evolution of Hybrid PPPs

Traditionally, in early 2000s, road projects in India were awarded to private

sector using BOT-Toll model with success, mainly connecting important cities with
steady and growing traffic. But it was clear that in some road segments may not
have adequate toll paying traffic thus requiring partial government support.
Hence, the government introduced Viability Gap Funding (VGF) in 2005–06
wherein the government would provide a 20–40% of project cost as grant under
the BOT-Toll model and the concessionaire asking for minimum VGF grant could
get the project.
For projects which were not commercially viable due to their poor toll col-
lection prospects, government offered 100% support by annuity payment over
the concession period under BOT-Annuity model which was introduced in 2002–
03. As per this model, the bidder asking for lowest annuity was awarded project
without toll collection responsibility.
Until 2011, the number of PPP projects in India was steadily increasing, but this
resulted in a sharp decline from 2012 onwards. Behind this decline is the fact that
excessive competition among operators, delays in business activities due to delays
in land acquisition, and other factors caused a rise in the debt ratios of operators
and non-performing loans of financial institutions that provided loans, resulting in
the growing reluctance of financial institutions to offer loans.
Further, the BOT-Annuity model is not sustainable in the long term since it
puts aggressive burden on the balance sheet of government authority in terms of
committed annuities over a long term. BOT-Annuity model was slowly curtailed.
Since the new union government was formed in India in May 2014, there was
great emphasis on finding solutions to enhance private sector participation in road
construction while avoiding a significant burden on government balance sheet in
the long term. Hence, the HAM model was proposed in 2015 and subsequently,
approved in 2016 for road projects in the country and has been widely successful
with around 150 projects awarded in 4 years since it was notified.

Box: National Highway 56 Expansion—From BOT to HAM

In Aug-16, NHAI awarded National Highway 56 expansion project toll road

PPP to Dilip Buildcon at a cost of an INR 2016 Cr. The project is to expand
the 123 km Lucknow-Sultanpur section of National Highway 56 in the north-
ern state of Uttar Pradesh from two to four lanes. The SPV was incorporated
as DBL Lucknow Sultanpur Highways.
This project was previously procured and awarded on a build, operate and
transfer basis to a joint venture of Essar and Atlanta, but the contract was
subsequently terminated.
This project is one of the first projects awarded under HAM for which
completion certificate (CC) has been issued and the project is in operation
phase.
1.2 Key Principals—Hybrid Annuity Model (HAM) 7

In the initial models of EPC/BOT (Annuity), the revenue risk was completely
taken by the government and fixed annuity payments were made to the private con-
cessionaire. This was subsequently followed by the BOT (Toll) model wherein the
complete revenue risk was transferred to the private sector concessionaire through
toll collection. However, the private sector interest slowly declined due to this par-
ticular risk allocation. Now, the PPP model of HAM brings back the concept of
availability payments from government to the private sector which was primarily
done to revitalize the private sector participation in the road sector.

1.2 Key Principals—Hybrid Annuity Model (HAM)

The key principles of the HAM based PPP projects in roads sector in India can be
summarized as below:

• Design and construction risks are entirely passed on to concessionaire. Land

risk for the project site is passed to the government agency.
• Milestone payments are made during construction period, at which the conces-
sionaire only gets the part of capital cost incurred until that point.
– As per model concession agreement, 40% of the bid project cost shall be
payable to the concessionaire by the authority in ten (10) equal instalments
linked to physical progress of the project during construction period.
– Concessionaire shall have to initially bear the balance 60% of the project
cost through a combination of debt and equity
• Below payments will be made by government agency to the concessionaire on
a semi-annual basis during the operation period:
– Balance of deferred capital cost payments (i.e. 60% as per model concession
agreement),
– Interest thereon (interest rate defined as average MCLR of top 5 scheduled
commercial banks in India plus 1.25%), and
– O&M costs (in accordance with the amount quoted which will be inflation
indexed).
• Concession period comprises
– Construction period, which shall be project specific (730 days as per model
concession agreement), and
– Operations period of up to 15 years.
• Bid parameter in HAM PPP projects for roads sector is Project life cycle cost
which is defined as sum of below components:
– NPV of quoted bid project cost, and
– NPV of the operations and maintenance (O&M) cost for the entire operations
period
– Bid is awarded to the developer quoting lowest NPV for project life cycle
cost.
8 1 Evolution of Hybrid PPPs

References

1. Public Private Partnerships in the EU: Widespread shortcomings and limited benefits. https://
www.eca.europa.eu/Lists/ECADocuments/SR18_09/SR_PPP_EN.pdf. Accessed December 15,
2020.
2. Public-Private Partnership Handbook, Asian Development Bank. https://www.adb.org/sites/def
ault/files/institutional-document/31484/public-private-partnership.pdf. Accessed December 15,
2020.
3. Harnessing the Power of Public-Private Partnerships: The role of hybrid financing strate-
gies in sustainable development. https://www.iisd.org/publications/harnessing-power-public-pri
vate-partnerships-role-hybrid-financing-strategies. Accessed December 15, 2020.
4. Introduction to Hybrid Public Private-Partnerships in Poland. https://www.mysciencework.
com/publication/show/introduction-hybrid-public-privatepartnerships-poland-a8c1005d?sea
rch=1. Accessed December 15, 2020.
Hybrid Annuity Model
(HAM)—Timeline 2

Since its introduction in 2016, the Hybrid Annuity Model (HAM) has undergone
multiple changes based on experience of implementation of highway projects in
the Indian subcontinent. In the past six years starting 2016 till 2022, there have
been multiple tweaks to this particular PPP model so as to bring risk allocation and
contractual structure in line with global best practices so as to attract interest from
both local as well as international investors in the roads sector in the country; and
this has indeed enabled a sizable investment from international investors in this
particular segment of infrastructure.
This chapter provides a detailed chronological timeline for such evolution of
the Hybrid Annuity Model (HAM) along with a compilation of all the relevant
government notifications and circulars issued by the government authorities in this
regard. A summary description of all such circulars/notifications is also provided
for ease of understanding of the readers.
This chapter would be extremely beneficial for readers to gain an understand-
ing of how industry feedback has influenced the evolution of this particular PPP
model and how the government agencies need to be flexible in their approach to
ensure greater acceptability and bankability of notified PPP models to help enhance
private sector participation in infrastructure delivery.

Supplementary Information The online version contains supplementary material available at

https://doi.org/10.1007/978-981-19-2019-6_2.

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 9
A. Mittal et al., Hybrid Annuity Model (HAM) of Hybrid Public-Private Partnership
Projects, Management for Professionals,
https://doi.org/10.1007/978-981-19-2019-6_2
10 2 Hybrid Annuity Model (HAM)—Timeline

2.1 Key Circulars/Notifications

Table 2.1 provides a complete list of relevant circulars, bid documentation and
notifications regarding implementation of road projects under the Hybrid Annuity
Model (HAM) issued by two key government agencies namely:

• Ministry of Road Transport and Highways (MoRTH), Government of India

(GoI)
• National Highways Authority of India (NHAI).

The table also provides a brief description of the contents key notifica-
tions/circulars [1, 2].

Table 2.1 Key circulars/notifications for HAM in India

# Date Circular No. Title, Key contents Issued by
1 16 November 2015 RW/NW-37011/15/2015-PPP Cost Norms in respect of National MoRTH
Highway Projects to be imple-
mented on Hybrid Annuity Mode

This circular, issued in 2015,

was the first circular to pro-
vide the method and norms
to compute estimated costs
in respect of road highway
projects to be implemented
under HAM, besides the base
civil construction cost. It is
pertinent to mention here
that at the time of issuing
request for proposal (RFP)
for any ham project, the
relevant government agency
provides an estimate of the
cost of project (the Estimated
Project Cost) as computed
based on cost norms followed
by the government.
2 24 November 2015 – 1. Hybrid Annuity Model—RFP MoRTH
Document Part 1.
2. Hybrid Annuity Model—RFP
Document Part 2.
3. Hybrid Annuity Model Bid
Excel Sheet

MoRTH issued the above

mentioned bid documenta-
tion for HAM projects.

(continued)
2.1 Key Circulars/Notifications 11

Table 2.1 (continued)

# Date Circular No. Title, Key contents Issued by
3 1 December 2015 NH·24028/14/2014·H (Vol 2) Hybrid annuity model for imple- MoRTH
menting highway project—fur-
nishing of clarification—reg.

This circular provides

the public notification of
responses from MoRTH
provided regarding clarifica-
tions raised Department of
Economic Affairs (DEA) on
certain aspects of HAM PPP
model.
4 8 February 2016 NH·24028/14/2014·H (Vol 2) Hybrid Annuity Model for imple- MoRTH
menting Highway Projects—reg.

This circular notifies HAM

as one of the PPP models
to be used for development
of highways in roads sector
and provides salient features
of the concession agreement
as approved by the competent
authority.
5 15 February 2016 8.1.21 Delegation of powers for approval NHAI
of bids for award of works under
Hybrid Annuity mode

Vide this circular, NHAI noti-

fied the delegation of power
for award of HAM projects
based on the response to bid
6 19 February 2016 RW/NH-24036/27/2017 Cost Norms in respect of National MoRTH
Highway Projects to be imple-
mented on Hybrid Annuity Mode-
Corrigendum

This circular provides a clar-

ification regarding computa-
tion of escalation in project
cost, to be computed from
bid due date/bid submission
date instead of appointed
date. The same was reflected
in the Model Concession
Agreement issued for HAM
model for highway projects.
7 12 May 2016 12.16 Approval RFP document for NHAI
appointment of Safety Consul-
tants for all highway projects
(BOT/HAM/OMT/EPC) under
NHAI

Vide this circular, NHAI noti-

fied the RFP for appointment
of safety consultants which
is applicable for all highway
projects under NHAI, includ-
ing those being implemented
under HAM.
(continued)
12 2 Hybrid Annuity Model (HAM)—Timeline

Table 2.1 (continued)

# Date Circular No. Title, Key contents Issued by
8 8 July 2016 NH·24028/14/2014·H (Vol 2) Hybrid Annuity Model for MoRTH
Implementing Highway
Projects—amendment in Model
Concession Agreement—reg

Vide this circular, MoRTH

had made certain changes in
the mechanism for recovery
of Mobilization Advance
from Concessionaire for
HAM based PPP projects.
However, this was kept in
abeyance shortly after as per
a separate notification.
9 16 November 2016 NH·24028/14/2014·H (Vol 2) Hybrid Annuity Model for MoRTH
Implementing Highway Projects-
amendment in Model Concession
Agreement-reg.

Vide this circular, MoRTH

clarified that the earlier cir-
cular dated 8 July 2016 was
kept in abeyance.
10 9 December 2016 Hybrid Annuity Model—Model MoRTH
Concession Agreement

Vide this notification,

MoRTH notified the com-
plete version of MCA for
HAM model for high-
way project. However, an
updated version of the MCA
was notified in 2020 based
on multiple changes made
as per industry feedback. A
detailed contractual review
of the latest MCA (issued in
Nov-20) has been provided
in PART III of this book.
11 1 June 2017 NH-37015/1/2009-H Amendment to Model RFP for MoRTH
Hybrid Annuity projects (Amend-
ment No.1/2017)—reg.

Vide this circular, the qual-

ification criteria as per the
Model RFP was modified
for bidders/consortiums
wherein more than 50% of
the equity is held by persons
outside of India. It was noti-
fied that the qualification of
such bidders/consortiums
shall be subject to approval
of government authority
from a national security
and public interest perspec-
tive. Further, such decision
made by the government
authority shall be final, con-
clusive and binding of such
bidders/consortiums.
(continued)
2.1 Key Circulars/Notifications 13

Table 2.1 (continued)

# Date Circular No. Title, Key contents Issued by
12 29 September 2017 3.3.14 Clarification on Applicability of NHAI
GST on Hybrid Annuity Projects,
which are in bidding stage for uni-
formity—reg.

Vide this circular, NHAI clar-

ified the applicability of GST
on payments made by NHAI
during construction (GST to
be applicable with 100%
Input Tax Credit) and oper-
ations (GST to be paid by
NHAI separately along with
Annuity Payment)
13 23 October 2017 3.3.17 Implementation of GST Act, NHAI
2017 in NHAI—Exemption of
application of GST on Annuity
payments-reg.

Vide this circular, NHAI noti-

fied that no payment against
GST shall be made by NHAI
on Annuity Payments based
on Notification No. 33/2017
issued by Ministry of Finance
(Dept. of Revenue)
14 18 February 2018 NH-35014/3412017-H Use of BIMS portal (www. MoRTH
bims.gov.in) for procurement
of Highway Contracts on
EPC/HAM/BOT Mode—reg.

Vide this circular, MoRTH

has notified use of a sin-
gle system called the Bid-
der Information Manage-
ment System (BIMS) to be
used for procurement of all
national highway contracts
and other works sponsored
by the central government
in India. BIMS is a compre-
hensive database comprising
bidder-wise information cov-
ering basic details, civil work
experience, cash accruals,
net worth, annual turnover
etc.
15 25 April 2018 NH-35014/3412017-H Re-Constitution of Committee of MoRTH
consultative mechanism for use
of BIMS portal for procure-
ment of Highways Contracts on
EPC/HAM/BOT—reg

Vide this circular, MoRTH

re-constituted a committee
for consultive mechanism
regarding use of BIMS por-
tal.
(continued)
14 2 Hybrid Annuity Model (HAM)—Timeline

Table 2.1 (continued)

# Date Circular No. Title, Key contents Issued by
16 1 October 2018 3.1.24 Policy for release of Bank Guar- NHAI
antees submitted by the Con-
cessionaires/Contractors towards
Mobilization Advances in Hybrid
Annuity (HAM)/EPC Contracts.

Vide this circular, NHAI clar-

ified the mechanism for part
release of Bank Guarantees
(BGs) on recovery of part
Mobilization Advance
17 31 December 2018 8.2.8 Delegation of power for decla- NHAI
ration of financial closure date
for the project under HAM/PPP
mode-reg.

Vide this circular, NHAI clar-

ified that Member (Finance)
shall have full power of dec-
laration of financial closure
date for HAM based PPP
projects.
18 29 March 2019 18.35 Regarding Revised delegation for NHAI
award of projects on EPC and
HAM Mode

Vide this circular, NHAI clar-

ified that in case of HAM
projects, if L1 bid is upto 5%
above the updated bid price
assessed by NHAI, Executive
Committee is the Competent
Authority to accept L1 bid
and award the project.
19 29 July 2019 3.3.20 Standard Operating Procedure NHAI
for HAM Concessionaire due to
Change in Law on account of
introduction of GST Act, 2017—
reg.

Vide this circular, NHAI

approved payment of GST on
40% bid price treating the
same as construction support
for HAM based PPP projects.
20 5 November 2019 9.2.29 Hybrid Annuity Model (HAM) NHAI
Projects’ Waiver of damages to
the Concessionaires for delay in
submission of the Performance
Security BG or achieving the
Financial Close for the cases
where the Authority was not in a
position to hand over RoW

Vide this circular, NHAI clar-

ified that concessionaires
will not be penalized for
delay in those cases where
there was a delay in handing
over RoW by NHAI.

(continued)
2.1 Key Circulars/Notifications 15

Table 2.1 (continued)

# Date Circular No. Title, Key contents Issued by
21 9 November 2019 RO/MUM/NHDP-39/2015-16 Interest Bearing Working Capi- MoRTH
tal Advance against unbilled exe-
cuted work to mitigate the cash
flow problems of HAM Conces-
sionaire and EPC contractors and
modification in Schedule-H of the
EPC Contract.

Vide this circular, it was

observed by MoRTH that
certain road projects
awarded on HAM basis
were stalled/delayed due
to cash flow problem faced
by concessionaire since
executed works did not
qualify for milestone pay-
ments during construction
as per terms of concession
agreement. Hence, MoRTH
notified that Interest bearing
Working Capital Advance
(IBWCA) will be extended
against unbilled executed
work, not qualifying for
payment under milestone
achievement-based payment
conditions. Such advance
@4% grant may be released
at completion of every 10%
of physical progress before
achieving subsequent con-
struction milestone as per
concession agreement.
22 19 November 2019 9.2.30 Interest Bearing Working Capi- NHAI
tal Advance against unbilled exe-
cuted work to mitigate the cash
flow problems of HAM Conces-
sionaire and EPC contractors and
modification in Schedule-H of the
EPC Contract.

Vide this circular, NHAI

made a minor change regard-
ing disbursement process
of IBWCA as notified by
MoRTH. No other changes
were made.
23 5 December 2019 3.2.12 Allowing securitization of future NHAI
cash flows in Hybrid Annuity
Projects in line with BOT (Toll)
and BOT (Annuity) Projects

Vide this circular, the cash

flow securitization was
approved for HAM based
road PPP projects by NHAI.

(continued)
16 2 Hybrid Annuity Model (HAM)—Timeline

Table 2.1 (continued)

# Date Circular No. Title, Key contents Issued by
24 6 March 2020 7.2.8 Inclusion of Utility Shifting works NHAI
in the RFPs/Bids of Civil Work
Contracts on Hybrid Annuity and
EPC Modes.

Vide this circular, NHAI

notified that the items of util-
ity shifting will be included
in the scope of work on
concessionaire while invit-
ing bids for HAM based
PPP projects, to serve
the twin objective of mar-
ket/competitive discovery of
rates and reduce delays in
utility shifting works.
25 20 April 2021 RO/MUM/NHDP-39/2015-16 Interest Bearing Working Capi- MoRTH
tal Advance against unbilled exe-
cuted work to mitigate the cash
flow problems of HAM Conces-
sionaire & EPC contractors and
modification in Schedule—H of
the EPC Contract- Clarification on
recovery schedule for mobiliza-
tion advance and interest bearing
working capital advance for HAM
projects—reg.

Vide this circular, MoRTH

clarified that the mobiliza-
tion advance recovery shall
be done during release of
grants during construction
period as per concession
agreement, unless requested
by concessionaire for recov-
ery at time of release of
IBWCA proportionately.
26 27 May 2020 7.2.9 Inclusion of Utility Shifting works NHAI
in the RFPs/Bids of Civil Work
Contracts on Hybrid Annuity and
EPC Modes.

Vide this circular, NHAI noti-

fied that the utility shifting
works should also be incor-
porated in the RFPs/Bids
of already approved HAM
projects whose bids are not
yet received.
27 10 June 2020 8.3.34 Guidelines for determination NHAI
of Cost of Change of Scope
(COS)/Reduction in Scope
(RIS) due to Withdrawal of
works/Alteration(Change/omission
in existing item) in Works in
Hybrid Annuity Mode (HAM)
Projects- Applicable Schedule of
Rates, Design Charges, Mainte-
nance Charges regarding.

Vide this circular, NHAI

clarified the provisions for
COS/RIS in cases where the
same has not been defined in
concession agreements.

(continued)
2.1 Key Circulars/Notifications 17

Table 2.1 (continued)

# Date Circular No. Title, Key contents Issued by
28 12 June 2020 2.1.40 Delegation of Power to RO NHAI
for signing for Supplemen-
tary Agreement in ongoing
PPP/HAM/EPC/Item Rate
Projects for adopting the pro-
cedure of Dispute Resolution
Board.

Vide this circular, NHAI allo-

cated delegation of power to
regional officers for supple-
mentary agreements due to
restricted travel in view of
COVID-19 situation.
29 9 July 2020 8.3.35 HAM Projects—SoP for remov- NHAI
ing from the scope of work the
remaining site not provided to
Concessionaire within the period
of the Appointed Date plus 20%
of construction period.

Vide this circular, NHAI clar-

ified the provisions of change
in scope and adjustment of
relevant costs in those cases
where 100% of project site
was not handed over to Con-
cessionaire within the period
of the Appointed Date plus
20% of construction period.
30 14 August 2020 8.3.37 HAM Projects—SoP on Reduc- NHAI
tion in Scope of the Project Works
in remaining sites not provided
within the period of AD + 20%
of CP

This circular was notified by

NHAI in those specific cases
where NHAI provided RoW
after a period of AD+20% of
CP, and the Concessionaire
started work on those sites.
31 18 August 2020 2.1.41 Introduction of Dispute Resolu- NHAI
tion Board (DRB) in all ongoing
and upcoming EPC/HAM/BOT
Projects.

Vide this circular, NHAI

notified the introduction of
DRB through supplemen-
tary agreements for all road
projects to ensure expedi-
tious resolution of disputes in
ongoing projects.
32 28 August 2020 2.1.42 Introduction of Dispute Resolu- NHAI
tion Board (DRB) in all ongoing
and upcoming EPC/HAM/BOT
Projects.

Notification to withdraw ear-

lier NHAI circular no. 2.1.41
dated 18 August 2020

(continued)
18 2 Hybrid Annuity Model (HAM)—Timeline

Table 2.1 (continued)

# Date Circular No. Title, Key contents Issued by
33 4 September 2020 2.1.43 Introduction of Dispute Resolu- NHAI
tion Board (DRB) in all ongoing
and upcoming EPC/HAM/BOT
Projects.

Re-notification for introduc-

tion of DRB by NHAI for all
road projects with updated
detailed clauses of the sup-
plementary agreement.
34 13 October 2020 7.2.10 Inclusion of Utility Shifting works NHAI
in the RFPs/Bids as part of Civil
Construction under Hybrid Annu-
ity and EPC Mode—Amendment
in policy circular dated 06 March
2020—reg

Vide this circular, NHAI clar-

ified that all utilities, not
included in schedule B, shall
be treated as change of
scope whether overground
or underground. It was also
notified add the concession-
aire is to be paid the cost
of actual utility shifting work
carried out at site as per
the approved estimate of the
utility owing agency in case
the work is terminated prior
to appointed date after sign-
ing of the construction agree-
ment.
35 28 October 2020 NH-35014/25/2017 Relaxation in Technical and MoRTH
Financial Qualification for bid-
ders of National Highways
Project under Hybrid Annuity
Mode (HAM) and Build, Oper-
ate, Transfer mode (BOT)—reg.

Vide this circular, MORTH

notified changes in bid-
ing documents in respect
of financial and technical
capacity for HAM and BOT
projects and general relax-
ation for tunnel and bridge
projects related experience
as applicable for HAM based
road PPP mode in India.
(continued)
2.1 Key Circulars/Notifications 19

Table 2.1 (continued)

# Date Circular No. Title, Key contents Issued by
36 10 November 2020 Changes in the Model Con- MoRTH
cession Agreement (MCA) for
NHs works under Hybrid Annu-
ity Mode (HAM) Projects

Vide this circular, MoRTH

introduced a series of
changes to Model Con-
cession Agreement (MCA)
for PPP projects tendered
in the roads sector in India
under HAM. These changes
were introduced in con-
sultation with the industry
experts; and are expected
to give a boost to investor
confidence and interest in
implementation of HAM
road projects in India. Based
on these notified changes, the
updated MCA document was
also issued by the ministry.
PART III of this book pro-
vides a detailed discussion
on contractual aspects of
the latest MCA document
along with Numerical exam-
ples and competitions for the
ease of reference and under-
standing of the readers.
37 17 November 2020 18.58 Regarding replies being given by NHAI
Technical Divisions as ‘As per
RFP’ in response to the pre-
bid queries in various contracts
(BOT/HAM/EPC/TOT, etc.).

Vide this circular, NHAI clar-

ified that for replies to pre-
bid queries, answers cannot
be given As per RFP and the
provisions of bid documents
to be explained to avoid liti-
gation in future.
38 24 November 2020 11.21 Changes in Model Concession NHAI
Agreement (MCA) of Hybrid
Annuity Mode (HAM) Projects—
reg.

NHAI notification with a

copy of list of changes in
HAM as notified by MoRTH
on 10 November 2020
39 26 November 2020 8.4.21 Interest Rate Applicable for NHAI
HAM Projects-Interest under
clause 23.6.4.

Vide this circular, NHAI

declared the average 1 year
MCLR of top 5 scheduled
commercial banks as 7.34%
for period of 01 October
2020 till 31 December 2021
(continued)
20 2 Hybrid Annuity Model (HAM)—Timeline

Table 2.1 (continued)

# Date Circular No. Title, Key contents Issued by
40 2 December 2020 8.4.22 Clarification on calculation of NHAI
Price Index Multiple in HAM
Projects—reg.

Vide this circular, NHAI clar-

ified the various scenarios
for use of correct CPI (IW)
as published for Centre as
well as for different States in
India.
41 2 December 2020 11.22 Amendment in Cl. 10.2.6 of NHAI
Model Concession Agreement of
HAM.

Very minor modification

regarding use of word
usufructuary in model
concession agreement.
42 31 December 2020 8.3.39 Relaxation in the Change of Own- NHAI
ership clause in Hybrid Annuity
Model (HAM) Projects after 6
months of completion—reg.

Vide this circular, MoRTH

clarified that the developers
of subsisting HAM contracts
may be allowed to dilute their
equity stake post 6 months
from CoD, reducing it from
a period of two years.
43 5 January 2021 8.4.23 Interest Rate Applicable for NHAI
HAM Projects-Interest under
clause 23.6.4

Vide this circular, NHAI

declared the average 1 year
MCLR of top 5 scheduled
commercial banks as 7.28%
for period of 01 January
2021 till 31 March 2021
44 15 January 2021 7.2.12 Inclusion of Utility Shifting works NHAI
in the RFPs/Bids as part of Civil
Construction under Hybrid Annu-
ity and EPC Mode—Amendment
in policy circular dated 13 Octo-
ber 2020—reg.

Vide this circular, NHAI

notified the updated and
amended Annexure-1 to
Schedule B for the MCA
of HAM based road PPP
projects
45 1 April 2021 18.68 Clarification regarding applicabil- NHAI
ity of Atmanirbhar Bharat relief
upto 30 June 2021 for Contrac-
tors/Developers of Road Sector
for Schedule-G in HAM projects.

Vide this circular, NHAI noti-

fied relaxation of Schedule-
G in HAM contracts under
Atmanirbhar Bharat scheme.
(continued)
2.1 Key Circulars/Notifications 21

Table 2.1 (continued)

# Date Circular No. Title, Key contents Issued by
46 7 April 2021 8.4.27 Interest Rate applicable for HAM NHAI
Projects—Interest under Article
23.06.4—reg.

Vide this circular, NHAI

declared the average 1 year
MCLR of top 5 scheduled
commercial banks as 7.26%
for period of 01 April 2021
till 30 June 2021
47 16 June 2021 11.29 Regarding amendment in the NHAI
Standard Request for Proposal
(RFP) and Model Concession
Agreement (MCA) for National
Highways and Centrally Spon-
sored Road works proposed to be
implemented on HAM mode

Vide this circular, NHAI noti-

fied that Contract Price for
bidding purposes shall be
exclusive of GST instead
of considering the Contract
Price including base rate
as well as applicable taxes
including GST. Accordingly,
this circular provides the list
of changes in RFP and MCA
for HAM PPP projects.
48 2 July 2021 8.4.28 Interest Rate applicable for HAM NHAI
Projects—Interest under Article
23.6.4—reg.

Vide this circular, NHAI

declared the average 1 year
MCLR of top 5 scheduled
commercial banks as 7.23%
for period of 01 July 2021 till
30 September 2021
49 1 September 2021 3.3.21 Clarification regarding applicabil- NHAI
ity of GST on the activity of con-
struction of road where consid-
erations are received in deferred
payment HAM (Annuity)—reg.

Vide this circular, NHAI and

MoRTH provided detailed
clarification regarding appli-
cability of GST on HAM
based PPP projects tendered
over different periods of time,
so as to clarify the key cash
flows on which such tax will
be applicable.

(continued)
22 2 Hybrid Annuity Model (HAM)—Timeline

Table 2.1 (continued)

# Date Circular No. Title, Key contents Issued by
50 6 October 2021 8.4.29 Interest Rate applicable for HAM NHAI
Projects—Interest under Article
23.6.4—reg.

Vide this circular, NHAI

declared the average 1 year
MCLR of top 5 scheduled
commercial banks as 7.23%
for period of 01 October
2021 till 31 December 21
51 14 October 2021 8.4.30 Interest Rate applicable for HAM NHAI
Projects- Interest under Article
23.6.4

Vide this circular, NHAI

declared the average 1 year
MCLR of top 5 scheduled
commercial banks as 7.21%
for period of 01 October
2021 till 31 December 2021
52 7 December 2021 11.34 Amendment in the Standard NHAI
Request for Proposal (RFP) and
Model Concession Agreement
for National Highways and other
centrally sponsored road projects
proposed to be implemented on
Hybrid Annuity Model (HAM)
mode of contract to make pro-
curement compliant of Public
Procurement (Preference to Make
in India ) Order, 2017.

Vide this circular, NHAI

made multiple changes in
the RFP document, primarily
around the technical eligi-
bility criteria of the bidders
for HAM projects, including
the local content requirement
Class-I and Class-II suppli-
ers and compliance with GoI
order for all public procure-
ment projects with preference
to Make in India.
53 10 January 2022 8.4.31 Interest Rate applicable for HAM NHAI
Projects- Interest under Article
23.6.4

Vide this circular, NHAI

declared the average 1 year
MCLR of top 5 scheduled
commercial banks as 7.20%
for period of 1 January 22 till
31 March 22
(continued)
2.1 Key Circulars/Notifications 23

Table 2.1 (continued)

# Date Circular No. Title, Key contents Issued by
54 17 January 2022 8.3.43 Expenditure to be taken into NHAI
account while considering a pro-
posal for releasing Performance
Security in reference to Article 9.3
of Model Concession Agreement
(MCA) of Hybrid Annuity Mode
(HAM) project

Vide this circular, NHAI

linked the process of release
of performance security to
the breakup of expenditure
incurred by the developer.
Specific types/categories of
expenditure to be taken into
consideration to meet RFP
requirements for release of
performance security.
55 23 May 2022 E-134863 Changes in the model RFP and MoRTH
MCA of HAM project to allow
Lowest quoted Bid Project Cost
(BPC) as the basis for awarding
HAM Project and O&M cost to
be fixed as in EPC projects—reg.

Vide this circular, MoRTH

proposed significant changes
in the standard bid doc-
uments for HAM projects,
around the bidding criteria
and the payment of O&M
costs during the operation
period. The bids are to
be awarded on lowest cost
basis, instead of NPV of
bid project cost and O&M
costs. A detailed impact of
these changes has been elab-
orated, with numerical exam-
ples, in PART III of the book.
56 8 April 2022 8.4.32 Interest Rate applicable for HAM NHAI
Projects- Interest under Article
23.6.4

Vide this circular, NHAI

declared the average 1 year
MCLR of top 5 scheduled
commercial banks as 7.20%
for period of 1 April 22 till 30
June 2022
57 3 June 2022 9.1.13 List of Provisionally Qualified NHAI
Bidders for EPC, HAM and BOT
(Toll) Projects to avoid repeti-
tive examination of bidding doc-
uments by Technical Divisions—
reg.

Vide this circular, NHAI

paved the way for faster pro-
cess of bid evaluation. A
list of provisionally qualified
bidders have been notified
(valid till 30 June 2022), and
the technical capability of
such bidders is not required
to be evaluated for standard
HAM projects.

(continued)
24 2 Hybrid Annuity Model (HAM)—Timeline

Table 2.1 (continued)

# Date Circular No. Title, Key contents Issued by
58 17 June 2022 11.39 Changes in the model RFP and NHAI
MCA of HAM project to allow
Lowest quoted Bid Project Cost
(BPC) as the basis for awarding
HAM Project and O&M cost to
be fixed as in EPC projects—reg.

Vide this circular, NHAI

confirmed the changes that
were proposed by MoRTH in
My’22; and exact language
of the standard bidding doc-
uments is notified.

References

1. Ministry of Road Transport and Highways (MoRTH), List of circulars. https://morth.nic.in/

OMs-Circular-Other-Notification
2. National Highways Authority of India (NAHI), List of circulars. http://library.nhai.org/. Last
Accessed on June 30, 2022.
 Part II
Hybrid Annuity Model (HAM) for Roads
Sector, India
Contractual Structure and Risk
Allocation Framework 3

This chapter reviews the contractual structure between different stakeholders under
the Hybrid Annuity Model (HAM) along with the consequent risk allocation
framework during the construction and operation phase of the project proposed
as part of Model Concession Agreement (MCA) for HAM projects in roads sector
in the country.
This chapter also lists down the various obligations of the concessionaire/private
sector participant and the government authority as well as the key advantages from
the perspective of both parties while delivering such HAM based PPP projects. The
chapter further provides a profile of key players active in development of HAM
based PPP road projects in India.

3.1 Contractual Structure

A key requirement for delivery of Hybrid Annuity Model (HAM) based PPP
projects is creation of a Special Purpose/Project Vehicle (SPV). An SPV is a
legal entity that undertakes the delivery of a project and all contractual agreements
between the various parties are negotiated between themselves and the SPV.
SPV is also preferred mode of PPP project implementation and limited or non-
recourse situations where the lenders rely on the project’s cash flow and security
over its asset as the only means to repay debts.
The below diagram provides the contractual structure in a typical HAM PPP
project. The below structure is prepared as per the Model concession agreement
(MCA) issued by Government of India. As mentioned earlier, HAM based road
PPP projects are implemented through a SPV structure wherein the roles, responsi-
bilities and liabilities of the project are ring-fenced from the SPV owner/developer
(Fig. 3.1).

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 27
A. Mittal et al., Hybrid Annuity Model (HAM) of Hybrid Public-Private Partnership
Projects, Management for Professionals,
https://doi.org/10.1007/978-981-19-2019-6_3
28 3 Contractual Structure and Risk Allocation Framework

Developer/
Shareholders

Equity Equity Shareholder

financing returns Agreement

Debt financing Annuity and O&M

Payments**
Government
Lenders Debt service SPV
Authority*
Concession Agreement
Financing Agreement

EPC payments O&M payments

O&M
EPC Contractor
EPC Contract O&M Contract Contractor

Agreements Cash flows

*For national highway projects, the off-taker is National Highways Authority of India (NHAI) and respective state governments for
state highway projects.
**Annuity Payments consist of
40% capital costs during construction period
60% capital costs during operation period, along with interest thereon, and
O&M payments (in accordance with the amount quoted which will be inflation indexed).

Fig. 3.1 Contractual Structure—HAM based PPP road project

Box: Special Purpose Vehicle (SPV)

A SPV is a company created specifically to enter into the respective PPP
contract. The successful bidder (usually a consortium of companies) will
constitute the SPV after being awarded the contract, but before signing it.
The consortium members will subscribe for pre-agreed percentages of the
shares in the company (as committed at bid submission). It will be the SPV
that signs the contract with the procuring authority. In some countries it is
not compulsory for a consortium to create an SPV to enter into the contract.
Creating a SPV brings the following benefits [1]:

• An SPV is a usual requirement by lenders in order to provide finance

through project finance techniques, as this allows for better control of
the credit risks. Project finance techniques allow equity investors to limit
their exposure to risk, and they provide high leverage without the need
for investors to (generally) provide corporate guarantees. Furthermore,
the finance is commonly regarded as off balance sheet from the holding
perspective of the equity investors
• The public party also benefits from the existence of a SPV, as it means
that the public party’s partner will only be dedicated to the specific PPP
3.1 Contractual Structure 29

contract. It is common for both the public party (through the Request for
Proposals and the contract) and lenders to prohibit the SPV from develop-
ing other projects so that its only object is the delivery of the PPP works
and services.

Source PPP Certification Program Guide, APMG International

Based on the contractual structure for HAM PPP project depicted above, this
section describes the detailed steps of the process undertaken during the project
lifecycle.

1. The winning bidder/consortium/concessionaire constitutes the SPV

The SPV will sign the concession agreement with the government authority (also
referred to as Agreement Date). By signing of the concession agreement, the
concessionaire and government authority assume the obligations regarding the
implementation of the project as summarized in Table 3.1.

Table 3.1 Obligations of Concessionaire and Government Authority—HAM PPP project

Stakeholder Obligations
Concessionaire • Design, engineering, procurement, construction, operation and
maintenance of the project
• Procure financing for the remaining portion of the construction cost
besides construction annuity (60% as per model concession
agreement) through a mix of debt and equity
• Comply with all applicable laws and permits for the project
• Procure Intellectual Property (IP) rights, technology know-how
incorporated in the project, if any
• Provide facilitation support to Authority to procure land,
environmental and forest clearances, if requested by the Authority
• Transfer the project to Authority upon end on concession period (or
earlier in case of termination of the project agreement)
Government Authority • Procure land and Right of Way (RoW) for the project site. As per
clause 10 of the MCA, 80% of the project site should be made
available before declaration of appointed date i.e. the start of
construction date; with the remaining site to be procured within
90 days of appointed date
• Provide assistance to Concessionaire for procuring Applicable
Permits, necessary infrastructure facilities and utilities (like water,
electricity) and government approvals for the project
• Cooperate with Concessionaire in operation and maintenance of the
project, as required by the provisions of the concession agreement
• Undertake, at its own cost, rehabilitation and resettlement (R&R) of
persons affected by construction of the project
30 3 Contractual Structure and Risk Allocation Framework

2. The SPV executes financial agreements and implements downstream project

contracts

After the signing of concession agreement, the SPV will enter into financing agree-
ments i.e., the loan agreements with lenders (also referred to as financial close).
As per the model concession agreement, the financial close of a HAM based road
PPP project needs to be achieved within 150 days from the date of concession
agreement.
Post financial close, the SPV will also enter into downstream contracts:

• Engineering, Procurement, Construction (EPC) contract with construction or

EPC contractor, and
• Operation and maintenance (O&M) contract with the O&M contractor.

3. Execution of construction work

The construction work is executed post project site is made available to the private
sector (Appointed Date) for a HAM based road PPP project. During the construc-
tion. Government authority would also disburse 40% of the adjusted bid project
cost to the concessionaire upon achievement of predefined construction milestones
or payment milestones as per the terms of the concession agreement. Please refer
to Part III off the book for detailed explanation (along with the numerical compu-
tations and examples) for adjusted bid project cost for a typical HAM based road
PPP project.
It is pertinent to mention here that all the cash flows for any project are
deposited or disposed from an escrow account that needs to be opened by the SPV.
All the proceeds of debt and equity contributions are dispersed into that escrow
account, and the SPV pays the EPC contractor and the O&M contractor from the
same escrow account.

4. Project Commercial Operations

Once the construction is completed, the project is issued a completion cer-

tificate post inspection by the independent engineer appointed by the government
authority. In a HAM contract, once the operations commence, the SPV would start
receiving the annuity payments for remaining 60% of adjusted bit project cost or
completion cost, O&M payments as per the quote submitted by the concessionaire,
and interest payment on the reducing balance of annuity. The collected annuity
payments will be used to pay taxes, O&M costs, debt services and distributions to
shareholders.
In a HAM project, the O&M fees to be paid to O&M contractor is a fixed semi-
annual amount which is a lump-sum amount including all O&M activities; and
hence, the O&M performance risk is typically transferred to the O&M contractor.
3.2 Risk Allocation Framework 31

5. Debt repayment and equity distributions

The debt service (principal repayment and interest profile) is defined in the financ-
ing agreements In a typical HAM project, such repayment profile is linked with
the semiannual annuity payments to be received from the government agency to
avoid any issues in the cash flow during the operations phase.
Financing agreements may include additional restrictions on distributions to
shareholders till the debt is fully repaid. In most cases, the majority of the return
to shareholders in form of dividends will only come during the later stage of the
concession period.

6. Divestment of Asset

Upon contract expiry (or earlier in case of a project termination), the road asset will
be returned to the authority. This hand-back of the road asset to the government
agency is also referred to as divestment of rights, title and interest of concession-
aire from the project. Such divestment is complete once the vesting certificate is
issued by the government agency.

7. Defects liability Period

The concessionaires shall be responsible for all defects and deficiencies in the
project for a defect liability period (typically 120 days after termination), and it
shall have the obligation to repair or rectify, at its own cost, all such defects and
deficiencies. In case such defects are repaired by the authority, costs incurred shall
be reimbursed by the concessionaire. In the event the concessionaire does not
reimburse such costs, the authority shall be entitled to recover the same from the
funds retained in the escrow account all from the performance guarantee provided
by the concessionaire.

3.2 Risk Allocation Framework

Optimal risk allocation is one of the key Value for Money (VfM) driver in any PPP
delivery model. An optimal risk allocation in a concession agreement or under a
PPP model allocates the various project risks (across the construction and opera-
tions lifecycle) to either the government sector or the private sector, based on the
capability of best managing that risk. Such optimal risk allocation ensures highest
VfM, bankability and a successful implementation of the PPP project.
Given below is the risk allocation of HAM PPP model structure as per MCA
for roads sector during construction and operation phase (Table 3.2).
32 3 Contractual Structure and Risk Allocation Framework

Table 3.2 Risk Allocation Framework—HAM PPP project

Risk Allocation Remarks
Project Design Private • Private sector to be responsible for design
and procurement of relevant Intellectual
property (IP), technical know-how as
applicable
Project Site and applicable permits Public • Availability of Project site and right of
way for the 80% length of project before
appointed date, with the remaining land
to be provided within 90 days of the
appointed date as per the concession
agreement
• Government authority to procure relevant
permits and undertake resettlement and
rehabilitation (R&R) works, as required.
Project finance Shared • Government authority to provide project
finance support during construction
period for an amount of 40% of the
adjusted bid project cost upon
achievement of predefined construction
milestones as per the concession
agreement.
• Given that bank debt can be arranged as
well for the remaining 60% of the bid
project cost or the construction cost; and
assuming a debt: equity (D:E) ratio of
75:25, the equity commitment is c.15% of
the total project cost.
• There is a further provision an advance
payment of maximum 10% of Bid Project
Cost to Concessionaire (Mobilization
Advance) in 2 equal installments.
• Rate of interest on Mobilization Advance
shall be equal to the average of 1 year
MCLR of top five scheduled commercial
banks1 plus 1.25%, compounded
annually.
• Recently, there is also a provision of
Interest bearing working capital advance
(IBWCA) that will be extended against
unbilled executed work, not qualifying
for payment under milestone
achievement-based payment conditions.
(continued)

1The Authority shall declare the list of top five scheduled commercial banks on 1st September every
calendar based on the balance sheet size as declared in the annual reports. The one year MCLR
are of the top five (5) scheduled commercial banks shall be taken at the start of every quarter.
3.2 Risk Allocation Framework 33

Table 3.2 (continued)

Risk Allocation Remarks
Escalation in Project Costs Public • Project Capital Cost is inflation indexed
(through a Price Index Multiple/PIM,
which is the weighted average of
Wholesale Price Index (WPI) and
Consumer Price Index (CPI) (IW) in the
ratio of 70:30
Revenue/Demand Risk Public • During operational phase, responsibility
of toll collection is with government
authority and hence, the demand risk is
fully borne by the public
sector/government authority
• Cash flow to concessionaire is assured in
the form of annuity payments on
semi-annual basis covering 60% of the
bid project cost; and interest shall be due
and payable on the reducing balance of
completion costs at an interest rate equal
to average of 1 year MCLR of top five (5)
scheduled commercial banks plus 1.25%
O&M Risk Private • Concessionaire is responsible for the
operation and maintenance of the project.
• The concessionaire receives semi-annual
inflation indexed O&M payments (as
quoted during the bid stage).
• The inflation index used of indexation of
O&M payment is Price index multiple
(PIM)
Authority/Off-taker Risk Public • For national highways, the government
authority is National Highways Authority
of India (NHAI) which is rated CARE
AAA/Stable; and is a strong off-taker.
• NHAI has done multiple public private
partnership road concessions in past, and
has a strong track-record of timely
payments
• For state highways, the government
authority may vary depending on the
specific case. However, these projects are
supported by toll collection, so off-taker
risk is minimal.

Based on the contractual structure and risk allocation framework for the HAM
based road PPP projects, listed below are key advantages of this PPP model from
perspectives of government authority and the concessionaire/private sector (Table
3.3).
34 3 Contractual Structure and Risk Allocation Framework

Table 3.3 Key Advantages—HAM PPP project

Stakeholder Remarks
Government Authority • Government keeps the deferred payment capital expenditure of up to
60% as off balance sheet in form of annuity payments.
• Wider participation from many erstwhile
engineering-procurement-construction (EPC) players in HAM based
road PPP projects since there is much lower upfront equity
investment needed and hence, higher value of money to government
due to increased competition.
• Timely project completion and on budget since the private sector has
an incentive to complete and start annuity revenues and contractual
incentives.
• Since the HAM contractor bears a risk for a period of 15 years after
project completion, the asset design and construction is expected to
be of higher quality compared to EPC contracts.
• Such higher asset quality of the road subsequently translates as
higher service levels for road users.
Private Sector • Lower equity requirements from the Sponsor since 40% of the
project cost is financed by government authority during the
construction period itself. Assuming a D:E ratio of 75:25 for the
remaining funding to be arranged, the effective equity contribution
by private sector/concessionaire is limited to c.15% of total project
cost.
• Provision for mobilization advances to the concessionaire at a
competitive rate equal to the average of 1 year MCLR of top five
scheduled commercial banks2 plus 1.25%.
• Provision of Interest bearing working capital advance (IBWCA)
against unbilled executed work, not qualifying for payment under
milestone achievement-based payment conditions.
• Higher right of way availability for the project since 80% land is
cleared before appointed date as per the terms of the concession
agreement.
• 60% of the project cost is paid as annuity payments during
construction period, along with interest at a rate equal to average of
1 year MCLR of top five scheduled commercial banks plus 1.25%;
and thus, providing significant cash flow support during the
operation phase.
• Inflation-linked adjustments for O&M payments during the operation
phase; and thus, minimal risk of cash-flow mismatch due to inflation
or external factors.
• De-linking of the construction and operations period. Due to this
de-linking, the timeline for annuity payments to be made to the
concessionaire is independent of the construction period for the
project.

2 The Authority shall declare the list of top five scheduled commercial banks on 1st September every

calendar based on the balance sheet size as declared in the annual reports. The one year MCL are
of the top five scheduled commercial banks shall be taken at the start of every quarter.
Reference 35

Reference

1. PPP Certification Program Guide, APMG International. https://ppp-certification.com/ppp-certif

ication-guide/about-ppp-guide
Success of HAM in the Indian
Context 4

More than 250 national highway PPP projects have been tendered under the Hybrid
Annuity Model (HAM) in the last six years between 2016 and 2022. Further,
this particular PPP model has been widely accepted by the private sector and has
seen participation from more than 40 players, a majority of them being erstwhile
Engineering, Procurement and Construction (EPC) contractors. These statistics go
to show that the model has allowed and enabled new private sector players to enter
into infrastructure project delivery, a hallmark of success for any PPP model in the
country since it promotes competition and efficiency in delivery of public services.
This chapter gives a quantitative review of projects awarded under different
PPP modes in the road sector by National Highways Authority of India (NHAI) in
recent years and goes to show how HAM has emerged as a preferred PPP mode
of private sector participation in the country for high-value projects.
The chapter further provides a complete list of all the national highway projects
tendered under HAM PPP model in the country with details such project name,
key technical details, contractor name, issue of Letter of Award (LoA) date etc.
Such compilation will be extremely valuable for readers to gain an understanding
of evolving big strategies by the private sector players in the country.

4.1 HAM as Preferred PPP Model

The Cabinet Committee on Economic Affairs (CCEA) approved the imple-

mentation of an umbrella programme for the National Highways—Bharatmala
Pariyojana Phase-I in its meeting held on 24th October 17, for construction/up-
gradation of National Highways of 34,800 km length over a period of 5 years
(2017–18 to 2021–22) at an estimated outlay of INR 5,35,000 Cr.

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 37
A. Mittal et al., Hybrid Annuity Model (HAM) of Hybrid Public-Private Partnership
Projects, Management for Professionals,
https://doi.org/10.1007/978-981-19-2019-6_4
38 4 Success of HAM in the Indian Context

NHAI awarded projects (FY 2018 till FY 2020)

70% 64%

60%
52%
49%
50% 46%
39%
40%
31%
30%

20%

10% 5%
2% 4% 3%
2% 1%
0%
Total Project Cost Total Length Number of Projects

BOT Toll EPC HAM Item Rate

Source: Author research, publicly available information

Fig. 4.1 NHAI awarded road projects from FY 2018 till FY 2020

A majority of these projects were envisaged to be awarded through EPC and

HAM models due to lackluster response to BOT model by the private sector.
Figure 4.1 provides a summary of distribution of road projects awarded by
NHAI in FY 2020, FY 2019 and FY 2018.1
As can be seen from Fig. 4.1,

• More than 60% of projects awarded to private sector were through EPC model
• The total project cost of HAM projects is higher than EPC model implying
that HAM model has been widely accepted by NHAI and private sector for
high-value road projects
• Award of road projects via BOT Toll model is negligible (less than 5% across
all parameters) signaling that the model may not be relevant soon for the roads
sector in the country.

4.2 HAM Projects Awarded—A Quantitative Analysis

This section provides a quantitative analysis of the HAM PPP projects till date
(as of March 22) in the roads sector since it was notified in 2016. As per pub-
licly available information, NHAI has already awarded more than 250 projects

1 The financial year in India runs from 1 April of any calendar year to 31 March next year.
4.2 HAM Projects Awarded—A Quantitative Analysis 39

Table 4.1 Summary status of HAM projects tendered till date

Financial Year Number of Projects Length (km) Awarded Cost (INR Cr)
2016 28 1,656 25,058
2017 27 1,783 39,189
2018 58 3,079 71,095
2019 19 804 17,960
2020 54 1,926 58,652
2021 63 1,721 48,541
2022 9 214 13,762
Grand Total 258 11,183 274,258
Source Author research, publicly available information

[1] under HAM PPP model in a span of 6 years.2 Out of the total projects ten-
dered and awarded till date, c.7% of the projects were terminated with possible
reasons being delays in financial close by concessionaire or land acquisition by
government authority.
A summary of HAM projects tendered in recent years (as of March 22) is
provided in Table 4.1.
The overall adoption of HAM PPP model has seen a variation across various
states in India which often depends on the level of economic activity and traffic
demand.
Five states (Maharashtra, Uttar Pradesh, Gujarat, Tamil Nadu and Karnataka)
account for around 60% of the total number of HAM PPP projects awarded till
date as can be seen from Fig. 4.2.
Since launch of HAM PPP model for road projects, certain players have won
multiple projects partly due to their strong EPC capabilities and low equity require-
ments compared to traditional BOT-Toll projects. There has been a notable increase
in the number of new developers bidding for HAM based road PPP projects in
India.
A brief profile of key players is provided who have won multiple HAM road
projects in last 6 years since its launch.3 Please note that the list of key developers
has been selected based on the original awardee of a HAM PPP project, and not
the current equity holder which may have changed due to acquisitions or sale of
such projects.

2 Apart from NHAI, HAM PPP projects have also been awarded by various state nodal agencies
for state highways, however, the authors have summarized the status of NHAI awarded projects for
national highways to elaborate upon the success of the HAM PPP model.
3 The data provided in this section has been sourced from multiple sources and is based on analysis

of such public information and may further change over time.

40 4 Success of HAM in the Indian Context

Maharashtra 36
Gujarat 23
Karnataka 23
Tamil Nadu 22
Haryana 21
Andhra Pradesh 18
Punjab 14
Odisha 11
Kerala 11
Rajasthan 9
Others 9
Madhya Pradesh 8
Uttar Pradesh 7
Telangana 7
Bihar 7
Himachal Pradesh 7
Jharkhand 6
Uttarakhand 3
Delhi 3
Chhattisgarh 3
0 5 10 15 20 25 30 35 40

Source: Author research, publicly available information

Fig. 4.2 Number of HAM projects—state-wise distribution

4.3 Key Players/Stakeholders

Given below is a list of major developers, who have been awarded HAM based
road PPP projects in the past 6 years. Further, these players have also been pro-
visionally qualified by NHAI (as on June 22) for award of HAM projects based
on their financial bid submissions only, and no technical capability assessment is
needed.4 The below list also provides the threshold of project construction/EPC
cost for each developer (Table 4.2).

4.4 HAM Projects Awarded—List of Projects

Table 4.3 provides a list of HAM based road PPP projects (as of March 22) as
awarded by NHAI in India till date [1, 2]:

4 Notification 9.1.13 issued by NHAI dated 3.06.2022. List of Provisionally Qualified Bidders for

EPC, HAM and BOT (Toll) Projects to avoid repetitive examination of bidding documents by
Technical Divisions - reg.
4.4 HAM Projects Awarded—List of Projects 41

Table 4.2 List of Key Players for development of HAM based road PPP projects in India
S. No. Name of the Bidder Authority’s EPC (INR Cr)
1 Anish lnfracon India Pvt. Ltd 578.22
2 NG PROJECTS LIMITED 625.96
3 Varindera Constructions Limited 637.94
4 ABCI Infrastructures Pvt Ltd 637.94
5 RR CONSTRUCTIONS AND INFRASTRUCTURE 779.82
INDIA PVT. LTD
6 RITHWIK PROJECTS PRIVATE LIMITED 779.82
7 Prakash Asphaltings & Toll Highways (India) Ltd. 781.42
8 Shreeji Infrastructure India Pvt. Ltd. 781.42
9 Barbrik Project Limited 859.33
10 Kalthia Engineering and Construction Limited 880.08
11 KPC Projects Limited 911.47
12 BVSR Constructions Pvt. Ltd. 911.47
13 Raj Shyama Constructions Pvt Ltd 922.53
14 Raj Corporation Ltd 922.53
15 Ram Kripal Singh Construction Pvt. Ltd. 1002.07
16 Ravi lnfrabuild Projects Private Limited 1020.45
17 Roadway Solutions India Infra Ltd. 1036.16
18 NKG Infrastructure Limited 1036.16
19 MKC Infrastructure Ltd. 1049.88
20 VRC Construction (I) Pvt Ltd 1242.79
21 Krishna Constellation Private Limited 1242.79
22 KCC Buildcon Private Limited 1313.82
23 Vishwa Samudra Engineering Private Limited 1602.95
24 IRB Infrastructure Developers Limited 1602.95
25 Raj Path lnfracon Pvt Ltd 1606.85
26 Ramalingam Construction Company Private Limited 1606.85
27 M G Contractors Pvt Ltd 1608.23
28 Gawar Construction Limited 1608.23
29 IRCON International Limited 1685.46
30 RKC lnfrabuilt Private Limited 1690.03
31 KMV Projects Limited 1690.03
32 Adani Road Transport Limited 1690.03
33 SUSHEE INFRA & MINING LIMITED 1690.03
34 DP Jain and Company Infrastructure Private Limited 1690.14
35 Ceigall India Limited 1690.14
36 APCO lnfratech Pvt Ltd 1690.14
37 G R lnfraprojects Limited 1690.14
(continued)
42 4 Success of HAM in the Indian Context

Table 4.2 (continued)

S. No. Name of the Bidder Authority’s EPC (INR Cr)
38 Shankaranarayana Construction Private Limited 1769.02
39 Patel Infrastructure Limited 1769.02
40 Dinesh Chandra R. Agrawal lnfracon Pvt. Ltd. 1769.02
41 H G Infra Engineering Limited 1769.02
42 Montecarlo Limited 1769.02
43 KNR Constructions Limited 1769.02
44 Oriental Structural Engineers Private Limited 1769.02
45 PNC lnfratech Limited 1769.02
46 Ashoka Buildcon Limited 1769.02
47 Dilip Buildcon Limited 1769.02
48 NCC Limited 1769.02
49 Megha Engineering & Infrastructure Limited 1769.02
Source Author research, publicly available information

Table 4.3 List of HAM projects awarded by NHAI (as of March 22)
S. State Project Name Length Private Sector Awarded Date
No. Developer Cost
1 Delhi Package-III- Delhi-Meerut 22.27 APCO CHETAK 1057.6 06 January
Expressway- 6-laning of EXPRESSWAY 16
NH-24 from existing Km. PVT. LTD.
27.740 to existing Km.
49.346 (Dasna to Hapur)
2 Uttar Shakarpur( Km 8.800) to 61.19 APCO Infratech 868.77 11 January
Pradesh Akbarpur (Km 73.512) of Pvt. Ltd. 16
NH-235 in Uttar Pradesh
(Meerut - Bulandshahar)
3 Delhi Package-I- 6 laning of 8.72 Welspun Delhi 841.5 04 March
Delhi-Meerut Expressway Meerut Expressway 16
and 8 laning of NH-24 from Private Limited
NH-24-Ring Road
T-Junction to U.P. Gate
(Km. 0.000 to Km. 8.360)
4 Uttarakhand Chutmalpur Ganeshpur 53.3 MBL (CGRG) 942 30 March
section and Roorkee Road Limited 16
Chutmalpur Gagalheri
section
5 Maharashtra 4 Lane Stand Alone Ring 33.5 MEP infrastructure 531 31 March
Road/Bypasses for Nagpur Developer Ltd. & 16
City, Package - I from Km San Jose India
0.500 to Km 34.000. (Total Infrastructure and
Length - 33.500 Km) in the Construction Pvt.
state of Maharashtra Ltd.
(continued)
4.4 HAM Projects Awarded—List of Projects 43

Table 4.3 (continued)

S. State Project Name Length Private Sector Awarded Date
No. Developer Cost
6 Maharashtra Ring road/Bypasses for 28.03 MEP infrastructure 639 31 March
Nagpur city, Package-2 Developer Ltd. & 16
from km 34.000 to km San Jose India
62.035 (Total length Infrastructure and
28.035 km) in the state of Construction Pvt.
Maharashtra Ltd.
7 Uttar Gagalheri-Saharanpur- 51.45 MBL Infrastructure 1184 31 March
Pradesh Yamunanagar (UP/Haryana Ltd. 16
Border) Section of NH-73
8 Uttarakhand Rampur - Rudrapur Section 43.45 Sadbhav 738 31 March
from km. 0.000 to km. Engineering Pvt. 16
43.446 [Rampur Ltd.
Kathgodam (Package-1)]
9 Uttarakhand Rudrapur Kathgodam 49.78 Sadbhav 738 31 March
Section from km. 43.446 to Engineering Pvt. 16
km. 93.226 of Rampur Ltd.
Kathgodam (Package-2)
10 Punjab Laddowal Bypass (Km. 17.04 Eagle Infra Pvt. Ltd. 392 18 May 16
0.000) to (Km. 17.041)
Linking with NH-95 with
NH-1 Via Laddowal Seed
Farm of NH-95 in Punjab
11 Gujarat Bhavnagar - Talaja 48.04 Sadbhav 819 26 May 16
(Package-I) Engineering Pvt.
Ltd.
12 Gujarat Talaja - Mahuva 45.46 MEP infrastructure 643.05 26 May 16
(Package-II) Developer Ltd. &
San Jose India
Infrastructure and
Construction Pvt.
Ltd.
13 Gujarat Kagvadar - Una 40.98 Agroh Infrastructre 555 26 May 16
(Package-IV) & Developer Pvt.
Ltd.
14 Gujarat Four Laning of Una to 40.95 Sadbhav 623 26 May 16
Kodinar from km. 180.478 Engineering Pvt.
to km. 221.610 (Package-V) Ltd.
15 Rajasthan Six lane of Greenfield 23.883 M/s MBL (Udaipur 779 20 June 16
proposed Udaipur Bypass Bypass) Road
(Connection between Limited
NH-76 at exiting Km
118-500 at Debari to
NH-8 km 287-400 at kaya
village) Udaipur Bypass
(Package-IV) (Terminated)
16 Gujarat Mahuva to Kagvadar 40.02 MEP infrastructure 604.68 25 June 16
(Package III) Developer Ltd. &
San Jose India
Infrastructure and
Construction Pvt.
Ltd.
(continued)
44 4 Success of HAM in the Indian Context

Table 4.3 (continued)

S. State Project Name Length Private Sector Awarded Date
No. Developer Cost
17 Rajasthan Salasar (Km 151.141) to 120 Dinesh Chandra R 480 30 June 16
Nagaur (Km 270.735) of Agarwal Infracon
NH-65 in Rajasthan Pvt Ltd
18 Gujarat Kodinar - Veraval (Package 41.75 Agroh Infrastructre 670 26 July 16
VI) from km. 221.610 to & Developer Pvt.
km. 263.00 of NH-8E & Ltd.
km. 120.900 to km. 121.150
of NH-8D
19 Rajasthan Dausa - Lalsot - Kothun 83.45 PNC Rajasthan 881 28 July 16
section of NH11 A Extn. Highways Pvt. Ltd.
(Ch. 0.000 to Ch. 83.453)
20 Himachal 4L of Shimla Bypass 27.46 Shiv Valley 1480 08 August
Pradesh (Kaithlighat (Km 129.050) Highways Private 16
to Dhalli (Km 156.507) of Limited
Old NH-22
21 Punjab Kharar Km. 10.185 (Design 76.01 Ashoka Buildcon 1600 09 August
Chainage) to Samrala Limited 16
Chowk, Ludhiana Km
86.199 (Design Chainage)
In the State Of Punjab
22 Uttar Lucknow (11.500) to 127.43 DBL 2016 09 August
Pradesh Sultanpur (138.925) of Lucknow-Sultanpur 16
NH-56 in Uttar Pradesh Highways Limited
23 Punjab 4L of Phagwara - Rupnagar 80.82 GR Infraprojects 1367 22 August
from km. 0.00 to km. 80.82 Ltd 16
of NH-344A
24 Karnataka BRT Tiger Reserve 170.92 Sadbhav 1008 26
Boundary (Km.287.500) to Infrastructure September
Bangalore Section Projects Ltd. 16
(Km.458.420) of NH-209 in
Karnataka
25 Odisha Binjhabahal - Telebani from 78.32 Oriental Structural 1161.4 13
km. 414.000 to km. 491.71 Engineers Pvt. Ltd. October
16
26 Maharashtra Tarsod - Fagne section of 87.3 MBL Infrastructure 1021 04
NH-6 Ltd, JV with Agroh November
Infrastructure 16
Developer Pvt.
27 Maharashtra 4L of Chikhli - Tarsod 62.7 Vishwaraj 1048.1 04
section of NH-6 from km Environmental Pvt. November
360.00 - km 422.700 Ltd. 16
28 Gujarat Gadu - Porbandar (Package 91.67 Kalthia Engineering 370 15
VII) & Construction Ltd. December
16
29 Maharashtra Four Laning of Tuljapur to 67.43 Dilip Buildcon Ltd. 911.07 17
Ausa section (including February
Tuljapur Bypass of 17
11.593 km.) of NH-361
from Km 0.000 to Km
55.835
(continued)
4.4 HAM Projects Awarded—List of Projects 45

Table 4.3 (continued)

S. State Project Name Length Private Sector Awarded Date
No. Developer Cost
30 Maharashtra Bodhre - Dhule 67.23 Sunil Hi - Tech 982 02 March
(Terminated) Engineers Ltd - 17
Varaha Infra Ltd.
31 Andhra Ranasthalam (Km.634.000) 47 Ashoka Buildcon 1187.1 20 March
Pradesh to Anandapuram Limited 17
(Km.681.000) of NH-16 in
the State of Andhra Pradesh
32 Karnataka Six laning of Haveri (Km 63.4 Montecarlo Ltd. 1200 21 March
340) to Hubli (Km 403.400) 17
section of NH4 in
Karnataka
33 Delhi Package-II- 6 laning of 19.28 APCO CHETAK 1989 23 March
Delhi-Meerut Expressway ULTRAWAY PVT. 17
and 8 laning of NH-24 from LTD.
existing Km. 8.36 to
existing Km. 27.74
(Delhi-UP Border to Dasna)
34 Madhya Jhansi-Khajuraho from Km. 85.4 PNC Infratech 1310 28 March
Pradesh 76.3 to Km. 161.7 near Limited 17
Bamitha Town
35 Maharashtra 4 laning of Waranga - 66.88 Sadbhav Vidharbh 1071 28 March
Mahagaon from km Highways Project 17
253.700 - km 320.580 Ltd.
36 Maharashtra Four Laning of Wardha - 59.19 Dilip Buildcon Ltd. 1065.51 28 March
Butibori of NH-361 17
(Pkg-IV) from km. 465.50
to km. 524.69
37 Maharashtra Four Laning of Yavatmal to 64.93 Dilip Buildcon Ltd. 1043.28 28 March
Wardha (Pkg-III) of 17
NH-361 from Km 400.575
to Km 465.500
38 Maharashtra Four Laning of Mahagaon 80.19 Dilip Buildcon Ltd. 1160.64 28 March
to Yavatmal (Pkg-II) of 17
NH-361 from km. 320.580
to km. 400.575
39 Karnataka Davanagere - Haveri of 78.92 IRCON 1177 29 March
NH-48 (Old NH-4) from International 17
km. 260.00 to km. 338.923 Limited
40 Odisha Singhara - Binjhabahal from 104.17 Montecarlo Limited 1420 29 March
km. 310.806 to km. 414.982 17
41 Uttar Six Laning of Handia to 72.4 G R Infraprojects 2447 29 March
Pradesh Varanasi Section from Km. Limited 17
713.146 to Km. 785.544
42 Karnataka Chitradurga - Davanagere 73 PNC Infratech 1434 31 March
including Chitradurga Limited 17
bypass of NH-48 (Old
NH-4)
43 Madhya Jhansi - Khajuraho(PKG-I) 76.61 PNC Infratech 1410 31 March
Pradesh Limited 17
(continued)
46 4 Success of HAM in the Indian Context

Table 4.3 (continued)

S. State Project Name Length Private Sector Awarded Date
No. Developer Cost
44 Rajasthan Six Lane Greenfield 23.88 Sadbhav 891 27 April
Udaipur Bypass Infrastructure 17
[Connection between Projects Ltd.
NH-76 at Existing Km.
118.500 at Debari to
NH-8 Km. 287.400 at Kaya
Village] (Pkg-IV)
45 Gujarat Porbandar-Dwarka 117.74 GR 1600 02 June 17
(Package VIII) from km. INFRAPROJECTS
379.100 to km. 496.848 LTD & VINOD
KUMAR
AGRAWAL
46 Himachal Pandoh bypass (221.305) to 18.91 Shapoorji Paloonji 2604 19 June 17
Pradesh Takoli (242.000) of NH-21
in the state of Himachal
Pradesh
47 Tamil Nadu Cholapuram - Thanjavur 47.83 Patel Infrastructure 1345.6 29 August
section of NH-45C from km Limited 17
116.4 to km 164.275
48 Bihar Aunta - Simaria including 8.15 Welspun 1161 31 August
Ganga Bridge Enterprises Ltd. In 17
consortium with
Welspun Energy P.
Ltd.
49 Tamil Nadu Sethiyathope - Cholapuram 50.48 Patel Infrastructure 1461 29
section of NH45C (Pkg-II) Limited September
17
50 Rajasthan 4 Lane from Km 299.000 to 48.88 Patel 1123.63 04
346.540 Darah-Jhalawar October
(Darah-Jhalawar-Teendhar Highway Private 17
section) of NH-12 Limited
51 Uttar 6L of Chakeri - Allahabad 145.07 PNC Infratech Pvt. 2159 13
Pradesh from 483.687 to km. Ltd. November
628.753 of Old NH-02 17
52 Andhra 6 L of Narasannapeta - 54.2 APCO Infratech 1350 05
Pradesh Ranastalam Pvt. Ltd. December
17
53 Jharkhand Sahibganj - Manihari Ganga 21.89 Consortium of 2598 06
Bridge including Manihari China Harbour December
Bypass (Terminated) Engineering 17
Company - Soma
Enterprise Ltd.
54 Rajasthan Jodhpur Ring Road 75 Sadbhav 1161 19
Package-I [4-laning of Infrastructure December
Dangiawas (Km. 96.595) to Projects Ltd. 17
Jajiwal (Km. 283.500)
55 Odisha Chandikhole (km 62.000) to 74.5 Dilip Buildcon Ltd. 1522 24 January
Bhadrak (km136.500) 18
(continued)
4.4 HAM Projects Awarded—List of Projects 47

Table 4.3 (continued)

S. State Project Name Length Private Sector Awarded Date
No. Developer Cost
56 Odisha Bhadrak (KM 136.500) to 62.64 Brij Gopal 999 24 January
Baleshwar (KM 199.141) Construction Pvt. 18
Ltd.
57 Kerala Kozhikode Bypass (Calicut 28.4 KMC Construction 1710 26
Bypass) Vengalam Jn. to Ltd. February
Ramanattukara Jn. 18
58 Gujarat 6L of Shamla ji to 93.21 Chetak Enterprises 1361 27
Motachilodha from Pvt Limited February
km.401.200 to km. 494.410 18
of Old NH-8 (Pkg-VI)
59 Andhra 6L of Anandapuram 50.78 Dilip Buildcon Ltd. 2013 28
Pradesh Pendurthi Anakapalli February
Section from km. 681.000 18
to km. 731.780 of NH-16
60 Karnataka Nidagatta-Mysore (Pkg II) 61 Dilip Buildcon Ltd. 2283.5 28
February
18
61 Karnataka Bangalore-Nidagatta (Pkg. 56.2 Dilip Buildcon Ltd. 2190 28
I) February
18
62 Tamil Nadu Trichirapalli (Km 0.000) to 38.7 KNR Constructions 1020.6 28
Kallagam (Km. 38.700) of Limited February
NH-227 in Tamil Nadu 18
63 Jharkhand Khairatunda to Barwa Adda 40.33 Ashoka Buildcon 860.1 05 March
Section of NH 2 from km. Limited 18
360.300 to km. 400.132
(Pkg II)
64 Jharkhand 6L of Gorhar to 40.19 Dilip Buildcon Ltd. 917 05 March
Khairatunda Section of 18
NH-2 from Km. 320.810 to
Km.360.300 (Pkg I)
65 Haryana Gurgaon Sohna Pkg-I 8.94 Oriental Structural 707 06 March
(Km.2.74 to Km.11.682) Engineers Pvt. Ltd. 18
66 Haryana sss 12.72 H.G. Infra 606 06 March
Engineering 18
Limited
67 Karnataka Belgaum-Khanapur Pkg I 30 Ashoka Buildcon 856.2 07 March
(Km 0.000-Km 30.800) of Limited 18
NH-4A
68 Karnataka Tumkur-Shimoga (Pkg-III) 48.52 Sadbhav 933.81 07 March
from Km 121.900 Infrastructure 18
(Banawara) to Km 170.415 Projects Ltd.
(Bettadahalli) of NH-206
(Terminated)
69 Karnataka Tumkur-Shimoga (Pkg-I) 52.89 Ashoka Buildcon 877.51 07 March
from Mallasandra to Karadi Limited 18
village of NH-206
(continued)
48 4 Success of HAM in the Indian Context

Table 4.3 (continued)

S. State Project Name Length Private Sector Awarded Date
No. Developer Cost
70 Karnataka Tumkur-Shimoga (Pkg-II) 56.71 Ashoka Buildcon 1218.5 07 March
from Km 65.195 (Karadi) to Limited 18
Km 121.900 (Banawara) of
NH-206
71 Tamil Nadu Meensurutti (Km.98.433) to 31.53 KNR Constructions 482.04 07 March
Chidambaram Limited 18
(Km.129.965) of NH-227 in
Tamil Nadu (Terminated)
72 Andhra Gundugolanu Devarapalli 69.88 G R Infraprojects 1827 13 March
Pradesh Kovvuru Limited 18
73 Tamil Nadu Poondiyankuppam 56.8 IRB Infrastructure 2169 14 March
(Km.67.000) to Developers Ltd. in 18
Sattanathapuram JV with Modern
(Km.123.800) of NH-45A Road Makers Pvt.
in Tamil Nadu (Terminated) Ltd.
74 Tamil Nadu Puducherry (Km.29.000) to 38 IRB Infrastructure 1296 14 March
Poondiyankuppam Developers Ltd. 18
(Km.67.000) of NH-45A
(New NH-332) in Tamil
Nadu (Terminated)
75 Tamil Nadu Viluppuram (Km.0.000) to 29 Oriental Structural 962.2 14 March
Puducherry (Km.29.000) of Engineers Pvt. Ltd. 18
NH-332 in Tamil Nadu
(Terminated)
76 Tamil Nadu Kallagam (km.38.700) to 59.73 Oriental Structural 1071 16 March
Meensurutti (Km.98.433) of Engineers Pvt. Ltd. 18
NH-227 in Tamil Nadu
77 Andhra Visakhapatnam Port Road 12.7 Sadbhav 549 20 March
Pradesh from Km. 0.000 to Km. Infrastructure 18
12.700 (Terminated) Projects Ltd.
78 Gujarat Pipli Bhavnagar-Package 1 33.31 Kalthia Engineering 820 20 March
from km 136.025 to km & Construction Ltd. 18
169.328 JP Iscon Pvt. Ltd.
Consortium
79 Gujarat Vadodara Mumbai 23.74 IRB Infrastructure 2043 20 March
Expressway (Padra to Developers Ltd. 18
Vadodara) (Phase IA - Pkg
I) [Km 355.00 to Km
378.740]
80 Gujarat Bhimasar-Bhuj 59.54 Sadbhav 1152 20 March
(Terminated) Infrastructure 18
Projects Ltd.
81 Uttar Aligarh-Kanpur (Pkg I) 45.83 Brij Gopal 1065.7 20 March
Pradesh [Aligarh-Bhadwas] Construction Pvt. 18
Ltd.
82 Uttar Aligarh-Kanpur (Pkg II) 45.2 PNC Aligarh 1197 20 March
Pradesh [Bhadwas to Kalyanpur] Highways Pvt Ltd 18
83 Andhra Giddalur-Vinukonda from 112.8 BVSR 678.69 26 March
Pradesh Design km 212.983 to Constructions 18
Design km 322.800 Private Limited
(continued)
4.4 HAM Projects Awarded—List of Projects 49

Table 4.3 (continued)

S. State Project Name Length Private Sector Awarded Date
No. Developer Cost
84 Andhra Chittor (Design Km 61.13 KNR Constructions 1730.07 26 March
Pradesh 0.000-Existing Km 158.000 Limited 18
of NH-4) to Mallavaram
(Design Km
61.128-Existing Km 41.800
of NH-140)
85 Haryana Four Laning of 35.45 Gawar 718 26 March
Rohna/Hassangarh section Constructions Ltd. 18
from Km.44.800 to
km.80.250 (Package-2)
86 Karnataka Byrapura to Challakere 49.95 Dilip Buildcon Ltd. 841.7 26 March
Section from km 308.550 to 18
km 358.500 of NH-150 A
87 Rajasthan Munabao(NH-25E)- 273.87 Dineshchandra R. 1438.29 26 March
Sundra- Agrawal Infracon 18
Myajlar-Dhanana-Asutar - Pvt. Ltd.
Ghotaru-Tanot [Design
Chinange Km 0.0 to Km
46.00 and km 82.60 to Km
310.467]
88 Telangana Mangloor to Telangana 49 Dilip Buildcon Ltd. 936 26 March
Maharashtra Border 18
89 Telangana Sangareddy - Nanded (Pkg. 46.8 KNR Constructions 1234 26 March
II) Ramsanpalle to Limited 18
Mangloor
90 Maharashtra Four Laning of Akkalkot to 38.95 G R Infraprojects 807 27 March
Solapur (including Limited 18
Akkalkot Bypass of Length
7.35 km.) from km. 99.400
to km. 138.352 of NH-150
E
91 Maharashtra Four Laning of Sangli - 41.44 Dilip Buildcon Ltd. 1102.4 27 March
Solapur (Pkg I) [Sangli - 18
Borgaon km 182.556 - km
224.00]
92 Maharashtra Four Laning of Sangli - 52 Dilip Buildcon Ltd. 1029.4 27 March
Solapur (Pkg II) 18
[Boregaon-Watambare]
from km. 224.00 to km.
276.00
93 Maharashtra Four Laning of Sangli - 45.6 G R Infraprojects 957 27 March
Solapur (Pkg III) Limited 18
[Watambare-Mangalwedha]
from km 276.0 - km 321.60
94 Maharashtra Four Laning of Sangli - 56.5 Dilip Buildcon Ltd. 1141 27 March
Solapur (Pkg IV) 18
[Mangalwedha-Solapur]
from km 321.6 - km 378.10
(continued)
50 4 Success of HAM in the Indian Context

Table 4.3 (continued)

S. State Project Name Length Private Sector Awarded Date
No. Developer Cost
95 Maharashtra Chakur Loha Section of 73.35 MEP Infrastructure 1000.1 27 March
NH-361 from km 114.600 Developers Ltd. - 18
to km 187.80 Long Jian Road &
Bridge Co. Ltd.
(JV)
96 Maharashtra Loha-Waranga Section of 56.57 MEP Infrastructure 1073.1 27 March
NH-361 from km 187.800 Developers Ltd. - 18
to km 244.369 Long Jian Road &
Bridge Co. Ltd.
(JV)
97 Maharashtra 4L of Ausa-Chakur Section 58.51 MEP Infrastructure 848.63 27 March
from km 55.835 to Km Developers Ltd. - 18
114.345 of NH-361 Long Jian Road &
Bridge Co. Ltd.
(JV)
98 Rajasthan Khajuwala-Poogal - 212.11 Gawar Construction 895 27 March
Dantour- Jaggasar- Gokul- Ltd. 18
Goddu -Ranjeetpura-
Charanwala- Naukh-Bap
section of NH
99 Uttar Aligarh-Kanpur (Pkg III) 61.2 APCO Infratech 1332 27 March
Pradesh [Kalyanpur - Naviganj] Pvt. Ltd. 18
100 Chhattisgarh Bilaspur-Pathrapalli from 53.3 Aadani Enterprises 1140.8 28 March
km. 0.00 to km. 53.30 Ltd. and Prakash 18
Asphaltings & Toll
Highways (India)
Ltd.
101 Gujarat Vadodara Mumbai 31 Patel Infrastructure 1712 28 March
Expressway (Manubar to Limited 18
Sanpa) (Phase IA - Pkg III)
102 Gujarat Vadodara Mumbai 32 IRCON 1865 28 March
Expressway (Sanpa to International 18
Padra) (Phase IA - Pkg II) Limited
[Km 323.00 to Km 355.00]
103 Gujarat Vadodara Mumbai 13 Ashoka Buildcon 1687 28 March
Expressway (Ankleshwar to Limited 18
Manubar) (Phase IA - Pkg
IV)
104 Gujarat Vadodara Mumbai 24.57 Sadbhav 1404 28 March
Expressway (Kim to Infrastructure 18
Ankleshwar) (Phase IA - Projects Ltd.
Pkg V)
105 Madhya Churhat Bypass of Rewa 15.35 Dilip Buildcon Ltd. 1004 28 March
Pradesh Sidhi Section 18
106 Maharashtra Vadape to Thane from km 20.71 MEP Infrastructure 1182.87 28 March
539.202 to km 563.000 Developers Ltd. - 18
section of NH-3 new Long Jian Road &
NH-848 Bridge Co. Ltd.
(JV)
(continued)
4.4 HAM Projects Awarded—List of Projects 51

Table 4.3 (continued)

S. State Project Name Length Private Sector Awarded Date
No. Developer Cost
107 Karnataka Challakere to Hariyur 56 PNC Infratech 1157 01 June 18
section from km 358.500 to Limited
km 414.205 of NH-150 A
108 Karnataka Bellary to Byrapura Section 54.95 Dilip Buildcon Ltd. 1313.9 01 June 18
km 253.600 to km 308.550
of NH-150A
109 Tamil Nadu Sattanathapuram to 56.824 Welspun 2004.51 05 July 18
Nagapattinam from Km Enterprises Ltd.
123.800 to Km 180.624
110 Haryana Paniyala Mor (NH-48 Jn) to 45.3 Gawar 1007.55 15 January
Narnaul Sec. of NH-148B Constructions Ltd. 19
& Narnaul to Pacheri Kalan
Sec. of NH-11 (Pkg-I)
111 Tamil Nadu Kamalapuram to 36.5 DRN Infrastructure 720 11
Oddanchatram from km. Private Limited February
0.00 to km. 35.822 19
112 Tamil Nadu Madathukulam - Pollachi 50.07 D.P.Jain & Co 724 13
from km. 74.38 to km. February
116.95 19
113 Haryana UP/HR Border - Sonepat - 40.5 Gawar 1020 28
Jhajjar Constructions Ltd. February
19
114 Haryana Upgradation of 4 lane of 31 H.G. Infra 564.98 28
Rewari-Ateli Mandi Section Engineering February
of NH-11 from Km11.780 Limited 19
to Rewari to Ex. Km 43.445
near Ateli Mandi
115 Tamil Nadu Oddanchatram - 45.38 KNR Constructions 920 07 March
Madathukulam from km. Limited 19
29.00 to km. 74.38
116 Andhra 6L of Chilkararupet bypass 16.38 BSCPL 712.44 08 March
Pradesh from km. 357.400 to km. Infrastructure Ltd. 19
371.920 of NH-16
117 Gujarat Dwarka 71.89 G R Infraprojects 1101 08 March
(Kuranga)-Khambhaliya - Limited 19
Devariya
118 Haryana Gohana - Sonipat (PKG-2) 38.24 Brij Gopal 899 08 March
Construction Pvt. 19
Ltd.
119 Haryana 4L of Jind-Gohana road 40.6 Brij Gopal 817 08 March
(Package-1) from km. 0.00 Construction Pvt. 19
to km. 40.601 of NH-352 A Ltd.
under NH(O)
120 Haryana Narnaul Bypass & Ateli 40.8 H.G. Infra 871.28 08 March
Mandi to Narnaul section of Engineering 19
NH-11 km 43.445 to km Limited
56.900
(continued)
52 4 Success of HAM in the Indian Context

Table 4.3 (continued)

S. State Project Name Length Private Sector Awarded Date
No. Developer Cost
121 Karnataka 4L of Bettadahalli- 56.35 Ashoka Buildcon 1249.8 08 March
Shivamogga section from Limited 19
Km.170.415 to km. 226.750
of NH-206 (Tumkur-
Shivamogga Pkg-IV)
122 Telangana Suryapet to Khamam 58.62 Adani Transport 1566.3 08 March
Limited and 19
Prakash
Asphaltings
123 Telangana 4L of Mancherial to 42 Adani Transport 1356.9 08 March
Repallelwada km 251.900 Limited and 19
to km 288.510 Prakash
Asphaltings
124 Maharashtra Sinnar-Shirdi (including 50.94 Montecarlo Limited 1026 09 March
Sinnar Bypass) 19
125 Jharkhand 4L of NH-80 from km 42.71 Ram Kripal Singh 765 10 March
215.00 to km 260.00 Mirza Construction Pvt. 19
Chauki to Farkka (Pkg-I) Ltd
126 Telangana Sangareddy - Nanded - 40 Ashoka 1000 19
Akola (Pkg-I) [From Kandi Concessions November
to Ramsanpalle] Limited 19
127 Maharashtra Balance Works of 4L 54 Raj Path Infracon 707 07
Amravati - Chikhli (Pkg - I) Pvt Ltd - Eagle Infra February
[Amravati - Kurankhed Ltd (Consortium) 20
from km. 166.00 to km.
220.00]
128 Maharashtra Balance Works of 4L 50 Raj Path Infracon 677 07
Amravati - Chikhli (Pkg - Pvt Ltd - Eagle Infra February
II) [Kurankhed - Shelad Ltd (Consortium) 20
from km. 220.00 to km.
270.00]
129 Maharashtra Balance Works of 4L 45 MonteCarlo Ltd. 682 07
Amravati - Chikhli (Pkg - February
III) [Shelad - Nandura from 20
km. 270.00 to km. 315.00]
130 Maharashtra Balance Works of 4L 45 Kalyan Toll 641 07
Amravati - Chikhli (Pkg - Infrastructure Ltd. February
IV) [Nandura - Chikhli from 20
km. 315.00 to km. 360.00]
131 Karnataka Tumkur-Shimoga (Pkg-III) 48.52 Ashoka Buildcon 1035 14
from Km 121.900 Limited February
(Banawara) to Km 170.415 20
(Bettadahalli) of Old
NH-206
132 Uttar Unnao - Lalganj Section 70 PNC Infratech 1602 27
Pradesh from km 0.000 to 70.000 Limited February
20
133 Haryana Four Laning of Rewari 14.4 H.G. Infra 522.02 28
Bypass Pkg-IV Engineering February
Limited 20
(continued)
4.4 HAM Projects Awarded—List of Projects 53

Table 4.3 (continued)

S. State Project Name Length Private Sector Awarded Date
No. Developer Cost
134 Andhra Six Laning of Vijayawada 30 Megha Engineering 1148 06 March
Pradesh Bypass from Chinna and Infrastructure 20
Avutapalli to Gollapudi in Ltd. - Navyuga
Vijayawada - Gundugolanu Engineering Co.
Section from km. 0.00 to Ltd. (Consortium)
km. 30.00 (Pkg-III)
135 Andhra Six Laning of Vijayawada 17.88 Adani Enterprises 1546.31 06 March
Pradesh Bypass from Gollapudi to Ltd. - Navyuga 20
Chinnakakani in Engineering Co.
Vijayawada - Gundugolanu Ltd. (Consortium)
Section from km. 30.00 to
km. 47.881 (Pkg-IV)
136 Uttar Four Lanning of 60.22 PNC Infratech 1530 09 March
Pradesh Jagdishpur-Faizabad Limited 20
Section from km 47.930 to
km 107.680 of NH-330A
137 Uttar Aligarh-Kanpur section 71 G R Infraprojects 2200 09 March
Pradesh (Package-IV from Naviganj Limited 20
- Mitrasen)
138 Uttar Aligarh-Kanpur section 60.6 PNC Infratech 2052 09 March
Pradesh (Package-V from Limited 20
Mitrasen-Kanpur)
139 Chhattisgarh 4 Laning with PS of 39.3 Dilip Buildcon Ltd. 811.9 18 March
Pathrapalli-Katghora km 20
53.3 to km 92.6 (Pkg-II of
Bilaspur Kathghora)
140 Tamil Nadu Thorapalli - Agraharam - 36.75 Sunway 864.51 20 March
Jittandahalli Section from Construction Sdn 20
km 23.350 to km 60.100 Bhd - RNS
[Hosur to Dhamrapuri Infrastructure Ltd.
Pkg-2] (Consortium)
141 Tamil Nadu Mahabalipuram - 31 JSR Infra 770 23 March
Pondicherry (Pkg-I) Developers Pvt. 20
[Mamallapuram to Ltd.
Mugaiyur]
142 Tamil Nadu Jittandahalli to Dharampuri 34.36 Dineshchandra R. 899.25 28 March
Section of NH-844 from km Agrawal Infracon 20
60.100 to km 94.460 [Hosur Pvt. Ltd.
to Dhamrapuri Pkg-3]
143 Madhya Indore - Harda (Pkg-III) 47.445 Adani Enterprises 866.64 30 March
Pradesh [Nanasa to Pidgaon Section Ltd. 20
from km 95.000 to km
142.445]
144 Madhya Dhangaon - Borgaon section 58 Prakash 792.65 30 March
Pradesh (km 81.000 to km 139.000) Asphaltings and 20
[Indore - Edlabad Pkg IV] Toll Highways
(India) Ltd.
145 Uttar Meerut - Nazibabad 53.95 PNC Infratech 1417 –
Pradesh 53.95Km Highway Limited
(continued)
54 4 Success of HAM in the Indian Context

Table 4.3 (continued)

S. State Project Name Length Private Sector Awarded Date
No. Developer Cost
146 Tamil Nadu Two Laning Of Meensurutti Sunway 01
To Chidambaram Section Construction Sdn October
Of NH-227 PPP Bhd - RNS 20
Infrastructure Ltd.
(Consortium)
147 Kerala Calicut 28.8km Expressway 28.8 Wellspun 1900 01 March
(Re-launch) Enterprises 21
148 Himachal Upgradation of 28.7Km 28.7 IRB Infrastructre 778 01 March
Pradesh Highway Between 21
Pathankot-Mandi PPP
149 Andhra Bangalore Chennai 25 Montecarlo 01 March
Pradesh Expressway (Phase-II 21
Pkg-I) from km.71.000 to
Km 96.000 (Bethamangala
in the state of Karnataka to
Byreddypalli)
150 Andhra Bangalore Chennai 29 Dilip Buildcon Ltd. 01 March
Pradesh Expressway (Phase-II 21
Pkg-III) from km.127.000
to Km 156.000
(Bangarupalem to Gudipala
section)
151 Karnataka Package 1 (26.40 km): Dilip Buildcon Ltd. 1079.23 01
Bangalore to Malur (Km February
0.000 to Km 26.400) 21
152 Karnataka Construction of 8 lane Dilip Buildcon Ltd. 1186.94 01
Bangalore – Chennai February
Expressway from Km 21
26.400 to Km 53.500
(Malur to Bangarpet
Section)
153 Tamil Nadu Package 1 (24 km): Montecarlo 1104.46 01
Gudipala to Walajahpet February
(Km 156.000 to Km 21
180.000)
154 Tamil Nadu Package 2 (24.5 km): KCC Buildcon –
Walajahpet to Arakkonam
(Km 180.000 to Km
204.500)
155 Tamil Nadu Package 3 (25.5 km): DP Jain 1005.44 01
Arakkonam to February
Kancheepuram (Km 21
204.500 to Km 230.000)
156 Bihar Bakhtiyarpur-Rajauli Pkg-II 47.2 Gawar Construction 1065 01
from km. 54.405 to ltd. September
km.101.630 20
157 Bihar Bakhtiyarpur-Rajauli 50.9 Gawar Construction 2310 01
Pkg-III from km. 101.630 to ltd. September
km.152.520 20
(continued)
4.4 HAM Projects Awarded—List of Projects 55

Table 4.3 (continued)

S. State Project Name Length Private Sector Awarded Date
No. Developer Cost
158 Bihar 4L from km. 34.600 to km. 49 Dilip Buildcon Ltd. 1905 01
79.970 & 2LPS from km. September
79.970 to km. 82.000 of 20
Narenpur - Purnea Section
of NH-131A
159 Gujarat Vadodara Mumbai 37.43 G R infraprojects 2180 01 July 20
Expressway (Ena-Kim)
(Phase IB - Pkg VI) [Km
217.500 to Km 254.430]
160 Gujarat Vadodara Mumbai 27 IRB Infrastructure 01
Expressway (Gandeva to September
Ena) (Phase IB - Pkg VII) 20
[Km 190.00 to Km 217.500
161 Gujarat Vadodara Mumbai 36 Interbuild –
Expressway (Jujuwa to Infrastructure PVt
Gandeva) (Phase IB - Pkg LTd
VIII) [Km 154.600 to Km
190.000]
162 Gujarat 4L of Dhrol-Bhadra 50.4 Dilip Buildcon Ltd 882 01 July 20
(Between Ex. Km 5.700 to
Km 13.600 of SH-25) and
Bhadra Patiya-Pipaliya
Section of NH-151A
163 Haryana 6L Access Controlled 25.38 –
Highway from Jn. with
Jaitpur - Pushta Road to Jn.
with Sector 62/65 dividing
road on Faridabad -
Ballabhgarh Bypass of
NH-148NA from km. 9.00
to km. 33.00 including Spur
upto Badarpur Border
165 Haryana Package 2 (26.80 km): 26.8 Centrodorstroy 887.54 01 March
Junction with Rohtak 21
Panipat road (NH709) near
Rukhi Paani village to
Junction with Jind Panipat
road (NH352A) near
Gangana (Km 34.000 to
Km 60.800)
166 Haryana Package 3 (30.6 km): 30.6 KCC Buildcon 1040.07 01 March
Junction with Jind-Panipat 21
road NH352A near
Gangana village to Junction
with Jind Karnal road
NH709A near Alewa village
(Km 60.800 to Km 91.400)
(continued)
56 4 Success of HAM in the Indian Context

Table 4.3 (continued)

S. State Project Name Length Private Sector Awarded Date
No. Developer Cost
167 Haryana Package 4 (28.85 km): 28.85 NKC 930.6 01 March
Junction with Jind Karnal 21
road NH709A near Alewa
to Junction with Ambala
Kaithal Hissar road NH152
near Kharak Pandwa village
(Km 91.400 to 120.250)
168 Punjab Package 6 (30.91 km): 30.91 Shiv Build India 733 01 March
Junction with 21
Patiala-Samana-Patran road
(SH-10) near Ghagga
village to Junction with
Patiala-Bathinda road
(NH-7) near Bhawanigarh
(Km 157.920 to Km
188.830)
169 Punjab Package 7 (36.94 km): 36.94 Ceigall India 881 01 March
Junction with 21
Patiala-Bathinda road
(NH-7) near Bhawanigarh
to Junction with
Ludhiana-Malerkotla road
(SH-11) near Bhogiwal
village (Km 188.830 to Km
225.770)
170 Punjab Package 8 (35.09 km): 35.09 Evrascon – MKCIL 989.66 01 March
Junction with Ludhiana JV 21
Malerkotla road SH11 near
Bhogiwal village to
Junction with Ludhiana
Moga road NH-5 near
Mullanpur Dakha (Km
225.770 to 260.860)
171 Punjab Package 11 (43.02 km): 43.02 Evrascon – MKCIL 1296.96 01 April
Junction with JV 21
Jalandhar-Kapurthala road
NH-703A near Khojewal
village to Junction with
Amritsar-Tanda road
NH-503A near Sri
Hargobindpur (Km 319.400
to Km 362.420)
172 Punjab Package 12 (35.28 km): 35.28 Evrascon – MKCIL 853.66 01 March
Junction with JV 21
Amritsar-Tanda road
(NH-503A) near Sri
Hargobindpur to Junction
with Pathankot-Gurdaspur
road (NH-54) near
Gurdaspur (Km 362.420 to
Km 397.700)
(continued)
4.4 HAM Projects Awarded—List of Projects 57

Table 4.3 (continued)

S. State Project Name Length Private Sector Awarded Date
No. Developer Cost
173 Jharkhand 4L of Palma to Gumla from RKC Construction –
km. 26.00 to km. 89.170 of
NH-23
174 Karnataka Bangalore Ring Road Pkg 2 Dilip Buildcon 1278 01 August
[4 laning from km. 42.000 20
to km. 80.00 of
Doddaballapura Bypass to
Hoskote section of NH-648
(Old NH-207)
175 Kerala Upgradation of 43Km 39.1 Azhiyur Vengalam 1783 01
Highway from Azhiyur to Road Private November
Vengalam PPP Limited 20
176 Madhya 4L of Harda - Betul (Pkg-I) 30 –
Pradesh from Km.0 to Km.30.20
[Harda - Temagaon]
177 Madhya Harda - Betul (Pkg-III) from 40.24 –
Pradesh Km. 81.00 to Km.121.248
[Chicholi - Betul]
178 Maharashtra Upgradation of 41.6Km 41.6 Anish 629 01 March
Stretch between Infracon-GHV 21
Ahmednagar and Mirajgaon (India) JV
PPP
179 Maharashtra Ganjad to talasari (Package 26.4 RKC Infrabuilt 1260 01
11)- Delhi Mumbai September
Expressway 20
180 Maharashtra Shrisad to Masvan (Package 27.1 G R infraprojects 2747 01
13)- Delhi Mumbai September
Expressway 20
181 Maharashtra Upgradation of 67.23Km 67.23 Kalthia Engineering 1007 01 March
Stretch Between Bodhre & Construction 21
and Dhule PPP
182 Puducherry, Upgradation of 29Km 29 Dilip Buildcon Ltd. 1013 01
Tamilnadu Stretch Between February
Puducherry and Villupuram 21
PPP
183 Puducherry, Upgradation of 38Km 38 Dilip Buildcon Ltd. 1228 01
Tamilnadu Stretch Between February
Puducherry and 21
Poondiyankuppam PPP
184 Four laning of NH-161 39.98 M/s. Ashoka 736.27 22
from Kandi (Design Km Concessions November
HAM 0.000) (Km 498.250 Limited 19
of NH-65) to Ramsanpalle
(Design Km
39.980/Existing Km
44.757)
(continued)
58 4 Success of HAM in the Indian Context

Table 4.3 (continued)

S. State Project Name Length Private Sector Awarded Date
No. Developer Cost
185 Chilkararupet bypass 17 M/s.BSCPL 902.83 03 August
Infrastructure Ltd. 19
186 Sattanathapuram to 55.76 M/s. Welspun 1872.68 07 May 18
Nagapattinam (Design Ch Enterprises Ltd.
Km 123.800 to Km
179.555)
187 Uttar Aligarh-Kanpur (Pkg I) 46 M/s BG Aligarh- 1482.18 20 March
Pradesh [Aligarh-Bhadwas] Kanpur Highway 18
Pvt. Ltd.
188 Gujarat Pipli Bhavnagar-Package 1 33.3 Kalthia Engineering 798 20 March
& Construction Ltd. 18
JP Iscon Pvt. Ltd.
189 Chakeri Allahabad 145 M/s PNC Triveni 1926.93 13
Sangam Highways November
Pvt Ltd 17
190 Uttar Meerut-Nazibad from km 53.95 PNC Infratech 1412 24 June 20
Pradesh 11.50 to km 39.24 & km
89.59 to km 112.545 of
NH-119 (Pkg-1)
191 Telegana 4L of NH-363 from 52.602 Dilip Buildcon Ltd. 1140.5 01 March
Repallewada from km 21
288.510 to TL/MH Border
km 342.00
192 Fariadabad-Ballabhgarh 26.063 DRA –
Bypass to Jn. With KMP
Expressway with
NH-148NA from km 33.00
to km 59.063
193 Himachal Balance work of Kiratpur 47.5 Gawar 2098 16
Pradesh Nerchowk (Pkg-2)[Green Constructions Ltd. October
Field] 20
194 Maharashtra Vadodara Mumbai 26.4 RKC Infrabuilt Pvt 1757 15
Expressway Ltd October
(Phase-II-Pkg-XI)[km 20
77.000 to km
103.400](Ganjad-Talsari)
195 Maharashtra Vadodara Mumbai 26.3 Sunway 2032 15
Expressway Construction Sdn October
(Phase-II-Pkg-XII)[km Bhd RNS 20
50.700 to km Infrastructure Ltd.
77.000](Masvan-Ganjad) (Consortium)
196 Maharashtra Vadodara Mumbai 27.118 GR Infra 4381 15
Expressway October
(Phase-II-Pkg-XIII)[km 20
26.582 to km
50.700](Shirsad-Masvan)
(continued)
4.4 HAM Projects Awarded—List of Projects 59

Table 4.3 (continued)

S. State Project Name Length Private Sector Awarded Date
No. Developer Cost
197 Madhya Dewas-Ujjain including 41.42 Gawar 716 11
Pradesh Ujjain Bypass & Dewas Constructions Ltd. December
Bypass 20
198 Haryana 62/65 Dividing Road on 24 DRA 908.2(EPC) –
Fariabad - Ballabhgarh
Bypass of NH-148NA from
km 9.00 to km 33.00
including Spur upto
Badarpur Border
199 Kerala 6L Perole (Nileshwar 40.4 Megha Engg. & 3041.65 –
Town) to Taliparamba from Infrastructure Ltd.
km 94.248 to km 134.650 of
NH-66
200 Kerala 6l of 37.27 Megha Engg. & 1746.45 –
Chengala-Neeleshwaram Infrastructure Ltd.
from km 56.200 to km
93.468
201 Haryana 4/6L of Gurgaon- Pataudi - 43.87 IRCON 900 –
Rewari from km 0.00 to km Interenational
43.87 of NH-352W
202 Maharashtra Ahmednagar Bypass 40.6 GHV (India) Ltd 715 06 January
21
203 Andhra Renigunta - Poyya - 57.04 Megha Engg. & 1457.92 –
Pradesh Naidupeta km 124.60 to km Infrastructure Ltd.
183.4 of NH 71
204 Gujarat 4L of Dhrol-Bhadra Patiya Dilip Buildcon Ltd. 882 14
section from 0.000 to km December
13.600 and Bhadra 20
Patiya-Pipaliya section
from 73.00 to km 24.00 of
NH-151A
205 West Bengal 4L of Gagalia- Bahadurganj 49 GR Infraprojects 1051 10 January
section from km 0.000 to Ltd 22
49.000 (Pkg-I) of NH327E
206 West Bengal 4L of Badadurganj Araria 45 G R Infraprojects 1081.70 –
section from km 49.000 to Limited
km 94.000 (Pkg II) of
NH-327E
207 Kerala 6L of Azhiyur -Vengalam 41.2 Adani Enterprises 1838 –
from km 189.200 to km Ltd.
230.400 of NH-66
208 Kerala 6L of Taliparamba to 29.95 VRC Constructions 2714.6 –
Muzhappilangad from Km
134.650 to Km 170.6 of
NH-66
(continued)
60 4 Success of HAM in the Indian Context

Table 4.3 (continued)

S. State Project Name Length Private Sector Awarded Date
No. Developer Cost
209 Punjab 6L Mandi Dabwali 35 Vishwa Samudra 745.93 01
(Punjab/Harayana Border) February
Sangaria Road Section from 21
proposed Mandi Dabwali
Bypass to Chautala from
km 27.400 to km 62.200 of
NH-54
210 Bihar 4L of Munger-Mirzachauki 32.35 Montecarlo Limited 1017 –
section from start existing
Bhagalpur bypass to
Rasulpur from km 125+000
to km 157+350 (Pkg-3)
211 Bihar 4L of Munger-Mirzachauki 26.06 Montecarlo Limited 981 –
section from Munger to
Kharia village junction
from 69+520 to km 95+580
(Pkg-I)
212 Karnataka Bangalore-Chennai 27.1 Dilip Buildcon Ltd. 1079.23 –
Expressway- Pkg-I of
Phase-I from km 0.00 to km
26.400 from
Bangalore-Malur
213 Karnataka Bangalore-Chennai 27.1 Dilip Buildcon Ltd. 1186.94 –
Expressway- Pkg-II of
Phase-I from km 26.400 to
km 53.500 from
Malur-Bangarpet
214 Haryana Delhi-Amritsar-Katra 28.85 NKC Projects 930.6 –
Expressway (Phase-I Private Limited
Pkg-IV) from Junction with
Jind-Karnal road
(NH-709A) near Alewa
village to Junction with
Ambala-Kaithal-Hissar
road (NH-152) near Kharak
Pandwa village (km
91+400) to km 120+250)
215 Haryana Delhi-Amritsar-Katra KCC Buildcon Pvt. 1130.58 –
Expressway (Phase-I Pkg-I) Ltd.
from Jussur Kheri on
NH-KMP Expressway to
Junction with
Rohtak-Panipat road
(NH-709) near Rukhi Paani
Village (km 0+000) to km
34+000)
216 Jharkhand Hariharganj to Parwa Mod 33.765 Shivalaya 585.5 18
Section from km 23.284 to Construction Co. December
km 57.049 of NH-98 Pvt. Ltd. 20
(continued)
4.4 HAM Projects Awarded—List of Projects 61

Table 4.3 (continued)

S. State Project Name Length Private Sector Awarded Date
No. Developer Cost
217 Punjab 6L of Jodhpur Romana 27.4 Ceigall India Ltd. 621 –
(Bathinda) - Mandi Dabwali
(Punjab Haryana Border)
section NH-54 from km
0.000 to km 27.400 of
NH-54
218 Haryana Delhi-Amritsar-Katra 30.6 KCC Buildcon Pvt. 1040.07 –
Expressway (Phase-I Ltd.
Pkg-II) from Junction with
Jind-Panipat road (NH-709)
near Gangana village to
Junction with Jind-Karnal
(NH-709A) near Alewa
village (km 60+800) to km
91+400)
219 Haryana Delhi-Amritsar-Katra 26.8 CDS Infra Projects 887.54 –
Expressway (Phase-I Limited
Pkg-II) from Junction with
Rohtak-Panipat road
(NH-709) near Rukhi Paani
Village to Junction with
Jind-Panipat road
(NH-352A) near Gangana
village (km 34+000 to km
60+800)
220 Bihar 4L of Munger-Mirzachauki APCO Infratech 892.00 –
section from km 95+580 to Pvt. Ltd.
km 125+000 (Pkg-II)
221 4L of Munger-Mirzachauki APCO Infratech 902.00 –
section from km 157+350 to Pvt. Ltd.
km 193+931 (Pkg-4)
222 Kerala Six Laning of KT/KL 39 Uralungal Labour 1981.07 –
Border (Thalapaddy) - Contract
Chengala from km 17.200 Co-operative
to km 57.200 Society Ltd
223 Himachal 4L of Bhangwar (Ranital) to 18.13 Gawar –
Pradesh Kangra Bypass Section of Constructions Ltd.
Old NH-88 (New
NH-303,503) upto
Intersection with NH-154
from km 175.270 to km
193.400 (Pkg-VB)
224 4L of Bilaspur to Urga (km 70.2 GR Infra –
0.00 to 70.2) of NH-130-A
225 Kerala 6L of Ramanatukkara KNR Constructions 2,116 21 January
Junctiom start of Limited 22
Valanchery bypass section
of NH-66
(continued)
62 4 Success of HAM in the Indian Context

Table 4.3 (continued)

S. State Project Name Length Private Sector Awarded Date
No. Developer Cost
226 Kerala 6L of Valanchery bypass to KNR Constructions 2,140 –
Kappirikkad of NH-66 from Limited
km 298+500 to km 335+850
227 Karnataka Bangalore - Chennai 17.5 KCC Buildcon Pvt. 809.5 –
Expressway- Pkg-III of Ltd.
Phase-I from km 53.500 to
km 71.00 from
Bangarpet-Bethamangala
228 Odisha 6L of Karki-Kaliagura 22.5 NKC Projects 494.22 14 July 21
Section from km 226.500 to Private Limited
km 249.000 of NH-130-CD
[Pkg-OD-4]
229 Odisha 6L of Dhanara-Hatibena 19.889 NKC Projects 472.1 14 July 21
Section from km 126.611 to Private Limited
km 146.50 of NH-130-CD
(Package-OD-1)
230 Chattisgarh 4 laning of Champa-Korba 38.2 Gawar 646.99 –
from km 0.00 to km 38.2 Constructions Ltd.
231 Himachal 4L of Mo- Sihuni from km 9 Gawar 499.27 –
Pradesh 42.00 to km 51.00 of Old Constructions Ltd.
NH-20 (new NH-154) of
Pathankot - Mandi section
in the state of Himachal
Pradesh (Pkg-IB)
232 Tamil Nadu Poondiyankuppam (Km 56.8 Oriental Structural 2080.00 –
67.000) to Sattanathapuram Engineers Pvt. Ltd.
(Km.123.800)
233 Maharashtra 4L of Ahmednagar 38.775 GHV (India) Pvt 715 06 January
Mirajgaon Karmala - Ltd. 21
Tembhurni (Pkg-1)
[Ahmednagar to
Ghogargaon] from km. 0.00
to km. 38.775 of NH-516A
234 Odisha 6L of Badakumari- Karki 47.5 Adani Road 1169.10 02 April
Section from Km 179.000 to Transport Ltd. 21
km 226.500 of NH-130-CD
(Package-OD-3)
235 Telegana 4L of Kodad (Design Km Adani Road 1039.90 –
0.00/Existing Km 185.00 of Transport Ltd.
NH-65) to Khammam
(Design Km
31.800/Existing Km
29.400) of NH-365A
236 Andhra 6L Jakkuva-Korlam Section 24.3 NKC Projects 598.8 –
Pradesh of NH-130CD Road from Private Limited
km 396.800 to km 421.100
(Pkg 2)
237 Punjab Malout Abohar-Sadhuwall Ceigall India Ltd. 918 –
(continued)
4.4 HAM Projects Awarded—List of Projects 63

Table 4.3 (continued)

S. State Project Name Length Private Sector Awarded Date
No. Developer Cost
238 Himachal 4L of HP/Punjab Border- 31 IRB Infrastructure 828 –
Pradesh Mo from km 11.00 to km Developers Ltd.
42.00 of Old NH-20 (New
NH-154) (Package-IA)
239 Karnataka 4L of Sannur to 45.012 Dilip Buildcon Ltd. 1137 01 March
Bikarnakatte section from 21
Km 691.350 to Km 736.362
of NH-169 Karkala -
Mangalore (Package-III)
240 Odisha 6L of Hatibena- 32.5 Barbrik Projects –
Badakumari Section from Ltd.
Km 146.50 to km 179.00 of
NH-130-CD (Pkg-OD-2)
241 Maharashtra 4L of Ahmednagar 41.615 Anish Infracon 629 –
Mirajgaon- Karmala India Pvt.
Tembhurni (Pkg-1) Ltd.-GHV (India)
[Ghogargaon to Pvt Ltd.
Ahmednagar- Solapur
District Border] from km.
38.775 to km. 80.390 of
NH-516A
242 Andhra 6L Korlam-Kantakapalle 24 PSK Infrastructure 836.7 30 July 21
Pradesh Section of NH-130CD Road and Pvt. Ltd.
from Km 421.100 to Km
445.100 (Pkg-3)
243 Punjab 4L of Amritsar-Ghoman - 45.73 Chetak Enterprises 552.64 –
Tanda - Una Section from Pvt Limited
Km 8.270 to Km 54.000 of
NH-503A (Package-1)
244 Punjab 6L Amritsar-Bathinda 39 G R Infraprojects 927 –
Greenfield section from Limited
village Tiba on NE-5A to jn.
with Moga Jalandhar road
(NH-703) near Dharamkot
from km 0.000 to km
39.000 of NH-754A (Pkg-1)
245 Maharashtra Vadodara Mumbai 24.6 Roadway Solutions 980 –
Expressway (Talasari to India Infra Ltd
Karvad) (Phase IB-Pkg
X)[km 103.400 to Km
128.000]
246 Haryana Delhi-Amritsar-Katra 37.67 CDS Infra Projects 1260.8 –
Expressway (Phase-I Limited
Pkg-V) from Junction with
Ambala-Kaithal-Hissar
road (NH-152) near Kharak
Pandwa village to Junction
with Patiala-Samana-Patran
road (SH-10) near Ghagga
village (Km 120+250 to Km
157+920)
(continued)
64 4 Success of HAM in the Indian Context

Table 4.3 (continued)

S. State Project Name Length Private Sector Awarded Date
No. Developer Cost
247 Punjab 4/6L Greenfield Ludhiana- G R Infraprojects 951 21
Rupnagar highway from Jn. Limited February
with NE-5 village near to 22
Manewal(Ludhiana) to Jn.
with NH-205 near Bheora
Village (Rupnagar) from
Km. 0.00 to Km. 37.7
including spur to Kharar
with Ludhiana bypass of
NH-205K (Pkg-1)
248 Andhra 6L Aluru-Jakkuva Section 31.767 H.G. Infra 1060.11 –
Pradesh of NH-130CD Road from Engineering
km 365.033 to km 396.800 Limited
(Pkg. 1)
249 Kerala Kottankulangara- Start of Vishwa Samudra 1185.27 07
Kollam Bypass Engineering Pvt. September
Ltd. 21
250 Maharashtra Vadodara Mumbai 22.8 Agroh 944.47 –
Expressway (Phase II Infrastructure &
Pkg-XV) (km 20.200 to km Developer Private
43.000 of Spur) Limited
(Akloli-Amne)
251 Tamil Nadu Bangalore Chennai 24.5 KCC Buildcon Pvt. 779.74 –
Expressway Ltd.
Phase-III-Package II
(Walajahpet to Arakkonam)
from Km 180.000 to Km
204.500
252 Odisha 6L Greenfield H.G. Infra 1492.11 –
Kaliagura-Baunsaguar Engineering
Section of NH-130-CD Limited
Road from km 249+000 to
km 293+000
(Package-OD-5)
253 Andhra Development of Six Lane 34.66 KNR Constructions 1102.63 –
Pradesh Chittoor-Thatchur Highway Limited
Veera Kaveri Raja Puram to
Pondavakkam from km
61.380 to km 96.040 of NH
716B (Pkg-III)
254 Karnataka Bangalore Chennai 24 Montecarlo Limited 1104.46 –
Expressway Phase-III-
Package I (Gudipala to
Walajajhpet) from Km
156.000 to Km 180.000
255 Andhra 6L of Chittoor-Thatchur 43.8 KCC Buildcon Pvt. 1324 31 August
Pradesh (Varadarajulu to Ltd. 21
Kumarajapet) from km
0.000 to km 43.800 of
NH-716B (Pkg-1)
(continued)
References 65

Table 4.3 (continued)

S. State Project Name Length Private Sector Awarded Date
No. Developer Cost
256 Odisha 6L 19.562 NKC Projects 824 –
Kantakapalle-Sabbavaram Private Limited
Section of NH-130CD Road
from Km 445.100 to Km
464.662 (Pkg-4)
257 Rajasthan 2 lanes with paved shoulder VRC SR Highways 644.61 –
from Sriganganagar to Private Limited
Raisinghnagar (Pkg-1) in
the State of Rajasthan
258 Odisha 6L Greenfield Baunsaguar - 45.5 H.G. Infra 1123.11 –
Baraja Section of Engineering
NH-130-CD Road from km Limited
293+000 to km 338+500
(Package-OD-6)
259 Tamil Nadu 6L of Pondavakkam to 20.06 IRB Infrastructure 909 –
Kannigaipair from km Developers Ltd.
96.040 to km 116.100 of
NH 716B (Pkg-IV)
Source Author research, publicly available information

References

1. National Highways Authority of India (NHAI). Bid awarded in a year. https://nhai.gov.in/#/gen

eral/bid-awarded-in-year
2. National Highways Authority of India (NHAI). Annual Bid Plan 2020–21. https://nhai.gov.in/
assets/pdf/ABP202021revised.pdf. Accessed August 15, 2021.
Project Finance and Secondary
Market Transactions 5

Project finance is a limited or non-recourse financing structure available for com-

panies delivering long-term infrastructure projects where is the debt and equity
used to finance the project are paid back from the cash flow generated by the
project. Hence, project financing is a loan structure that relies on the cash flows
from a particular project for repayment and the loan is collateralized using the
assets rights and interests held by the SPV delivering such project.
This chapter provides an understanding of key financing considerations for a
HAM based road PPP projects in country and gives a review of review of the
financing of different projects by various commercial bands, along with indicative
financing terms such as project tenor, interest rate/margins, key debt covenants etc.
There have been a large number of secondary market transactions (i.e., acqui-
sitions) for HAM based road PPP projects. Both local and international investors
(including infrastructure funds, pension funds and large corporates) have shown
interest to acquire such projects; as well as the private sector developers have
shown interest to sell these projects once they have reached Commercial Opera-
tion Date (CoD). This chapter provides a list of such transactions and a profile of
few major investors who are very active in the secondary market Based on publicly
available information.

5.1 Project Finance—Introduction

5.1.1 Special Purpose Vehicle (SPV)

Project finance, also known as non-recourse lending, essentially relies on the

future cash flows from a specific infrastructure project for debt service rather than
recourse on borrower’s financials. Typically, for project finance transactions, spon-
sors/shareholders would need to form of a stand-alone project company or a special
purpose vehicle (SPV) which will enter into a PPP agreement with the government

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 67
A. Mittal et al., Hybrid Annuity Model (HAM) of Hybrid Public-Private Partnership
Projects, Management for Professionals,
https://doi.org/10.1007/978-981-19-2019-6_5
68 5 Project Finance and Secondary Market Transactions

for the infrastructure project delivery. Same is the case with HAM based road PPP
projects in India wherein a SPV is established for each project won by the pri-
vate sector. In this chapter, the typical contractual structure for such SPV has been
discussed.
Such SPV will have a pre-defined life which is equal to duration of the conces-
sion agreement (equal to 15–17 years in case of HAM based road PPP projects,
as the case maybe). The sponsors are the only shareholders of the project com-
pany and their exposure is limited to the amount of equity investment that has been
made in the project. Lenders will perform a detailed due-diligence process for non-
recourse debt finance since there is no past operating history of such SPVs, and
such due-diligence is necessary to get requisite bank credit committee approvals.

5.1.2 Lender Due-Diligence Process

As part of debt provider’s due-diligence process, the lenders will examine the
technical and financial feasibility of the project, and review of sponsor capabil-
ity (including past experience of sponsor/shareholder/borrower to implement and
operate similar projects).
The technical feasibility of the project is examined to ascertain below1 :

• Project can be constructed within the proposed schedule and within budget;
• Once completed, the project will be able to operate at the planned capacity; and
• Construction cost estimates, along with the contingencies for various scenarios,
will prove adequate for the completion of the project.

In evaluating the technical feasibility, it is necessary to take into account the

external factors for construction or operation of the project (such as legal, policy,
regulations, environmental factors) on the construction of the proposed facilities
and/or operation of the constructed facilities. When the technological processes
and/or design envisaged for the project are either unproven or on a scale not tried
before, there will be a need to verify the processes and optimize the design as part
of evaluating the project’s technical feasibility.
The financial viability of the project is assessed by determining whether the net
present value (NPV) is positive. NPV will be positive if the expected present value
of the free cash flow is greater than the expected present value of the construction
costs. However, in addition to or in lieu of the NPV, lenders will use debt ratios
such as the Debt Service Cover Ratio (DSCR) and Life Loan Cover Ratio (LLCR)
as the main ratios to measure bankability of a project.
On the basis of the projected cash flows of the SPV, including the debt profile
under analysis, lenders will determine the debt amount and term of providing such
debt finance.

1 Source: APMG International.

5.2 Financial Close for HAM Based Road PPP Projects in India 69

Box: Lenders’ Due-Diligence Process—Role of Model Concession Agreement

(MCA)

To ensure project bankability, standardized concession contracts (like the

Model Concession Agreement (MCA) for HAM based road PPP projects
in India) has an important role to play. In determining financial viability
and related to the reliability of cash flows and the guarantees offered by the
contract (especially termination provisions), the lenders will analyze the risk
structure of the concession contract. So, if there are standardized concession
contracts which have been prepared through stakeholder discussions and are
bankable, the financial close is relatively easier for such projects.

5.2 Financial Close for HAM Based Road PPP Projects

in India

As per the model concession agreement, HAM projects must achieve financial
closure within 150 days of signing the concession agreement. The financial close
process for such HAM based road PPP projects has seen mixed response, and the
reasons are elaborated in this section.

5.2.1 The Positives

Commercial banks in India had a positive response to provide debt to HAM based
projects primarily due to two reasons:

• The concessionaire gets 80% land upfront while the concession period is linked
to the commercial operations date (COD) and not to the date of concession
agreement (signing date) or to the date of 80% land availability (appointed
date). In another words, the land acquisition period and the construction period
are essentially excluded from the annuity. Hence, the construction overrun and
time overrun risks as well as land acquisition risks are mitigated.
• As net equity injection by the developer is minimized, the non-availability of
funds from the concessionaire is unlikely to hinder the construction progress.

5.2.2 The Hurdles

There have also been multiple instances of financial closure delays in case of HAM
based road PPP projects primarily due to below reasons:
70 5 Project Finance and Secondary Market Transactions

• A number of HAM projects have been won by new entrants in the market (erst-
while EPC players) who are have little or no experience in project financing.
Further, such players have no past experience as developers and primarily have
done work as contractors. So, such players find it difficult to get the bank credit
committee approvals for non-recourse debt finance. The average or low credit
ratings of such small and medium developers limits their capability to raise
debt.
• Some of the new entrants have also bid aggressively to win HAM projects;
however, upon lenders’ due-diligence, the cash flows from the project do not
support minimum debt covenants due to such aggressive bidding. Further, many
of the existing developers of HAM projects are over-leveraged and do not have
the bandwidth to take additional loads.

In authors’ view, the risk allocation framework for HAM based road PPP projects
as per the model concession agreement is robust and bankable. Due to this rea-
son, established developers and larger players have not faced any major issues in
achieving financial closure for projects on a non-recourse basis. As the new players
gain experience and are able to showcase capability for delivering such projects,
the financial closure process would ease as well.

5.2.3 Updates to Model Concession Agreement in November 20

The Ministry of Road Transport and Highways (MoRTH), vide office memoran-
dum dated 10 November 20, introduced a series of changes to Model Concession
Agreement (MCA) for PPP projects tendered in the roads sector in India under the
Hybrid Annuity Model (HAM). These changes have improved the bankability of
the projects since a number of comments were incorporated in consultation with
the industry experts and financial institutions.
A couple of key changes have been listed in Table 5.1 in this section since they
led to an improvement in project bankability, had a positive impact the financial
close process and led to increased secondary market transactions for HAM based
road PPP projects in India.

5.2.4 Commercial Banks

Given below is a list of select HAM based road PPP projects which have achieved
financial close in FY 2020 and FY 2021, along with a list of banks who have
provided debt financing for such projects (Table 5.2).
5.2 Financial Close for HAM Based Road PPP Projects in India 71

Table 5.1 HAM PPP concession agreement—enhancement in bankability

Clause Erstwhile provision in Updated provision Impact
MCA w.e.f. 10 November 20
Interest Rate for Interest due and Interest due and This change is very
Annuity Payments payable on the payable on the positive development
during Operation reducing balance of reducing balance of as per long time
period Completion Cost (due Completion Cost (due demand of this
to Annuity payments to Annuity payments industry. Since the
during operation during operation interest payment by
period) shall be equal period) shall be equal developers on
to the applicable Bank to average of 1-year commercial debt is
Rate plus 3%. Bank MCLR of top 5 based on MCLR of the
Rate is rate of interest scheduled commercial commercial bank, this
specified by Reserve banks plus 1.25%. move would help to
Bank of India as per mitigate the mismatch
section 49 of the The government between the interest
Reserve Bank of India authority shall declare inflow and outflow for
Act, 1934 or any the list of top 5 the developers during
replacement thereof. scheduled commercial the operation period.
banks on 1st
September every
calendar year based on
the balance sheet size
as declared in their
annual reports.
Change in Private concessionaire Private concessionaire This change is
Ownership required to hold required to hold beneficial especially
minimum 26% of minimum 26% of for EPC players who
issued and paid-up issued and paid-up have a strong project
equity during equity during development
construction period and construction period and capability; and would
2 years thereafter 6 months thereafter. prefer to exit the
project post
commissioning to
continue to build other
such road projects.
This will give a boost
to the number of
secondary market
transactions.

5.2.5 Development Finance Institutions (DFIs)

HAM based road PPP projects have been supported by Development Finance Insti-
tutions (DFIs) or multilateral banks, most notably the Asian Development Bank
(ADB). Such support is primarily to the governments of various states in India
to support nodal government authorities of HAM based road PPP projects to ful-
fill their obligation of annuity payments to concessionaire during construction and
operation period.
72 5 Project Finance and Secondary Market Transactions

Table 5.2 List of commercial banks—Debt finance for HAM PPP projects
Project Name State Financial Transaction Lenders/Commercial
Close Date Loan Banks
Amount
(USD MN)
Upgradation of 58Km Lane Madhya June 21 37.00 • Punjab & Sind Bank
between Dhangaon and Pradesh • Axis Bank
Boregaon PPP
Two Laning Of Meensurutti Tamil Nadu May 21 35.36 • Sumitomo Mitsui
To Chidambaram Section Of Banking Corporation
NH-227 PPP (SMBC)
• HSBC
Meerut - Nazibabad 53.95Km Uttar March 21 71.00 • Axis Bank
Highway Pradesh
Upgradation of Repallewada Maharashtra February 46.30 • Punjab National Bank
to Telangana/Maharashtra Telangana 21 (PNB)
Border 52.6Km Highway PPP
Upgradation of 27.5Km from Gujarat January 21 101.82 • Union Bank of India
Gandeva to Ena Stretch PPP
Jagdishpur - Faizabad 60Km Uttar January 21 76.41 • HDFC
Highway PPP Pradesh
Upgradation Of Uttar January 21 86.24 • Union Bank of India
Unnao-Lalganj Section NH Pradesh
232 PPP
Mitrasen - Kanpur 60Km Uttar December 105.88 • Axis Bank
Highway PPP Pradesh 20
Naviganj - Mitrasen Pur Uttar December 126.14 • HDFC
Highway PPP Pradesh 20 • State Bank of
Mauritius
• Union Bank of India
Solapur-Bijapur NH-13 (New Karnataka September 160.00 • HSBC
NH-52) Highway Section PPP Maharashtra 20 • Standard Chartered
Bank
• United Overseas Bank
(UOB)
• Axis Bank
Mumbai-Pune Expressway Maharashtra June 20 868.58 • State Bank of India
PPP (Formerly Yashwantrao • Union Bank of India
Chavan Expressway) New
Concession (2020)
Oddanchatram-Madathukulam Tamil Nadu May 20 41.71 • Axis Bank
45.4Km Highway PPP
Ashoka Ankleshwar Manubar Gujarat December 84.21 • United Bank of India
Expressway 19 (UBI)
• India Infrastructure
Finance Company Ltd
• Axis Bank
(continued)
5.2 Financial Close for HAM Based Road PPP Projects in India 73

Table 5.2 (continued)

Project Name State Financial Transaction Lenders/Commercial
Close Date Loan Banks
Amount
(USD MN)
Four Laning of Ausa-Chakur Maharashtra March 19 58.60 • Yes Bank
Section of NH 361 Project
Churhat Bypass PPP Madhya October 18 38.51 • Canara Bank
Pradesh
Source Author research, publicly available information

Box: ADB’s Support for Madhya Pradesh Road Sector Project (2019)
Aware of the critical necessity of upgrading its road infrastructure to meet
connectivity requirements as also to cope with the steady increase in vehicu-
lar growth over 10% annually, the Government of Madhya Pradesh (GOMP)
chalked out a road sector master plan for 2013–2033. The plan envisions
connecting all regional and district headquarters by two lane roads and
connecting all villages by all-weather roads.
The ADB-supported $490 million Public-Private Partnership (PPP) in Mad-
hya Pradesh Road Sector Project, approved in November 2019, aligns with
the GOMP’s long-term road strategy. The project will improve transport
connectivity in the state by rehabilitating and upgrading about 1600 km of
newly declared state highways and single-lane major district roads (MDRs)
to two-lane widths.
This is the sixth ADB loan to the state’s road sector since 2002. The previous
five loans have helped develop about 7300 km road length in the state. How-
ever, this is the first loan by ADB to the Madhya Pradesh government which
adopts a hybrid-annuity model (HAM) compared to BOT models supported
in the past by ADB in the state.
The scope of the project includes:

• upgrade 750 km of newly declared state highways to two-lane widths,

• upgrade 850 km of single-lane and/or deteriorated MDRs to two-lane
widths, and
• improve HAM implementation capacity and road asset maintenance and
management.

All project roads will be surfaced with asphalt concrete instead of the exist-
ing double bituminous surface treatment. The project will be implemented
as a PPP adopting the contract modality of HAM.
74 5 Project Finance and Secondary Market Transactions

Table 5.3 List of development finance institutions—financing support for HAM PPP projects
Transaction Name Government Authority Support Provided Transaction Month,
(USD MN) Year
Madhya Pradesh Road Government of Madhya 490 November 19
Development PPP Pradesh
Maharashtra Rural Government of 200 August 19
Roads Upgrade Maharashtra
Bihar State Roads Bihar State Road 200 October 18
Upgrade (230 km) Development Corp. Ltd
Karnataka Highways Government of 346 August 18
Upgrade (420 km) Karnataka
Karnataka Highways Government of 251 August 18
Upgrade (420 km) Karnataka
Additional Facility
Source Author research, publicly available information

ADB will assist MPRDC in increasing private sector involvement and

financing to leverage government financing for the project. Hand-holding
support will be provided through capacity building of the agency’s engineers,
consultants and contractors.
To ensure closer monitoring of road infrastructure and timely repairs, the
project will develop an e-maintenance asset management system for state
highways and MDRs. The system will include a software that can record the
location, types of defect or maintenance required. An online module on the
MPRDC website will enable the public to inform the agency of road defects
for necessary action.
Source Asian Development Bank

Table 5.3 provides a list of project in the last 5 years wherein the various state
governments of India have been supported by ADB for implementation of HAM
based road PPP projects.

5.3 Emerging Trend—Acquisitions/Secondary Market

Transactions

There has been an emerging trend in terms of the acquisition of ongoing or com-
pleted HAM projects. In recent couple of years, there has been a number of
secondary market activity in roads sector in India, wherein a large number of
investment vehicles like pooled funds, pension funds and infrastructure investment
trusts (InvIT) have acquired a majority stake in SPVs operating such HAM based
PPP projects in the road sector.
5.3 Emerging Trend—Acquisitions/Secondary Market Transactions 75

Box: What Is Infrastructure Investment Trusts (InvIT)?

An Infrastructure Investment Trust (InvITs) is collective investment scheme
similar to a mutual fund, which enables direct investment of money from
individual and institutional investors in infrastructure projects to earn a small
portion of the income as return. InvITs can be treated as the modified ver-
sion of real estate investment trusts (REITs) designed to suit the specific
circumstances of the infrastructure sector.
The InvIT is designed as a tiered structure with Sponsor setting up the InvIT
which in turn invests into the eligible infrastructure projects either directly
or via special purpose vehicles (SPVs).
An InvIT is established as a trust and is registered with the Securities and
Exchange Board of India (SEBI). The InvITs are regulated by the SEBI
(Infrastructure Investment Trusts) Regulations, 2014. SEBI, vide its circular
CIR/IMD/DF/55/2016 dated May 11, 2016, provided the detailed guidelines
for the public issue of units of InvITs.
Typically, infrastructure investment trust SEBI comprises 4 elements:

1. Trustee: Required to be registered with SEBI as debenture trustees; and

required to invest at least 80% into infra assets that generate steady
revenue.
2. Promoter/Sponsor(s): Typically, this is a body corporate, LLP, promoter
or a company with a net worth of at least INR 100 Cr. Further, they must
hold at least 25% of the total InvITs with a minimum lock-in period of
3 years or as notified by any regulatory requirement.
3. Investment manager: As a body corporate of LLP, an investment manager
supervises all the operational activities surrounding InvITs.
4. Project manager: Refers to the person responsible for executing projects.
However, in the case of PPP projects, it serves as an entity that also
supervises ancillary responsibilities.

5.3.1 Recent Transactions

Table 5.4 provides a list of key secondary market transactions in last three (3)
financial years (FY19-21) in the roads sector in India.
Though HAM projects have low financing risk, the volume of projects and con-
sequent investment requirement puts pressure on commercial banks and financing
institutions and there is a liquidity constraint, due to which it can be expected that
secondary transaction will continue to grow for HAM based projects.
76 5 Project Finance and Secondary Market Transactions

Table 5.4 List of secondary market transactions—HAM PPP projects

Transaction Name Investor/Sponsor Transaction Value Transaction Month,
(USD MN) Year
Acquisition of 15% in Canada Pension Plan 136.2 May 21
Indinfravit Investment Board
(CPPIB)
Acquisition of Thorapalli Cube Highways and Undisclosed November 20
- Agraharam - Infrastructure
Jittandahalli Section
Acquisition of stakes in 5 Cube Highways and Undisclosed November 20
Dilip buildcon projects Infrastructure
Essel Devanhalli PPP and National Investment and 201 November 20
Dichpally PPP Roads Infrastructure Fund
Sale (2020) (NIIF)
Acquisition of 25% in Allianz Capital Partners Undisclosed July 20
Indinfravit
Acquisition of Navayuga Edelweiss Infrastructure 150 June 20
Annuity Roads Yield Plus
Acquisition of Highway Caisse de depot et 317.18 May 20
Concessions One placement du Quebec
Platform
Acquisition of IndInfravit Trust Undisclosed March 20
Ahmedabad Ring Road
(76.31KM)
Acquisition of Sadbhav IndInfravit Trust 880.12 March 20
Infrastructure Toll Roads
Portfolio
Acquisition of 49% in Government of 587.15 February 20
IRB Infrastructure Singapore Investment
Developers Indian Toll Corporation
Road Portfolio (1200KM)
Acquisition of Cube Highways and 74.25 January 20
Walayar–Vadakkancherry Infrastructure
Toll Road (53.89KM)
Acquisition of Tamil Cube Highways and Undisclosed August 19
Nadu Highway (160KM) Infrastructure
PPP
Acquisition of a Stake in I Squared Capital, Undisclosed July 19
SBI Macquarie National Investment and
Infrastructure Trust Infrastructure Fund
Indian Road Portfolio
Acquisition of Cube Highways and 255.44 May 19
Ghaziabad-Aligarh Infrastructure
Expressway (126KM)
Acquisition of 30% in Canada Pension Plan 154.5 May 19
Indinfravit Investment Board
CPPIB
Acquisition of 13% in India Infrastructure Fund 8.09 December 18
Bhopal – Dewas Road II
(140KM)
(continued)
5.3 Emerging Trend—Acquisitions/Secondary Market Transactions 77

Table 5.4 (continued)

Transaction Name Investor/Sponsor Transaction Value Transaction Month,
(USD MN) Year
Acquisition of Cube Highways and 51.3 September 18
Farakka-Raiganj Highway Infrastructure
(100KM) PPP
Acquisition of Asian Rohatyn Group Undisclosed May 18
Infrastructure & Related
Resources Opportunity
Platform
Acquisition of 49% Stake Welspun 36.03 January 18
in NH-72A & NH-73
PPPs
Source Author research, publicly available information

5.3.2 Profile of Major Investors

This section provides a profile of key investors who have been involved in
secondary market transactions to acquire HAM based road PPP projects in India.

National Investment and Infrastructure Fund

The National Infrastructure and Investment Fund (NIIF) is India’s first-ever sovereign
wealth fund (SWF) was set up in February 15. The primary goal of setting up NIIF
was to optimize the economic impact largely through investing in infrastructure-
related projects. An institution anchored by the Government of India (GoI), NIIF is
a collaborative investment platform for international and Indian investors who are
looking for investment opportunities in infrastructure and other high-growth sectors
of the country. NIIFL invests across asset classes such as infrastructure, private equity
and other diversified sectors in India.
NIIF manages around USD 4.5 BN of capital commitments across its three funds:
Master Fund, Fund of Funds and Strategic Fund.

Cube Highways and Infrastructure

In 2015, I Squared and the IFC formed Singapore- based Cube Highways, Indian
highways investment vehicle. Cube Highways was IFC’s first investment in India’s
roads sector. At its establishment, IFC committed $100 million equity and I Squared
$400 million. The vehicle was established for the purpose of acquiring operational
road assets in India. IFC also committed to providing $150 million of debt toward
potential refinancing.
In November 17, Sovereign fund Abu Dhabi Investment Authority (ADIA)
acquired a minority stake in Cube Highways, without disclosing the purchase price.
78 5 Project Finance and Secondary Market Transactions

Canada Pension Plan Investment Board (CPPIB)

CPPIB, operating as CPP investments, is a professional investment management
organization that invests the assets of the Canada Pension Plan not currently needed
to pay pension, disability, and survivor benefits.
Infrastructure is part of the fund’s real assets allocation, along with real estate,
infrastructure, energy and resources, and power and renewables. The group focuses
on investing in lower-risk, asset-intensive business with long term returns. As of
March 19, the infrastructure portfolio has 19 direct investments, consisting of 79.3%
in developed markets such as North America, Western Europe, and Australia and
20.7% in emerging markets, primarily in Latin America and India.

IndInfravit Trust
IndInfravit was established by L&T Infrastructure Development Projects Limited
(L&T IDPL) in March 18; and was registered as an infrastructure investment trust
under the SEBI (InvIT) Regulations. L&T IDPL is the sponsor of the InvIT and
the project manager for the SPVs. LTIDPL INDVIT Services Limited and IDBI
Trusteeship Services Limited are the investment manager and trustee, respectively.
The key investors of the InvIT include:
• Canada Pension Plan Investment Board (CPPIB) that holds 27.9%
• Allianz Capital Partners (ACP) that holds 22.7%
• OMERS Infrastructure Asia Holdings Pte. Ltd that holds 20.0% stake
• L&T IDPL that holds 15.0%.
 Part III
360° Review of Hybrid Annuity Model (HAM)
Case Study—Project Highway
6

This chapter provides an introduction to this case-study of Project Highway

and a detailed list of assumptions including timeline, construction phasing, tech-
nical details, operation costs, capital structure (debt and equity assumptions),
macroeconomics (inflation), tax rates etc.
The authors have used a novel case-study based approach with 100+ numerical
examples throughout this part of the book to explain and discuss contrac-
tual/commercial, taxation (direct and indirect taxes) and accounting aspects of
Hybrid Annuity Model (HAM).
A detailed financial model was prepared for the case study of Project Highway
which was the bid financial model used for a real-life project and the values therein
were subsequently modified. This financial model is used to explain the various
concepts and computations in subsequent chapters in PART III of the book.
The subsequent chapters of the book would be immensely helpful for the read-
ers who want to get a complete and a 360-degree understanding of HAM based
road PPP project and would help the users to prepare the financial/cash flow pro-
jections for any project for accurate estimation of returns for developers as well as
investors.

6.1 Introduction

The case study assumes an award of a national highway project in India called
Project Highway by National Highways Authority of India (NHAI) as the govern-
ment agency to a private sector player. The private sector player has incorporated
a Special Purpose Vehicle (SPV) namely, ABC Constructions Private Limited
(ACPL) who will be the Concessionaire for this Project.
Given below are the key assumptions for the Project Highway which were
incorporated as part of the bid financial model by the private sector player. Basis

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 81
A. Mittal et al., Hybrid Annuity Model (HAM) of Hybrid Public-Private Partnership
Projects, Management for Professionals,
https://doi.org/10.1007/978-981-19-2019-6_6
82 6 Case Study—Project Highway

upon this assumptions, the remaining chapters of the book provide 100+ numeri-
cal examples to explain various concepts related to Model Concession Agreement
(MCA), indirect taxes, direct taxes and the accounting treatment.

Project Timeline
Construction Start date dd-mm-yy 13 November 21
Construction Period days 910
Commercial Operation Date (CoD)—Target dd-mm-yy 12 May 24
Operation Period #months 180
Operation End Date dd-mm-yy 11 May 39

Project Summary
Estimated Project Cost (Authority Cost) INR Cr 1200.00
Project Length km 50.00
Bid Project Cost—Quoted (BPC) INR Cr 1500.00
EPC Cost (Actual) INR Cr 1200.00
O&M Cost per year—Quoted INR Cr 5.00
O&M Cost per year—Actual INR Cr 4.00

The detailed assumptions in the next section are categorized as below:

• Detailed Project timelines and construction milestones as per the bid document
for Project Highway
• Capital Expenditure/CAPEX
• Annuity Payment milestones during construction period
• Mobilization Advance during construction period
• Capital Structure/Funding Plan
• Project finance/debt assumptions
• Revenue assumptions during operation period
• Macroeconomics.

6.2 Key Assumptions—Project Highway

This sections provides the detailed list of assumptions for the case study of Project
Highway based on a detailed financial bid model prepared for a project. The
assumptions have been categorized for ease of understanding of the user.

1. Project Timelines—refers to key project timelines for construction and opera-

tion period for the project.
6.2 Key Assumptions—Project Highway 83

Project Timelines
Financial Close #days from
previous date
Bid Due Date dd-mm-yy 15 January 21
Date of LOA dd-mm-yy 16 March 21 60
Date of Signing CA dd-mm-yy 29 April 21 44
Date of Financial dd-mm-yy 26 September 150
Close 21
Construction
Construction Start dd-mm-yy 13 November Appointed
date 21 Date
Construction Date #days %
Milestones completion—cumulative
Milestone 1 dd-mm-yy 30 August 22 290 20%
Milestone 2 dd-mm-yy 17 January 23 430 35%
Milestone 3 dd-mm-yy 4 October 23 690 75%
Milestone 4 dd-mm-yy 11 May 24 910 100%
Commercial dd-mm-yy 12 May 24
Operation Date
(CoD)—Scheduled
Commercial 12 May 24
Operation Date
(CoD)—Target
Operations
1st Annuity dd-mm-yy 7 November 180
Payment Date 24
Operation Period #months 180
Concession end date dd-mm-yy 11 May 39

2. Capital Expenditure—For simplicity, only EPC costs have been assumed in the
case study. In a typical HAM based road PPP project, capital expenditure may
include other costs such as Preoperative Expenses, Advisor and Legal Expenses,
Insurance, Bank Guarantee Charges etc.

Engineering, Procurement and Construction Amount

Civil and Structural Work INR Cr 1200
Other Costs
Interest During Construction—Debt INR Cr 19
Initial DSRA funding INR Cr 30
84 6 Case Study—Project Highway

Operating Expenses till 1st Annuity Payment INR Cr –

Mobilization Advance Interest INR Cr –
Total INR Cr 1249

3. Annuity Payments—Construction—refers to the annuity payments during con-

struction period upon achievement of specific construction milestones as per the
concession agreement. Total construction payments equal to 40% of adjusted
bid project cost.

Annuity Payments—Construction
Achievement of % physical progress % 5% 10% 20%
Payment Milestone # 1 2 3
Payment Amount—% of BPC % 4% 4% 4%
Payment Amount (without Price Index INR Cr 60.00 60.00 60.00
adjustment)
Incremental % physical progress % 5% 5% 10%
Payment Milestone—date dd-mm-yy 1 January 22 1 April 22 1 August 22

30% 40% 50% 60% 70% 80% 90%

4 5 6 7 8 9 10
4% 4% 4% 4% 4% 4% 4%
60.00 60.00 60.00 60.00 60.00 60.00 60.00
10% 10% 10% 10% 10% 10% 10%
1 December 1 February 1 April 23 1 June 23 1 September 1 November 1 February
22 23 23 23 24

4. Mobilization Advance—refers to the key assumptions regarding Mobilization

Advance taken by ACPL from NHAI during the construction period.

Mobilization Advance Installment 1 Installment 2

Availed? (1 = Yes, 0 = choice 1 1
No)
Days from Appointed days 25 80
Date
Date of receipt dd-mm-yy 8 December 21 1 February 22
6.2 Key Assumptions—Project Highway 85

Loan Amount—% of % 5% 5%
BPC
Loan Amount INR Cr 75.00 75.00
Principal Repayment # 8
Installments
Principal Repayment INR Cr 18.75
Interest Payment # 2
Installments
Base Rate % MCLR (top 5 scheduled banks)
Margin % 1.25%
Applicable Rate % 8.50%

5. Capital Structure—refers to key assumptions regarding project funding/capital

structure i.e. proportion of debt and equity upon financial close of the project.

Capital Structure
Total Project Costs INR Cr 1249
Annuity Payments—Construction INR Cr 650
Project Funding Requirement INR Cr 599
Debt Contribution % 70% 419
Equity Contribution % 30% 180

6. Debt finance—refers to key debt financing assumptions (non-recourse project

finance) such as tenor, base interest rates, margin, repayment profile etc.

Debt Senior Debt

Availed? (1 = Yes, 0 = No) choice 1
% of Total Debt Funding % 100%
Loan Amount INR Cr 419.23
Loan Tenor (door-to-door) #years 15.50
Drawdown Start Date dd-mm-yy 13 November 21
Drawdown End Date dd-mm-yy 12 May 24
Grace Period (After Scheduled COD) days 180
End of Grace Period dd-mm-yy 7 November 24
1st Principal Repayment dd-mm-yy 8 November 24
Loan Maturity Date dd-mm-yy 13 May 37
Repayment Profile Sculpted
Bullet Repayment Date dd-mm-yy 13 May 37
86 6 Case Study—Project Highway

Target DSCR x 1.10

Average Cost of Debt % 7.45%

Pricing
Upfront Fees % 0.00%
Commitment Fees % per annum 0.00%
Interest Rates
Base Rate % MCLR (top 5 scheduled banks)
Bank Rate (RBI)
MCLR (top 5 scheduled banks)
Margin during Construction % 0.86%
Margin (COD) % 0.00%
Margin (COD + 5 years) % 0.00%
Margin (COD + 10 years) % 0.00%
Margin (COD + 15 years) % 0.00%
Margin (COD + 20 years) % 0.00%
Interest Capitalisation Period
Start Date dd-mm-yy 13 November 21
End Date dd-mm-yy 12 May 24

7. Revenue—refers to assumptions related to annuity payments, interest thereon

and O&M payments by NHAI to ACPL during the operation period of the
project.

Revenue
Annuity Payments—Operations
Base Rate Choice MCLR (top 5 scheduled banks)
Margin % 1.25%
Applicable Rate % 8.50%
O&M Payments—Operations
O&M cost per year—Quoted INR Cr 5.00

8. Operating Expenses—refers to assumptions for O&M expenses and Major

Maintenance expenses during the operation period for the project.
6.2 Key Assumptions—Project Highway 87

Operating Expenses
Fixed O&M Year 1 Indexed? (1 = Yes, 0 =
No)
Routine Maintenance INR Cr 4.00 1
Major Maintenance
Major Maintenance Reserve Account (MMRA)
MMRA in Use? (1 = Yes, 0 choice 1
= No)
MMRA Funding Periods #quarters 12
Interest on MMRA
Interest Income? (1 = Yes, 1
0 = No)
Base Rate choice MCLR (top 5 scheduled
banks)
Margin (Discount) % −1.50%
Applicable Rate % 5.75%
MM Capex Amount, Real Real Amount Years from CoD
MM Capex 1 INR Cr 30.00 7
MM Capex 2 INR Cr 30.00 14

9. Macroeconomics—refers to macroeconomic assumptions like inflation, escala-

tion rates and interest rates.

Macroeconomics
Price Index Annual Inflation
Quarterly Inflation % 4.00%
Price Index—as on bid date #
Price Index #
Opex Escalation Rates
Escalation Period Annual Inflation
Escalation Rate—O&M Costs % 5.00%
Escalation Rate—Major Maintenance % 5.00%
Interest Rate Curves Annual rates
Bank Rate (RBI) % 4.25%
MCLR (top 5 scheduled banks) % 7.25%
Contract Review—Model Concession
Agreement (MCA) 7

The concession agreement is cornerstone for any PPP project since this particular
document provides the rights and obligations of both the government agency and the
private sector/concessionaire and is the main instrument for risk allocation framework
for delivery of the infrastructure project for public good. This contractual relationship
is applicable throughout the life of the project (typically 15 years in case of HAM
based road PPP projects) and a deep understanding of such agreement is essential for
any practitioner or stakeholder who is involved in delivery of the project.
Standardization of such concession agreements help streamline the procurement
process and enhance the stability of the regulatory and policy framework. A Model
Concession Agreement (MCA) is available for Hybrid Annuity Model (HAM)
based road PPP projects in India issued by the National Highways Authority of
India (NHAI), Government of India.
This chapter provides a detailed review of key clauses of MCA, and provides
numerical computations and examples based on the case study of Project Highway
so that the reader understands the implication of important clauses in different
scenarios This chapter would help in ease of understanding and interpretation of
key terms of MCA which is very important for private sector developers who want
to bid for these project and to develop long-term financial projections to understand
their true returns for such project delivery.
A detailed analysis has been presented for all the clauses relevant during the
construction as well as operation phase of the project including a list of recur-
ring costs and obligations of the private sector besides the road maintenance (e.g.,
independent engineer renumeration, monthly reports, audited accounts etc.)
Such analysis is intended to help readers to understand the risk allocation as
per the MCA, which is a base template used for all HAM based PPP projects. The
existing developers, who are already in the process of constructing the awarded
projects, will find it very useful to review the key clauses to be considered during
operation period as summarized in this section including Annuity Payments during
Operation period; O&M obligations of Concessionaire; Other costs/expenses to be
borne by Concessionaire; and Reporting requirements to be met by Concessionaire.

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 89
A. Mittal et al., Hybrid Annuity Model (HAM) of Hybrid Public-Private Partnership
Projects, Management for Professionals,
https://doi.org/10.1007/978-981-19-2019-6_7
90 7 Contract Review—Model Concession Agreement (MCA)

7.1 Model Concession Agreement (MCA)—Introduction

Ministry of Road Transport and Highways (MoRTH), Government of India (GoI)

issued the Model Concession Agreement (MCA) for implementation of Hybrid
Annuity Model (HAM) based road PPP projects first on 9.12.2016. This model
concession agreement has been adopted by National Highways Authority of India
(NHAI) add the various state government agencies for implementation of national
highway and state highway projects, respectively.
Since its first issuance in 2016, model concession agreement has undergone
few changes over the years—for example, introduction of mobilization advance
via MoRTH circular dated 8.07.2016. Further in November 20, there were signif-
icant changes done to this concession agreement based on industry feedback and
the issues faced by private sector developers/concessionaires in construction and
delivery of such HAM based road PPP projects.
Due to the uncertainty caused by COVID-19 pandemic, developers were facing
a lot of issued in cash flow cycle and working capital management during the con-
struction period. Further, due to the reduction of bank rate by the Reserve Bank of
India during 2020, there was a significant gap in the interest payments on annu-
ity received from government agency (which were erstwhile linked to Bank Rate
of RBI) and the interest payments to be made for debt service by the developers
(which is often linked to the Marginal Cost of Funds based Lending Rate/MCLR
of scheduled commercial banks in India).
The MCA document is divided into broad articles/sections as listed in Table 7.1.

Table 7.1 Model Concession Agreement (MCA)—List of Articles

PART Articles/Sections
PART I—Preliminary 1. Definitions and Interpretation
PART II—The Concession 2. Scope of The Project
3. Grant of Concession
4. Conditions Precedent
5. Obligations of The Concessionaire
6. Obligations of The Authority
7. Representations and Warranties
8. Disclaimer
PART III—Development and Operations 9. Performance Security
10. Right of Way
11. Utilities, Associated Roads and Trees
12. Construction of the Project
13. Monitoring of Construction
14. Completion Certificate
15. Entry into Commercial Service
(continued)
7.1 Model Concession Agreement (MCA)—Introduction 91

Table 7.1 (continued)

PART Articles/Sections
16. Change of Scope
17. Operation and Maintenance
18. Safety requirements
19. Monitoring of operation and maintenance
20. Regulation and Management
21. Independent Engineer
PART IV—Financial Covenants 22. Financial Close
23. Payment of Bid Project Cost
24. Escrow Account
25. Insurance
26. Accounts and Audit
PART V—Force Majeure And Termination 27. Force Majeure
28. Compensation for Breach of Agreement
29. Suspension of Concessionaires Rights
30. Termination
31. Divestment of Rights and Interest
32. Defects Liability After Termination
PART VI—Other Provisions 33. Assessment Assignment and Charges
34. Change in Law
35. Liability and Indemnity
36. Rights and Title Over the Site
37. Dispute Resolution
38. Disclosure
39. Redressal of Public Grievances
40. Miscellaneous
Schedules A. Site of The Project
B. Development of The Project
C. Project Facilities
D. Specifications and Standards
E. Applicable Permits
F. Performance Security
G. Project Completion Schedule
H. Drawings
I. Tests
J. Completion Certificate
K. Maintenance Requirements
L. Safety Requirements
M. Selection of Independent Engineer
N. Terms of Reference for Independent Engineer
O. Escrow Account Agreement
P. Panel of Chartered Accountants
Q. Vesting Certificate
R. Substitution Agreement
S. Procedure for Dispute Resolution Board
92 7 Contract Review—Model Concession Agreement (MCA)

In the subsequent sections, the chapter provides a detailed discussion and com-
mercial review of this model concession agreement. The provisions of various
articles/sections are explained in summary; and such explanation is accompanied
by numerical examples and competitions through the use of case study of Project
Highway elaborated in Chap. 6 of the book. It is pertinent to mention here that
the readers need to have an understanding of the case study of Project Highway
so that they can understand the numerical computations (highlighted in color box)
provided in this chapter; which would help the readers to develop detailed financial
projections for any HAM based road PPP project.

7.2 Development and Operations

Based on the past experience of project tendered till date, the construction period
for such projects typically ranges from 2 years to 2.5 years; and the operation
period is 15 years for such projects. Given below are the key clauses of PART
III of MCA document during construction and operations period of a HAM based
PPP road project (Table 7.2).

Table 7.2 Key Articles—PART III of Model Concession Agreement (MCA) for HAM PPP
projects
MCA Reference Item Description
Article 4 Conditions The Authority needs to satisfy the below mentioned conditions precedent
Precedent within a period of 120 days from the date of issue of notice by the conces-
sionaire (upon payment of performance security)
• Procurement of the right of way to the site for the concessionaire
• Procurement of all applicable permits regarding environmental
protection and conservation in respect of the land forming part of the
right of way
• Forest clearance for the land
• Approval of general arrangement drawings for the road over
bridges/under bridges at level crossings, if applicable
The Concessionaire needs to fulfill the below mentioned condition prece-
dents within 150 days from date of Agreement:
• Submission of performance security to Authority
• Execution of escrow agreement and substitution agreement
• Procurement of applicable permits for the project
• Execution of financing agreement
• Delivery to the Authority a copy of financial package, financial model
submitted to financial lenders
• Confirmation on representations and warranties as per clause 7 of the
Agreement
In case of delay of such conditions precedent due to Concessionaire’s fault,
it will pay damages at a rate of 0.3% of performance security for each day
of delay, subject to maximum limit equal to amount of bid security

Project Highway
Performance security—3% of estimated project cost = 3% * 1200 =
INR 36 Cr Concessionaire to pay damages at a rate of INR 10.8 lakhs
for each day of delay of CPs beyond 150 days

(continued)
7.2 Development and Operations 93

Table 7.2 (continued)

MCA Reference Item Description
Article 9 Performance • The concessionaire to provide performance security to authority within
Security 30 days from the date of the agreement and until search performance
security is provided by the concessionaire, the bid security remains in
force and effect. In the event performance security is not provided
within 30 days from the date of the agreement, the Authority may
encash the bid security and Agreement shall be terminated.
• Authority may encash performance security in event of Concessionaire
default under Agreement; and Concessionaire to replenish the same
within 15 days of such encashment.
• Performance Security should remain in force of a period of 1 year from
Appointed Date but shall be released earlier upon expense of more than
30% of bid project cost.
Project Highway
Appointed Date = 13 November 21
Bid Project Cost (BPC) = INR 1500 Cr
Concessionaire to provide INR 36 Cr as performance security to remain in
force for a period earlier of:
– 13 November 22 (1 year from Appointed Date—13 November 21)
– Upon expense of more than INR 450 Cr (=30% * 1500 Cr) by
Concessionaire
• The concessionaire may need to provide additional performance security
to the Authority if the Bid Project Cost of the selected bidder is lower by
more than 10% with respect to the Estimated Project Cost (as estimated
by the Authority).
Article 10 Right of Way • The Authority shall grant vacant access and Right of Way to the extent
of at least 80% of the length of the project to the Concessionaire. In the
event of financial close is delayed on account of delay in grant of such
vacant access and right of way, the Authority shall be liable to pay the
damages to the Concessionaire (under provisions of Article
4—Conditions Precedent)
• The right of way for the remaining project site to be procured by
Authority within 90 days of Appointed Date and in the event of delay,
the Authority shall pay damages @Re. 1 per 10 m2 for 90 days. Post a
delay of 180 days, the remaining site is removed from scope of work of
concessionaire (as per Article 16—Change of Scope)
Project Highway
– Authority to procure RoW for 80% of project length (i.e. 80% of 50
km = 40 km) before Appointed date i.e. 13 November 21
– RoW for remaining 10 km within 90 days i.e. 10 February 22
• Authority is not liable for vacant plots and building; and these are
deemed as right of way granted to concessionaire. Any encroachment on
vacant land subsequently is responsible of Concessionaire in terms of
costs and effort.
Article 11 Utilities, • The concessionaire shall undertake shifting of any utility (including
Associated electric lines, water pipes and telephone cables) to an appropriate
Roads and location alignment, if search utility or obstruction adversely affects the
Trees execution of works or maintenance of the project as per the Agreement.
The cost of shifting of such utilities is assumed to be part of the Bid
Project Cost.
• The concessionaire shall execute such utilities shifting works under the
supervision of utility owing agency and Independent Engineer (IE). The
supervision charges only shall be paid by the authority to the utility
owning entity.
(continued)
94 7 Contract Review—Model Concession Agreement (MCA)

Table 7.2 (continued)

MCA Reference Item Description
Article 12 Construction Project Construction:
of the Project • The completion schedule of the project, along with each milestone is
defined in Schedule-G of the Agreement which includes the different
construction milestones as well as Scheduled Commercial Operation
Date (SCOD) of the Project.
• In the event that the concessionaire fails to achieve any project milestone
within a period of 90 days from the date set forth Schedule-G, it shall
pay damages to the authority @0.1% of the amount of performance
security for each day until such project milestone is achieved.
• In the event that the project is not completed, and commercial operation
date (CoD) does not occur within 270 days from the scheduled
completion date, the authority is entitled to terminate the Agreement
Project Highway
Performance Security = INR 36 Cr
Scheduled CoD = 12 May 24
– Concessionaire to pay damages at rate of INR 3.6 lakhs (0.1% * 36
Cr) for each day of delay in each construction milestone
– Authority can terminate Agreement is project not commissioned by 6
February 25 i.e. 270 days from scheduled CoD of 12 May 24
Project Maintenance during Construction Period:
• Concessionaire, at its own cost, to ensure that existing/completed
highway is in pothole free condition and ensure safe operation. In the
event of default, the Authority may recover damages @0.2% of
performance security for each day of default.
Article 13 Monitoring of Monthly progress reports:
Construction • Concessionaire to provide monthly construction progress reports, within
7 days of closing of each month to Authority and independent engineer
(IE).
Inspection:
• During the construction period, the IE shall inspect construction each
month and prepare Inspection Report; and Concessionaire shall rectify
any defects identified in Inspection Report.
Tests:
• Concessionaire to do multiple tests as recommended by IE to check
construction quality; and 50% cost of such tests, as approved by IE, will
be reimbursed by Authority to Concessionaire
• Any defects identified during such tests are to be rectified by
Concessionaire at its own cost.
Video recording:
• During the construction period, the concessionaire shall provide 03 hour
video recording to the Authority every calendar quarter showcasing the
status and progress of construction works in that quarter.
Article 14 Completion • Concessionaire to notify IE, 30 days prior to likely completion date, so
certificate that IE can perform necessary tests required for completion as per
Schedule-I.
• Cost of all such tests to be borne by Concessionaire
• Upon successful tests, Completion Certificate/CC (as per Schedule-J)
will be issued by IE to Authority and Concessionaire
• Upon request by Concessionaire, IE can issue Provisional Certificate/PC
in case project can be safely put into operation, but certain works are not
yet complete (such items are attached with provisional certificate as
punch list).
• Punch list to be completed by the Concessionaire within 90 days of
issuance of such provisional certificate for the Project.
(continued)
7.2 Development and Operations 95

Table 7.2 (continued)

MCA Reference Item Description
Article 15 Entry into • Commercial Operation Date (COD) for the project is defined as date of
Commercial issue of completion certificate or provisional certificate, as the case may
Service be.
• In the event that COD does not occur prior to 91st day after the
Scheduled Completion Date defined in Agreement and such delay is not
due to Authority default or Force Majeure, then damages are payable by
Concessionaire @0.2% of Performance Security for each day of delay
until COO is achieved.
Project Highway
Performance Security = INR 36 Cr
Scheduled CoD = 12 May 24
– If concessionaire achieves all construction milestone except the last
milestone, then if there is a delay of more than 90 days from scheduled
CoD in such last milestone i.e. the CoD occurs post 9 August 24, Con-
cessionaire to pay additional INR 7.2 lakhs (0.2% * 36 Cr) for each day
of delay till CoD is achieved.

Article 16 Change in • This Article of the Agreement is applicable in case there is any change
Scope in scope of work of Concessionaire i.e., reduction or addition in scope of
the Project.
• All costs for such Change in Scope to be agreed between Concessionaire
and Authority with assistance from IE; and the same to be reimbursed to
Concessionaire. Further, the Authority reserves the right to undertake
additional work through open competitive bidding; and the
concessionaire shall have the option to match the first ranked bidder in
case of such bid process.
• In case Change in Scope leads to reduction or increase in length of the
project, O&M costs payable during Operation Period to be reduced or
increased in same proportion.
Article 17 Operation During the operation, the concessionaire shall operate and maintain the
and Project in accordance with the agreement either by itself, or through the
Maintenance O&M contractor to ensure a smooth, safe and uninterrupted use of the
project. The concessioner shall ensure that at all times during the
operation., the project conforms to Schedule K (Maintenance
Requirements) of the Agreement.
Maintenance Manual:
• Concessionaire to prepare a maintenance manual in consultation with IE
for regular and preventive maintenance of the project within 90 days of
CoD.
• Such manual to be updated every 3 years
Maintenance Program:
• Concessionaire to provide proposed annual program of preventive,
urgent and scheduled maintenance to Authority and IE on and before
CoD; and within 45 days of start of each accounting year.
Project Closure and Re-opening:
• Written approval required from IE (copy to Authority) for any project
closure by Concessionaire
• In case of delay in re-opening such closed part, Concessionaire to pay
damages @0.5% of Performance Security for each day of delay till such
closed part has been re-opened
(continued)
96 7 Contract Review—Model Concession Agreement (MCA)

Table 7.2 (continued)

MCA Reference Item Description
Damages for breach of maintenance obligations:
• In case Concessionaire fails to repair or rectify any defect, it shall be
considered as breach of maintenance obligations; and Authority can
recover damages from Concessionaire payable for each day of delay till
breach is cured.
• Such damages are computed as higher of:
i. 2% of Performance Security
ii. 0.1% of cost of repair as estimated by IE
Authority’s right for remedial measures:
• In case of any breach, if Concessionaire doesn’t take any remedial
action within 15 days of such breach, Authority can take remedial action
and recover from concessionaire below costs:
i. Cost of repair; and
ii. Additional 20% of cost as damages
• The above amounts to be recovered by Authority from the Escrow
Account opened as per Agreement
Overriding Powers of Authority:
• In case of any material breach and failure of Concessionaire to take
action to rectify the same, Authority can take over performance of any
or all obligations of Concessionaire
• Any costs incurred by Authority shall be deemed as O&M expenses
which Authority can recover from Concessionaire along with damages
specified in Clause 17.9 above
Modifications to the Project:
• For any material modifications to the project, Concessionaire to notify
IE and reasonably incorporate IE’s suggestions, if any
Installation and operation of CCTV
• Concessionaire to install and operate CCTV as necessary for safe and
secure operation of the project
Advertisement on the Site
• Concessionaire to ensure no commercial advertisements, hoarding on
the Site of the Project
Article 18 Safety • Concessionaire to develop, implement and administer a safety program
Requirements to meet requirements of Schedule-L (Safety Requirements) of the
Agreement
• Concessionaire to appoint a firm to perform safety audits and to bear all
costs for the same
Article 19 Monitoring of Monthly Status Report:
Operation • The Concessionaire to submit a monthly status stating the condition of
and the project including its compliance with the maintenance requirements,
Maintenance maintenance manual, maintenance program and safety requirements.
• Such report is to be submitted within 7 days after close of each month.
Monthly management report:
• The Concessionaire to submit, no later than 10 days after close of each
month, a monthly management report with a summary of below items:
a) Performance indicators achieved
b) Operational hurdles, if any
c) Financial parameters
Inspection:
• During the operation period, the independent engineer (IE) will prepare
a O&M Inspection Report each month within 7 days of such monthly
inspection and send a copy to Authority and Concessionaire.
(continued)
7.2 Development and Operations 97

Table 7.2 (continued)

MCA Reference Item Description
Test:
• IE shall require Concessionaire to carry out certain tests, according to
Good Industry Practice, to determine if project conforms to maintenance
requirements
• 50% cost of such tests, after certification from IE, shall be reimbursed
by Authority to the Concessionaire
Remedial measures:
• In case of any rectification of breach takes more than 15 days from the
breach, Concessionaire to submit a weekly remedial measures report to
Authority till remedy is complete
Report of unusual occurrences:
• The concessionaire to submit such report. within 3 days of closing of
each week and month, with a summary of below items:
a) Death or injury to any person
b) Damage of equipment
c) Damage or obstruction on the Project
d) Smoke, fire, flooding etc.
Article 20 Regulation Police Assistance and recurring expenditure:
and • Authority will assist Concessionaire to procure police assistance for
Management regulation of project as per applicable laws
• Concessionaire to construct, at its own cost, buildings for traffic aid
posts as required 60 days prior to CoD
• Recurring expenditure for operating cost of one police vehicle; along
with operating costs (fuel, salaries and allowance of chauffeur) to be
borne by Concessionaire
Medical Aid Posts and recurring expenditure
• Medical aid-posts required for providing emergency medical-aid during
operation period
• Concessionaire to construct, at its own cost, an aid post building and 2
residential quarters 30 days prior to CoD and hand them over to
Authority
• Below recurring expenditure on medical aid posts to be borne by
Concessionaire
a) Operating cost of one ambulance; along with operating costs (fuel,
salaries and allowance of round-the-clock chauffeurs)
b) Actual expenditure every year made by State Medical Department on
medical equipment, pay and allowances of 2 medical personnel
deployed for Medical Aid Posts
c) Maintenance expenses of Medical Aid Post buildings
Article 21 Independent Independent Engineer remuneration:
Engineer • Authority will appoint a engineering consulting firm as IE within 60
days of the Agreement
• Concessionaire shall reimburse 50% of remuneration, costs and
expenses of the IE to Authority within 15 days of receiving a statement
of expenditure from Authority
98 7 Contract Review—Model Concession Agreement (MCA)

7.3 Financial Covenants

Given below are the key clauses of PART IV of MCA document during construc-
tion and operations period of a HAM based PPP road project. Detailed numerical
computations are included to explain each article/section herein.

MCA Item Description

Reference
Article 22 Financial Financial Close:
Close • The concessionaire to achieve financial close for an amount not lower than
either:
– Total Project Cost; or
– 10% less than (Estimated Project Cost minus 40% of Bid Project Cost)

Project Highway
Bid Project Cost = INR 1500 Cr
Estimated Project Cost = INR 1200 Cr
– Total Project Cost = 60% of Bid Project Cost = 60% * 1500 Cr = INR 900
Cr
– 10% less than (Estimated Project Cost − 40% of Bid Project Cost)
= (1200 − 40% * 1500) * (1–10%)
= (1200 − 600) * 90%
= INR 540 Cr
Minimum amount of financial close (total debt and equity financing) is lower of
the above two amounts = INR 540 Cr
• Concessionaire to achieve Financial Close of the project within 150 days of
Agreement

Project Highway
– Date of signing of concession agreement = 29 April 21
– Financial close to be completed by 26 September 21 (150 days from 29 April
21)
• In event of delay beyond 150 days, Concessionaire is entitled to additional 120
days, subject to payment of damages to Authority @0.05% of performance
security for each day of such delay. In event of delay beyond 270 days,
Concessionaire may be granted additional 95 days, subject to payment of
damages to Authority @0.1% of performance security for each day of such
delay.
• In case Financial Close does not occur even after additional periods, the
Agreement shall stand terminated and Authority will encash the bid security to
appropriate the proceeds as damages
Project Highway
For delay beyond 26 September 21,
– Concessionaire to pay damages of INR 3 lakhs for each day of delay till 120
days; and
– INR 6 lakhs for additional 95 days.
In case of further delay, the Authority can terminate Agreement and encash bid
security of INR 8 Cr
7.3 Financial Covenants 99

MCA Item Description

Reference
Article 23 Payment of Adjusted Bid Project Cost:
Bid Project • Bid Project Cost shall be adjusted for Price Index Multiple (PIM) every month
Cost— which refers to the change in Reference Index from the bid submission date
Construction • Reference Index comprises of 70% WPI and 30% CPI
Period
Project Highway
– Price Index = 4% as per case study assumption.
Payment of Bid Project Cost:
• 40% of such adjusted Bid Project Cost is payable to Concessionaire in 10 equal
installments of 4% each during the Construction Period
• The remaining 60% of adjusted Bid Project Cost, shall be due and payable in 30
biannual installments commencing from the 180th day of COD during the
operation period.
Payment during Construction period:
• Total 10 payment milestones during construction period; and 4% of Bid Project
Cost (adjusted for Price Index Multiple) paid by Authority to the Concessionaire
upon achievement of each milestone.

Payment Description
Milestone
1 On achievement of 5% Physical Progress
2 On achievement of 10% Physical Progress
3 On achievement of 20% Physical Progress
4 On achievement of 30% Physical Progress
5 On achievement of 40% Physical Progress
6 On achievement of 50% Physical Progress
7 On achievement of 60% Physical Progress
8 On achievement of 70% Physical Progress
9 On achievement of 80% Physical Progress
10 On achievement of 90% Physical Progress

Project Highway
Payments to be made by Authority for each payment milestone is provided in the
table below:

Milestone Construction Price Adjusted Payment

progress Index Bid Project by
Multiple Cost as per Authority
(PIM) PIM to Conces-
sionaire

# % (INR Cr) (INR Cr)

A B D = 1500 * D = 4% *
B/100 C

1 5% 104.00 1560.00 62.40

2 10% 105.02 1575.37 63.01

100 7 Contract Review—Model Concession Agreement (MCA)

MCA Item Description

Reference

3 20% 106.06 1590.89 63.64

4 30% 107.10 1606.57 64.26

5 40% 108.16 1622.40 64.90

6 50% 109.23 1638.39 65.54

7 60% 109.23 1638.39 65.54

8 70% 110.30 1654.53 66.18

9 80% 111.39 1670.83 66.83

10 90% 112.49 1687.30 67.49

Total 649.79
Bonus on early completion
• In case COD is achieved 30 days prior to scheduled completion date, Authority
will pay Concessionaire a bonus @0.5% of 60% of Bid Project Cost for first 30
days by which CoD precede the scheduled completion date and thereafter, such
bonus is calculated on pro-rata basis for each day preceding the 30 days’ period.
Project Highway
Illustrative computations of Early Payment Bonus under different scenarios is
provided below:

Scenario CoD date Number Bonus payable by Author-

of days ity
of early
comple-
tion

A B C = (12 D = (C/30) * (0.5% * 60%

May 24) − * 1500) only if C >= 30, else
B NIL
1
15 April 24 27 –

2
1 April 24 41 6.15

3
15 March 24 58 8.70
7.3 Financial Covenants 101

MCA Item Description

Reference
Mobilization Advance:
• Authority shall, upon request, make an advance payment of maximum 10% of
Bid Project Cost to Concessionaire (Mobilization Advance) in 2 equal
installments in the following manner:
i. First installment can be requested at any time after Appointed Date, after
furnishing a bank guarantee by Concessionaire
ii. Second installment can be requested at any time 60 days after Appointed
Date, after furnishing a bank guarantee by Concessionaire
• Rate of interest on Mobilization Advance shall be Equal to the average of 1
year MCLR of top five scheduled commercial banksa plus 1.25%, compounded
annually
• The Mobilization Advance to be recovered by Authority in 8 equal installments
from each of the payments during construction period; and the interest shall be
recovered from the 9th and 10th installments.
Project Highway
Bid Project Cost = INR 15000 Cr
1 year MCLR of top 5 scheduled commercial banks = 7.25%
• Mobilization Advance amount
= 10% * 1500 Cr = INR 150 Cr
• Applicable Interest Rate = 1 year MCLR + 1.25%
= 7.25% + 1.25% = 8.50% per annum

Article 23 Payment of Annuity Payments during Operation Period:

Bid Project • The Completion Cost for the project to be computed based on adjustment of
Cost— Bid Project Cost (as per applicable escalations in Price Index Multiple
Operation applicable) at time of each of the 10 construction milestones and upon COD.
Period Project Highway
Calculation of Completion Cost

% of Bid Amount of Price Completion Cost Compu-

Project Bid Project Index tation
Cost to be Cost to be
adjusted adjusted

(%) (INR Cr) (INR Cr)

A B = A * 1500 C D = B * C/100

5% 75 104.00 78.00

5% 75 105.02 78.77

10% 150 106.06 159.09

10% 150 107.10 160.66

10% 150 108.16 162.24

10% 150 109.23 163.84

10% 150 109.23 163.84

102 7 Contract Review—Model Concession Agreement (MCA)

MCA Item Description

Reference

10% 150 110.30 165.45

10% 150 111.39 167.08

10% 150 112.49 168.73

10% 150 113.59 170.39

Completion Cost 1,638.09

• Since a part of this Completion Cost is already paid by Authority to

Concessionaire during construction, remaining cost to be paid by Authority in
biannual installments over a period of 15 years
Project Highway
Calculation of Completion Cost due

Completion A 1,638.09
Cost (INR
Cr)

Completion B 649.79
Cost paid

Completion C=A−B 988.30

Cost due
(payable
as annu-
ity during
operation
period)

• The completion cost remaining to be paid shall be due and payable in BI annual
installments over a period of 15 years commencing from COD (Annuity
Payments)
• The first such annuity payment shall be paid after 180 days of CoD; and the
Remaining installments shall be due and payable within 15 days of completion
of each successive months (Annuity Payment Date).
• The schedule of annuity payments (as a % of remaining Completion Cost) is
provided below.
Installment Annuity (as % of Completion Cost due)
1 2.10%
2 2.17%
3 2.24%
4 2.31%
5 2.38%
6 2.45%
7 2.52%
8 2.60%
9 2.68%
7.3 Financial Covenants 103

MCA Item Description

Reference
10 2.76%
11 2.84%
12 2.93%
13 3.02%
14 3.11%
15 3.20%
16 3.30%
17 3.40%
18 3.50%
19 3.61%
20 3.72%
21 3.83%
22 3.94%
23 4.06%
24 4.18%
25 4.25%
26 4.25%
27 4.44%
28 4.71%
29 4.75%
30 4.75%
• Interest Shall be due and payable on the reducing balance of completion costs
at an interest rate equal to average of 1 year MCLR of top five scheduled
commercial banksb plus 1.25% . Such interest shall be due and payable
biannually along with each installment.
Project Highway
Interest Rate payable = 1 year MCLR + 1.25%
= 7.25% + 1.25% = 8.50% per annum
Calculation for the semi-annual payments is shown in the table below.

Installment Annuity Annuity Outstanding Interest

Amount amount for
Interest
computa-
tion

# % (INR Cr) (INR Cr) (INR Cr)

A B C D E = (D *
8.50%)/2

1 2.10% 20.75 967.55 53.19

2 2.17% 21.45 946.10 40.89

104 7 Contract Review—Model Concession Agreement (MCA)

MCA Item Description

Reference

3 2.24% 22.14 923.96 40.21

4 2.31% 22.83 901.14 39.05

5 2.38% 23.52 877.61 38.30

6 2.45% 24.21 853.40 37.09

7 2.52% 24.91 828.49 36.27

8 2.60% 25.7 802.80 35.21

9 2.68% 26.49 776.31 34.12

10 2.76% 27.28 749.04 32.81

11 2.84% 28.07 720.97 31.83

12 2.93% 28.96 692.01 30.47

13 3.02% 29.85 662.16 29.41

14 3.11% 30.74 631.43 27.99

15 3.20% 31.63 599.80 26.84

16 3.30% 32.61 567.19 12.75

17 3.40% 33.60 533.59 23.97

18 3.50% 34.59 498.99 22.93

19 3.61% 35.68 463.32 21.09

20 3.72% 36.76 426.55 19.91

21 3.83% 37.85 388.70 18.03

22 3.94% 38.94 349.76 16.70

23 4.06% 40.13 309.64 14.78

24 4.18% 41.31 268.32 13.23

25 4.25% 42.00 226.32 11.34

26 4.25% 42.00 184.32 9.73

7.3 Financial Covenants 105

MCA Item Description

Reference

27 4.44% 43.88 140.44 7.79

28 4.71% 46.55 93.89 6.03

29 4.75% 46.94 46.94 3.97

30 4.75% 46.94 0.00 2.02

Total 988.30 737.97

O&M Payments:
• Lump sum O&M Payments is payable by Authority as per the submitted bid by
Concessionaire and reflected in the Agreement, adjusted for inflation as per
Price Index Multiple on the Reference Date preceding the due date of payment.
• Any O&M expenses beyond such O&M Payments to be borne solely by
Concessionaire
Project Highway
Computation of O&M Costs during the Operation Period is provided below:
Price Index as on Bid-date = 100
First Year O&M cost quoted by the bidder = INR 5 Cr

O&M Pay- Price Index O&M Payment Amount

ment Num- Multiple
ber

# # (INR Cr)

A B C = B * 5/100/2

1 115.84 2.90

2 118.14 2.95

3 120.48 3.01

4 122.86 3.07

5 125.30 3.13

6 127.78 3.19

7 130.31 3.26

8 132.89 3.32

9 135.52 3.39

10 138.21 3.46
106 7 Contract Review—Model Concession Agreement (MCA)

MCA Item Description

Reference

11 140.94 3.52

12 143.73 3.59

13 146.58 3.66

14 149.48 3.74

15 152.44 3.81

16 153.95 3.85

17 156.99 3.92

18 160.10 4.00

19 163.27 4.08

20 166.51 4.16

21 169.80 4.25

22 173.17 4.33

23 176.60 4.41

24 180.09 4.50

25 183.66 4.59

26 187.30 4.68

27 191.01 4.78

28 194.79 4.87

29 198.65 4.97

30 202.58 5.06

Total 116.47
7.3 Financial Covenants 107

MCA Item Description

Reference
Article 25 Escrow • Concessionaire to establish an Escrow Account prior to the Appointed Date
Account and maintain the same during concession period
• Deposits in Escrow Account comprise:
i. All debt and equity funds for the project
ii. All revenues from the project including any rentals, deposits, insurance
proceeds etc.
iii. All payments by Authority
• Waterfall/order of Withdrawal from Escrow Account as below:
i. Taxes due and payable for the Project
ii. Construction Payments/expenses
iii. O&M expenses (concessionaire and Authority)
iv. Any amounts due to Authority
v. Debt service
vi. Damages payable to Authority
vii. Debt service for senior debt
viii. Reserve requirements
ix. Balance, if any, to be distributed as per instructions from concessionaire
Article 26 Insurance • Concessionaire to effect and maintain, at its own cost, during the Construction
and Operation Period, such insurance as per Good Industry Practice including
below items:
i. Property loss/damage insurance
ii. Third Party liability
iii. General liability
iv. Workmen’s compensation
v. Any other insurance deemed necessary by concessionaire to protect it and its
employees
• Concessionaire shall provide detailed information about the planned insurance
45 days prior to start of construction or operation period, as the case may be
• Within 15 days of obtaining insurance cover, Concessionaire to submit
notarized true copies of insurance certificates to Authority
• In case Concessionaire doesn’t procure the required insurance, Authority can
choose keep in force all necessary insurance and recover cost of all premiums
from Concessionaire
Article 27 Accounts Audited Accounts:
and Audit • Concessionaire to submit below accounts to Authority
a) Audited accounts, within 180 days from close of Accounting year
b) Quarterly financials (unaudited), within 30 days of close of each quarter of
Accounting Year
• On or before 31st May of each year, a statement (audited by Statutory Auditors)
with a summary of revenues from Project and any other information reasonably
enquired by Authority
Appointment of Auditors:
• Concessionaire shall appoint statutory auditors for the project from a mutually
agreed list (between Concessionaire and Authority) of 5 reputable chartered
accountants (Panel of Chartered Accountants)
• Concessionaire to bear all fees and expenses of such auditors
Certification of claims by Statutory Auditors:
• Any claim or document provided by the concessionaire to the authority in
connection with or relating to receipts, income, payments, costs, expenses,
accounts or audit, and any matter incidental thereto shall be valid and effective
only if certified by its statutory auditors.
a The Authority shall declare the list of top five scheduled commercial banks on 1st September every calendar

based on the balance sheet size as declared in the annual reports. The one year MCLR are of the top five scheduled
commercial banks shall be taken at the start of every quarter
b The Authority shall declare the list of top five scheduled commercial banks on 1st September every calendar

based on the balance sheet size as declared in the annual reports. The one year MCL are of the top five scheduled
commercial banks shall be taken at the start of every quarter
108 7 Contract Review—Model Concession Agreement (MCA)

7.4 Force Majeure and Termination

This section, along with the relevant clauses in MCA, provides a summary of dif-
ferent types of force majeure events, corresponding costs and its allocation among
Concessionaire and Authority.

MCA Reference Item Description

Article 28 Force Majeure Force Majeure:
The expression force majeure or force majeure
event, save and except as expressly provided
otherwise, mean occurrence in India of any or
all of non-political event, indirect political event
and political event, as described below.
Non-Political Event (NPE):
• Covers one or more of the below events:
a) Act of god, epidemic, earthquake etc.
b) Strikes or boycotts interrupting supplies and
services to project
c) Court judgements
d) Discovery of poor geological conditions, toxic
contamination or archaeological remains
e) Any other event of nature analogous to
aforementioned events
Indirect Political Event (IPE):
• Covers one or more of the below events:
a) Act of war, invasion etc.
b) Political or economic upheaval
c) Industry-wise or state-wide strikes or
industrial action
d) Failure of Authority to permit Concessionaire
to continue construction
e) Any indirect PE that causes NPE
f) Any other event of nature analogous to
aforementioned events
Political Event (PE):
• Covers one or more of the below event due to
action of any government agency
a) Change in law
b) Compulsory acquisition of Project for national
interest or expropriation
c) Unlawful revocation or refusal to renew or
grant any government approvals required by
Concessionaire
d) Any other event of nature analogous to
aforementioned events
Effect of Force Majeure
• If Force Majeure event occurs before CoD, an
extension will be granted in Scheduled
Completion Date
• If Force Majeure event occurs after CoD,
Concessionaire is entitled to receive Annuity
payments plus interest due and payable under
Agreement
7.4 Force Majeure and Termination 109

MCA Reference Item Description

Allocation of Force Majeure Costs
• Force Majeure costs to cover interest payments
on debt due, O&M expenses, any increase in
cost of construction due to inflation and all
other costs directly attributable to Force
Majeure event
• Costs incurred or attributable to force majeure
event to be allocated and paid as follows:
a) NPE—each party to bear respective costs
b) IPE—Force Majeure costs to be borne by
Concessionaire to the extent of insurance
cover, 50% of excess amount (above insurance
cover) to be reimbursed by Authority
c) PE—Force Majeure costs reimbursed by
Authority
Termination due to prolonged Force Majeure:
• if any Force Majeure event persists for 180
days or more in a continuous period of 360
days, either party has the discretion to
terminate the Agreement by issuing a 15 days’
notice of such termination
Article 30 Suspension of Suspension upon Concessionaire Default:
Concessionaire Rights • Upon occurrence of a concessionaire default,
the authority shall be entitled to suspend all
rights of the concessionaire and exercise such
rights itself and perform the obligations or
authorize any other person to exercise or
perform the same on its behalf during such
suspension.
Revocation of suspension:
• In the event that authority rectifies or removes
the cause of suspension within a period not
exceeding 90 days from the date of suspension,
it shall revoke the suspension and restore all
rights of the concessionaire
• Upon the concessioner having cured the
concessional default within a period not more
than 90 days from the date of suspension,
authority shall revoke the suspension forthwith
and restore all the rights of concession under
the agreement
Substitution of concessionaire
• During period of suspension, the lender’s
representative, on behalf of senior lenders, shall
be entitled to substitute the concessionaire
under and in accordance with the substitution
agreement.
110 7 Contract Review—Model Concession Agreement (MCA)

MCA Reference Item Description

Article 31 Termination Termination for Concessionaire Default:
• In case of Concessionaire default and no
remedy within the cure period as defined for
various types of default (minimum 60 days),
Authority can terminate the Agreement with a
15 days’ notice to Concessionaire and lenders
to the project
• Authority shall pay the below mentioned
termination payment
– During Operation Period—65% of the sum
of annuity payments remaining unpaid for
and respect of the concession, including
interest thereon.
– During Construction Period—Termination
payment shall be based on the payment
milestone achieved rich is in terms of the
physical progress made by the
concessionaire in the project; and shall be as
per the table below:
Payment Milestone Termination Payment
1 NIL
2 NIL
3 50% of debt due or 3.00%
of Bid Project Cost,
whichever is lower
4 55% of debt due or 5.78%
of Bid Project Cost,
whichever is lower
5 60% of debt due or 9.00%
of Bid Project Cost,
whichever is lower
6 65% of debt due or
12.68% of Bid Project
Cost, whichever is lower
7 70% of debt due or
16.80% of Bid Project
Cost, whichever is lower
8 75% of debt due or
21.38% of Bid Project
Cost, whichever is lower
9 80% of debt due or
26.40% of Bid Project
Cost, whichever is lower
10 85% of debt due or
31.88% of Bid Project
Cost, whichever is lower
7.4 Force Majeure and Termination 111

MCA Reference Item Description

Termination for Authority Default
• In case of Authority default and no remedy
within the cure period as defined for various
types of default (minimum 90 days),
Concessionaire can terminate the Agreement
with a 15 days’ notice to Authority
• Authority shall pay the below mentioned
termination payment
– During Operation Period—100% of the sum
of annuity payments remaining unpaid for
and respect of the concession, including
interest thereon.
– During Construction Period—sum of 150%
of adjusted equity invested in the project
Debt due payment calculated as per table
below less Insurance Cover
Payment Milestone Termination Payment
1 Debt due or 0.75% of Bid
Project Cost, whichever is
lower
2 Debt due or 1.50% of Bid
Project Cost, whichever is
lower
3 Debt due or 6.00% of Bid
Project Cost, whichever is
lower
4 Debt due or 10.50% of
Bid Project Cost,
whichever is lower
5 Debt due or 15.00% of
Bid Project Cost,
whichever is lower
6 Debt due or 19.50% of
Bid Project Cost,
whichever is lower
7 Debt due or 24.00% of
Bid Project Cost,
whichever is lower
8 Debt due or 28.50% of
Bid Project Cost,
whichever is lower
9 Debt due or 33.00% of
Bid Project Cost,
whichever is lower
10 Debt due or 37.50% of
Bid Project Cost,
whichever is lower
112 7 Contract Review—Model Concession Agreement (MCA)

MCA Reference Item Description

Article 32 Divestment of Rights Divestment requirements:
and Interest • The concessionaire shall comply with following
divestment requirements:
a) Notify the location and particulars of all
project assets
b) Deliver the actual or constructive possession
of the project, free and clear of all
encumbrances
c) Cure all the project assets, including the road,
bridges, structures and equipment, of all
defects and deficiencies
d) Deliver and transfer relevant records, reports,
intellectual property and other licenses
pertaining to the project
e) Transfer and deliver all applicable permits
f) Execute such deeds of conveyance, documents
and other writings as authority may require for
divestment of all rights, title and interest of the
concessionaire in the project assets
g) Comply with all other requirements as maybe
required under applicable laws for completing
the divestment
Inspection and cure:
• The independent engineer, at prior to
termination, shall verify compliance by the
concession with the maintenance requirements,
and if required, Cause S to be carried out at the
concessionaire’s cost for this purpose.
• Defaults, if any, in the maintenance
requirements shall be cured by concessioner at
its own cost.
Vesting Certificate:
• The divestment of all rights, title and interest in
the project shall be deemed to be complete on
the date when all the divestment requirements
have been fulfilled, and the authority shall issue
a certificate substantially in the form set forth
in schedule Q (the Vesting certificate)
Article 33 Defects Liability After Liability for Defects After Termination:
Termination • The concessionaires shall be responsible for all
defects and deficiencies in the project for a
period of 120 days after termination , and it
shall have the obligation to repair or rectify, at
its own cost, all such defects and deficiencies
• In case search effects repaired by the authority,
costs incurred shall be reimbursed by the
concessionaire. In the event the concessioner
does not reimburse such costs, the authority
shall be entitled to recover the same from the
funds retained in the escrow account all from
the performance guarantee provided by the
concessionaire
7.5 Changes to Model Concession Agreement (MCA)—June 22 Update 113

MCA Reference Item Description

Retention in Escrow Account:
• A sum equal to 15% of the annuity payment
due and payable immediately preceding the
transfer date shall be retained in the escrow
account for a period of 120 days after
termination for meeting the liabilities of
concessionaire, if any, arising as for defects
after termination
• In lieu of such retention, the concessionaire
may provide a bank guarantee for the same
amount in the format provided in scheduled F
(the :performance guarantee)

7.5 Changes to Model Concession Agreement (MCA)—June

22 Update

The Ministry of Road Transport and Highways (MoRTH), vide office memo-
randum dated 23 May 22, introduced a series of changes to Model Concession
Agreement (“MCA”) for PPP projects tendered in the roads sector in India under
the Hybrid Annuity Model (“HAM”). These changes were further ratified and
finalized by National Highways Authority of India (“NHAI”) via notification dated
17 June 22.
These changes primarily aim to ensure that the awarded bidders have an incen-
tive to operate the project for majority period of the concession period, thus helping
to avoid cross-allocation of operating costs on to the construction cost. Also, clarity
has been provided on treatment of GST for O&M payments during the operation
period. This brings further clarity to bidders on their returns due to consistent tax
and accounting assumptions for bids on HAM road projects in India.
This chapter provides a detailed analysis for these changes, and their impact on
the financial projections for such projects. We have used a case study of “Project
Highway” is used to explain the impact of various changes made to the MCA for
Hybrid Annuity Projects in India.
Key relevant assumptions are as below:

• Cost of construction (civil and structural work) is INR 1200 Cr.

• O&M cost to be incurred each year = INR 4 Cr.
• Major Maintenance = During 7th year and the 14th year of operation period.
• ACPL has quoted Bid Project Cost = INR 1500 Cr in respect of construction
activity
• ACPL has quoted O&M cost = INR 5 Cr per year in respect of O&M activities
which is payable during the operation and maintenance period.
• Price Index is 4% per annum.
114 7 Contract Review—Model Concession Agreement (MCA)

7.5.1 Changes in Bidding Process

Erstwhile Provision Updated Provision w.e.f June 22

ACPL’s bid would be evaluated based on Bid ACPL’s bid now be evaluated based on the Bid
Price. Such bid price was computed as Project Cost (INR 1500 Cr) and this will be
summation of NPV of Bid Project Cost during the sole criteria for bid evaluation.
concession period and NPV of O&M cost
during O&M period.

This change brings simplicity in the bid evaluation of HAM projects. Also, this
will disincentivize bidders to do a cross-allocation of O&M expenses on upfront
bid project cost payment.

7.5.2 Changes in O&M Payments

Erstwhile Provision Updated Provision w.e.f June 22

ACPL will receive INR 5 Cr in two ACPL will receive following amount for O&M
equal biannual instalments, adjusted for payments as per different scenarios.
Price Index (from the bid due date), as It is also important to note below:
O&M payments from NHAI. • All amounts payable for maintenance shall be
adjusted one account of variation of Price Index.
• Bid Project Cost used for calculation of O&M
payments shall be adjusted to the extent of change
of scope and reduction in scope, but shall not
include any price adjustments in pursuance of
variation of Price Index
• O&M payments will be subject to change in scope
of the project of the concessionaire under Article
16 of the Concession Agreement
No provision with regards to GST All O&M amounts for the performance of
taxability of O&M payments. However, contractors’ maintenance obligation shall be
the bids were called exclusive of GST inclusive of all taxes.

The different possible scenarios for O&M payments and relevant computations
are provided below.
CASE 1: For flexible perpetual pavement including structures with two (2)
renewal layers, first at 7th year and second at 14th year:

• No maintenance charges shall be paid for the first year;

• 0.40% of the Bid Project Cost each for the second, third and fourth year;
• 0.80% of the original Bid Project Cost each till laying of the first renewal layer
or end of concession period, whichever is earlier.
7.5 Changes to Model Concession Agreement (MCA)—June 22 Update 115

The requirement for the renewal layer shall be worked out based on the survey and
investigation of the existing pavement and the cost of such renewal works shall be
made separately to the Concessionaire @ 2.4% of Bid Project Cost.
After laying of the renewal layer, the Concessionaire shall be paid

• 0.40% of the original Bid Project Cost each for the next four years; and
• 0.80% of the original Bid Project Cost each till laying of the second renewal
layer or end of concession period, whichever is earlier.

After laying of the second renewal layer, the Concessionaire shall be paid

• 40% of the original Bid Project Cost each for the remaining years till the end
of concession period.

For avoidance of doubt, if there is end of renewal here during the initial 5 years
and during the 5 years after laying off first renewal layer, then the cost of such
remove a layer and any requirement or structure layer during the concession. In
solely by the concessionaire.

Instalments Date of % of BPC Semi-annual Price Index Adjusted O&M

payment Payment (In Inflation Payments (In
INR Cr) (starting Bid INR Cr)
Due Date)
1 30 November –
24
2 31 May 25 –
3 30 November 0.40% 3.00 15% 3.46
25
4 31 May 26 0.40% 3.00 17% 3.52
5 30 November 0.40% 3.00 19% 3.58
26
6 31 May 27 0.40% 3.00 21% 3.64
7 30 November 0.40% 3.00 23% 3.70
27
8 31 May 28 0.40% 3.00 25% 3.76
9 30 November 0.80% 6.00 27% 7.64
28
10 31 May 29 0.80% 6.00 29% 7.76
11 30 November 0.80% 6.00 31% 7.88
29
12 31 May 30 0.80% 6.00 33% 8.00
13 30 November 2.40% 18.00 35% 24.36
30
14 31 May 31 2.40% 18.00 37% 24.72
116 7 Contract Review—Model Concession Agreement (MCA)

Instalments Date of % of BPC Semi-annual Price Index Adjusted O&M

payment Payment (In Inflation Payments (In
INR Cr) (starting Bid INR Cr)
Due Date)
15 30 November 0.40% 3.00 39% 4.18
31
16 31 May 32 0.40% 3.00 41% 4.24
17 30 November 0.40% 3.00 43% 4.30
32
18 31 May 33 0.40% 3.00 45% 4.36
19 30 November 0.40% 3.00 47% 4.42
33
20 31 May 34 0.40% 3.00 49% 4.48
21 30 November 0.40% 3.00 51% 4.54
34
22 31 May 35 0.80% 6.00 53% 9.20
23 30 November 0.80% 6.00 55% 9.32
35
24 31 May 36 0.80% 6.00 57% 9.44
25 30 November 0.80% 6.00 59% 9.56
36
26 31 May 37 0.80% 6.00 61% 9.68
27 30 November 2.40% 18.00 63% 29.40
37
28 31 May 38 2.40% 18.00 65% 29.76
29 30 November 0.40% 3.00 67% 5.02
38
30 31 May 39 0.40% 3.00 69% 5.08
Total 249.00

CASE 2: For flexible perpetual pavement including structures (without renewal

layer)

• No maintenance charges shall be paid for the first year;

• 0.40% of the Bid Project Cost each for the second, third and fourth year;
• 0.60% of the Bid Project Cost each for the subsequent years till laying of the
renewal layer or end of concession period, whichever is earlier.
7.5 Changes to Model Concession Agreement (MCA)—June 22 Update 117

Instalments Date of % of BPC Semi-annual Price Index Adjusted O&M

payment Payment (In Inflation Payments (In
INR Cr) (starting Bid INR Cr)
Due Date)
1 30 November –
24
2 31 May 25 –
3 30 November 0.40% 3.00 15% 3.46
25
4 31 May 26 0.40% 3.00 17% 3.52
5 30 November 0.40% 3.00 19% 3.58
26
6 31 May 27 0.40% 3.00 21% 3.64
7 30 November 0.40% 3.00 23% 3.70
27
8 31 May 28 0.40% 3.00 25% 3.76
9 30 November 0.60% 4.50 27% 5.73
28
10 31 May 29 0.60% 4.50 29% 5.82
11 30 November 0.60% 4.50 31% 5.91
29
12 31 May 30 0.60% 4.50 33% 6.00
13 30 November 0.60% 4.50 35% 6.09
30
14 31 May 31 0.60% 4.50 37% 6.18
15 30 November 0.60% 4.50 39% 6.27
31
16 31 May 32 0.60% 4.50 41% 6.36
17 30 November 0.60% 4.50 43% 6.45
32
18 31 May 33 0.60% 4.50 45% 6.54
19 30 November 0.60% 4.50 47% 6.63
33
20 31 May 34 0.60% 4.50 49% 6.72
21 30 November 0.60% 4.50 51% 6.81
34
22 31 May 35 0.60% 4.50 53% 6.90
23 30 November 0.60% 4.50 55% 6.99
35
24 31 May 36 0.60% 4.50 57% 7.08
25 30 November 0.60% 4.50 59% 7.17
36
26 31 May 37 0.60% 4.50 61% 7.26
118 7 Contract Review—Model Concession Agreement (MCA)

Instalments Date of % of BPC Semi-annual Price Index Adjusted O&M

payment Payment (In Inflation Payments (In
INR Cr) (starting Bid INR Cr)
Due Date)
27 30 November 0.60% 4.50 63% 7.35
37
28 31 May 38 0.60% 4.50 65% 7.44
29 30 November 0.60% 4.50 67% 7.53
38
30 31 May 39 0.60% 4.50 69% 7.62
Total 168.51

CASE 3: Construction of a rigid pavement with 10 years Maintenance Period

including structures:
For rigid pavement with 10 years Maintenance Period including structures:
• no maintenance charges shall be paid for the first year;
• 0.20% of the Bid Project Cost each for the second, third and fourth year,
• 0.40% of the Bid Project Cost each for fifth, sixth, seventh and eighth year,
• 0.60% of the Bid Project Cost each till the end of concession period

Instalments Date of % of BPC Semi-annual Price Index Adjusted O&M

payment Payment (In Inflation Payments (In
INR Cr) (starting Bid INR Cr)
Due Date)
1 30 November –
24
2 31 May 25 –
3 30 November 0.20% 1.50 15% 1.73
25
4 31 May 26 0.20% 1.50 17% 1.76
5 30 November 0.20% 1.50 19% 1.79
26
6 31 May 27 0.20% 1.50 21% 1.82
7 30 November 0.20% 1.50 23% 1.85
27
8 31 May 28 0.20% 1.50 25% 1.88
9 30 November 0.40% 3.00 27% 3.82
28
10 31 May 29 0.40% 3.00 29% 3.88
11 30 November 0.40% 3.00 31% 3.94
29
12 31 May 30 0.40% 3.00 33% 4.00
13 30 November 0.40% 3.00 35% 4.06
30
7.5 Changes to Model Concession Agreement (MCA)—June 22 Update 119

Instalments Date of % of BPC Semi-annual Price Index Adjusted O&M

payment Payment (In Inflation Payments (In
INR Cr) (starting Bid INR Cr)
Due Date)
14 31 May 31 0.40% 3.00 37% 4.12
15 30 November 0.40% 3.00 39% 4.18
31
16 31 May 32 0.40% 3.00 41% 4.24
17 30 November 0.60% 4.50 43% 6.45
32
18 31 May 33 0.60% 4.50 45% 6.54
19 30 November 0.60% 4.50 47% 6.63
33
20 31 May 34 0.60% 4.50 49% 6.72
21 30 November 0.60% 4.50 51% 6.81
34
22 31 May 35 0.60% 4.50 53% 6.90
23 30 November 0.60% 4.50 55% 6.99
35
24 31 May 36 0.60% 4.50 57% 7.08
25 30 November 0.60% 4.50 59% 7.17
36
26 31 May 37 0.60% 4.50 61% 7.26
27 30 November 0.60% 4.50 63% 7.35
37
28 31 May 38 0.60% 4.50 65% 7.44
29 30 November 0.60% 4.50 67% 7.53
38
30 31 May 39 0.60% 4.50 69% 7.62
Total 141.56

CASE 4: For stand-alone Bridge/Tunnel works:

The concessionaire shall be paid
• No maintenance charges shall be paid for the first year;
• 0.20% of the Bid Project Cost each for the next five years,
• 0.40% of the Bid Project Cost each for the remaining years till the end of
concession period.
120 7 Contract Review—Model Concession Agreement (MCA)

Instalments Date of % of BPC Semi-annual Price Index Adjusted O&M

payment Payment (In Inflation Payments (In
INR Cr) (starting Bid INR Cr)
Due Date)
1 30 November –
24
2 31 May 25 –
3 30 November 0.20% 1.50 15% 1.73
25
4 31 May 26 0.20% 1.50 17% 1.76
5 30 November 0.20% 1.50 19% 1.79
26
6 31 May 27 0.20% 1.50 21% 1.82
7 30 November 0.20% 1.50 23% 1.85
27
8 31 May 28 0.20% 1.50 25% 1.88
9 30 November 0.20% 1.50 27% 1.91
28
10 31 May 29 0.20% 1.50 29% 1.94
11 30 November 0.20% 1.50 31% 1.97
29
12 31 May 30 0.20% 1.50 33% 2.00
13 30 November 0.40% 3.00 35% 4.06
30
14 31 May 31 0.40% 3.00 37% 4.12
15 30 November 0.40% 3.00 39% 4.18
31
16 31 May 32 0.40% 3.00 41% 4.24
17 30 November 0.40% 3.00 43% 4.30
32
18 31 May 33 0.40% 3.00 45% 4.36
19 30 November 0.40% 3.00 47% 4.42
33
20 31 May 34 0.40% 3.00 49% 4.48
21 30 November 0.40% 3.00 51% 4.54
34
22 31 May 35 0.40% 3.00 53% 4.60
23 30 November 0.40% 3.00 55% 4.66
35
24 31 May 36 0.40% 3.00 57% 4.72
25 30 November 0.40% 3.00 59% 4.78
36
26 31 May 37 0.40% 3.00 61% 4.84
7.5 Changes to Model Concession Agreement (MCA)—June 22 Update 121

Instalments Date of % of BPC Semi-annual Price Index Adjusted O&M

payment Payment (In Inflation Payments (In
INR Cr) (starting Bid INR Cr)
Due Date)
27 30 November 0.40% 3.00 63% 4.90
37
28 31 May 38 0.40% 3.00 65% 4.96
29 30 November 0.40% 3.00 67% 5.02
38
30 31 May 39 0.40% 3.00 69% 5.08
Total 100.91
Tax Review—Indirect Taxes—GST
8

Goods and service tax (GST) is an indirect tax introduced in India and applicable
from 1 July 2017 onwards. GST has replaced most of the indirect taxes that were
applicable in India prior to introduction of GST such as Service tax, VAT, Central
Excise duty, Entry Tax, etc.
In this chapter, the Authors have analyzed in detail the GST, being chargeability,
rate of tax, time of supply, etc. in respect of the various aspects of HAM based
PPP projects which, inter alia, includes the milestone payment received during the
construction period, Operation and Maintenance (O&M) payments received during
the operation period in bi-annual instalments, Balance of Bid Project Cost (BPC) to
be paid by the government agency in form of Bi-annual annuity payment, Interest
received by the contractor on such annuity payments, and Mobilization advance
received by the Concessionaire/private sector developer.
The GST implications have been explained in theory and through numerical
examples and calculations based on case study of Project Highway. This chapter
include most of the issues that are relevant for the HAM model and also the
Authors’ opinion in respect of the said issues. Wherever possible the Authors have
tried to provide the manner of mitigating risk associated with the said issues.
The HAM project is a case of inverted duty structure. Meaning thereby that the
rate of tax on several inputs is higher than the rate of tax on output. Assessees are
allowed to claim the refund of the Input Tax Credit (ITC) accumulated on account
of inverted duty structure. In this chapter the Authors have also elaborated the
provisions related to the refund of ITC accumulated on account of inverted duty
structure and have also discussed the underlying issues. Judicial pronouncements
of various courts have also been discussed to provide a detailed insight.

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 123
A. Mittal et al., Hybrid Annuity Model (HAM) of Hybrid Public-Private Partnership
Projects, Management for Professionals,
https://doi.org/10.1007/978-981-19-2019-6_8
124 8 Tax Review—Indirect Taxes—GST

8.1 Project Highway Case Study—Summary

The case study assumes an award of a national highway project in India called
Project Highway by National Highways Authority of India (NHAI) as the govern-
ment agency to a private sector player. The private sector player has incorporated
a Special Purpose Vehicle (SPV) namely, ABC Constructions Private Limited
(ACPL) who will be the Concessionaire for this Project; and will perform two (2)
key activities:

• Construction of Highway; and

• After completion of Construction/Operation and maintenance (hereinafter
referred to as O&M) of Highway for 15 years. Operation and maintenance
activities would include regular maintenance as also major maintenance.

In terms of scope of O&M activities, ACPL is required to restore the asset at

the end of the term of the concession agreement.
Key relevant assumptions are as below:

• Cost of construction (civil and structural work) is INR 1200 Cr

• O&M cost to be incurred each year = INR 4 Cr
• Major Maintenance = During 7th year and the 14th year of operation period.
INR 30 Cr is estimated to be incurred in respect of major maintenance in each
year (in real terms, without considering the impact of inflation)
• ACPL has quoted Bid Project Cost = INR 1500 Cr in respect of construction
activity
• ACPL has quoted O&M cost = INR 5 Cr. per year in respect of O&M activities
which is payable during the operation and maintenance period.

Estimated cost and revenue (in real terms without considering the impact of inflation)
is summarized in Table 8.1.
The consideration agreed between NHAI and ACPL is to be paid by NHAI in
the following manner:

• NHAI shall pay 40% of the cost of construction of the Bid Project Cost (BPC)
on achievement of milestones linked with the physical completion of the project
in ten (10) equal instalments of 4% of BPC.

Table 8.1 Case Study Summary—Project Highway—estimated costs and revenue

Activities/cost and Construction (INR Cr) O&M (INR Cr) Total (INR Cr)
revenue
Cost 1200 4 * 15 + 30 * 2 = 120 1320
Revenue quoted 1500 5 * 15 = 75 1575
8.2 Levy and Exemption of GST 125

• Upon Commercial Operation Date (COD), ACPL shall be entitled to demand

and collect remaining 60% of BPC as Annuity payments. The said 60% shall
be paid to the Concessionaire in 30 biannual Annuities, after completion of
180 days from COD, along with interest at the rate equal to equal to average
of 1 year MCLR of top five scheduled commercial banks plus 1.25% on the
balance of annuity payments.
• NHAI shall also pay operation and maintenance costs (as per the bid of the
ACPL) during the 15 years of operations of the project.

We shall be using facts of this case study to elaborate different aspects of GST
discussed in this chapter.

8.2 Levy and Exemption of GST

8.2.1 Levy of GST

Section 9 of the CGST Act provides for levy and collection of Central Goods and
Services Tax. Corresponding provision for levy and collection of State Goods and
Services Tax can be found in Section 9 of relevant SGST/UTGST Act.
Section 9(1) is the charging section for levy of GST. It provides that subject to
Section (2), there shall be levied CGST:

• On all intra-state supplies

• of goods or services or both,
• on the value determined under Section 15
• and at such rates, not exceeding 20%, as may be notified by the Government
on the recommendations of the GST Council.

The relevant provision is extracted hereunder:

9. Levy and collection.

(1) Subject to the provisions of sub-section (2), there shall be levied a tax called the
central goods and services tax on all intra-State supplies of goods or services or
both, except on the supply of alcoholic liquor for human consumption, on the value
determined under section 15 and at such rates, not exceeding twenty per cent., as may
be notified by the Government on the recommendations of the Council and collected
in such manner as may be prescribed and shall be paid by the taxable person.
...
126 8 Tax Review—Indirect Taxes—GST

8.2.2 Exemption from GST

Section 11 of the CGST Act provides for power to grant exemption from tax.
Vide Section 11(1) of the CGST Act, Government by notification, exempt goods
or services or both from the whole or any part of the tax leviable thereon with
effect from such date as may be specified in the said Notification.
The relevant provision is extracted hereunder:

11. Power to grant exemption from tax.

(1) Where the Government is satisfied that it is necessary in the public interest so to
do, it may, on the recommendations of the Council, by notification, exempt generally,
either absolutely or subject to such conditions as may be specified therein, goods or
services or both of any specified description from the whole or any part of the tax
leviable thereon with effect from such date as may be specified in such notification.

...

8.3 Taxability of Milestone Payments Received During

Construction

8.3.1 Meaning of Works Contract

Section 2(119) of the CGST Act defines works contract in an exhaustive manner.
It means inter-alia a contract for construction, repair, improvement, modification,
maintenance, renovation of any immovable property wherein transfer of property
in goods is involved in the execution of such contract. The activity of construction
of road falls under the said definition. To quote:

(119). works contract means a contract for building, construction, fabrication,

completion, erection, installation, fitting out, improvement, modification, repair,
maintenance, renovation, alteration or commissioning of any immovable property
wherein transfer of property in goods (whether as goods or in some other form) is
involved in the execution of such contract;
8.3 Taxability of Milestone Payments Received During Construction 127

8.3.2 Composite Supply of Works Contract Treated as Supply

of Services

Para 6 of the Schedule II provides that composite supply of works contract as

defined in Section 2(119) of the CGST Act shall be treated as a supply of services.
To quote:

SCHEDULE II

[See section 7]

ACTIVITIES OR TRANSACTIONS TO BE TREATED AS SUPPLY OF GOODS OR

SUPPLY OF SERVICES

6. Composite supply

The following composite supplies shall be treated as a supply of services, namely:-

(a) works contract as defined in clause (119) of section 2; and

8.3.3 Rate of Tax

The Central Government has, in exercise of its power under Section 9(1) issued
Rate Notification No. 11/2017-Central Tax (Rate) bearing F. No. 354/117/2017-
TRU dated 28 June 2017, effective from 01 July 2017. The said Rate Notification
prescribes the rate of central tax, on the intra-State supply of services. Similar
Notification is issued under Section 9(1) of the respective SGST/UTGST Act. For
instance, under Delhi GST Act, Notification No. Notification No. 11/2017-State
Tax (Rate) Dated 30 June 2017 has been issued by the National Capital Territory
of Delhi.
Reference is invited to S. No. 3(iv) of the above Central Tax (Rate) Notifica-
tion No. 11/2017. The Serial No. 3(iv) prescribes rate of tax at 6% CGST for
composite supply of works contract, supplied by way of construction, erection,
commissioning, installation, completion, fitting out, repair, maintenance, renova-
tion, or alteration of - a road, bridge, tunnel or terminal for road transportation
for use by general public.
Thus, the rate of tax applicable on the transaction of construction of road is
12% i.e. 6% CGST + 6% SGST. In case of inter-state supply, rate of IGST would
be 12%.
The relevant extracts of the said Notification issued under the CGST Act is
reproduced herein below:
128 8 Tax Review—Indirect Taxes—GST

[to be published in the gazette of India, extraordinary, part ii, section 3, sub-section
(i)]
Government Of India
Ministry Of Finance
(Department Of Revenue)
Notification no. 11/2017-Central Tax (Rate)
New Delhi, the 28 June 2017

G.S.R (E).-In exercise of the powers conferred by sub-section(1), sub-section (3) and
sub-section (4) of section 9, sub-section (1) of section 11, sub-section (5) of section 15,
sub-section (1) of section 16 and section 148 of the Central Goods and Services
Tax Act, 2017 (12 of 2017), the Central Government, on the recommendations of the
Council, and on being satisfied that it is necessary in the public interest so to do, hereby
notifies that the central tax, on the intra-State supply of services of description as
specified in column (3) of the Table below, falling under Chapter, Section or Heading
of scheme of classification of services as specified in column (2), shall be levied at the
rate as specified in the corresponding entry in column (4), subject to the conditions
as specified in the corresponding entry in column (5) of the said Table:-

Sl. No. Chapter, Section or Heading Description of Service Rate (%) Condition
(1) (2) (3) (4) (5)
3 Heading 9954 (Construction (iv) Composite supply of works 6 –
Services) contract as defined in clause (119) of
section 2 of the Central Goods and
Services Tax Act, 2017 other than that
covered by items (i), (ia), (ib), (ic), (id),
(ie) and (if) above, supplied by way of
construction, erection, commissioning,
installation, completion, fitting out,
repair, maintenance, renovation, or
alteration of,-
a road, bridge, tunnel, or terminal for
road transportation for use by general
public;
…
8.3 Taxability of Milestone Payments Received During Construction 129

Project Highway
ACPL has quoted INR 1500 Cr as Bid Project Cost i.e. the bid price in
respect of the construction activity. Further, in terms of the agreement 40%
of the BPC is to be received during the construction period on the basis of
milestones achieved. The said 40% is chargeable to GST and the rate of 12%
is applicable in terms of entry 3(iv) of the Notification No. 11/2017-CT(R)
dated 28 June 2017 effective from 01 July 2017.

8.3.4 Time of Supply in Respect of Milestones Payment Received

by Concessionaire

Section 13(1) of CGST Act prescribes that the liability to pay tax on services shall
arise at the time of supply. Further, the time of supply of services is determined in
terms of Section 13 of the CGST Act. Thus, provisions relating of time of supply
determines the point in time when the GST is required to be paid to the credit of
the Government.
Section 13(2) provides that time of supply of services shall be the earliest of
the following:

(a) the date of issuance of invoice by the supplier, if the invoice is issued within the
period prescribed under section 31 or the date of receipt of payment, whichever is
earlier; or

(b) the date of provision of service, if the invoice is not issued within the period
prescribed under section 31 or the date of receipt of payment, whichever is earlier;
or

(c) the date on which the recipient shows the receipt of services in his books of account,
in a case where the provisions of clause (a) or clause (b) do not apply:

Thus, time of supply, shall be earliest of the following:

a. Date of receipt of payment; or

b. Date of issuance of invoice by supplier. However, where the invoice is not
issued with the period prescribed in Section 31, then the date of provision of
service is to be considered for this purpose.

Note: for the present, we are ignoring the provisions of clause (c) above for that
situation would not ordinarily arise.
130 8 Tax Review—Indirect Taxes—GST

Further, Section 31(5)(c) of CGST Act provides that in case of continuous

supply of services where the payment is linked to the completion of an event,
the invoice shall be issued on or before the date of completion of that event.
Section 31(5) reads as under:

(5) Subject to the provisions of clause (d) of sub-section (3), in case of continuous
supply of services,-

(a) …

(b)…

(c) where the payment is linked to the completion of an event, the invoice shall be
issued on or before the date of completion of that event.

In the case of HAM, 40% of BPC, adjusted for Price Index Multiple, is linked
with completion of event, i.e. on achieving the agreed milestone [as per para 23.4
of MCA]. For Example as per revised MCA the Concessionaire would receive 4%
of the BPC on achievement of 5% of physical progress.
Thus, the Concessionaire is required to raise tax invoice in respect of milestone
payments on or before when the said milestone is achieved, and the time of supply
would be the point when the said invoice is issued. As per the MCA, the Authority
shall disburse the payment within 15 days of receipt of report of IE certifying the
achievement of payment milestone [Clause 23.4 of MCA]. Thus, it is the IE report
certifying the physical progress that triggers the milestone payment by NHAI to
the Concessionaire.
As per Section 31(5)(c), in case where payment is linked with the completion
of an event, the invoice shall be issued on or before the date of completion of
that event. In the present case as seen from clause 23.4 the payment is linked
with achieving a specified milestone, however NHAI considers said milestone to
be complete/achieved only upon the receiving the report of IE in this regard.
Thus, a question arises whether achievement of the milestone would be con-
sidered as achieved on the date that milestone is physically achieved by the
contractor as perceived by him, or on the date when the inspection is carried out
and communicated by the IE regarding physical progress to NHAI.
In the opinion of the authors, it seems that a plausible view can be taken that
completion of the milestone is not a unilateral act and is considered to be achieved
only when the IE certifies it. Even under the erstwhile regime of service tax, the
CBIC came out with a Circular No. 144/13/2011 dated 18 July 2011 to clarify the
position. In the said circular it was categorically noted as per the provisions of
service tax rules, invoice is required to be issued within 14 days from the date of
completion of service. The test for the determination whether a service has been
8.3 Taxability of Milestone Payments Received During Construction 131

completed would be the completion of all the related activities such as measure-
ment, quality testing etc. which may be essential pre-requisites for identification
of completion of service and only after completion of all these related activities
the service is said to be complete. Further, in the said circular it is noted that said
interpretation also applies to determination of the date of completion of provi-
sion of service in case of “continuous supply of service”. The relevant portion of
circular is reproduced below:

2. These representations have been examined. The Service Tax Rules, 1994 require that
invoice should be issued within a period of 14 days from the completion of the taxable
service. The invoice needs to indicate interalia the value of service so completed. Thus
it is important to identify the service so completed. This would include not only the
physical part of providing the service but also the completion of all other auxiliary
activities that enable the service provider to be in a position to issue the invoice.
Such auxiliary activities could include activities like measurement, quality testing
etc which may be essential pre-requisites for identification of completion of service.
The test for the determination whether a service has been completed would be the
completion of all the related activities that place the service provider in a situation to
be able to issue an invoice. However such activities do not include flimsy or irrelevant
grounds for delay in issuance of invoice.

The above interpretation also applies to determination of the date of completion of

provision of service in case of “continuous supply of service”. ….

In view of the authors, the said position should continue to apply even under the
GST regime. Thus, as per authors’ view the completion of event which requires
issuance of invoice in terms of Section 31(5)(c) would be the day when the IE
issues its report certifying the physical progress of work done.
We would like to highlight that in case of continuous supply of service such as
road construction, Section 31(5)(c) of the CGST Act do not give any time period
for complying with the requirement to issue of invoice after the event requiring
making of payment gets triggered. As per the strict language of Section 31(5)(c)
of the CGST Act, the invoice is required to be issued on or before the date of com-
pletion of the event. The event in the present case, being achievement of specified
milestone. The extent of completion is based upon the IE’s certification, which
cannot be known to the contractor who has to raise the invoice. In this regard the
provisions of rule 47 of the CGST Rules may be considered to come to the aid of
the concessionaire which provides that the invoice referred to in Rule 46 may be
issued within 30 days from the date of supply. This provision, even though con-
tained in the rules and slightly at deviation with the Act, being a reasonable and
practical one, should govern the field. It is well settled that procedural provisions
such as time of issuance of invoice etc. are not to be read too strictly or technically
but in a manner that aids the main objective of the act i.e. to collect revenue. Read
thus, we feel that the Concessionaire should raise an invoice as soon as may be
but in any case, within 30 days of certification of work by the IE.
132 8 Tax Review—Indirect Taxes—GST

At the end, to remind the reader, if the payment is received in advance i.e. prior
to issuance of invoice or prior to the supply of service, then the time of supply
would be the date of receipt of payment, and tax would be paid on advance as
and when the same is received. For details, please refer to the next heading in this
Chapter pertaining to taxation of mobilization advance.

8.3.5 Value of Taxable Supply

In accordance with Section 9(1) of the CGST Act, CGST is leviable on all
intra-state supplies of goods or services or both, on the value determined under
Section 15.
Section 15(1) provides that the value of a supply of goods or services or both
shall be:

• transaction value, i.e. the price actually paid or payable for the supply of goods
or services or both
• where the supplier and the recipient of the supply are not related and
• the price is the sole consideration for the supply.

To quote,

15. Value of taxable supply.

(1) The value of a supply of goods or services or both shall be the transaction value,
which is the price actually paid or payable for the said supply of goods or services or
both where the supplier and the recipient of the supply are not related and the price
is the sole consideration for the supply.

Thus, in view of Section 15(1) of the CGST Act, the value of the supply shall be
the price actually paid or payable for the supply of goods or services or both. In
respect of milestone payments the value of service would the amount of milestone
payments actually payable by NHAI. In case any amount is payable in respect of
inflation then the same would also be included in the taxable value.
Further, as per Section 15(2)(b), the value of supply shall include an amount
that the supplier is liable to pay in relation to such supply but which has been
incurred by the recipient of the supply and not included in the price actually paid
or payable for the goods or services or both.
8.4 Taxability of Mobilization Advance 133

The relevant provision is extracted hereunder:

(2) The value of supply shall include,-

...

(b) any amount that the supplier is liable to pay in relation to such supply but which
has been incurred by the recipient of the supply and not included in the price actually
paid or payable for the goods or services or both;

...

Illustration 1
Where a concession is awarded by NHAI to A Ltd. for construction of
road for INR 11 Cr. The terms of contract provides that all materials shall
be arranged by A Ltd. A Ltd. asks NHAI to arrange bitumen worth INR
1.20 Cr and hence NHAI pays balance amount of INR 9.80 Cr to A Ltd
for construction of road.
In this case, Value of supply = 9.80 Cr + 1.20 Cr
Illustration 2
Where a concession is awarded by NHAI to B Ltd. for construction of
road for INR 5 Cr. The terms of contract provide that all materials shall
be arranged by NHAI. Thus, all the materials were provided by NHAI as
required under the contract. NHAI pays consideration of INR 5 Cr to B
Ltd for construction of road.
In this case, Value of supply = INR 5 Cr

The above illustration, though not prevalent in HAM contracts as on date, have
been provided for understanding of the concept.

8.4 Taxability of Mobilization Advance

In terms of Clause 23.8 of the MCA, the Authority/NHAI shall, on request of the
Concessionaire, make an advance payment in a sum not exceeding 10% of the
BPC (this is called as Mobilization Advance). The advance payment shall be made
in 2 equal instalments.
134 8 Tax Review—Indirect Taxes—GST

Thus, the Concessionaire may request to NHAI to make an advance payment

and pursuant to said request the NHAI may pay Mobilization advance to the
Concessionaire.
The said mobilization advance is deducted by the Authority in 8 equal
instalments from each of the payments to be made by the Authority to the
Concessionaire.
Now the question arises that whether GST is payable on the said mobilization
advance received by the concessionaire from the Authority.
In author’s view, GST is required to be paid on the receipt of mobilization
advance received by the Concessionaire from the Authority. Being advance for
construction of road, it will be liable to the rate of tax as is for the time being
applicable to road construction. This has already been discussed in the previous
section of this chapter and hence not being repeated.
Time of supply will be the date of receipt of advance.
As per Section 31(3)(d) at the time of receiving the advance, the concessionaire
is required to issue a receipt voucher or any other document, evidencing receipt
of such payment. Further, such receipt voucher shall contain such particulars
as prescribed in Rule 50 of the CGST Rules. To quote:

50. Receipt voucher.-

A receipt voucher referred to in clause (d) of sub-section (3) of section 31 shall contain
the following particulars, namely,-

(a) name, address and Goods and Services Tax Identification Number of the supplier;

(b) a consecutive serial number not exceeding sixteen characters, in one or multiple
series, containing alphabets or numerals or special charactershyphen or dash and
slash symbolised as “-” and “/” respectively, and any combination thereof, unique
for a financial year;

(c) date of its issue;

(d) name, address and Goods and Services Tax Identification Number or Unique
Identity Number, if registered, of the recipient;

(e) description of goods or services;

(f) amount of advance taken;

(g) rate of tax (central tax, State tax, integrated tax, Union territory tax or cess);

(h) amount of tax charged in respect of taxable goods or services (central tax, State
tax, integrated tax, Union territory tax or cess);
8.5 Taxability of Operation and Maintenance Payments 135

(i) place of supply along with the name of State and its code, in case of a supply in
the course of inter-State trade or commerce;

(j) whether the tax is payable on reverse charge basis; and

(k) signature or digital signature of the supplier or his authorised representative:

Provided that where at the time of receipt of advance,-

(i) the rate of tax is not determinable, the tax shall be paid at the rate of eighteen
per cent.;

(ii) the nature of supply is not determinable, the same shall be treated as inter-State
supply.

The Concessionaire is required to pay interest on the said advance at the rate which
is equal to the average of 1 year MCLR of top 5 Scheduled Commercial banks
plus 1.25%, compounded annually.
Mobilization advance shall be deducted by the Authority in 8 equal installments
from each of the payments to be made by the authority. Interest shall be recovered
from 9th and 10th installments. When the advance shall be deducted, GST on
the milestone payments will be paid only on the net amount i.e. after reducing the
mobilization advance on which GST was paid at the time of receiving the advance.

8.5 Taxability of Operation and Maintenance Payments

Clause 17.1 of the Model Concession Agreement (MCA) includes the obligations
of the Concessionaire under O&M for the HAM based road PPP Project.
Article 17.1 requires that during the Operation Period i.e. 15 years from COD,
the Concessionaire shall operate and maintain the road. The obligations of the
Concessionaire inter alia includes:

• Ensuring the safe and smooth use of the project road including prevention of
loss or damage there to
• Minimising disruption in the event of accidents or any other incident which
affects the safety and use of the project. For this purpose, the Concessionaire is
also required to maintain liaison with emergency services of the state
• Carrying out preventive maintenance of the project
• undertaking routine maintenance including repair of potholes, cracks, joins,
drains, embankments, structures, markings Kumar lighting, signage another
control devices
• In the event that the project or any part thereof suffers any loss or damage
during the concession period for any reason whatsoever, the concessionaire shall
136 8 Tax Review—Indirect Taxes—GST

at its own cost and expense rectify and remedy such loss or damage so that the
Project confirms to the provisions of the MCA.

In sum, the Concessionaire is required to ensure that the road is always kept in
working condition and for that purpose the Concessionaire is required to carry out
routine repairs as also major maintenance. Further certain incidental facilities such
as ambulance and jeep along with chauffer for taking instant action in case of any
accident, are also to be provided by the Concessionaire.
O&M activity contemplated under the MCA is focused on ensuring that the
road is operational at all times and is up to the mark as per the provisions of
the MCA. As such the Concessionaire is not required to operate the road, say by
regulating traffic, etc. Even the toll plaza is not operated by the Concessionaire.
Then what does this clause require the Concessionaire to do? It is expected from
the Concessionaire to carry out the physical repair and maintenance work and to
ensure the safe and smooth use of the project road. That is what is contemplated
in this clause. Even though the clause is termed to be Operation and Maintenance,
materially and substantially the activity covered therein is that of repair and main-
tenance. Even going by the the major portion of the expenditure incurred by the
Concessionaire, it is towards repair and maintenance of the road. The expenses
towards maintaining ambulance and emergency services are minor portion and
may be considered as incidental to the overall activity of repair and maintenance.
On this basis, the expression Operation in O&M is really signified by repair and
maintenance and there is no activity which can be separately classified as operating
the road.
Since, the O&M involves the repair and maintenance of road, which is an
immovable property, the activity of O&M would be covered within the definition
of works contract as contained under Section 2(119) of the CGST Act.
The operation and maintenance work of the road project is leviable to GST and
the same would be treated as supply of works contract service. Further, currently
no exemption is available to the activity of operation and maintenance of road.
Thus, the said supply of operation and maintenance services would remain taxable.

8.5.1 Rate of Tax

The operation and maintenance of road is a composite supply involving both,

supply of goods as well as supply of services. Thus, the same would be covered
within the definition of works contract as contained in Section 2(119) of the CGST
Act [the same is reproduced above while discussing the taxability of milestone
payments]. The operation and maintenance is chargeable to tax (CGST + SGST)
at the rate of 12% in terms of entry 3(iv) of Notification No. 11/2017-CT(R) dated
28 June 2017 as effective from 01.07.2017. [The said entry was reproduced while
discussing the rate of tax on milestone payments.
8.5 Taxability of Operation and Maintenance Payments 137

8.5.2 Time of Supply

As mentioned in the previous part of this chapter, time of supply shall be earliest
of the following:

c. date of issue of invoice by the supplier, if the invoice is issued within the
period prescribed under Section 31. However, where issue of invoice is not
issued within the period prescribed under Section 31 then date of provision of
service is to be considered;
d. date of receipt of payment

Further, in terms of Section 31(5) of the CGST Act, tax invoice in case of
continuous supply of services shall be issued by

(a) where the due date of payment is ascertainable from the contract, the invoice shall
be issued on or before the due date of payment;

(b) where the due date of payment is not ascertainable from the contract, the invoice
shall be issued before or at the time when the supplier of service receives the payment;

As per Clause 23.7.2 of the MCA the O&M payments that are due and payable to
the concessionaire shall be paid in 2 equal biannual installments and is disbursed
by NHAI together with the corresponding installments of Annuity Payments.
Further, as per Clause 23.6.2 the Annuity payments are payable in biannual install-
ments over a period of 15 years commencing from COD. The first installment
of annuity payments shall be due and payable within 15 days of 180th day of
COD and the remaining instalments shall be due and payable within 15 days of
completion of successive six months.
Since the O&M payments are linked with the time period and not with comple-
tion of any event thus, in our view the invoice for O&M payments shall be issued
before the said date, i.e. the day on which the O&M payments is due for payment
by NHAI.
In terms of Section 13 of the CGST Act, the issuance of tax invoice would
be considered as time of supply and GST would be paid accordingly. Further, if
invoice is not issued within the said prescribed time then the GST is payable on the
basis of the event that triggers payment of O&M payments i.e. every six months.

Project Highway
ACPL has quoted Rs 5 Cr per annum (for the period of 15 years) payable bi-
annually in respect of operation and maintenance. The whole of the amount
received/receivable in respect of operation and maintenance is chargeable to
138 8 Tax Review—Indirect Taxes—GST

GST @ 12% in terms of entry 3(iv) of the Notification No. 11/2017-CT(R)

dated 28 June2017 effective from 01 July 2017.
Further, the GST is payable for the month in which the said operation and
maintenance payment is due from NHAI.

8.6 Taxability of Annuity Payments During Operation Period

For a HAM based road PPP project, 40% of BPC is paid during construction
of road in 10 milestone payments. The remaining 60% of BPC is paid in equal
bi-annual annuities spread across total period of operation and maintenance i.e.
generally 15 years. In this part, the taxability of the bi-annual annuities is being
discussed.
As per Clause 23.6.2 of the MCA the completion cost remaining to be paid in
pursuance of the provisions of Clause 23.6.1. shall be due and payable in biannual
installments over a period of 15 years commencing from the COD. The 1st install-
ment of annuity payments shall be due and payable within 15th days of the 180th
day of the COD and the remaining installments shall be due and payable within
15 days of completion of each of the successive 6 months.

8.6.1 Government Notifications and Recommendations of GST

Council

In terms of powers conferred vide Section 11 of the CGST Act (exemption from
tax) the Central Government has issued Notification No. 12/2017-CT(R) dated 28
June 2017 effective from 01 July 2017 to provide list of services that are exempt
from GST. Vide Entry No. 23A of Notification No. 12/2017-Central Tax (Rate)
dated 28 June 17 the Central Government has exempted services by way of access
to road or a bridge on payment of annuity from levy of GST. This entry was
introduced vide Notification No. 32/2017-CT (Rate) with effect from 13 October
2017.
The relevant extract of the notification is reproduced as under:
8.6 Taxability of Annuity Payments During Operation Period 139

S. No. Chapter, Section, Heading, Description of Services Rate (%) Condition

Group or Service Code
(Tariff)
23A Heading 9967 Service by way of access to Nil Nil
a road or a bridge on
payment of annuity.

The above said exemption is provided on recommendation of the GST Council.

Accordingly, to further analyse Entry No 23A of Notification No. 12/2017-CT(R)
dated 28 June 2017, reference be made to the agenda and minutes of the 22nd GST
Council Meeting held on 06 October 2017 wherein the abovesaid exemption entry
was recommended and approved. Relevant extract of the agenda of the 22nd GST
Council meeting is reproduced as under:

Agenda Agenda of the 22nd GST Council Meeting

Item 13(iv) Issue of Annuity being given in Place of Toll Charges to Developers of Public
Infrastructure-exemption there on
1. Toll is exempt from GST. In service tax it was in the Negative List.
2. There is a difference between toll and annuity. While toll is a payment made by
users of road to concessionaires for usage of roads, annuity is an amount paid
by National Highways Authority of India (NHAI) to concessionaires for
construction of roads. In other words, annuity is a consideration for the service
provided by concessionaires to NHAI.
3. The works contract services by way of construction of road was exempt from
service tax. However, service tax was leviable only on the service component of
such works contract (40%). The material or goods component of the works
contract was leviable to VAT. However, it was subject to State VAT (composition
rate).
4. Construction of roads is now subject to 12% GST. EPC contractor
(Engineering, Procurement and Construction) pays 12% GST on the service of
road construction to the concessionaire.
5. In view of the above, there is a free flow of ITC from EPC Contractor to the
concessionaire and thereafter to NHAI. As a result, the GST of 12% leviable on
the service of road construction provided by concessionaire to NHAI would be
paid partly from the ITC available with him.
6. A view may be taken for grant of exemption to annuity paid by NHAI/State
Highways Construction Authority to concessionaires for construction of roads.
This will amount to not taxing the value addition of the concessionaire. The
argument for exempting annuity from GST is that the road construction service
was exempt from service tax. However, GST would continue to be levied on the
road construction service provided by the EPC contractor to the concessionaire.

From the agenda item, it is evident that by providing GST Exemption, the GST
council has equated toll collected from users of the road with the annuity paid by
NHAI to the contractors.
140 8 Tax Review—Indirect Taxes—GST

The GST Council deliberated on giving exemption to Annuity being given in

place of Toll Charges to Developers of Public Infrastructure. The Council noted
the difference between toll and annuity that while toll is a payment made by users
of road to Concessionaires for usage of roads, annuity is an amount paid by
NHAI to Concessionaires for construction of roads. In other words, annuity is
a consideration for the service provided by Concessionaires to NHAI. From the
agenda item reproduced above it can be categorically seen that the GST Council
has clearly held entry 23A is introduced to cover the annuity payments made by
NHAI to the Concessionaire for construction of road.
From the minutes of the 22nd GST Council Meeting it appears that the Ld.
Joint Secretary (TRU-II), CBEC while introducing the agenda item, stated that
annuity is an amount paid by NHAI to Concessionaires for construction of roads
in order that the Concessionaire did not charge toll for access to such road. In
other words, annuity is a consideration for service provided by Concessionaires to
NHAI. Accordingly, the Council decided to treat Annuity at par with Toll and to
exempt services by way of access to road or bridge on payment of annuity from
levy of GST.
The relevant extracts of the Minutes of 22nd GST Council meeting are
reproduced below:

Agenda Minutes of the 22nd GST Council Meeting

Item 13(iv) Issue of Annuity being given in Toll Charges to Developers of Public
Infrastructure – exemption thereon
61. Introducing this agenda item, the joint secretary (TRU-II), CBEC stated that
while toll is a payment made by the user of road to concessionaries for usage of
roads, annuity is an amount paid by the National Highways Authority of India
(NHAI) to concessionaries for construction of roads in order that the
concessionaire did not charge toll for access to a road or a bridge. In other words,
annuity is a consideration for the service provided by the concessionaries to
NHAI. He stated that construction of the roads was now subject to tax at the rate
of 12% and due to this, there was free flow of input tax credit from EPC
(Engineering, Procurement and Construction) contractor to the concessionaries
and thereafter to NHAI. He stated that as a result, tax at the rate of 12% leviable
on the service of road construction provided by concessionaries to NHAI would be
paid partly from the input tax credit available with them. He stated that council
may take a view for grant of exemption to annuity paid by NHAI/State Highways
Construction Authority to concessionaries during construction of roads. He added
that access to a road or bridge on payment of toll was already exempt from tax.
The Hon’ble minister from Haryana suggested to also cover under this provision
annuity paid by state owned Corporations. After discussion, the council decided to
treat annuity at par with toll and to exempt from, tax service by way of access to a
road or to a bridge on payment of annuity.
[Emphasis Supplied]
8.6 Taxability of Annuity Payments During Operation Period 141

Thus, from perusal of the Agenda and Minutes of the 22nd GST Council meeting
it is clear that the GST Council has recommended the exemption in respect of
Service by way of access to a road or a bridge on payment of annuity. Further, from
the above discussed agenda and minutes of the 22nd GST meeting it is evident
that the exemption is recommended so as to include the service of construction of
road provided by concessionaire to NHAI/State Authority where the consideration
is received in annuity.
Even the press release dated 06 October 17 issued after 22nd GST Council
meeting stated that Exemption to annuity paid by NHAI (and State author-
ities or State-owned development corporations for construction of roads) to
concessionaires for construction of public roads.
At the cost of repetition, it is stated that after the above recommendation, and
to give effect to the said recommendation, entry 23A was inserted in Notifica-
tion 12/2017-CT (Rate) vide Notification No. 32/2017-CT (Rate) with effect from
13 October 2017. It shall be useful to extract the opening paragraph of the said
notification:

Notification No.32/2017-CentralTax (Rate)

New Delhi, the 13th October, 2017

G.S.R......(E).-In exercise of the powers conferred by sub-section (1) of section 11

of the Central Goods and Services Tax Act, 2017 (12 of 2017), the Central Govern-
ment, on being satisfied that it is necessary in the public interest so to do, on the
recommendations of the Council, hereby makes the following further amendments in
the notification of the Government of India, in the Ministry of Finance (Department
of Revenue), No.12/2017-Central Tax (Rate), dated the 28th June, 2017, published in
the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number
G.S.R. 691(E),dated the 28th June 17, namely:

8.6.2 Importance/Relevance of Recommendations of GST Council

GST Council is a constitutional body established under Article 279A of the

Constitution of India, entrusted with certain tasks including inter-alia making rec-
ommendations to the Union and the States on the goods and services that may
be subjected to, or exempted from levy of GST under Article 279A(4)(b). The
relevant extract of Article 279A is reproduced below:
142 8 Tax Review—Indirect Taxes—GST

(4) The Goods and Services Tax Council shall make recommendations to the Union
and the States on—

(a)…

(b) the goods and services that may be subjected to, or exempted from the goods and
services tax;

As discussed above Section 11 of CGST Act empowers the Government to grant

exemption from tax. From a bare perusal of Section 11, it is clear that Government
may grant exemption to any goods or services only on the recommendation of the
GST Council.
The GST Council, being a body set up by Article 279A of the Constitution of
India has a pivotal role to play in formulation of GST law and amendments therein.
One of the functions entrusted to GST Council is to make recommendations to the
Union and the States on the goods and services that may be exempted from GST.
The said recommendations are the basis and foundation of the GST law and the
Notifications made thereunder.
The methodology of working by GST Council is by way of meetings. The
agenda of the meeting is clearly laid out and discussion is done in the meeting. The
decisions taken with 3/4th majority are recorded as recommendations in Minutes
of Meetings (hereinafter referred as Minutes). The said recommendations form a
basis for grant of exemption u/s 11.
The purpose of recommendations of the GST Council is also not far from
sight. GST was brought as a unique tax raising measure whereby the entire
nation becomes a harmonized national market and with an objective of having
harmonized structure of goods and service tax. To this end, the GST Council
was conceptualized, which is a Constitutional body responsible for providing rec-
ommendations on all aspects of GST law with a view to fulfill the objectives
of introducing GST. Cooperative federalism being at the heart of the concept of
GST, the GST Council has representation of the Centre and all States having the
participation in such a manner that unless Centre and the States come together,
no decision can be taken. More so when the parliament/legislature have legisla-
tively provided that rate of tax and exemptions shall be notified on the basis of
recommendations of the GST Council.
Thus, in the author’s view, it is the most relevant guide for interpreting
exemption entries.
8.6 Taxability of Annuity Payments During Operation Period 143

8.6.3 Case Laws

It is a settled position of law, that for the purpose of ascertaining the mischief
sought to be remedied by the legislation and the object and purpose for which the
legislation is enacted, the speech made by the Mover of the Bill explaining the
reason for the introduction of the Bill can certainly be referred. Reliance in this
regard is placed upon K.P. Varghese Vs. Income Tax Officer, Ernakulam and Ors
AIR 1981 SC 1922.
Relevant provision is extracted as under:

8. …

Now it is true that the speeches made by the Members of the Legislature on the floor
of the House when a Bill for enacting a statutory provision is being debated are
inadmissible for the purpose of interpreting the statutory provision but the speech
made by the Mover of the Bill explaining the reason for the introduction of the Bill
can certainly be referred to for the purpose of ascertaining the mischief sought to
be remedied by the legislation and the object and purpose for which the legislation
is enacted.

This is in accord with the recent trend in juristic thought not only in Western countries
but also in India that interpretation of a statute being an exercise in the ascertainment
of meaning, everything which is logically relevant should be admissible.

Reference is also invited to the interim order of Delhi High Court in the case of
Manufacturers Traders Association v. Union of India in 2019 (10) TMI 667- Del
HC wherein the issue was regarding the rate of tax on fabric items. It was the
contention of the Petitioner that the GST Council in their 15th Meeting held on
03.06.2017 have decided the rate of tax on all varieties of fabric items at 5%. On
the other hand, Respondents refuted the said claim by contending that the GST
Council had specifically agreed that 5% rate of tax to be applicable on fabrics
used for making apparels while 12% rate was recommended for technical fabrics,
special fabrics, coated fabrics falling under Chapters 56 to 59 of the Tariff. The
Court agreed with the submission of the Petitioner and directed the controversy to
be specifically and pointedly be placed before the Council, in their next meeting.
To quote:

Keeping in view the aforesaid controversy, we are of the considered view that the
aforesaid controversy should specifically and pointedly be placed before the Council,
144 8 Tax Review—Indirect Taxes—GST

preferably in the next meeting. A copy of our order should also be circulated so that
the controversy is brought before the Council.

The said issue was placed before the GST Council in their 38th GST Council
Meeting held on 18 December 2019 at New Delhi. In the Minutes of the Meeting,
the JS, TRU-I while introducing the agenda item stated that in its 15th GST Coun-
cil Meeting, the rate of 5% was prescribed on fabrics used for making apparels and
12% GST rate was prescribed on specialized and industrial fabrics. The Council
in their deliberations took note of the order dated 11 October 2019 of the Hon’ble
Delhi High Court and the decision of the Council to levy 12% GST on specialized
and industrial fabrics and technical textiles of Chapters 56–59 was confirmed.
This shows that the courts recognizes the importance of the GST Council in
interpreting and understanding the GST provisions and even rely on the minutes
of the GST council for interpreting the GST law and to get their understanding on
the disputed matter.
The constitutional role of GST Council was discussed by the Gujarat High
Court in the case of Mohit Minerals v. Union of India in RCA 726 of 2018-
MANU/GJ/0990/2020, wherein it was observed that Goods and Services Tax
Council is a constitutional body constituted under Article 279A of the Consti-
tution of India and plays a pivot role under the GST, which brings uniformity in
the law as also a cooperative federalism. The Council comprises, as its members
the Finance Ministers of the Union and the States including Union Territories with
Legislatures. It has the authority to recommend to the Union and the States on var-
ious facets of GST, including Model GST laws, principles to determine the place
of supply, levy of the tax, design of GST, dispute settlement, special provisions
for a special category of States, and so forth. Adopting the recommendation of the
GST Council, Parliament has enacted these pieces of legislation:

(1) The Central Goods and Services Tax Act, 2017: it levies a tax on intra-State
supplies of goods and services in all supplies within a State
(2) The Integrated Goods and Goods and Services Tax Act, 2017: it levies a tax
on inter-State supplies of goods and services;
(3) The Union Territory Goods and Services Tax Act, 2017: it levies a tax on
intra-State supplies of goods and service.

The relevant portion of the judgment in Mohit Minerals supra has been reproduced
below for ready reference:

110. The GST Council, constituted in September 2016, is a constitutional institution

comprising as its members the Finance Ministers of the Union and the States including
Union Territories with Legislatures. It has the authority to recommend to the Union
and the States on various facets of GST, including Model GST laws, principles to
determine the place of supply, levy of the tax, design of GST, dispute settlement,
special provisions for a special category of States, and so forth.
8.6 Taxability of Annuity Payments During Operation Period 145

111. Adopting the recommendation of the GST Council, Parliament has enacted these
pieces of legislation:

(1) The Central Goods and Services Tax Act, 2017: it levies a tax on intra-State
supplies of goods and services in all supplies within a State

(2) the Integrated Goods and Goods and Services Tax Act, 2017: it levies a tax on
inter-State supplies of goods and services;

(3) the Union Territory Goods and Services Tax Act, 2017: it levies a tax on intra-State
supplies of goods and service.

The recent judgment of the Supreme Court in Mohit Minerals 2022 5 TMI 968 SC
case has affirmed that position that in so far as the secondary legislation (rate of
tax/exemptions) are concerned, the law itself having provided that these shall be
based upon the recommendations of the GST Council, the same shall be binding
upon the government.
From the above, it can be noted that, to correctly interpret the intent and object
behind introducing an exemption entry, reliance can very well be placed upon
minutes of the GST Council wherein the said entry was recommended and basis
which the Government has exempted the said service. This is clearly borne out
from Article 279A & Section 11 of CGST Act.
Thus, based on entry 23A, when understood and interpreted in the light of
agenda and minutes of 22nd GST Council meeting, it can be safely concluded
that the Annuity payable by Authority to Concessionaire, for construction of road,
would fall within this exemption entry.
Further, on the basis of the Minutes of the 22nd meeting of the GST council held
on 6th October 2017, even the NHAI was of the view that annuity paid by NHAI
or State Authorities or State-owned development Corporations for construction of
Roads to Concessionaire is exempt from payment of GST. The said view was
communicated by NHAI vide its memorandum dated 09 October 2017. Relevant
part of the said Memorandum is reproduced below:

Subsequently, the GST Council in its 22nd Meeting held on 6 th October, 2017 has
taken some decisions and has communicated its decision through its web site for
general information.

The following decisions are relevant for NHAI:

2. Exemption to annuity paid by NHAI (and State authorities or State owned devel-
opment Corporations for construction of roads) to concessionaires for construction
of public roads.
146 8 Tax Review—Indirect Taxes—GST

Accordingly, all concerned including ROs/PDs may please take note of it. It is fur-
ther advised that NO PAYMENT OF GST shall be made by NHAI ON ANNUITY
PAYMENTS, in view of the above decision by the GST Council

Here it is pertinent to refer prior to the date of 22nd GST Council, NHAI was of
the view that GST would be paid on annuity and in its circular (3.3.14) NHAI
had categorically mentioned that in respect of annuity payments GST shall be
applicable at the time of Annuities payments at the applicable rate of GST and
it shall be paid by NHAI to the Concessionaire separately at the time of making
annuity payments.
However, post the 22nd GST Council Meeting the NHAI1 stated that the annuity
payments are exempt for payment of GST and NHAI will not pay any GST on the
annuities paid by them to the Concessionaires.
Thus, even the Government Authority post the 22nd GST Council meeting was
of an understanding the no GST is to be paid on the annuity payments made by
them to the Concessionaire.
The Rajasthan Appellate Authority for Advance Ruling in the matter of Nagaur
Mukundgarh Highways Pvt. Ltd.2 it was held that the annuity payments made by
NHAI to the Concessionaire is exempt in terms of Entry 23A of the Exemption
Notification No. 11/2017-CT(R) dated 28 June 2021.

8.6.4 Taxability of Interest on Annuity Payments During

Operations

Further, the interest amount that is paid by NHAI along with the bi-annual instal-
ment may also be regarded as annuity i.e. consideration for access of road and
thus the interest would also be exempt in terms of entry 23A of Notification No.
12/2017-CT(R) dated 28 June 2017 w.e.f. 01 July 2017.
Thus, if it is considered that the annuity payment received from NHAI is exempt
in terms of entry 23A of Notification No. 28 June 2017 then it would be safe to
treat the amount of interest received along with annuity payments as exempt and
the concessionaire is not required to pay any GST on the said interest. As per
Circular dated 05 March 18 NHAI has also clarified that GST shall not be payable
on the interest paid along with annuity payments since, interest is payable on the
reducing balance of the completion cost as per Clause no. 23.6.4 of MCA.
Further, it is important to note that the entry 23A of the exemption notifica-
tion only exempts the annuity payments and does not exempt any other payments

1 Reference placed on memorandum of NHAI dated 09 October 2017 and Circular No. 3.3.17 dated

23 October 2017 issued by NHAI.

2 Order No.RAJ/AAAR/06/2018–19 dated 12 February 2019.
8.6 Taxability of Annuity Payments During Operation Period 147

made by Authority to the Concessionaire. Meaning thereby that the milestone

payments or other payments (excluding annuity payments) made by Authority to
Concessionaire remains taxable as explained in the earlier sections of this chapter.

8.6.5 Later Developments in Respect of the Taxability

of Annuity Payments Made by NHAI in Respect
of Construction of Road

On the basis of the agenda and minutes of the 22nd meeting of the GST Council
supra, NHAI as well as industry players were of the view GST is exempt on the
annuity payments made by NHAI to the Concessionaire for construction of road.
As mentioned above NHAI in its clarification provided that GST is not payable
on the annuity payments made by it to the concessionaire for construction of road.
Also, the industry players were bidding for the HAM projects assuming that no
GST liability is payable on the annuity payments.
Although there was clarity regarding the intention of the GST Council (evident
by way of Agenda and minutes of the 22nd GST Council meeting) that they recom-
mended the exemption of annuity payments made by NHAI to concessionaire to
bring it in parity with the exemption of toll charges but the wordings of Entry 23A
left room for ambiguity that whether the annuity payments are actually exempt or
not.
GST Council In the 43rd GST Council meeting in the agenda item 11(iii)(6)
discussed regarding exemption of annuity payments made by NHAI. The agenda
item is extracted as under:
Sl. No. Proposal Justification Comments and Fitment Committee’s recommendation
148

6 Exemption to The 1. In HAM Project, NHAI contributes 40% of the Recommendation: Clarification may be issued by way of a circular that entry 23A
Hybrid Annuity Model Bid Project Cost during construction phase and of notification No. 12/2017-CT(R) does not exempt annuity paid for construction of
Project SPV from GST balance construction cost, invested by private roads. It only exempts services provided by way of access to a road or bridge on
output tax liability operators is paid back to the concessionaire in 30 payment of annuity for it
defined installments along with interest as may be 1 The entry 23A of notification No. 12/2017-CT(R) provides exemption to any service
applicable. The payments made towards balance provided for access of road on payment of annuity. This entry reads as below: Service by
construction are paid as Annuities. Annuity payment way of access to a road or a bridge on payment of annuity
is exempted from GST as per entry 23A, which is 2. However, the service being provided by the concessionaire to NHAI is construction
now also confirmed by the appellate bench, vide service (for which the contract is entered into) covered under service code 995421 -
order no RAJ/AAAR/06/2018-19 dated 12 February General construction services of highways, streets, roads railways, airfield runways,
2019. However, the following decision in the said bridges and tunnels
order is being contested by the HAM Developers 3. The said entry 23A of the notification No. 12/2017-CT(R) exempts service by way of
(a) That ONLY 40% of input tax credit used in the access to a road or a bridge on payment of annuity. Entry 23 exempts service of access
construction phase is available to the concessionaire provided in lieu of toll. However, cases where charges are paid, in lump sum or in form
(b) Full ITC of the GST paid on the inputs and input of an Annuity, by the Government department or PSU for seeking access to road/bridge
services used in the O&M phase is available to the for general public were not covered by entry 23. This led to a situation where the toll
concessionaires charges, in form of Annuity, being offset by the Government or PSU, in public interest,
2. Industries want to have 100% ITC, so that no cash to the concessionaire were subjected to GST and consequently it was recommended by
out go is there from the SPV, as sufficient ITC is the GST Council in its 22nd meeting to exempt service by way of access to road or
available it is utilized against GST. The un -utilized bridge where payment were in the form of annuity. The Council thus recommended
portion of the ITC can be potentially utilized during exemption to only such annuities, which are charged for providing access to a road or
the O&M phase, which may be remote. Eventually, bridge and otherwise the activity is at par with the activity for which toll is charged
as it is not refundable, it is written off in the books 4. In the case referred to in the reference, AAAR vide its order dated 12 February 19 had
of the SPV as a cost over the O&M period in case of held that the annuity payments received by the petitioner are exempt, however, only 50%
non -utilization of ITC of the inputs and input services used in the construction phase shall be available
3. HAM projects are at disadvantageous position vis to the petitioner as the annuity is not taxable. The AAAR did not go into the aspect that
- å -vis EPC and BOT Projects. The input tax credit for the purposes of exemption annuity should have been in lieu of access to the road and
provisions are clear in both EPC as well as BOT not in lieu of construction of road
projects. In EPC projects, 100% ITC is available to 5. It would be appropriate if clarification is issued that exemption is available to only
the contractors during construction. In BOT projects, such annuities, which are charged for providing access to a road or bridge (at par with
whole of the project is developed and managed by toll)
the Private Partner (referred as Concessionaire) 6. Fitment Committee may examine and take a view
8 Tax Review—Indirect Taxes—GST
8.6 Taxability of Annuity Payments During Operation Period 149

From a bare perusal of the above, it seems that this was a note put up by some
officer for consideration of the fitment committee. What were the views of the
fitment committee on this is not clear.
Further, in the minutes of the 43rd meeting it was stated that it was also
being clarified that the annuity paid as deferred payment for construction of
roads/highways was not exempted from GST as the toll or annuity in lieu of tolls
are.
From the aforesaid agenda item 11(iii)(6) and minutes of 43rd GST Council
meeting it appears that the issue whether the annuity payments made by NHAI to
the concessionaire under the HAM Project is exempt in terms of entry 23A was
discussed. GST Council recommended that Clarification may be issued by way of a
circular that entry 23A of notification No. 12/2017-CT(R) does not exempt annuity
paid for construction of roads. It only exempts services provided by way of access
to a road or bridge on payment of annuity for it.
Further, it was noted that concessionaire is providing the service of construc-
tion of road covered under service code 995421—general construction services of
highway, streets, roads, railways, airfield runways, bridges and tunnels. Whereas
entry 23A exempts only the services of access to road or a bridge on payment
of annuity. Further it was elaborated that entry 23 of the exemption notification
exempts services of access of roads provided in lieu of toll, however, cases where
charges are paid, in lumpsum or in form of annuity by the Government department
or a PSU, for seeking access to road/bridge for general public were not covered in
entry 23. Hence to cover the annuity payments made by the Government depart-
ment or the PSUs in public interest, to the concessionaire for the access of roads
or bridges Entry 23A was introduced. It was further noted that the Council thus
recommended exemption to only such annuities, which are charged for providing
access to a road or bridge and otherwise the activity is at part with the activity for
which toll is charged.
The author wants to highlight that while discussing Entry 23A of the Exemption
Notification, GST Council in its 22nd meeting categorically noted that in Entry 23A
annuity is an amount paid by the National Highways Authority of India (NHAI)
to concessionaries for construction of roads in order that the concessionaire did
not charge toll for access to a road or a bridge. In other words, in the agenda
and the minutes of the 22nd GST Council Meeting it was categorically noted that
the annuity payments made by NHAI to the Concessionaire for construction of
Road is akin to the toll charges collected from the users and like the toll charges
such annuity payment should also be exempt from the payment of GST. On the
said recommendation of the GST Council Entry 23A was inserted in Exemption
notification effective from 13 October 2017.
150 8 Tax Review—Indirect Taxes—GST

Now, in the 43rd meeting the GST Council has taken a complete U- turn vis-
à-vis the recommendations made by them in the 22nd GST Council. From the
recommendations made by the GST Council in its 43rd meeting it appears that in
respect of entry 23A it is noted that the said entry only exempts the services by way
of access to a road or bridge where the payments are made in annuity. From the
said interpretation of Entry 23A the Author is unable to contemplate any material
services that would be exempt in terms of the said entry. Thus, in essence, vide the
recommendations made by GST Council in the 43rd GST Council the exemption
entry 23A is made redundant and useless.
Post the recommendations made by the GST Council in its 43rd meeting, CBIC
issued a Circular No. 150/06/2021-GST dated 17 June 2021 wherein it was men-
tioned that in light of the recommendations made by the GST Council, it is hereby
clarified that Entry 23A of notification No. 12/2017-CT(R) dated 28 June 2021
does not exempt GST on the annuity (deferred payments) paid for construction of
roads. Relevant part of the said Circular is reproduced below:

2. This issue has been examined by the GST Council in its 43rd meeting held on 28th
May, 2021.

2.1 GST is exempt on service, falling under heading 9967 (service code), by way of
access to a road or a bridge on payment of annuity [entry 23A of notification No.
12/2017-Central Tax]. Heading 9967 covers supporting services in transport under
which code 996742 covers operation services of National Highways, State Highways,
Expressways, Roads & streets; bridges and tunnel operation services. Entry 23 of said
notification exempts service by way of access to a road or a bridge on payment of
toll. Together the entries 23 and 23A exempt access to road or bridge, whether the
consideration are in the form of toll or annuity [heading 9967].

2.2 Services by way of construction of road fall under heading 9954. This heading
inter alia covers general construction services of highways, streets, roads railways,
airfield runways, bridges and tunnels. Consideration for construction of road service
may be paid partially upfront and partially in deferred annual payments (and may
be called annuities). Said entry 23A does not apply to services falling under heading
9954 (it specifically covers heading 9967 only). Therefore, plain reading of entry
23A makes it clear that it does not cover construction of road services (falling under
heading 9954), even if deferred payment is made by way of instalments (annuities).

3. Accordingly, as recommended by the GST Council, it is hereby clarified that

Entry 23A of notification No. 12/2017-CT(R) does not exempt GST on the annuity
(deferred payments) paid for construction of roads.
8.6 Taxability of Annuity Payments During Operation Period 151

Thus, in the said circular without analyzing the recommendations made by the
GST Council in its 22nd meeting CBIC straight away clarified that entry 23A of the
Exemption notification [Notification No. 12/2017-CT(R) dated 28 June 2017] does
not exempt annuity payments made by NHAI to the concessionaire for construction
of roads.
At thus juncture it is important to analyze the following aspects:

a. Whether the coverage of an exemption notification can be restricted by way

of a clarification made by the board vide issuing a circular and that too after
almost 4 years from the date on which the exemption was originally issued;
b. If at all the clarification issued by the board by way of circular is to be followed
then whether it needs to followed prospectively or retrospectively.

We will be analyzing both the aforesaid aspects one by one.

Firstly, we shall be dealing with the issue that whether the scope and coverage
of the exemption notification can be curtailed by way of issuing a board circu-
lar. In this regard it is important to note that as per Section 11 of the CGST Act
i.e. the substantive law that empowers Government to grant exemption specifically
provides that Government on recommendation of the council, exempts goods or
services or both of specified description from the whole or any part of the tax
leviable thereon. Thus, exemption is provided by the government on the recom-
mendation of the GST Council. Further, nowhere in Section 11 of the CGST it is
provided that the CBIC by way of issuing the circular can interpret the coverage
of the entries of the exemption notification.
Here it is also relevant to analyze Section 168 of the CGST Act. As per
Section 168 of the CGST Act, CBIC.

(a) For the purpose of uniformity in the implementation of this Act;

(b) is empowered to issue such orders, instructions, or directions;
(c) to the central tax officers;
(d) as it may deems fit

Thus, From the Section 168 (1) of the CGST Act it is evident that the following are
the two most important characteristics of the directions/order/instructions issued by
CBIC:

i. These are issued to bring uniformity in the implementation of the Act.

Thus, Circular can only be issued where some inconsistency is felt regard-
ing the implementation of the Act, and hence to bring the uniformity in the
implementation of the Act, Circular can be issued by the CBIC.
ii. From the clear wordings of the Section 168(1) it is evident that circular cannot
be issued to curtail the scope of the exemption notification as it would result
in the restricting the substantive benefits of the trade at large. Implementation
of the Act has to mean administrative or procedural issues and not legislative
152 8 Tax Review—Indirect Taxes—GST

power, else the entire task of legislation would be assumed by the board/CBIC
in garb of Section 168.
iii. It is categorically mentioned in Section 168(1) itself that the
orders/instructions/circulars/directions issued by CBIC are for the Central
tax officers and it is only the Central tax officers and all other persons
employed in the implementation of the Act are bound to follow such
orders/instructions/circulars etc. issued under Section 168 of the CGST Act.
Thus, in terms of the legal provision itself the assessees are not bound to
follow the Circulars issued by the CBIC. Even from looking at the underlying
Circular it can be seen that the same is addressed to the Principal Chief Com-
missioners/Chief Commissioners/Principal Commissioners/Commissioner of
Central Tax (All) /The Principal Director Generals/Director Generals. This
further shows that the circular is meant to be followed by the departmental
officers only and that too for administrative purposes.

In numerous judicial pronouncements it has been held that the circulars issued by
the board are not binding on the assessee; if the circular is not beneficial, assessee
can choose not to follow the same. In other words, circulars issued by the board
under Section 168 are not binding on the assessee.
Thus, from the aforesaid it is evident that the circulars can only be issued in
respect of administrative or procedural issues and the assesses are not bound to
follow the circulars issued by the board.
In a recent case, Hon’ble Madras High Court in Jenefa India V. UOI 3 has
analyzed the power of the board under Section 168 and that whether circular can
be issued by boards to curtail the substantive rights. the Hon’ble Court specifically
stated that Section 168 makes it clear that only for the purpose of uniformity in
the implementation of the Act, orders or directions to the Central Tax Officers,
as deem fit, may be issued by the board. Therefore, most probably, such kind of
orders, instructions or directions must be procedural in nature, not substantive in
nature. Further it has been noted that the exemptions are provided by the Central
Government by exercising their powers under Section 11 of the CGST Act and
the exemptions are the vested rights provided to the stake holders. Therefore such
kind of exemptions cannot be taken away or done away by issuing clarificatory
Circulars by the Board, in exercise of the powers under Section 168 of the CGST
Act. If at all anything to be taken away from the purview of such exemption already
provided under those entries, it is for the Central Government to come to the rescue
of the Revenue by issuing further amendment to the exemption notification. Thus,
it has been very clearly held by the Hon’ble Madras High Court that the Circulars
can only be issued in respect of procedural matters and not substantive in nature.

3 2021 (11) TMI 227 – Mad.

8.6 Taxability of Annuity Payments During Operation Period 153

Likewise, in the case of Orient Paper Mills Ltd. V. UOI 4 and Sirpur Paper Mills
Ltd. V. CWT 5 it has been held that Board cannot issue Circulars which interfere
with the quasi-judicial powers of the Authority.
Thus, if the council indeed recommended to withdraw the exemption which
was unequivocal and background whereof duly covered HAM contractors, then
the withdrawal would have been by way of modification of the notification and
not by clarifying the issue.
The second issue that we have noted above is if at all it is assumed that the
circular is valid then whether the applicability is prospective or retrospective. The
Apex Court in the case of Suchitra Components Ltd. V. CCE6 has categorically
held that a beneficial circular has to be applied retrospectively while oppressive
circular has to be applied prospectively. Meaning thereby that when the circu-
lar is against the assessee, they have right to claim enforcement of the same
prospectively.
In the case of DIT V. SRMB Dairy Farming Pvt Ltd. the Apex Court noted that
the favourable circulars are applied retrospectively while the oppressive circulars
are applied prospectively.
Thus, even assuming that the Circular could have stated what has been stated
therein, a view can be taken that the circular dated 17 June 2021, being a oppres-
sive circular, would be applied prospectively. Meaning thereby that the circular if
at all to be applied then the same may be applied for period post 17 June 2021,
and for the period prior to 17 June 2021 annuity may be considered as an exempt
supply.

8.6.6 NHAI Circular Post the 43rd Meeting of GST Council

Post the Circular No. 150/06/2021- GST dated 17 June 2021 issued by the CBIC,
NHAI issued a policy circular No. 3.3.21/2021 dated 01 September 2021 wherein
clarification is issued regarding applicability of GST on the activity of construc-
tion of road where considerations are received in deferred payment HAM. In the
said circular NHAI referred to MoRTH letter No. NH-24028/22/2020-H dated 27
August 2021. In the MoRTH letter it is stated the Ministry of Finance, has clarified
vide Circular No. 150/06/2021 that entry 23A does not exempt GST on the annuity
paid for construction of roads. Further in the said letter all the HAM projects were
segregated in following three categories based on the bid due date:

4 AIR 1969 SC 48.

5 1970 (1) SCC 795.
6 (2006) 12 SCC 452.
154 8 Tax Review—Indirect Taxes—GST

S. No. Category of HAM projects Manner of Payment of GST on the

annuity paid/payable to the
Concessionaire.
1 Projects where bid due date was on or a. For the projects where the last date of
before 30 June 2017 submission of bids was on or before 30
June 2017, GST on annuity payments will
be paid/reimbursed considering change in
law as per the guidelines mentioned under
Standard Operating Procedure (SOP) dated
29 July 2019 with the applicable GST rate
and considering Bid project cost plus
escalation cost as total cost of project in
the excel template.
b. In case, where the template has already
been submitted by the concessionaire and
change in law impact has been calculated,
in such a case, GST impact shall be
calculated again considering BPC plus
escalation cost as total cost of project.
c. The impact of additional GST shall be
computed after adjusting GST Input Tax
Credit lying with the Concessionaire.
d. Further, Appendix-I & Annexure—1
Base Data stands omitted and
Annexure—II (Regular and Composite
Scheme) (enclosed) stands modified and
issued accordingly along with
Annexure—III (enclosed) for calculation
of amount recoverable (if any), from the
concessionaire in case payment already
made under change in law.
e. GST on interest on annuity payments
shall be payable at the applicable GST rate
in accordance with the provisions under
Section 15(2)(d) of the CGST Act.
f. GST on annuity as per the percentage
impact calculated shall be paid/reimbursed
at the time when such annuity becomes
due.
2 Projects where bid due date was on or no GST on annuity under change in law
after 01 July 2017 and on or before 13 shall be paid/reimbursed since bids were
October 2017 invited inclusive of GST
8.7 Refund on Account of Inverted Duty Structure 155

S. No. Category of HAM projects Manner of Payment of GST on the

annuity paid/payable to the
Concessionaire.
3 Projects where bid due date was on or a. Effect of change in law on annuity
after 14 October 2017 and on or before 16 payment shall be computed at applicable
June 2021 GST rate after adjusting GST input tax
credit lying with concessionaire. No GST
shall be paid on 40% construction support.
b. GST on interest on annuity payments
shall be payable at the applicable GST rate
in accordance with the provisions under
Section 15(2)(d) of CGST Act.
c. GST on annuity as per the percentage
impact calculated shall be paid/reimbursed
at the time when such annuity becomes
due.
4 Project where bid due date are after 16 No GST on annuity under change in law
June 2021 shall be paid/reimbursed since bids were
invited exclusive of GST.

There may be cases where the contractor claimed exemption, and later because
of some reason is unable to claim the reimbursement of GST on annuities. The
authors are of the view that in such cases, the contractor may have to litigate with
the department to sustain the claim for exemption.

8.7 Refund on Account of Inverted Duty Structure

8.7.1 Introduction

Section 54(3)(ii) of the CGST Act allows refund of any unutilised ITC which has
accumulated on account of rate of tax on inputs being higher than the rate of tax
of output supplies. Thus, where the tax rate on inputs is more than the tax rate
on output supplies then the accumulated Input Tax Credit would be allowed as
refund. Section 54(3)(ii) is explained with the help of the following illustration:
Illustration

Input (raw material) Cement

Rate of tax on input 28%
Value of input 100
Tax on inputs 28
Output Construction
Rate of tax on output 12%
156 8 Tax Review—Indirect Taxes—GST

Input (raw material) Cement

Value of output supply 150
Tax on output 18
Unaccumulated ITC 28–18 = 10

For understanding refund under Section 54(3) relating to inverted duty structure,
it is important to note that the law takes into account the accumulation on account
only of rate of tax on inputs being higher than the rate of tax on output. Here, it is
important to note that ‘inputs’ have been defined in Section 8.2(59) of the CGST
act as:

2. In this Act, unless the context otherwise requires,–

(1) …….

(59) input means any goods other than capital goods used or intended to be used by
a supplier in the course or furtherance of business;

ITC can be availed by a taxable person on not only inputs, but also on input
services and capital goods. However, for the purpose of refund of accumulated
ITC in case of inverted duty structure under Section 54(3), no account is to be
taken of the credit accumulated on any account except of inputs.
Thus, refund of unutilized ITC of INR 10 can be claimed under Section 54(3)(ii)
of the CGST Act.

8.7.2 Construction and Maintenance of Roads—HAM Based PPP

Contracts

In the case of construction of road various inputs are used such as cement, bitumen
and aggregate. Out of these inputs bitumen and aggregates are chargeable to tax at
the rate of 18%, and cement is leviable to tax at the higher rate of 28%. Whereas
as mentioned earlier the GST rate applicable on construction of road is only 12%.
Likewise maintenance of road is also chargeable to GST @ 12%.
Thus, in case of construction and maintenance of road the duties are fixed in
such a manner that they are resulting in the inverted duty structure. Exemption to
annuity payment further add to the accumulation, though that accumulation may
not give rise to refund. Due to the presence of inverted duty structure there is
huge accumulation of Input tax credit in the book of concessionaire which would
ultimately become their cost.
8.7 Refund on Account of Inverted Duty Structure 157

To deal with such a situation, resort is to be made to Section 54(3)(ii) of the

CGST Act wherein the statutory right has been granted to claim the refund of
unutilised input tax credit where the tax rate on inputs supplies is more than the
tax rate of output supplies.
Thus, in respect of the projects pertaining to road construction and mainte-
nance, as in the case of HAM, where the input tax credit is accumulated for the
reason of inverted duty structure the registered person may apply for refund of the
accumulated input tax credit in terms of Section 54(3)(ii) of the CGST Act.
Further Section 54(3) of the CGST Act is reproduced below for your ready
reference:

(3) Subject to the provisions of sub-section (10), a registered person may claim refund
of any unutilised input tax credit at the end of any tax period:

Provided that no refund of unutilised input tax credit shall be allowed in cases other
than––

(i) zero rated supplies made without payment of tax;

(ii) where the credit has accumulated on account of rate of tax on inputs being higher
than the rate of tax on output supplies (other than nil rated or fully exempt supplies),
except supplies of goods or services or both as may be notified by the Government on
the recommendations of the Council:

Provided further that no refund of unutilised input tax credit shall be allowed in cases
where the goods exported out of India are subjected to export duty:

Provided also that no refund of input tax credit shall be allowed, if the supplier of
goods or services or both avails of drawback in respect of central tax or claims refund
of the integrated tax paid on such supplies.

8.7.3 Notification No. 15/2017-CT(Rate) Dated 28 June 2017

Here it is pertinent to mention that Section 54(3) specifically bars for refund of
unutilized ITC in case of supplies of goods of services or both as may be notified
by government on recommendation of Council. Thus, no refund of unutilized ITC
would be allowed in the case of supplies that are notified under Section 54(3) of
the CGST Act.
Notification No. 15/2017-CT(R) dated 28 June 17 has been issued under
Section 54(3) of the CGST Act that bars for refund of unutilised ITC in respect
of supply of services specified in sub-item (b) of item 5 of Schedule II of the
158 8 Tax Review—Indirect Taxes—GST

CGST Act. Thus, by virtue of the said Notification the refund of unutilised ITC as
available in Section 54(3)(ii) of the CGST Act is restricted where there is supply
of services as specified in item 5(b) of Schedule II of the CGST Act and not in
any other case.
To quote the notification:

In exercise of the powers conferred by sub-section (3) of section 54 of the Central

Goods and Services Tax Act, 2017 (12 of 2017), the Central Government, on the
recommendations of the Council hereby notifies that no refund of unutilised input tax
credit shall be allowed under sub-section (3) of section 54 of the said Central Goods
and Services Tax Act, in case of supply of services specified in sub-item (b) of item
5 of Schedule II of the Central Goods and Services Tax Act

Since the scope of this notification is to be read in terms of the services specified
in item 5(b) of Schedule II of the CGST Act, the same is extracted hereunder for
ready reference:

SCHEDULE II

5. Supply of services

The following shall be treated as supply of services, namely: -

(a) ……

(b) construction of a complex, building, civil structure or a part thereof, including a

complex or building intended for sale to a buyer, wholly or partly, except where the
entire consideration has been received after issuance of completion certificate, where
required, by the competent authority or after its first occupation, whichever is earlier.

From the reproduced entry, it is amply clear that item 5(b) of Schedule II covers
activities in the nature of construction of

(a) Buildings,
(b) Complexes,
(c) civil structures, and
(d) parts thereof, and also
(e) including a complex or building intended for sale to a buyer, wholly or partly.

Thus, by virtue of Notification No. 15/2017-CT(R) read with item 5(b) of Schedule
II, the refund of unutilised ITC is not available in the case of construction of
complex, building, civil structure or part thereof including a complex or building
8.7 Refund on Account of Inverted Duty Structure 159

intended for sale to buyer. An issue therefore arises as regards interpretation of the
terms – complex, building or civil structure, used in the notification.
Thus, for correctly interpreting Notification no 15/2017-CT(R) it is impor-
tant to understand the meaning of terms building, complex or civil structure.
However, these terms are not been defined anywhere in the CGST Act or rules
made thereunder, and to understand their meaning we have to refer to various
dictionaries.
That the definition/meaning of ‘building’ as contained in various dictionaries
is reproduced below:

Cambridge Dictionary

A structure with walls and a roof, such as a house and a factory.

Merriam-Webster

a usually roofed and walled structure built for permanent use (as for a dwelling)

Dictionary.com

a relatively permanent enclosed construction over a plot of land, having a roof and
usually windows and often more than one level, used for any of a wide variety of
activities, as living, entertaining, or manufacturing

MacMillan Dictionary

a structure made of a strong material such as stone or wood that has a roof and walls,
for example a house

CollinsDictionary.com

A building is a structure that has a roof and walls, for example a house or a factory.

From the above reproduced dictionary meanings/definitions it can be understood

that a ‘building’ is any structure having roof and walls and which is generally
used for living or for business, etc. Therefore, any structure would be called as a
building only when it has walls and roof over it. Example of building would be
home, apartments, office building, factory, cinema, etc.
160 8 Tax Review—Indirect Taxes—GST

That the work of construction and maintenance of roads cannot be considered

as construction of building as contained in Item 5(b) of Schedule II of the CGST
Act.
Further, definition/meaning of ‘complex’ as contained in various dictionaries
are reproduced below:

Cambridge Dictionary

a large building with various connected rooms or a related group of buildings

Collins Dictionary

A complex is a group of buildings designed for a particular purpose, or one large

building divided into several smaller areas.

Merriam-Webster

A building or group of buildings housing related units, an apartment complex, a sports

complex

Macmillan Dictionary

a group of buildings together, or a building that has several parts

From the above definition appears that the ‘complex’ means group of buildings that
is generally designed for a particular purpose such as housing complex comprising
of various towers, sports complex, shopping complex, etc. Thus, complex is also
similar to building i.e. which has walls and roofs and also which is used by people
to either live, or for leisure activity or where they work.
Thus, the activity of the construction and maintenance of road under HAM
cannot be covered within the ambit of construction of complex as contained in
item 5(b) of the schedule II of the CGST Act.
Lastly item 5(b) of the II schedule of the CGST Act covers construction of
civil structure. Further, as stated earlier ‘civil structure’ is nowhere defined in
the CGST Act or the rules made thereunder. Further, as per common parlance
the term civil structure would mean the structures in the nature of civil work.
However, in the authors view the term civil structure appearing in the said entry
should be qualified by words building and complex which are preceding the word
civil structure. Otherwise, if the word civil structure is to be interpreted in the
widest import then the words building and structures appearing in the said entry
would lose their relevance. Also, from the reading of item 5(b) of the II Schedule
8.7 Refund on Account of Inverted Duty Structure 161

it appears that the word ‘civil structure’ is preceded by two words i.e. building and
complex. Thus, the civil structure, being a residuary term or a general term, should
be understood and interpreted in the light of the terms ‘building’ and ‘complex’ in
terms of the rule of Ejusdem Generis.

Ejusdem Generis is a Latin term which means of the same kind. The said rule is used
to interpret loosely written statutes. Where a law lists specific classes of persons or
things and then refers to them in general, the general statements only apply to the same
kind of persons or things specifically listed. Example: if a law refers to automobiles,
trucks, tractors, motorcycles and other motor-powered vehicles, vehicles would not
include airplanes, since the list was of land-based transportation.

The term Ejusdem Generis in other words means words of a similar class. The
rule is that where particular words have a common characteristic (i.e. of a class)
any general words that follow should be construed as referring generally to that
class; no wider construction should be afforded. Normally, general words should
be given their natural meaning like all other words unless the context requires
otherwise. But when a general word follows specific words of a distinct category,
the general word may be given a restricted meaning of the same category. The
general expression takes it’s meaning from the preceding particular expressions
because the legislature by using the particular words of a distinct genus has shown
its intention to that effect.
In the case of Siddeshwari Cotton Mills (P.) Ltd. V. UOI AIR 1989 SC 1019 the
hon’ble Supreme Court held that

that the expression ejus-dem-generis, ’of the same kind or nature’--signifies a prin-
ciple of construction whereby words in a statute which are otherwise wide but are
associated in the test with more limited words are, by implication, given a restricted
operation and are limited to matters of the same class or genus as preceding. If a
list or string or family of genus-describing terms are followed by wider or residuary
or sweeping-up words, then the verbal context and the linguistic implications of the
preceding words limit the scope of such words.

The hon’ble Supreme Court in the case of Grasim Industries Limited V. Collector
of Customs AIR 2002 SC 1766 held that

the rule of ejusdem generis applies only when

a) the statute enumerates the specific words,

162 8 Tax Review—Indirect Taxes—GST

b) the subjects of enumeration constitute a class or category,

c) that class or category is not exhausted by the enumeration,

d) the general terms follow the enumeration and

e) there is no indication of a different legislative intent

Further, in the case of Asst. Collector of Central Excise, Guntur V. Ramdeo

Tobacco Company AIR 1991 SC 506 the Hon’ble Supreme Court held that

the rule of ejusdem generis is generally invoked where the scope and ambit of the
general words which follow certain specific words (which have some common char-
acteristic and constitute a genus) is required to be determined. By the application
of this rule the scope and ambit of the general words which follow certain specific
words constituting a genus is restricted to things ejusdem generis with those preced-
ing them, unless the context otherwise requires. Further, it was held that on careful
consideration we are in respectful agreement with the view expressed in the aforesaid
decisions that the wide expression ‘other legal proceeding’ must be read ejusdem
generis with the preceding words ‘suit’ and ‘prosecution’ as they constitute a genus.

In terms of Notification No 15/2017-CT(R) the word ‘civil structure’ is preceded

by the words ‘building’ and ‘complex’. The words building and complex belongs
to a particular class and refer to structures having roof and walls. Thus, as per the
author’s view the word civil construction as appearing in item 5(b) of II schedule
of the CGST Act should include only those structures that are akin to buildings
and complexes.
This is also evident from the fact that there are two separate entries appearing in
schedule II of the CGST Act—name entry 5(b) and 6(a) the existence of these two
separate entries within the same schedule clearly shows that all the construction
works do not fall within 5(b), and that it is restricted to construction of buildings,
complex and similar civil structures. To quote item 6(a) and 5(b) of Schedule II
together:

5. Supply of services

The following shall be treated as supply of services, namely:-

(a) ……
8.7 Refund on Account of Inverted Duty Structure 163

(b) construction of a complex, building, civil structure or a part thereof, including a

complex or building intended for sale to a buyer, wholly or partly, except where the
entire consideration has been received after issuance of completion certificate, where
required, by the competent authority or after its first occupation, whichever is earlier.

6. Composite supply

The following composite supplies shall be treated as a supply of services, namely:—

works contract as defined in clause (119) of section 2; and

The works contract as defined in Section 2(119) of the CGST Act is reproduced
below:

(119). works contract means a contract for building, construction, fabrication,

completion, erection, installation, fitting out, improvement, modification, repair,
maintenance, renovation, alteration or commissioning of any immovable property
wherein transfer of property in goods (whether as goods or in some other form) is
involved in the execution of such contract;

Thus, as evident from the above entry the construction, maintenance and repair of
immovable property other than building, complex or civil structure would remain
covered within the definition of works contract.
Further, reference is also invited to entry 3(iv) of Notification No. 11/2017-
CT(R) i.e. the rate notification, that provides for rate of tax in respect of the works
of construction, maintenance and repair of road.
To quote

(iv) Composite supply of works contract as defined in clause (119) of section 2 of

the Central Goods and Services Tax Act, 2017 other than that covered by items (i),
(ia), (ib), (ic), (id), (ie) and (if) above, supplied by way of construction, erection,
commissioning, installation, completion, fitting out, repair, maintenance, renovation,
or alteration of,-

(a) a road, bridge, tunnel, or terminal for road transportation for use by general
public;

From the above entry also, it is evident that composite supply of construction,
maintenance and repair of road is covered within the definition of works contract.
Also, in terms of the act or the rules/notifications made thereunder there is no
164 8 Tax Review—Indirect Taxes—GST

restriction on claiming refund of unutilised ITC in case of provision of works

contract service.
Reference in this regard is also invited to the judgment of Supreme Court in the
matter of CCE & Cus., Kerala Versus Larsen & Toubro Ltd.7 wherein the Hon’ble
Judges has held that works contract is a separate species of contract distinct from
contracts for services simpliciter recognized by the world of commerce and law.
The relevant portion of the judgement is reproduced below:

17. We find that the assessees are correct in their submission that a works contract is a
separate species of contract distinct from contracts for services simpliciter recognized
by the world of commerce and law as such, and has to be taxed separately as such.
In Gannon Dunkerley, 1959 SCR 379, this Court recognized works contracts as a
separate species of contract as follows:-

To avoid misconception, it must be stated that the above conclusion has reference to
works contracts, which are entire and indivisible, as the contracts of the respondents
have been held by the learned Judges of the Court below to be. The several forms which
such kinds of contracts can assume are set out in Hudson on Building Contracts, at
p. 165. It is possible that the parties might enter into distinct and separate contracts,
one for the transfer of materials for money consideration, and the other for payment
of remuneration for services and for work done. In such a case, there are really two
agreements, though there is a single instrument embodying them, and the power of
the State to separate the agreement to sell, from the agreement to do work and render
service and to impose a tax thereon cannot be questioned, and will stand untouched
by the present judgment. (at page 427)

8.7.4 Conclusion

On the basis of above reasonings the author is of the opinion that the work of con-
struction and maintenance of road, as in the case of HAM, would not be covered
within the notification 15/2017-CT(R) and thus, there is no restriction on claiming
the refund of unutilized ITC as allowed under Section 54(3)(ii) of the CGST Act.

8.7.5 Formula for Claiming Refund of Unutilized ITC in Case

of Inverted Duty Structure

The formula for calculating refund amount in case of inverted duty structure has
been prescribed in Rule 89(5) of the CGST Rules.

7 2015 (39) S.T.R. 913(S.C.).

8.7 Refund on Account of Inverted Duty Structure 165

To quote:

(5) In the case of refund on account of inverted duty structure, refund of input tax
credit shall be granted as per the following formula:-

Maximum Refund Amount = {(Turnover of inverted rated supply of goods and ser-
vices) x Net ITC ÷ Adjusted Total Turnover} − tax payable on such inverted rated
supply of goods and services.

Explanation:- For the purposes of this sub-rule, the expressions—

(a) Net ITC shall mean input tax credit availed on inputs during the relevant period
other than the input tax credit availed for which refund is claimed under sub-rules
(4A) or (4B) or both; and

(b) Adjusted Total turnover and relevant period shall have the same meaning as
assigned to them in sub-rule (4).

From the above formula it is evident that for computation of Net ITC, the ITC
availed only in respect of inputs is considered and the ITC availed on input services
and capital goods is not taken into account. Due to such formula of Net ITC, in
many cases where the substantive right would be available to claim the refund of
unutilised ITC as the ITC has accumulated on account of rate of tax on inputs
being higher than rate of tax on output supplies but no refund would be allowed
because of the restrictive formula of maximum refund as contained in Rule 89(5).

Illustration
Rate of tax on input 18%
Value of input 100
Tax on inputs 18
Rate of tax on input service 18%
Value of input services 50
Tax on input services 9
Total ITC on input and input services 27
Rate of tax on output 12%
Value of output supply 200
Tax on output 24
Unaccumulated ITC 27 − 24 = 3
However as per formula provided in Rule 89(5) maximum (200 * 18/200) − 24 = − 6
refund available would be
166 8 Tax Review—Indirect Taxes—GST

Thus, if the restricting formula of Rule 89(5) of the CGST Rules is applied no
refund would be allowed even where there is an inverted duty structure and there
is accumulated ITC.
The authors are of the view that in the above case, accumulation of ITC of
INR 3 is on account of rate of tax on inputs as well as on input services being
higher than the rate of tax on output. Thus, at least part of the accumulated ITC
of INR 3 definitely relates to the eligible criteria provided in Section 54(3), i.e.
it is accumulated because of rate of tax on input being higher than rate of tax
on output supply. In that view of the matter simply reducing the output tax from
ITC relating to input is over simplistic. In author’s view, the rule could have pro-
vided a proportionate method, where the accumulation would be related to inputs,
input services and capital goods, and would have allowed refund proportionately.
However, the said formula provided by law has been upheld by the Supreme Court
in VKC Footsteps (2022) 2 SCC 603, and hence despite accumulation no refund
shall be allowed in the illustration provided above.
Tax Review—Direct Tax
9

Income tax is a direct tax chargeable on the income of the assessees and it is
governed by the provisions that are enshrined in the Income Tax Act, 1961. This
chapter aims at covering the major provisions of the Income tax that are relevant
for HAM based road PPP projects in the country. This chapter provides a detailed
discussion on Section 43CB of the Indian Income Tax Act 1961, India and the
applicability of the Percentage Completion method on the construction contracts.
It further elaborates on the Income Computation and Disclosure Standards issued
by the Central Government in terms of Section145 of the Income Tax Act; and the
Constitutional validity of ICDS considering Hon’ble Delhi High court judgment
in the matter of the Chamber of Tax Consultants and others.
The chapter also provides discussion on the topic of recognizing revenue and
computation of Income of such projects in terms of the Income Tax Act read
with ICDS III; the rate of income tax that is applicable on the income and dis-
cussion regarding the optional rate of tax that is applicable in respect of income
derived from the HAM based road PPP projects. All the concepts of Income tax
are explained through numerical examples and calculations based on case study of
Project Highway.
The key issues that are relevant for the HAM based PPP projects are explained
along with the view of the Author and the manner of mitigating risk is also
provided.

9.1 Project Highway Case Study—Summary

The case study assumes an award of a national highway project in India called
Project Highway by National Highways Authority of India (hereinafter referred
to as “NHAI”) as the government agency to a private sector player. The private
sector player has incorporated a Special Purpose Vehicle (hereinafter referred to
as “SPV”) namely, ABC Constructions Private Limited (hereinafter referred to as

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 167
A. Mittal et al., Hybrid Annuity Model (HAM) of Hybrid Public-Private Partnership
Projects, Management for Professionals,
https://doi.org/10.1007/978-981-19-2019-6_9
168 9 Tax Review—Direct Tax

“ACPL”) who will be the Concessionaire for this Project; and will perform two
(2) key activities:

• Construction of Highway; and

• After completion of Construction, Operation and maintenance (hereinafter
referred to as “O&M”) of Highway for a period of 15 years. Operation
and maintenance activities would include regular maintenance as also major
maintenance.

In terms of scope of O&M activities, ACPL is required to restore the asset at the
end of the term of the concession agreement.
Key relevant assumptions below:

• Cost of construction (civil and structural work) is INR 1200 Cr

• O&M cost to be incurred each year = INR 4 Cr
• Major Maintenance = During 7th year and the 14th year of operation period,
INR 30 Cr is estimated to be incurred in respect of major maintenance in each
of the said year (in real terms, without considering the impact of inflation)
• ACPL has quoted Bid Project Cost = INR 1500 Cr in respect of construction
activity
• ACPL has quoted O&M cost = INR 5 Cr per year in respect of O&M activities
which is payable during the operation and maintenance period.

The Bid Project Cost and the O&M cost payable by NHAI to ACPL is as per
the bid submitted by ACPL to NHAI. Further, as such the amount quoted as Bid
Project Cost and O&M Costs by ACPL is not proportionate to the cost incurred
on these activities. For the purpose of this case study, it is assumed that ACPL
has submitted the bids in such a manner that the Bid Project Cost which is linked
with construction of road is quoted on a higher side, whereas the O&M cost is
quoted on a lower side. This means that the Bid Project Cost (price quoted for
construction) is loaded with the revenue for O&M activities also.
Estimated cost and revenue (in real terms without considering the impact of
inflation) is summarized in the table below:

Activities/cost and Construction (INR Cr) O&M (INR Cr) Total (INR Cr)
revenue
Cost 1200 4 * 15 + 30 * 2 = 120 1320
Revenue quoted 1500 5 * 15 = 75 1575

The consideration agreed between NHAI and ACPL is to be paid by NHAI in

the following manner:
9.2 Section 43CB of the IT Act 169

• NHAI shall pay 40% of the Bid Project Cost (hereinafter referred to as “BPC”)
in 10 equal instalments of 4% each on achievement of milestones linked with
the physical completion of the project.
• Upon Commercial Operation Date (hereinafter referred to as “COD”), ACPL
shall be entitled to demand and collect remaining 60% of BPC as Annuity
payments. The said 60% shall be paid to ACPL in 30 biannual Annuities. The
first installment of annuity payments shall be due and payable within 15 days
of the 180th day of COD and remaining instalments shall be due and payable
within 15 days of completion of each of the successive six months. Along with
the Annuity payments, ACPL would also receive interest calculated at the rate
equal to average of 1 year MCLR of top five scheduled commercial banks plus
1.25% on the outstanding balance of annuity payments.
• NHAI shall also pay operation and maintenance costs (as per the bid of the
ACPL) during the 15 years of operations of the project.

We shall analyze the income tax implications on HAM projects based on the above
case study.

9.2 Section 43CB of the IT Act

Section 43CB of the Income Tax Act, 1961 (hereinafter referred to as “IT
Act”) provides for computation of Income from construction and service con-
tracts. Section 43CB of the IT Act was introduced vide Finance Act, 2018 with
retrospective effect from 01 April 2017.
The said provision is extracted herein below:

Computation of income from construction and service contracts.

43CB. (1) The profits and gains arising from a construction contract or a contract
for providing services shall be determined on the basis of percentage of completion
method in accordance with the income computation and disclosure standards notified
under sub-Section (2) of Section 145:

Provided that profits and gains arising from a contract for providing services

(i) with duration of not more than ninety days shall be determined on the basis of
project completion method;
170 9 Tax Review—Direct Tax

(ii) involving indeterminate number of acts over a specific period of time shall be
determined on the basis of straight line method.

(2) For the purposes of percentage of completion method, project completion method
or straight line method referred to in sub-Section (1)—

(i) the contract revenue shall include retention money;

(ii) the contract costs shall not be reduced by any incidental income in the nature of
interest, dividends or capital gains.

The said section was introduced with the objective to specifically provide for the
manner in which the income in respect of construction and service contracts needs
to be computed. The relevant portion of statement of Objects and Reasons as
attached along with the Finance Bill, 2018 are reproduced below:

Clause 15 of the Bill seeks to insert a new Section 43CB in the Income-tax Act relating
to computation of income from construction and service contracts.

The proposed new section provides that profits and gains of a construction contract
or a contract for providing services shall be determined on the basis of percentage
of completion method in accordance with the income computation and disclosure
standards notified under sub-Section (2) of Section 145. It is further proposed to
provide that in the case of a contract for providing services with duration less than
ninety days, the profits and gains shall be determined on the basis of project completion
method. It is also proposed to provide that in the case of a contract for provision of
services involving indeterminate number of acts over a specific period of time, the
profits and gains arising from such contract shall be determined on the basis of a
straight line method.

It is also proposed to provide that for this purpose the contract revenue shall include
retention money and the contract costs shall not be reduced by any incidental income
in the nature of interest, dividends or capital gains.

This amendment will take effect retrospectively from 1st April, 2017 and will,
accordingly, apply in relation to the assessment year 2017–2018 and subsequent
years.

Thus Section 43CB provides for computation of Income in respect of:

(a) Construction Contracts;

(b) Contract for providing services
9.3 Method of Accounting—Section 145 of the IT Act 171

Before introduction of the said section, it was often debated as to whether the
income in respect of the construction contract needs to be recognised on the
basis of Percentage of Completion Method (hereinafter referred to as “POCM”)
or Project Completion Method. Although, of late AS 7 (Accounting Standard
issued by the Institute of Chartered Accountants of India to provide for the manner
accounting for construction contracts) prescribed that the revenue from construc-
tion contracts should be recognized only on POCM basis, however, assessees used
to argue that the revenue for the purpose of Income tax need not be recognised
on the basis of AS-7 and the assessee should be allowed to compute income fol-
lowing the contract completion method. To put to rest the whole issue, the new
Section 43CB was introduced in the IT Act.
Further, it is important to note that Section 43CB was introduced in 2018 but
it was made effective retrospectively from 01 April 2017. This is so because the
said section prescribes for computing income in accordance with Income Com-
putation and Disclosure Standards (hereinafter referred to as “ICDS”) notified
under Section 145(2). Further, ICDS were already issued with effect from 01
April 2017 and this perhaps was behind the said section having been introduced
retrospectively w.e.f. 01 April 2017.
It is pertinent to note that the expression “construction contract” has not been
defined in the IT Act. However, the expression is defined in the ICDS, which we
have discussed later in this chapter.
Further, Section 43CB provides that the profits and gains arising from construc-
tion contracts shall be computed by applying:

(a) percentage of completion method;

(b) Further, it is specifically provided in the Section itself that the POCM shall be
applied in accordance with ICDS notified under Section 145(2) of the IT Act.

Section 43CB(2) also provides that Contract revenue shall include retention money.
It is also provided that the contract costs shall not be reduced by any incidental
income in the nature of interest, dividends or capital gains. All these aspects are
discussed in detail later in this chapter.

9.3 Method of Accounting—Section 145 of the IT Act

Section 145 of the IT Act provides the method of accounting to be followed by the
assessee for computing the Income chargeable under the head “Profits and gains
of business or profession (PGBP)” or “Income from other sources”. Section 145 of
the IT Act is reproduced below for ready reference:
172 9 Tax Review—Direct Tax

Method of accounting.

145. (1) Income chargeable under the head Profits and gains of business or profession
or Income from other sources shall, subject to the provisions of sub-Section (2), be
computed in accordance with either cash or mercantile system of accounting regularly
employed by the assessee.

(2) The Central Government may notify in the Official Gazette from time to time income
computation and disclosure standards to be followed by any class of assessees or in
respect of any class of income.

(3) Where the Assessing Officer is not satisfied about the correctness or complete-
ness of the accounts of the assessee, or where the method of accounting provided in
sub-Section (1) has not been regularly followed by the assessee, or income has not
been computed in accordance with the standards notified under sub-section (2), the
Assessing Officer may make an assessment in the manner provided in Section 144.

Thus, as per Section 145(1), which is subject to sub-Section (2), income chargeable
under the head PGBP be computed in accordance with either cash or mercantile
system of accounting. Further, as per Section 145(2), Central Government may
notify ICDS to be followed by:

(a) any class of assessees; or

(b) in respect of any class of income.

Notification No. 87/2016 dated 29 June 2016 notifying ICDS

Central Government has, vide Notification No. 87/2016 dated 29 June 2016, issued
10 ICDS to be applied by all the assessees (other than an individual or a Hindu
undivided family who is not required to get his accounts of the previous year
audited in accordance with the provisions of Section 44AB of the said Act), follow-
ing mercantile system of accounting, for the purposes of computation of income
chargeable to income-tax under the head PGBP or income from other sources.
The said Notification was issued by the Government in exercise of the powers
conferred by sub-section (2) of Section 145 of the Income Tax Act.
In the said Notification it is specifically mentioned that this Notification shall
apply to the AY 2017–18 and subsequent AY.
Post issuance of the said notification, the Central Board of Direct Taxes issued
Circular No. 10 of 2017 dated 23 March 2017 to provide clarifications, by way
of FAQs, in respect of application of ICDS for computation of income under the
head PGBP and Income from other sources.
In 2017, Hon’ble Delhi High Court in the case of The Chamber of Tax Consul-
tants & Anr. v. Union of India & Ors. W.P. (C) 5595/2017 had the occasion to decide
the constitutional validity of Section 145 of the IT Act, requiring compliance with
the Income Computation and Disclosure Standards.
9.3 Method of Accounting—Section 145 of the IT Act 173

The High Court, inter alia, held that Section 145(2), as amended, has to be
read down to restrict power of the Central Government to notify ICDS that do not
seek to override binding judicial precedents or provisions of the Act. The power to
enact a validation law is an essential legislative power that can be exercised, in the
context of the Act, only by the Parliament and not by the executive. If Section 145
(2) of the Act as amended is not so read down it would be ultra vires the Income
Tax Act and Article 141 read with Article 144 and 265 of the Constitution of India.
Further, the Hon’ble Court also held that the ICDS is not meant to overrule the
provisions of the Income Tax Act or the Rules issued thereunder, and the judicial
precedents applicable to the provisions of the IT Act as they stand.
One of the issues that were framed was: Whether the amendments to Section 145
are an instance of delegation by the Parliament of essential legislative powers to the
Central Government?
The High Court in its decision dated 08 November 2017 noted the intent of
Circular No. 10 of 2017 issued in form of FAQs by CBDT, which states that the
ICDS is intended to prevail over judicial precedents contrary to what has been
provided in the ICDS.
The Court posited the settled legal position with respect to excessive delegation
and pointed out that amendments to Section 145 permit the Central Government, as
a delegatee of the legislature, to notify standards for income computation but not to
bring about changes to settled principles as laid down in judicial precedents which
seek to interpret and explain statutory provisions contained in the Act. Further, it
was held:

37….If such power is permitted to be exercised by the central government then clearly
it would be an instance of unfettered power in the hands of the executive which is
unguided and uncanalised.

39. To elaborate, if the power to notify standards has to be exercised consistent with
the recognised ASs that do not contradict any principle recognised in the Act or as
explained in judicial precedents, it would be a permissible exercise of the delegated
power of notifying ASs. However, where the notified AS or as in this case the ICDS,
seeks to alter the system of accounting, or according accounting or taxing treatment
to a particular transaction, then it will require the legislature to step in to amend the
Act to incorporate such change. This may be unique to a fiscal statute like the Act.
However, in the guise of a delegated power, the Central Government cannot do what
is otherwise legally impermissible.

42. The above legal proposition is well settled and has been followed in a number of
subsequent decisions. Therefore, it is only a competent legislature that can make a
validation law to override judicial precedents and that too by actually removing the
defect pointed out by such precedent. Such a power is not available to the executive.
In other words, where there is a binding judicial precedent, by virtue of Articles 141
and 144 of the Constitution, it is not open to the executive to override it unless there
is an amendment to the Act by way of a validation law.
174 9 Tax Review—Direct Tax

In conclusion, the Court held that Section 145(2) has to be read down to restrict
power of the Central Government to notify ICDS that do not seek to override bind-
ing judicial precedents or provisions of the Act. The said exercise was undertaken
in order to preserve the constitutionality of ICDS. To quote:

43. To that extent, Section 145 (2), as amended, has to be read down to restrict
power of the Central Government to notify ICDS that do not seek to override binding
judicial precedents or provisions of the Act. The power to enact a validation law is
an essential legislative power that can be exercised, in the context of the Act, only by
the Parliament and not by the executive. If Section 145 (2) of the Act as amended is
not so read down it would be ultra vires the Act and Article 141 read with Article 144
and 265 of the Constitution.

98. As already concluded, if the ICDS is permitted, in exercise of the delegated power
of the central government under Section 145 (2) of the Act, to override a governing
principle recognised by the Act or the Rules or judicial precedents, it would be ultra
vires the Act. It would then render the ICDS as an instance of excessive delegation of
essential legislative functions. The books of account prepared on the basis of a valid
accounting method can be rejected by an AO for not complying with the ICDS. This
virtually permits an AO to disregard binding judicial precedents.

Next issue that was raised before the Court was: Are the ICDS an instance
of excessive delegation of legislative powers? Whether the impugned ICDS are
contrary to the settled law as explained in various judicial precedents and are,
therefore, liable to be struck down?
To decide the issue, the Court set out to look at each of the ICDS which are
contrary to or seek to overcome binding judicial precedents. ICDS III was chal-
lenged only to the extent of Para 10 and Para 12. The same is discussed in the
next section titled: Income Computation and Disclosure Standard III relating to
Construction Contracts.

9.4 Income Computation and Disclosure Standard III (ICDS

III)—Construction Contracts

9.4.1 Scope

As mentioned before, Notification No. 87/2016 dated 29.09.2016 contains 10

ICDS to be followed for computing the income under the head PGBP and Income
9.4 Income Computation and Disclosure Standard III (ICDS III)—Construction … 175

from other sources. Further, ICDS III relates to construction contracts. Further-
more, as per the scope, the said ICDS III should be applied in determination of
income for a construction contract of a contractor.
Further, the expression, construction contract has been defined in Para 2(1)(a)
of ICDS III as:

(a) Construction contract is a contract specifically negotiated for the construction of

an asset or a combination of assets that are closely interrelated or interdependent in
terms of their design, technology and function or their ultimate purpose or use and
includes:

(i) contract for the rendering of services which are directly related to the construction
of the asset, for example, those for the services of project managers and architects;

(ii) contract for destruction or restoration of assets, and the restoration of the
environment following the demolition of assets.

Thus, construction contract has been defined to mean the contract specifically
negotiated for the construction of an asset or combination of assets. Further, the
definition of construction contract specifically includes the contract for restoration
of Asset.
As per the clause 2.1 read with Clause 12.3 of MCA, the concessionaire is
required to construct the road i.e. the asset. Further, MCA requires the Conces-
sionaire to operate and maintain the constructed road for the period of 15 years
from COD.
In terms of Clause 17.11 of MCA the concessionaire is required to restore the
asset. Clause 17.11 of MCA provides that “save and except as otherwise expressly
provided in this Agreement, in the event that the Project or any part thereof suf-
fers any loss or damage during the Concession Period from any cause whatsoever,
the Concessionaire shall, at its cost and expense, rectify and remedy such loss or
damage forthwith so that the Project confirms to the provisions of this Agreement”.
Further, Clause 17.1.1(e) provides that during the O&M period the Concessionaire
is obliged to undertake major maintenance such as resurfacing, repairs to structure,
and repairs and refurbishment of system and equipment. Further, the Author have
received inputs from the industry that the NHAI is asking the concessionaires to
undertake the Major maintenance thrice during the period of 15 years with the spe-
cific requirement that the third round of major maintenance should be undertaken
during the last year of O&M. Thus, it is evident that in terms of the Concession
Agreement the concessionaire is required to restore the asset. By restoration it
means that the concessionaire during the O&M period is required to maintain the
road in original/ good condition.
176 9 Tax Review—Direct Tax

As can be seen from above that in terms of the MCA the concessionaire is
required to undertake the following activities:

(a) Construction of project highway;

(b) Operate and maintain the constructed highway. In terms of maintenance the
Concessionaire is also required to restore the asset.

Thus, the concession agreement entered in respect of HAM based road PPP
projects would be covered within the definition of construction contract. This is
so because as per the concession agreement the concessionaire is required to con-
struct an asset being the road/ highway. Further, in author’s view even the activity
of Operation and Maintenance is covered within the ambit of construction contract
as the same requires the concessionaire to restore the asset or to maintain the road
so as to keep the road in original or normal working condition.
Further, in the definition clause i.e. clause 2 of the ICDS III it is clarified that
the words and expressions used but not defined in ICDS III shall have the meaning
respectively assigned to them in the Act.

9.4.2 Combining and Segmenting Construction Contracts

Para 5, 6, 7, 8 of the ICDS III provides for Combining and Segmenting

Construction Contracts. Para 5 of ICDS III has been reproduced below:

5. The requirements of this Income Computation and Disclosure Standard shall be

applied separately to each construction contract except as provided for in paragraphs
6, 7 and 8 herein. For reflecting the substance of a contract or a group of contracts,
where it is necessary, the Income Computation and Disclosure Standard should be
applied to the separately identifiable components of a single contract or to a group
of contracts together.

Thus, as per para 5, subject to Para 6, 7 and 8, ICDS III shall be applied sepa-
rately in respect of each construction contract. Further, the said para itself provides
that for reflecting substance of contract, ICDS should be applied to the separately
identifiable components of a single contract. From para 5 it is evident that gener-
ally ICDS III shall be applied to the construction contract treating it to be a single
contract, however, to reflect the substance of the contract, wherever it is necessary,
ICDS III shall be applied to the separately identifiable components of a single
contract.
In HAM based road PPP project a single concession agreement is awarded for
construction as well as O&M. Further, the concessionaire quotes separate price
for construction and O&M only for the purposes of determining the timing of
cash flows. The concession is awarded to the concessionaire whose NPV of both
9.4 Income Computation and Disclosure Standard III (ICDS III)—Construction … 177

the BPC and O&M cost is minimum. In terms of the concession agreement, the
concessionaire is necessarily required to construct the road as well as undertake
the O&M. The concessionaire has no choice to undertake either of the activity i.e.
construction of O&M. As per the concession agreement it is the concessionaire’s
responsibility to maintain the road for 15 years after COD and failure to do so
amounts to concessionaire’s default.
Thus, in Author’s view, in respect of HAM based road PPP projects, ICDS
III shall be applied to whole concession agreement treating it to be a single
construction contract.

Recent Amendment
As per the latest amendment made in model concession agreement, the con-
tractor has to make the bid only for the BPC, and the payment for O&M
is fixed as a percentage of the BPC itself. Therefore, in the authors’ view
this will not change the position and would only go on to reinforce that it is
one single composite contract which in totality should be considered to be a
construction contract. Thus, even in respect of the bids made in accordance
with the latest amendment in model concession agreement, in Authors’ view,
ICDS III shall be applied to whole concession agreement treating it to be a
single construction contract.

For the sake of completeness, we are also referring to Para 6, 7 and 8 of the
ICDS-III.

6. Where a contract covers a number of assets, the construction of each asset should
be treated as a separate construction contract when:

(a) separate proposals have been submitted for each asset;

(b) each asset has been subject to separate negotiation and the contractor and cus-
tomer have been able to accept or reject that part of the contract relating to each
asset; and

(c) the costs and revenues of each asset can be identified.

7. A group of contracts, whether with a single customer or with several customers,

should be treated as a single construction contract when:

(a) the group of contracts is negotiated as a single package;

178 9 Tax Review—Direct Tax

(b) the contracts are so closely interrelated that they are, in effect, part of a single
project with an overall profit margin; and

(c) the contracts are performed concurrently or in a continuous sequence.

8. Where a contract provides for the construction of an additional asset at the option
of the customer or is amended to include the construction of an additional asset,
the construction of the additional asset should be treated as a separate construction
contract when:

(a) the asset differs significantly in design, technology or function from the asset or
assets covered by the original contract; or

(b) the price of the asset is negotiated without having regard to the original contract
price.

Para 6 of ICDS provides for segmenting a construction contract in cases where the
contract covers a number of assets. Further, as per para 6 of the ICDS segmenting
of contract is required only when the following conditions are met:

• Contract covers construction of number of assets.

• separate proposals have been submitted for each asset;
• each asset has been subject to separate negotiation and the contractor and cus-
tomer have been able to accept or reject that part of the contract relating to each
asset; and
• the costs and revenues of each asset can be identified.

Para 7 provides that group of contracts, either with single customer or different
customers would be treated as single construction contract if all the following
conditions are complied with:

• the group of contracts is negotiated as a single package;

• the contracts are so closely interrelated that they are, in effect, part of a single
project with an overall profit margin; and
• the contracts are performed concurrently or in a continuous sequence.

Para 8, deals with the situation where contract provides for the construction of
an additional asset at the option of the customer or is amended to include the
construction of an additional asset. As per para 8 the construction of the additional
asset should be treated as a separate construction contract where all the following
conditions are complied with:
9.5 Meaning of Contract Cost and Contract Revenue 179

• the asset differs significantly in design, technology or function from the asset
or assets covered by the original contract; or
• the price of the asset is negotiated without having regard to the original contract
price.

From the aforesaid paras it appears that for the purpose of ICDS III a single con-
struction contract can be treated as separate construction contracts only when the
specified conditions are met. However, in case of HAM based road PPP projects
the conditions/ requirements of para 6 and para 8 are not met thus, in authors view
ICDS III be applied to the concession agreement treating it to be a single contract
without bifurcating the same into separate identifiable components.

9.5 Meaning of Contract Cost and Contract Revenue

9.5.1 Contract Cost

Contract cost is defined in para 12 of ICDS III as:

12. Contract costs shall comprise of:

(a) costs that relate directly to the specific contract;

(b) costs that are attributable to contract activity in general and can be allocated to
the contract;

(c) such other costs as are specifically chargeable to the customer under the terms of
the contract; and

(d) allocated borrowing costs in accordance with the Income Computation and
Disclosure Standard on Borrowing Costs.

These costs shall be reduced by any incidental income, not being in the nature of
interest, dividends or capital gains, that is not included in contract revenue.

Thus, para 12 of the ICDS III provides various constituents of construction cost.
As per Para 12 (a) construction cost includes costs that relate directly to the spe-
cific contract such as material cost, labour cost, sub-contractor charges, architect
fee, hire charges for plant and machinery, soil testing charges etc. In this regard
guidance can also be taken from AS 7 as the same also pertain to construction
contracts. Para 16 of AS 7 provides examples/ illustrations of the costs that relate
directly to specific contracts and the same are reproduced below:
180 9 Tax Review—Direct Tax

(a) site labour costs, including site supervision;

(b) costs of materials used in construction;
(c) depreciation of plant and equipment used on the contract;
(d) costs of moving plant, equipment and materials to and from the contract site;
(e) costs of hiring plant and equipment;
(f) costs of design and technical assistance that is directly related to the contract;
(g) the estimated costs of rectification and guarantee work, including expected
warranty costs; and
(h) claims from third parties.

Further in terms of Para 12(b), construction cost includes costs that are attributable
to contract activity in general and that can be allocated to the contract. These
expenses are generally the overhead expenses which are allocated to the contract.
Further, para 17 of AS 7 gives guidance as to what costs can be considered to be
attributable to contract activity in general and can be allocated to the contract. To
quote:

17. Costs that may be attributable to contract activity in general and can be allocated
to specific contracts include:

(a) insurance;

(b) costs of design and technical assistance that is not directly related to a specific
contract; and

(c) construction overheads.

Such costs are allocated using methods that are systematic and rational and are
applied consistently to all costs having similar characteristics. The allocation is based
on the normal level of construction activity. Construction overheads include costs such
as the preparation and processing of construction personnel payroll. Costs that may
be attributable to contract activity in general and can be allocated to specific contracts
also include borrowing costs as per Accounting Standard (AS) 16, Borrowing Costs.

In HAM based road PPP Projects, separate SPV is required to be incorporated in

respect of each project. Meaning thereby that one SPV is allowed to undertake
only one project. Thus, there is no question of allocation and hence all the cost
incurred by the SPV would become part of Contract cost.
Para 12(c) further includes the costs which are specifically chargeable to cus-
tomer under the contract. These may include the cost of research that is agreed to
9.5 Meaning of Contract Cost and Contract Revenue 181

be re-imbursed by the customer. In respect of HAM based PPP projects the cost
of utility shifting may be included in such part.
By way of Para 12(d) borrowing cost is included within contract cost. Further,
only the borrowing cost which is allocated to the contract in accordance with the
ICDS IX (ICDS on Borrowing Cost) will be included within contract cost.

Project Highway

As per the case study ACPL has been awarded the contract of construction
of highway along with its operation and maintenance under HAM mode. For
this purpose ACPL has entered into a single concession agreement with the
Authority.
Thus, in terms of para 5 of ICDS III, all the requirements of this ICDS needs
to be applied on the said concession agreement entered into between ACPL
and the authority treating it to be a single indivisible contract.
Further in terms of para 12 of ICDS III the contract cost of the contract
awarded to ACPL shall be INR 1320 Cr i.e. the total cost that would be
incurred in respect of construction of road as well as for its operation and
maintenance.

The Delhi High Court in Chamber of Tax Consultants (supra) discussed the
validity of Para 12 of ICDS-III read with Para 5 of ICDS-IX. It was observed
that Para 12 of ICDS III read with Para 5 of ICDS IX provide that no incidental
income can be reduced from borrowing cost. On the scrutiny of the same, it was
held to be contrary to the decision of Supreme Court in the case of CIT v. Bokaro
Steel Ltd. (1999) 236 ITR 315 (SC). In the said decision of Bokaro Steel (supra),
it was held that if an Assessee receives any amounts which are inextricably linked
with the process of setting up of its plant and machinery, such receipts will reduce
the cost of its assets. The Delhi High Court held:

76. Para 12 of ICDS III read with para 5 of ICDS IX, dealing with borrowing costs,
makes it clear that no incidental income can be reduced from borrowing cost. This is
contrary to the decision of the Supreme Court in CIT v. Bokaro Steel Limited (1999)
236 ITR 315 wherein it was held that if an Assessee receives any amounts which are
inextricably linked with the process of setting up of its plant and machinery, such
receipts would go to reduce the cost of its assets. Plainly therefore, to the extent
that ICDS III is interpreted and applied in a manner contrary to the law settled
by the various decisions of the Supreme Court and the High Courts, it cannot be
sustained.
182 9 Tax Review—Direct Tax

Thus, the Hon’ble High Court held that to the extent that ICDS III is inter-
preted and applied in a manner contrary to law settled by various decisions of
the Supreme Court and the High Courts, it cannot be sustained.
However, now ICDS has the backing of the provision of Section 43CB which
specifically provides that contract cost shall not be reduced by any incidental
income in the nature of interest, dividends or capital gains. Hence to that extent
the income tax would now be required to be computed on the basis of the statutory
provisions contained in the Income tax Act.
In the last line of Para 12 of ICDS III, it is provided that any incidental income
which has not been included in the contract revenue shall be reduced from the
contract cost. Furthermore, it is categorically stated that the said incidental income
should not be in the nature of interest, dividend or capital gain. This is in line with
provisions of Section 43CB. This means that if the concessionaire is receiving
any interest, dividend or any capital gain from the construction contract then it is
specifically provided that the same shall not be reduced from the contract cost.
In the HAM projects, post COD the concessionaire receives interest on annuity
payments. This interest is in the nature of income, as such have no concern with
the cost. Further and in any case, in terms of clear wordings of last line of para
12 the said interest shall not be reduced from contract cost. Further, in the later
part of this chapter we have discussed the income tax treatment of the said interest
which is received by Concessionaire from the Authority.

9.5.2 Contract Revenue

Contract revenue is defined in para 10 of ICDS III.

10. Contract revenue shall comprise of:

(a) the initial amount of revenue agreed in the contract, including retentions; and.

(b) variations in contract work, claims and incentive payments:

i. to the extent that it is probable that they will result in revenue; and.

ii. they are capable of being reliably measured.

Thus, in terms of para 10 of the said ICDS the contract revenue shall comprise of
the initial amount of revenue agreed in the contract, including retentions. In this
regard it is important to note that “retentions” has been defined in para 2(1)(d) of
ICDS III in following manner:
9.5 Meaning of Contract Cost and Contract Revenue 183

(d) “Retentions” are amounts of progress billings which are not paid until the sat-
isfaction of conditions specified in the contract for the payment of such amounts or
until defects have been rectified.

Thus, from the above definition it is evident that retentions are that portion of the
billing which are not paid until:

(a) the satisfaction of completion of condition specified in the contract for

payment of such amounts; or
(b) defects have been rectified.

Retentions a very common feature in the construction contracts. Retention is a

portion of the bill amount which is held back by the contractee while making
payment to the contractor. Retention money is either paid at the time when the
construction is complete or it is paid after lapse of some-time from the completion
of construction, may be when the defect liability period is over, as the case may be.
Retention is generally held to ensure that a contractor performs all of its obligations
as per the terms of the contract and that he does not leave the work in between
and that he completes the whole of the construction work as per the specifications
agreed in the construction contract. Even Section 43CB specifically provides that
for the purpose of percentage completion method contract revenue shall include
retention.
In case of HAM projects, NHAI generally do not retain any amount from the
agreed payments/ milestone payments to be made to the Concessionaire. This is
so because in HAM based PPP projects the payment of only 40% of the BPC is
made during the period of construction and the remaining 60% is paid in 30 bi-
annual instalments over the period of 15 years. However, it is not a fixed rule and
in some cases NHAI do retain some amount from the payments made to the Con-
cessionaire. These may include the cases where the Concessionaire does not meet
the timelines to complete the project milestone. Thus, where the Concessionaire
does not complete the HAM project within the timelines specified in the Conces-
sion Agreement the NHAI may retain/ withhold some amount from the payments
to be made to the Concessionaire. It has always been under dispute that whether
retention money would be considered to be accrued until the right to realise the
same arises. In various judgments it was held that retention money does not accrue
when the invoice is issued, and it only gets due when the terms and conditions as
stipulated in the contract are fulfilled regarding payment of retention money.
In the case of CIT Vs. Simplex Concrete Pipes (I) 1989 (179) ITR 8 Cal. the
question before the hon’ble Calcutta High Court was “Whether, on the facts and in
the circumstances of the case and in view of the fact that the assessee follows the
mercantile system of accounting, the Tribunal was right in holding that the retention
money in respect of the jobs completed by the assessee during the relevant previous
184 9 Tax Review—Direct Tax

year should not be taken into account in computing the profits and gains of the
assessee’s business for the assessment year 1965–66”?
In this regard the Hon’ble Calcutta High Court held that the entire invoice
amount does not became due immediately upon the submission of bills but 5–10%
of the bills, as the case may be, was withheld as security. The assessee follows
the mercantile system of accounting and, therefore, it must credit its accounts as
and when the right to receive any sum accrues. There cannot be any dispute that
only in respect of 90% of the bills, in the first instance, when the job is done
accrues to the assessee and the remaining 5–10% becomes due in accordance with
the terms of the respective contract. In some cases, as per the contract, the right
to receive payment of 5% accrues on completion of work and only the remaining
5% is deferred for a further period.
Further, it was held that on the terms and conditions of the contract, it cannot
be held that either 10% or 5% as the case may be, being the retention money,
became legally due to the assessee on the completion of the work. Only after the
assessee fulfils the obligation under the contract, that the retention money would be
released and the assessee would acquire the right to receive such retention money.
Therefore, on the date when the bills were submitted, having regard to the nature
of the contract, no enforceable liability has accrued or arisen and, accordingly, it
cannot be said that the-assessee had any right to receive the entire amount on the
completion of the work or on the submission of bills. The assessee had no right to
claim any part of the retention money till the verification of satisfactory execution
of the contract.
In the case of Anup Engineering Ltd. Vs. CIT(2001) 165 CTR Guj 21 the
question before the Gujarat High Court was “whether on the facts and in the cir-
cumstances of the case, the Tribunal was right in law in disallowing the claim of INR
300000”. In the said case it was explained that by virtue of Section 5 of the IT
Act the income is taxable when it accrues, arises or is received or when, by fiction
of law, it is deemed to accrue or arise or is deemed to be received. Further, the
Hon’ble court elaborated if the assessee acquires the right to receive the income,
the income is said to have accrued to him, though it may be received later on. In
the instant case the Hon’ble court held that, unless and until a debt is created in
favour of assessee, which is due by somebody, it cannot be said that the assessee
has acquired a right to receive income or that the income has accrued to him. It
was further held that it is crystal clear that INR 3 lakhs, which was deducted from
the sales account by the assessee was rightly claimed by the assessee by way of
deduction as the amount has never become income of the assessee.
In the case of DIT Vs. Ballast Nedam International 2013 (355) ITR 300 (Guj.)
the question before the Gujarat High Court was “whether the sum of INR 6.24
Cr (rounded off), which represented retention money for fulfilment of the contract
by the assessee should be treated as accrued income”. Following the case of CIT
Vs. Simplex and Anup Engineering Ltd. Vs. CIT supra it was held, if there is no
immediate right to receive the retention money, the said amount cannot be said to
have accrued to the assessee.
9.5 Meaning of Contract Cost and Contract Revenue 185

Thus, vide various case laws it has been consistently held that in case of reten-
tion money the assessee gets no right to claim any part of the retention money till
the verification of satisfactory execution of the contract is concluded and, there-
fore, if there is no immediate right to receive the retention money, the said amount
cannot be said to have accrued to the assessee.
Now by virtue of Section 43Cb read with ICDS III it has been specifically pro-
vided that retention money would be included in contract revenue while applying
the percentage completion method. Thus, it appears that the controversy pertaining
to retention money has been put to rest by virtue of insertion in Section 43CB.

Inclusion of variation
Further, the contract revenue, as defined in ICDS III also includes variation in the
contract work, claims and incentive payment where [para 10(b) of ICDS III]:

i. It is probable that the variation will result in revenue; and

ii. The variation is capable of being reliably measured

Thus, any variations in revenue arising on account of escalation/ inflation may

become part of contract revenue if the variation on account of escalation/ inflation
is recoverable from the customer and the said variation is capable of being reliably
measured. Para 10(b) of ICDS III is similar to para 10(b) of AS 7 issued by ICAI.
Thus, para 11 to 14 of AS 7 [paras elaborating para 10(b) of AS] may be referred
to understand the implication of para 10(b) of ICDS III.
In case of HAM, the payment made to contractor viz the BPC as well as the
O&M payments are subject to inflation. In terms of para 23.2 of the MCA, the
BPC shall be revised from time to time to reflect the variation in price index
occurring after the reference index date immediately preceding bid date. Likewise
in para 23.7.3 of the MCA, it is provided that the O&M payments are adjusted
to the Price Index Multiple on the reference index date preceding the due date of
payment. Further the manner of application of price index multiple was explained
by way of the following illustration:

If the First Year O&M cost is INR 1 Cr;

The O&M cost for the second year of the operation period is to be computed in
following manner:

The price index on the Reference Index Date preceding the bid date is 200. The price
index on the Reference Index Date preceding the due date of payment of O&M cost
for second year is 240, implying a price index multiple of 1.2, then the O&M Payment
for that installment shall be the product of first year O&M cost and the applicable
Price Index Multiple, which product shall be INR 1.2 Cr.
186 9 Tax Review—Direct Tax

Thus, both the BPC and O&M Costs are adjusted for the price index multiple
i.e. inflation index. Therefore, undisputedly the BPC and O&M costs is subject to
variation on account of inflation.
As per authors’ view, the variation in BPC and O&M to take place on account
of inflation shall be included for computing the contract revenue as:

a. It is probable that the variation would result in increase in revenue;

b. The variation is capable of being reliably measured. Of course, the variation on
this account shall be considered on a conservative basis. The Concessionaire at
the time of bidding itself, estimates the effect of inflation on the contract cost
and contract revenue. Basis the said estimate the concessionaire bids for any
project. Thus, it can be said that the effect of inflation can be reliably measured
by the concessionaire on estimate basis.

Reasonable Certainty in ultimate collection

Further in para 9 of ICDS III it is provided that Contract revenue shall be
recognized when there is reasonable certainty of its ultimate collection. Reason-
able certainty here means that the contractor/ concessionaire shall recognize the
contract revenues only if there is no doubt about collection of such revenue.
In case of HAM, the contracts are entered with NHAI, being government
authorities, thus there is generally reasonable certainty of their ultimate collection.
However, in certain situations such as change in scope, shifting of utility, etc.,
where the consideration is negotiated between NHAI and the concessionaire at a
later date during the course of construction. Thus, the revenue of these activities
would be recognised only when the concessionaire feels that there is a reasonable
certainty of its ultimate collection i.e. when the NHAI agrees to pay the specified
sum of money in respect of these activities.

9.5.3 Recognition of Contract Revenue and Expense

Provision relating to recognition of contract revenue and contract expense are con-
tained in para 16 to 20 of ICDS III. The said paras are reproduced below for ready
reference:

16. Contract revenue and contract costs associated with the construction contract
should be recognized as revenue and expenses respectively by reference to the stage
of completion of the contract activity at the reporting date.

17. The recognition of revenue and expenses by reference to the stage of completion of
a contract is referred to as the percentage of completion method. Under this method,
contract revenue is matched with the contract costs incurred in reaching the stage of
9.5 Meaning of Contract Cost and Contract Revenue 187

completion, resulting in the reporting of revenue, expenses and profit which can be
attributed to the proportion of work completed.

18. The stage of completion of a contract shall be determined with reference to:

(a) the proportion that contract costs incurred for work performed upto the reporting
date bear to the estimated total contract costs; or

(b) surveys of work performed; or

(c) completion of a physical proportion of the contract work.

Progress payments and advances received from customers are not determinative of
the stage of completion of a contract.

19. When the stage of completion is determined by reference to the contract costs
incurred upto the reporting date, only those contract costs that reflect work performed
are included in costs incurred upto the reporting date. Contract costs which are
excluded are:

(a) contract costs that relate to future activity on the contract; and

(b) payments made to subcontractors in advance of work performed under the

subcontract.

20. During the early stages of a contract, where the outcome of the contract cannot be
estimated reliably contract revenue is recognised only to the extent of costs incurred.
The early stage of a contract shall not extend beyond 25% of the stage of completion.

In terms of para 16, contract revenue and contract cost should be recognized to
the extent of stage of completion of the contract activity achieved at the reporting
date. Further para 17 provides that recognition of revenue and expenses/ cost by
reference to the stage of completion of a contract is referred to as the percentage
of completion method (POCM). Further, para 17 elaborates that under POCM
contract revenue is matched with contract cost incurred in reaching the stage of
completion on the reporting date. Thus, POCM results in reporting of the expense,
revenue and profit which can be attributed to achieving the stage of completion.
In terms of para 18 of ICDS III stage of completion can be determined on the
basis of any of the following method:

a. the proportion that contract costs incurred for work performed upto the
reporting date bear to the estimated total contract costs; or
b. surveys of work performed; or
c. completion of a physical proportion of the contract work.
188 9 Tax Review—Direct Tax

Thus, any of the above method as provided in para 18 can be used for determining
the stage of completion. Based on the stage of completion contract revenue as well
as contract cost are reported for the purpose of computation of Income Tax.
Further, as per para 19 of ICDS III, where stage of completion is determined on
the basis of contract cost, the contract cost incurred for performing the actual phys-
ical work are to be taken into account. Meaning thereby that the cost incurred for
future activity such as pre-paid expenses or advances paid to the sub-contractors
are not to be included while computing the contract cost incurred till reporting
date.

Example
Where the contractor has paid advance of INR 5 Cr to the vendor of bitu-
men (major raw material for constructing the road) but the bitumen would be
delivered to the concessionaire in the next year then while computing stage of
construction by applying the method of contract cost incurred till the report-
ing date the amount of INR 5 Cr paid to the vendor of bitumen would not be
included in the total cost incurred.

Example
In the year 2019–20 the contractor has made advance payment of INR 2 Cr
to sub-contractor. In such a case for computing the stage of completion the
said advance payment of INR 2 Cr would not be included in the contract cost
incurred during the year 2019–20 and same would be included in the contract
cost only in the year 2020–21 when the said advance is adjusted towards the
work done by the sub-contractor.

Recognition of the Contract Cost and Contract revenue by following various

methods as provided in para 18 of ICDS III has been explained below by way of
following illustration.

Illustration
The total contract cost is 100 Cr and the revenue is 120 Cr; in the year 2018–19
40 Cr of contract cost is incurred. Further, as per survey of the independent
engineer, in the year 2018–19, 35% of work is completed.
Recognition as per proportionate cost method
9.5 Meaning of Contract Cost and Contract Revenue 189

Contract cost to be recognised is INR 40 Cr

Percentage completion is 40/100*100 = 40%
Revenue to be recognized for the year 2018–19 is 40%*120 = INR 48 Cr
Recognition as per survey method
As per independent engineer 35% of construction contract is complete. Thus,
35% of cost (i.e. 35% of INR 100 Cr = 35 Cr) and revenue (i.e. 35% of INR 120
Cr = 42 Cr), will be recognised and profit would be computed accordingly.

Thus, in respect of HAM projects at each reporting period (during construction

and O&M period) the stage of completion is to be computed based on any of the
method provided under para 18 of the ICDS III and the contract revenue as well as
the contract cost is to be recognised on the basis of the said stage of completion.
Para 20 of ICDS III specifically provides for recognizing revenue during early
stages of contract. As per the said para during the early stages of contract (not
beyond 25% of the stage of completion) contract revenue is recognised only to the
extent of costs incurred.
Thus, till achieving the stage of completion of 25%, contract revenue may be
recognised to the extent of cost incurred by the concessionaire. However, post
achieving more than 25% of the stage of completion the revenue is to be recognised
following para 16–19 of ICDS III.

9.5.4 Changes in Estimates

As per para 21 of ICDS III specifically provides for the treatment when there is
change in estimates. Para 21 has been reproduced below:

21. The percentage of completion method is applied on a cumulative basis in each

previous year to the current estimates of contract revenue and contract costs. Where
there is change in estimates, the changed estimates shall be used in determination of
the amount of revenue and expenses in the period in which the change is made and
in subsequent periods.

As per para 21 of ICDS III the percentage of completion method is to be applied

cumulatively in each previous year based on the current estimates of contract
revenue and contract cost. Further, it is provided that changed estimates would
impact only the current year in which the change has occurred and the subsequent
190 9 Tax Review—Direct Tax

period(s). Meaning thereby that if there are change in estimates then there is no
need to make any changes in the past years.

Illustration
In the year 2018–19 the estimated total cost was INR 1000 and the estimated
total revenue INR 1200 and the total cost incurred in the said year was INR
200. Further in year 2019–20 the estimated cost inflated to INR 1100 and the
estimated revenue was also inflated to INR 1400. Also the cost incurred in the
year 2019–20 was INR 500.
In year 2018–19

• Percentage completion = 200/1000 = 20%

• Contract Cost recognized = INR 200
• Contract revenue recognized = 20% * 1200 = INR 240

In year 2019–20.

• Percentage completion = (500 + 200)/ 1100 = 63.63%

• Contract Cost recognized = INR 500 (actual expense incurred)
• Contract revenue recognized = (63.63%*1400) – revenue already recog-
nized = INR 890–240 = INR 650

9.5.5 Disclosures

Para 23 and 24 of the ICDS III provides for various disclosures that needs to be
made by the person engaged in execution of Construction contracts. The same is
extracted hereunder:

23. A person shall disclose:

(a) the amount of contract revenue recognised as revenue in the period; and

(b) the methods used to determine the stage of completion of contracts in progress.

24. A person shall disclose the following for contracts in progress at the reporting
date, namely:—

(a) amount of costs incurred and recognised profits (less recognised losses) upto the
reporting date;

(b) the amount of advances received; and

9.5 Meaning of Contract Cost and Contract Revenue 191

(c) the amount of retentions.

Thus, based on above, a Company needs to report following on the reporting date:

• Amount of contract revenue recognized as revenue;

• Method used to determine the stage of completion;
• Amount of cost incurred;
• Amount of profit recognized;
• Amount of advances received; and
• Amount of retention

The tax audit report in Form 3CD has now been amended to provide for disclosures
required by ICDS, in clause 13. The new sub-clauses are as under:

(d) Whether any adjustment is required to be made to the profits or loss for complying
with the provisions of income computation and disclosure standards notified under
section 145(2)?

(e)s If answer to (d) above is in the affirmative, give details of such adjustments:

Increase in Profit Decrease in Profit Net Effect (INR)

(INR) (INR)
…
ICDS III Construction
Contracts
…

(f) Disclosure as per ICDS

ICDS III- Construction Contracts

…
192 9 Tax Review—Direct Tax

9.5.6 Treatment of Borrowing Costs

Contract cost (ICDS III)

This part discusses the treatment of Borrowing Cost under the ICDS and how
the same is factored in the Construction Contracts. Reference is invited to Para 12
of the ICDS-III which provides for Contract Costs.

Contract costs shall comprise of:

(a) costs that relate directly to the specific contract;

…….

(d) allocated borrowing costs in accordance with the Income Computation and
Disclosure Standard on Borrowing Costs.

Borrowing cost allocated to contract is required to be included in contract cost.

Borrowing cost that needs to be included would be computed in terms of ICDS
IX.

ICDS IX relating to borrowing costs

Para 2(1)(a) of the ICDS IX defines Borrowing Costs as:

(a) Borrowing costs are interest and other costs incurred by a person in connection
with the borrowing of funds and include:

(i) commitment charges on borrowings;

(ii) amortised amount of discounts or premiums relating to borrowings;

(iii) amortised amount of ancillary costs incurred in connection with the arrangement
of borrowings;

(iv) finance charges in respect of assets acquired under finance leases or under other
similar arrangements.

As per Para 3 of ICDS IX, the borrowing cost incurred till the date of completion
of construction would become the part of contract cost. The contents of Para 3 are
extracted hereunder:
9.6 Income Computation and Disclosure Standard IV (ICDS IV)—Revenue … 193

3. Borrowing costs that are directly attributable to the acquisition, construction or

production of a qualifying asset shall be capitalised as part of the cost of that asset.
The amount of borrowing costs eligible for capitalisation shall be determined in
accordance with this Income Computation and Disclosure Standard. Other borrowing
costs shall be recognised in accordance with the provisions of the Act.

Thus, the interest and other borrowing cost incurred till the date of completion of
construction/ till the date of CC shall become part of the contract cost. The bor-
rowing cost that is incurred post the completion of construction would be treated
as expense in terms of Section 36(1)(iii) of the Income tax Act. Even ICDS IX
provides that the other borrowing costs shall be recognised in accordance with the
provision of the Income Tax Act.

9.6 Income Computation and Disclosure Standard IV (ICDS

IV)—Revenue Recognition

9.6.1 Scope

As per the preamble of ICDS IV, this ICDS is applied for computation of income
chargeable under the head “profit and gains of business of profession” or “income
from other sources”.
Further, in terms of para 1.1 of ICDS IV, this ICDS deals with the bases for
recognition of revenue arising in the course of the ordinary activities of the person
from:

(a) sale of goods;

(b) rendering of services;
(c) the use by others of the persons’ resources yielding interest, royalties or
dividends.

Thus, it may be seen that ICDS IV only applies for recognizing of revenue and
not for recognition of cost. Further, the ICDS IV is to be applied for recognition
of revenue in respect of either sale of goods, rendering of service or the use by
others of the person’s resources yielding interest, royalties or dividends.
In this regard it is also important to note that the term ‘revenue’ has been defined
in para 2(1)(a) of the ICDS IV. From the said definition it is also evident that for
the purpose ICDS IV revenue means the revenue pertaining to only the sale of
goods, rendering of services or interest, royalty, dividends earned by letting others
to use your resources. The definition of revenue is reproduced below for your
ready reference:
194 9 Tax Review—Direct Tax

(a) Revenue is the gross inflow of cash, receivables or other consideration arising
in the course of the ordinary activities of a person from the sale of goods, from the
rendering of services, or from the use by others of the person’s resources yielding
interest, royalties or dividends. In an agency relationship, the revenue is the amount
of commission and not the gross inflow of cash, receivables or other consideration.

Para 1(2) of the ICDS IV specifically provides that this ICDS doe not deal with
aspects of revenue recognition that are covered by other ICDS.

9.6.2 Recognition of Revenue

In case of HAM, contract revenue is to be recognized on the basis of ICDS-III

which we have already discussed. However, post COD, NHAI is required to pay
interest @ average of 1-year MCLR of top 5 scheduled commercial banks + 1.25%
on the balance amount. Thus, the amount of interest that is received from NHAI
would be recognised in terms of NHAI IV.
As per para 8 of ICDS IV, interest shall accrue on the time basis determined
by the amount outstanding and the rate applicable.
Thus, the interest received/receivable by the concessionaire from NHAI would
be recognised in terms of ICDS IV and such interest shall be recognised on accrual
basis determined on the basis of the amount outstanding from NHAI and the rate
of interest i.e. average of 1 year MCLR of top 5 scheduled commercial banks +
1.25%.

9.7 Applicable Rate of Income Tax

9.7.1 Tax Rates

Paragraph E of the First Schedule to Finance Act, 2022 contains the applicable
rates of Income Tax in the case of a Domestic Company. As per the Finance Act
2022 the rate of tax applicable for the assessment year 2022–23 i.e. previous year
2021–2022 on the domestic companies are:

S. No. Type of Company Rate of income tax

(i) (i) where its total turnover or the gross receipt in the previous 25% of the total income
year 2019–20 does not exceed four hundred crore rupees;
(ii) other than that referred to in item (i) 30% of the total income

Further, in addition to the rate of tax as mentioned above, a surcharge is also

paid which is calculated at the rate and manner as mentioned below:
9.7 Applicable Rate of Income Tax 195

(1) in the case of every domestic company,––

(a) having a total income exceeding one crore rupees but not exceeding ten
crore rupees, at the rate of seven per cent. of such income-tax; and
(b) having a total income exceeding ten crore rupees, at the rate of twelve per
cent. of such income-tax;
Provided that in the case of every company having a total income exceeding
one crore rupees but not exceeding ten crore rupees, the total amount payable
as income-tax and surcharge on such income shall not exceed the total amount
payable as income-tax on a total income of one crore rupees by more than the
amount of income that exceeds one crore rupees:
Provided further that in the case of every company having a total income
exceeding ten crore rupees, the total amount payable as income-tax and surcharge
on such income shall not exceed the total amount payable as income-tax and sur-
charge on a total income of ten crore rupees by more than the amount of income
that exceeds ten crore rupees.
Health and Education Cess: The amount of income-tax and the applicable sur-
charge, shall be further increased by health and education cess calculated at the
rate of four percent of such income-tax and surcharge.

9.7.2 Optional Rate of Tax—Subject to Fulfillment of Conditions

The Central Government brought in the Taxation Laws (Amendment) Act, 2019
thereby inserting Section 115BAA and Section 115BAB in Income Tax Act with
effect from 01 April 2020.
Section 115BAA is overriding the provisions of the Income Tax Act but is
subject to the provisions of chapter XII of the Income Tax Act (other than
Section 115BA and Section 115BAB). Further, section 115BAA provides an option
to a domestic company to pay income tax on its total income at the rate of 22%
subject to conditions specified in the said Section. Such rate of tax is applicable
in respect of total income of domestic person for any previous year relevant to
the Assessment year beginning on or after the 1st day of April 2020. Thus, the
said rate of tax can be applied from the previous year 2019–20 only. (The same is
discussed in later part of the Chapter).
Thus, where a domestic company opts for payment of income tax in terms of
Section 115BAA of the Income Tax Act, on its total income, applicable rate of tax
w.e.f. from Assessment year 2020–21 will be.

a. Income tax @ 22%

b. Surcharge @ 10% of the said income tax
c. Health and Education Cess @ 4% of such income-tax and surcharge.
196 9 Tax Review—Direct Tax

Thus, total income tax would be levied @ 25.17%.

For opting to pay tax in terms of Section 115BAA of the Income Tax Act the
domestic company needs to fulfill the following conditions:

a. The total income shall be computed (as relevant for the construction industry)

i. Without any deduction

1.under the provisions of Section 10AA
2.under clause (iia) of sub-Section (1) of Section 32
3.under Section 32AD
4.under Section 33AB
5.under Section 33ABA
6.under sub-clause (ii) or sub-clause (iia) or sub-clause (iii) of sub-
Section (1) or sub-Section (2AA) or sub-Section (2AB) of Section 35
(tax on income of certain domestic companies)
7. under Section 35AD (deduction in respect of expenditure on specified
business);
8. under Section 35CCD
9. under Section 35CCC
10. under any provisions of Chapter VI-A other than the provisions of
Section 80JJAA or Section 80 M.
ii. without set off of any loss carried forward or depreciation from any earlier
assessment year, if such loss or depreciation is attributable to any of the
deductions referred to in clause (i);
iii. without set off of any loss or allowance for unabsorbed depreciation
deemed so under section 72A, if such loss or depreciation is attributable to
any of the deductions referred to in clause (i); and
iv. by claiming the depreciation, if any, under any provision of section 32,
except clause (iia) of sub-Section (1) of the said section, determined in
such manner as may be prescribed.

9.7.3 Minimum Alternative Tax

Minimum alternative tax (MAT) is a concept of direct tax whereby the companies
are required to pay a minimum tax as computed in terms of MAT provisions as
contained in the Income Tax Act. The provisions pertaining to MAT are covered
in Section 115JB of the Income Tax Act, 1961. As per the said section, for the
previous year relevant to the assessment year commencing on or after the 1st day
of April, 2020, the Company is required to pay a minimum income tax of 15% of
its book profits.
9.7 Applicable Rate of Income Tax 197

Thus, even in case where no income tax is liable to be paid in terms of normal
income tax provisions then also as per Section 115JB of the Income Tax Act the
Company is required to pay income tax @ 15% of the book profits.
Here we would like to mention that in case the Company has opted for payment
of tax under Section 115BAA of the Income tax Act then the provisions of MAT
are not applicable on them. As per Section 115JB(5A) of the Income Tax Act the
provisions of Section 115JB shall not apply to a person who has exercised the
option referred to under section 115BAA.

9.7.4 Exercise of Option

As per Section 115BAA(5) the Company shall exercise the option in the prescribed
manner on or before the due date specified under sub-section (1) of Section 139 for
furnishing the returns of income for any previous year relevant to the assess-
ment year commencing on or after the 1st day of April, 2020 and such option
once exercised shall apply to subsequent assessment years. Section 115BAA(5) is
reproduced below:

(5) Nothing contained in this section shall apply unless the option is exercised by
the person in the prescribed manner57 on or before the due date specified under
sub-section(1) of Section 139 for furnishing the returns of income for any previous
year relevant to the assessment year commencing on or after the 1st day of April,
2020 and such option once exercised shall apply to subsequent assessment years:

Provided that in case of a person, where the option exercised by it under

Section 115BAB has been rendered invalid due to violation of conditions contained
in sub-clause (ii) or sub-clause (iii) of clause (a), or clause (b) of sub-section (2) of
said section, such person may exercise option under this section:

Provided further that once the option has been exercised for any previous year, it
cannot be subsequently withdrawn for the same or any other previous year. General
of Income-tax (Systems) or the Director General of Income-tax (Systems), as the case
may be, shall-

Further rule 21AE of the Income Tax Rules provides that the option to be exercised
in accordance with Section 115BAA(5) shall be in Form 10-IC. To quote:
198 9 Tax Review—Direct Tax

Exercise of option under sub-section (5) of Section 115BAA.

21AE. (1) The option to be exercised in accordance with the provisions of sub-section
(5) of section 115BAA by a person, being a domestic company, for any previous year
relevant to the assessment year beginning on or after the 1st day of April, 2020, shall
be in Form No. 10-IC.

(2) The option in Form No. 10-IC shall be furnished electronically either under digital
signature or electronic verification code.

(3) The Principal Director General of Income-tax (Systems) or the Director General
of Income-tax (Systems), as the case may be, shall-

(i) specify the procedure for filing of Form No. 10-IC;

(ii) specify the data structure, standards and manner of generation of electronic
verification code, referred to in sub-rule (2), for verification of the person furnishing
the said Form; and

(iii) be responsible for formulating and implementing appropriate security, archival

and retrieval policies in relation to the Form so furnished.
Accounting Review—Ind AS
and Revenue Recognition 10

This Chapter provides an overview of revenue recognition in case of road con-

struction contracts that are awarded under Hybrid Annuity Model. It details out
the accounting standards as applicable to the HAM based road PPP projects in
India. From the past experience, it can be gathered that the contracts of road con-
struction awarded for such projects have an average project value of more than
INR 500 Cr (USD 70 million). Thus, as per the authors view, the SPV engaged in
undertaking the HAM projects would need to comply with the Indian Accounting
Standards (or Ind AS) as issued by the Central Government in 2015. The Ind AS
that is relevant for recognizing of revenue from such projects is Ind AS 115 i.e.,
revenue from contracts with customer.
Ind AS 115 is a Five (5) step revenue recognition model wherein the revenue
needs to be recognized by following the five steps namely, Identify the contract
with the customer, Identify the performance obligations, Determine the transaction
price, Allocate the transaction price to the performance obligations, and Recognize
revenue as or when performance obligations are satisfied.

10.1 Project Highway Case Study—Summary

The case study assumes an award of a national highway project in India called
Project Highway by National Highways Authority of India (NHAI) as the govern-
ment agency to a private sector player. The private sector player has incorporated
a Special Purpose Vehicle (SPV) namely, ABC Constructions Private Limited
(ACPL) who will be the Concessionaire for this Project; and will perform two (2)
key activities:

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 199
A. Mittal et al., Hybrid Annuity Model (HAM) of Hybrid Public-Private Partnership
Projects, Management for Professionals,
https://doi.org/10.1007/978-981-19-2019-6_10
200 10 Accounting Review—Ind AS and Revenue Recognition

• Construction of Highway; and

• Operation and maintenance (hereinafter referred to as O&M) of Highway
for 15 years, after completion of Construction. Operation and maintenance
activities would include regular maintenance as also major maintenance.

In terms of scope of O&M activities, ACPL is required to restore the asset at the
end of the term of the concession agreement.
Key relevant assumptions below:

• Cost of construction (civil and structural work) is INR 1200 Cr

• O&M cost to be incurred each year = INR 4 Cr
• Major Maintenance = During 7th year and the 14th year of operation period,
INR 30 Cr is estimated to be incurred in respect of major maintenance in each
such year (in real terms, without considering the impact of inflation)
• ACPL has quoted Bid Project Cost = INR 1500 Cr in respect of construction
activity
• ACPL has quoted O&M cost = INR 5 Cr per year in respect of O&M activities
which is payable during the operation and maintenance period.

The bid project cost and the O&M cost payable by NHAI to ACPL is as per
the bid submitted by ACPL to NHAI. Further, as such the amount quoted as bid
project cost and O&M Costs by ACPL is not proportionate to the cost incurred on
these activities. For the purpose of this case study, it is assumed that ACPL has
submitted the bids in such a manner that the bid project cost which is linked with
construction of road is quoted on a higher side, whereas the O&M cost is quoted
on a lower side. This means that the bid project cost (price quoted for construction)
is loaded with the revenue for O&M activities also.
Estimated cost and revenue (in real terms without considering the impact of
inflation) is summarized in the table below:

Activities/cost and Construction (INR Cr) O&M (INR Cr) Total (INR Cr)
revenue
Cost 1200 4 * 15 + 30 * 2 = 120 1320
Revenue quoted 1500 5 * 15 = 75 1575

The consideration agreed between NHAI and ACPL is to be paid by NHAI in the
following manner:

• NHAI shall pay 40% of the cost of construction of the Bid Project Cost (BPC)
on achievement of milestones linked with the physical completion of the project
in ten (10) equal instalments of 4% of BPC.
• Upon Commercial Operation Date (COD), ACPL shall be entitled to demand
and collect remaining 60% of BPC as Annuity payments. The said 60% shall
be paid to the Concessionaire in 30 biannual Annuities, after completion of
10.2 Applicability of Indian Accounting Standards 201

180 days from COD, along with interest at the rate equal to average of 1 year
MCLR of top five scheduled commercial banks plus 1.25% on the balance of
annuity payments.
• NHAI shall also pay operation and maintenance costs (as per the bid of the
ACPL) during the 15 years of operations of the project.

That in terms of agreement between NHAI and ACPL, it is evident that the work
for construction as well as work for operation and maintenance is under a single
contract. We have assumed that while quoting the contract the management had
in mind a uniform profit percentage for construction as also for the operation and
maintenance activity.

10.2 Applicability of Indian Accounting Standards

In exercise of the powers conferred by Section 133 read with Section 469 of the
Companies Act, 2013, and sub-section (1) of Section 210A of the Companies
Act, 1956, the Central Government, in consultation with the National Advisory
Committee on Accounting Standards, notified Companies (Indian Accounting
Standards) Rules, 2015 (hereinafter referred to as Ind AS Rules, 2015) vide
Notification No. G.S.R 111(E) dated 16.02.2015.
Rule 3 of the of the Ind AS Rules, 2015 provide that the Accounting Standards
as specified in the Annexure to these rules shall be called the Indian Accounting
Standards (Ind AS) and shall be the accounting standards applicable to classes of
companies specified in rule 4. Further it provides that the Accounting Standards as
specified in Annexure to the Companies (Accounting Standards) Rules, 2006 shall
be the Accounting Standards applicable to the companies other than the classes of
companies specified in rule 4.
Rule 3 also provides that a company which follows the Indian Accounting
Standards (Ind AS) specified in Annexure to these rules in accordance with the
provisions of rule 4 shall follow such standards only, and a company which follows
the accounting standards specified in Annexure to the Companies (Account-
ing Standards) Rules, 2006 shall comply with such standards only and not the
Standards specified in Annexure to these rules.
Thus,

a. The class of companies as specified in Rule 4 of the Ind AS Rules, 2015 shall
only apply the Indian Accounting Standards as specified in the Annexure to Ind
AS Rules, 2015; and
b. All the companies other than those specified in Rule 4 would only follow the
accounting standards as specified in Companies (Accounting Standards) Rules,
2006.
202 10 Accounting Review—Ind AS and Revenue Recognition

Rule 4 of the said Ind AS Rules, 2015 provides for the Companies who are
mandatorily required to apply the Ind AS in preparing their accounts.
As per Rule 4 of the Ind AS Rules, 2015, the following Companies and their
auditors shall comply with the Ind AS in preparation of their financial statements
and audit respectively.

(a) For the period beginning on or after 1st April 2016 [Rule 4(i)(ii) of the Ind
AS Rules, 2015]
(i) Companies whose equity or debt securities are listed or are in the process
of being listed on any stock exchange in India or outside India and having
net worth of INR 500 Cr or more;
(ii) Companies other than those covered by point (i) above and having net
worth of INR 500 Cr or more;
(iii) Holding, subsidiary, joint venture or associate companies of companies
covered by points (i) and (ii) above
(b) For the accounting periods beginning on or after 1st April 2017 [R. 4(i) (iii)
of the Ind AS Rules, 2015]
(i) companies whose equity or debt securities are listed or are in the process
of being listed on any stock exchange in India or outside India and having
net worth of less than INR 500 Cr;
(ii) companies other than those covered in (a) or in b.(i) above, that is,
unlisted companies having net worth of INR 250 Cr or more but less
than INR 500 Cr
(iii) holding, subsidiary, joint venture or associate companies of companies
covered in point (i) and (ii) above as the case may be.
(c) specified NBFCs.
(d) The holding, subsidiary, joint venture or associate companies of Scheduled
commercial banks (excluding RRBs) would be required to prepare Ind AS
based financial statements for accounting periods beginning from 1st April,
2018 onwards, with comparatives for the periods ending 31st March, 2018 or
thereafter.

The expression, holding company, subsidiary and associate companies have been
defined in Section 2 of the Companies Act, 2013 and are extracted hereinbelow.

2 (46) holding company, in relation to one or more other companies, means a

company of which such companies are subsidiary companies;

Explanation.—For the purposes of this clause, the expression company includes any
body corporate.

2 (87) subsidiary company or subsidiary, in relation to any other company (that is

to say the holding company), means a company in which the holding company—
10.2 Applicability of Indian Accounting Standards 203

(i) controls the composition of the Board of Directors; or

(ii) exercises or controls more than one-half of the 19[total voting power] either at
its own or together with one or more of its subsidiary companies:

Provided that such class or classes of holding companies as may be prescribed shall
not have layers of subsidiaries beyond such numbers as may be prescribed.

Explanation.—For the purposes of this clause,—

(a) a company shall be deemed to be a subsidiary company of the holding com-

pany even if the control referred to in sub-clause (i) or sub-clause (ii) is of another
subsidiary company of the holding company;

(b) the composition of a company’s Board of Directors shall be deemed to be controlled

by another company if that other company by exercise of some power exercisable by
it at its discretion can appoint or remove all or a majority of the directors;

(c) the expression company includes any body corporate;

(d) layer in relation to a holding company means its subsidiary or subsidiaries;

2 (6) associate company, in relation to another company, means a company in which

that other company has a significant influence, but which is not a subsidiary company
of the company having such influence and includes a joint venture company.

Explanation.—For the purpose of this clause,—

(a) the expression significant influence means control of at least twenty per cent.
of total voting power, or control of or participation in business decisions under an
agreement;

(b) the expression joint venture means a joint arrangement whereby the parties that
have joint control of the arrangement have rights to the net assets of the arrangement;

Further, clause 2(f) of the Notification No. G.S.R. 111 provides that the net
worth, for the purpose of this notification, has the same meaning as defined in
Section 2(57) of the Companies Act 2013. Section 2(57) of the Companies Act
defines Net Worth as:

2 (57) net worth means the aggregate value of the paid-up share capital and all
reserves created out of the profits, securities premium account and debit or credit
balance of profit and loss account, after deducting the aggregate value of the accumu-
lated losses, deferred expenditure and miscellaneous expenditure not written off, as
per the audited balance sheet, but does not include reserves created out of revaluation
of assets, write-back of depreciation and amalgamation;
204 10 Accounting Review—Ind AS and Revenue Recognition

The road construction projects under HAM Model are high-value concessions, and
in majority of the cases the companies undertaking these contracts have net worth
of more than INR 250 Cr; or these companies are either the subsidiary or associate
companies of the companies having net worth of more than INR 250 Cr.
Thus, most likely Ind AS would be applicable on the companies engaged in the
work of construction and maintenance of road projects under HAM. However, if
the company engaged in road construction is not covered under clause (ii) or (iii)
of sub rule 1 of rule 4 then it has to prepare its accounts applying the accounting
standards as specified in Companies (Accounting Standards) Rules, 2006.
Since HAM based PPP projects are normally covered under Ind AS, hence we
are hereafter discussing the Ind AS relevant for accounting for such contracts.

10.3 Ind AS 115: Revenue from Contracts with Customer

10.3.1 Introduction

As per para 1 of the Ind AS 115 the objective of the said standard is to establish
the principles that an entity shall apply to report useful information to users of
financial statements about the nature, amount, timing and uncertainty of revenue
and cash flow arising from a contract with a customer. Ind AS 115 is similar to
IFRS 15.
Further, barring few exceptions, Ind AS 115 applies to all the contracts with
the customers, to provide goods and services for a consideration.

10.3.2 Annexure D of Ind AS 115

Ind AS 115 contains Annexure D: Service Concession Arrangements which gives

guidance on the accounting by operators for public-to-private service concession
arrangements. It sets out general principles on recognizing and measuring the
obligations and related rights in service concession arrangements. Annexure D
of Ind AS 115 is similar to IFRIC 12 which also relates to Service Concession
Agreements.
The scope of Appendix D states that it shall apply to public-to-private service
concession arrangements if:

(a) the grantor controls or regulates what services the operator must provide with
the infrastructure, to whom it must provide them, and at what price; and
(b) the grantor controls—through ownership, beneficial entitlement or otherwise—
any significant residual interest in the infrastructure at the end of the term of
the arrangement.
10.3 Ind AS 115: Revenue from Contracts with Customer 205

In terms of para 2 of Appendix D, an arrangement within the scope of this

Appendix typically involves:

a private sector entity (an operator) constructing the infrastructure used to provide the
public service or upgrading it (for example, by increasing its capacity) and operating
and maintaining that infrastructure for a specified period of time.

The operator is paid for its services over the period of the arrangement.

The arrangement is governed by a contract that sets out performance standards,

mechanisms for adjusting prices, and arrangements for arbitrating disputes.

Such an arrangement is often described as a ‘build-operate transfer’, a ‘rehabilitate-

operate-transfer’ or a ‘public-to-private’ service concession arrangement.

The scope of Appendix D provided in Para 5 of the said Appendix D, especially

Clause A thereof creates a slight confusion when it is applied to Contracts awarded
under the HAM. On primary reading, it gives an indication that it applies where
the Contract is awarded to the Operator for collecting the toll from the users.
This confusion is created because condition (a) requires the grantor to control
or regulate the services which the operator must provide with the infrastructure
and also the price at which the same are provided. In HAM, the infrastructure is
constructed, operated and maintained by the Operator for the grantor, for which the
operator charges bid project cost, and O&M cost, both of which are fixed under the
Concession Agreement entered into between the grantor and the operator. Thus, it
seems that this is not a case where price of the service of the operator is regulated
or controlled by the grantor, but a case where the consideration for activities of
the operator is fixed under the Contract between both of them.
However, this aspect is clarified by Application Guidance on Appendix D,
which is an integral part of Appendix D (It is contained in the Ind AS 115 itself).
In Para AG 2 of the said Application Guidance on Appendix D, condition (a) of
Para 5 of Appendix D is clarified. It is stated that the control or regulation referred
to in Condition (a) could be by contract, and includes circumstances in which the
grantor himself buys all the output. It is therefore adequately clarified that even
if the price is provided under the Contract where the grantor himself buys all the
output of the operator, it still satisfies the condition (a) of Para 5 of Appendix D.
In contracts awarded under HAM, the price is fixed subject to adjustment on
account of inflation, and whole of the output namely construction, operation and
maintenance of the road is bought by NHAI from the concerned operator. This is
covered by clarification given in AG 2. Thus, AG 2 dispels any doubts regarding
inclusion of contracts awarded under HAM within the purview of Appendix D.
206 10 Accounting Review—Ind AS and Revenue Recognition

Further, Information Note 2 that accompanies Appendix D provides guidance

on applicability of different Ind AS to typical types of public-to-private arrange-
ments. As per the said Information note 2, Appendix D: Service Concession
Agreement shall apply in case of projects under BOT Model. In this regard, it
is important to note that the HAM projects are under DBOT model which is very
similar to BOT.
Hence, it is evident that Appendix D would apply on the contracts awarded
for construction, operation, and maintenance of road projects that are awarded
under HAM based PPP model.
As per Para 12 and 13 of Appendix D in respect of contractual arrangements
covered within the scope of this Appendix, the operator, being a private sector
entity constructing the infrastructure, acts as a service provider. As per the said
paras the operator shall recognize and measure revenue in accordance with Ind
AS 115 for the services it performs. Thus, in respect of the concession agreement
covered within the scope of Appendix D the revenue of the operator shall be
recognized and measured in accordance with Ind AS 115.
To quote:

Recognition and measurement of arrangement consideration

12 Under the terms of contractual arrangements within the scope of this Appendix, the
operator acts as a service provider. The operator constructs or upgrades infrastruc-
ture (construction or upgrade services) used to provide a public service and operates
and maintains that infrastructure (operation services) for a specified period of time

13 The operator shall recognise and measure revenue in accordance with Ind AS 115
for the services it performs. The nature of the consideration determines its subsequent
accounting treatment. The subsequent accounting for consideration received as a
financial asset and as an intangible asset is detailed in paragraphs 23–26 of this
Appendix.

10.4 Five (5) Step Model for Applying Ind AS 115

10.4.1 Revenue Recognition in Terms of Ind AS 115

Ind AS 115 establishes a 5 step Model that entities would need to apply to deter-
mine the amount of revenue to be recognized and when to recognize the same.
The Five steps summarized in the figure below:
10.4 Five (5) Step Model for Applying Ind AS 115 207

Recognize revenue
Allocate the
Identify the Identify the as or when
Determine the Transaction Price
Contract with the Performance Performance
Transaction Price to the Performance
Customer Obligations Obligations are
Obligations
Satisfied

This section describes the detailed steps for applying Ind AS 115 on HAM
based road PPP projects. All the steps have been explained with the numerical
examples of case study of Project Highway to enhance the understanding of the
readers.

10.4.2 Step I: Identify the Contract with the Customer

An entity while applying the provisions of Ind AS 115 shall first have to identify
the contract as per the parameters laid in para 9 of the Ind AS. Para 9 of Ind AS
115 is reproduced below for ease of reference:

Para 9 of Ind AS 115

An entity shall account for a contract with a customer that is within the scope of this
Standard only when all of the following criteria are met:

(a) the parties to the contract have approved the contract (in writing, orally or in
accordance with other customary business practices) and are committed to perform
their respective obligations;

(b) the entity can identify each party’s rights regarding the goods or services to be
transferred;

(c) the entity can identify the payment terms for the goods or services to be transferred;

(d) the contract has commercial substance (ie the risk, timing or amount of the
entity’s future cash flows is expected to change as a result of the contract); and

(e) it is probable that the entity will collect the consideration to which it will be
entitled in exchange for the goods or services that will be transferred to the customer.
In evaluating whether collectability of an amount of consideration is probable, an
entity shall consider only the customer’s ability and intention to pay that amount of
consideration when it is due. The amount of consideration to which the entity will
208 10 Accounting Review—Ind AS and Revenue Recognition

be entitled may be less than the price stated in the contract if the consideration is
variable because the entity may offer the customer a price concession (see paragraph
52).

Thus, revenue is determined in terms of Ind AS 115 only when the contract with
the customers satisfies all the conditions as mentioned in para 9 of Ind AS 115.
In respect of HAM projects all the five criteria as laid down in Step I are met
and the same are explained in the following points:

a. In any HAM project, the concession agreement that is entered is duly executed,
signed and approved by both the parties to the contract.
b. The right of both the parties are clearly codified in the contract.
c. The payment terms are also provided for in the Concession agreement wherein
the total price and the timing for its payments is mentioned.
d. Concession agreement in HAM has commercial substance as the conces-
sionaire’s risk and future cash flows would change as a result of the HAM
project.
e. In HAM, the contracting party is NHAI or State Authority i.e. Authority of
Government and thus, it is fairly probable that the concessionaire will collect
the consideration.

Project Highway: Application of Step I

• ACPL has entered into a contract with NHAI to construct, operate and
maintain the road.
• As per the said agreement each party’s rights with regard to service to be
rendered and the terms of payment are clearly mentioned.
• Further, the said contract has commercial substance in it as ACPL is
undertaking the said project as a commercial activity and there are eco-
nomic consequences on the cash flows of ACPL as per the result of the
contract.
• Furthermore, since the contract is entered with the NHAI i.e. Authority
of Government of India, it is fairly probable that ACPL would be able to
collect the consideration from the NHAI (customer in the present case)
as and when the same is due.

Since all the criteria as contained in Para 9 of Ind AS 115 are met in respect
of the case study, hence, the first step as laid by Ind AS is complied with
and can be further proceeded with, in terms of Ind AS 115, for recognizing
revenue.
10.4 Five (5) Step Model for Applying Ind AS 115 209

10.4.3 Step II: Identify the Performance Obligations

The next step requires an entity to identify the performance obligations in the
contract. The relevant para of Ind AS is reproduced below:

Para 22 of Ind AS 115

At contract inception, an entity shall assess the goods or services promised in a

contract with a customer and shall identify as a performance obligation each promise
to transfer to the customer either:

(a) a good or service (or a bundle of goods or services) that is distinct; or

(b) a series of distinct goods or services that are substantially the same and that have
the same pattern of transfer to the customer (see paragraph 23).

The term performance obligation has been defined in Appendix A of the Ind AS
as-

A promise in a contract with a customer to transfer to the customer either:

(a) a good or service (or a bundle of goods or services) that is distinct; or

(b) a series of distinct goods or services that are substantially the same and that have
the same pattern of transfer to the customer.

In accordance with step II as contained in para 22 of Ind AS 115, at contract

inception, an entity has to identify all goods or services that are promised by the
entity to be transferred to the customer under the contract. Thereafter, the entity
has to determine whether such promised goods or services to be transferred to
customer are distinct in themselves or form a series which has a same pattern of
transfer.
The Ind AS 115 also provides criteria for determining whether the good or
service that is promised to customer would be distinct or not. The relevant para of
Ind AS 115 is reproduced below for ready reference:

Para 27 of Ind AS 115

A good or service that is promised to a customer is distinct if both of the following

criteria are met:
210 10 Accounting Review—Ind AS and Revenue Recognition

(a) the customer can benefit from the good or service either on its own or together
with other resources that are readily available to the customer (i.e. the good or service
is capable of being distinct); and

(b) the entity’s promise to transfer the good or service to the customer is separately
identifiable from other promises in the contract (i.e. the promise to transfer the good
or service is distinct within the context of the contract).

The two conditions specified in Para 27 are to be cumulatively satisfied. In other

words, a good or service that is promised to a customer shall be considered to be
distinct only if both the above conditions (a) and (b) are satisfied.
To elaborate, it can be understood that a good or service may be called as
distinct if it is capable of being used on its own or with any other readily available
resource. The evidence of this fact would be that the entity or its competitors
regularly sells many of these goods and services separately to other customers.
However, where in a contract such goods or services are not individually promised
to be supplied but rather as an integrated service (incorporating the said goods
and services as inputs), each such goods and services that are incorporated in the
integrated service cannot be called as distinct as per para 27(b).
For a better understanding of the above provisions regarding differentiation
between distinct goods or service and series of goods or services, reference is
made to document of IASB published to accompany IFRS 15 on ‘Revenue from
contracts with Customers’ that is similar to Ind AS 115. This document provides
application guidance of IFRS-15 with the help of examples. The same can provide
an insight into the provisions of Ind AS 115 as Ind AS issued in India is guided
by the IFRS issued by IASB.
One of the example provided in the Application guidance of IFRS -15 with
regard to distinct goods and services has been reproduced below:

Example 10—Goods and services are not distinct

Case A—Significant integration service

IE45 An entity, a contractor, enters into a contract to build a hospital for a customer.
The entity is responsible for the overall management of the project and identifies
various promised goods and services, including engineering, site clearance, foun-
dation, procurement, construction of the structure, piping and wiring, installation of
equipment and finishing.

IE46 The promised goods and services are capable of being distinct in accordance
with paragraph 27(a) of IFRS 15. That is, the customer can benefit from the goods
and services either on their own or together with other readily available resources.
This is evidenced by the fact that the entity, or competitors of the entity, regularly
sells many of these goods and services separately to other customers. In addition, the
10.4 Five (5) Step Model for Applying Ind AS 115 211

customer could generate economic benefit from the individual goods and services by
using, consuming, selling or holding those goods or services.

IE47 However, the promises to transfer the goods and services are not separately
identifiable in accordance with paragraph 27(b) of IFRS 15 (on the basis of the factors
in paragraph 29 of IFRS 15). This is evidenced by the fact that the entity provides a
significant service of integrating the goods and services (the inputs) into the hospital
(the combined output) for which the customer has contracted.

IE48 Because both criteria in paragraph 27 of IFRS 15 are not met, the goods and
services are not distinct. The entity accounts for all of the goods and services in the
contract as a single performance obligation.

Here it is relevant to refer to para 29 of IND-AS 115. Para 29 provides for factors
that indicates that two or more promises to transfer goods and services are not
separately identifiable. For ease of reference, para 29 of Ind AS is reproduced
below:

29 Factors that indicate that two or more promises to transfer goods or services to a
customer are not separately identifiable include, but are not limited to, the following:

(a) the entity provides a significant service of integrating the goods or services with
other goods or services promised in the contract into a bundle of goods or services
that represent the combined output or outputs for which the customer has contracted.
In other words, the entity is using the goods or services as inputs to produce or
deliver the combined output or outputs specified by the customer. A combined output
or outputs might include more than one phase, element or unit.

(b) one or more of the goods or services significantly modifies or customises, or are
significantly modified or customised by, one or more of the other goods or services
promised in the contract.

(c) the goods or services are highly interdependent or highly interrelated. In other
words, each of the goods or services is significantly affected by one or more of the
other goods or services in the contract. For example, in some cases, two or more goods
or services are significantly affected by each other because the entity would not be
able to fulfil its promise by transferring each of the goods or services independently.

Thus, for determining whether the goods and services promised to the customer
are distinct or not para 29 of Ind AS 115 also needs to be considered.
Para 26 of Ind AS 115 also gives example or illustrations of distinct goods or
service. Para 26 has been reproduced below:
212 10 Accounting Review—Ind AS and Revenue Recognition

Depending on the contract, promised goods or services may include, but are not
limited to, the following:

(a) sale of goods produced by an entity (for example, inventory of a manufacturer);

(b) resale of goods purchased by an entity (for example, merchandise of a retailer);

(c) resale of rights to goods or services purchased by an entity (for example, a ticket
resold by an entity acting as a principal, as described in paragraphs B34–B38);

(d) performing a contractually agreed-upon task (or tasks) for a customer;

(e) providing a service of standing ready to provide goods or services (for example,
unspecified updates to software that are provided on a when-and-if-available basis)
or of making goods or services available for a customer to use as and when the
customer decides;

(f) providing a service of arranging for another party to transfer goods or services
to a customer (for example, acting as an agent of another party, as described in
paragraphs B34–B38);

(g) granting rights to goods or services to be provided in the future that a customer can
resell or provide to its customer (for example, an entity selling a product to a retailer
promises to transfer an additional good or service to an individual who purchases
the product from the retailer);

(h) constructing, manufacturing or developing an asset on behalf of a customer;

(i) granting licences (see paragraphs B52–B63); and

(j) granting options to purchase additional goods or services (when those options
provide a customer with a material right, as described in paragraphs B39–B43).

From the aforesaid it is evident that construction, manufacturing or developing an

asset on behalf of Customer, may be considered as a distinct goods and services.
Thus, it further suggests that the service of ‘construction’ is a distinct service in
itself.
From the above discussion it appears that the road construction contracts
awarded under HAM involves two performance obligations i.e. (a) Construction,
and (b) Operation and maintenance. The Author is of such a view as both the fol-
lowing criteria mentioned in para 27 of the Ind AS 115 are satisfied in respect of
both of these obligations.

1. The customer being NHAI is benefitted from construction service as well as

the operation and maintenance service provided by the Concessionaire.
10.4 Five (5) Step Model for Applying Ind AS 115 213

2. Both the construction and operation and maintenance are separately identifiable
from the terms of the concession agreement that is entered into between the
concessionaire and NHAI.

Also, it is important to note that the construction and O&M activity required to
be undertaken by the concessionaire involves various activities such as planning,
design, site clearance, etc. but these individual activities would not be considered
as performance obligation. This is so because these individual activities are not
specifically promised with the customer but the concessionaire has promised to
provide the services of construction of road, and operation and maintenance of the
road to NHAI. Thus, in terms of para 29 of the Ind AS it is not the individual
activities such as, design, planning, laying of road, site clearance, foundation, etc.
which are inputs of the promised final output, are considered to be performance
obligation rather, it is the goods or services which are promised between the parties
which are considered to be performance obligation (subject to fulfilment of criteria
laid down in para 27).
Further, a very important factor in these contracts is that as soon as construction
is complete, i.e., on and after the COD, the right to receive annuity payments
immediately gets vested. This shows that, as on COD, both the parties are treating
that the construction obligation is complete. This is further evident on the basis
of the fact that the time for performing both these services is completely different
i.e. the construction service is to be provided during the construction period and
once the construction of the road project is complete, then only the obligation to
provide operation and maintenance service would arise.

Project Highway: Application of Step II

ACPL is providing two major services viz. Construction Services and
Operation & Maintenance services.
Thus, in HAM there are two performance obligations, namely 1) Construc-
tion Services, and 2) Operation & Maintenance services. This is so because,
both the criteria mentioned in para 27 of Ind AS 115 are met in respect of
the case study as elaborated hereunder:

• NHAI can benefit from the constructed services as well as O&M ser-
vices on their own. In many cases NHAI procures both these services viz
Construction service and O&M services separately from different entities.
• Also both i.e. Construction as well as O&M are separately identifiable in
terms of the concession agreement entered into between NHAI and ACPL

From the facts of the case study, it appears that under the concession
agreement there are two performance obligations namely construction and
O&M.
214 10 Accounting Review—Ind AS and Revenue Recognition

10.4.4 Step III: Determine the ‘Transaction Price’

The next step is to determine the transaction price which the entity expects to
receive in exchange of transferring the promised goods and services. The relevant
provisions are reproduced below:

Para 47 of Ind AS 115

An entity shall consider the terms of the contract and its customary business practices
to determine the transaction price. The transaction price is the amount of consider-
ation to which an entity expects to be entitled in exchange for transferring promised
goods or services to a customer, excluding amounts collected on behalf of third par-
ties (for example, some sales taxes). The consideration promised in a contract with a
customer may include fixed amounts, variable amounts, or both.

Para 49 of Ind AS 115

For the purpose of determining the transaction price, an entity shall assume that the
goods or services will be transferred to the customer as promised in accordance with
the existing contract and that the contract will not be cancelled, renewed or modified.

Thus, from the aforesaid it is evident that the transaction price is the amount that
an entity expects to be entitled in exchange of transferring promised goods or
services to a customer. Further, transaction price comprises of the fixed as well as
variable amounts that are promised in the contract with the customer. Furthermore,
it is specifically provided that the transaction price do not include the amount that
is collected on behalf of third party such as GST.
As discussed in previous step, HAM based PPP projects generally have two
performance obligations i.e. construction service, and operation and maintenance
service. Further in terms of the model concession agreement, Article 23, separate
prices for both the obligations are quoted and agreed by the Concessionaire and
Authority.
Thus, there may be two scenarios:

# Scenario Determination of Transaction Price

1 Price quoted for each performance obligation Price quoted is treated as Transaction
is same as consideration expected in exchange Price for each performance obligation
for promised services
2 Price quoted for each performance obligation Transaction Price for each performance
is different from consideration expected in obligation needs to be determined in the
exchange for promised services. manner as described in the section below

Scenario 2, as described above, is possible when price quoted is only for the
purpose of receiving the agreed installments from Authority. The prices so pro-
vided against each of the performance obligation have no nexus with the cost to
10.4 Five (5) Step Model for Applying Ind AS 115 215

be incurred with respect of each of the performance obligation. Thus, the same
i.e. the prices prescribed against each of the performance obligation, cannot be
considered as the transaction price for said performance obligations.
Further, the concession is awarded by Authority on the basis of the lowest bid
price which is sum total of NPV Bid project cost/ Cost for construction service and
NPV of O&M cost. Thus, for the purpose of awarding the Agreement, the NPV
of combined price i.e. NPV of price quoted for construction and NPV of price
quoted O&M is considered and not the prices for the two individual performance
obligations. Therefore, the prices appearing in the contract for each service may
not represent the fair value of respective service that would have been charged
had the contract been allotted separately. In such cases, in order to preserve the
substance of the contract, it is required to determine the transaction price of
the entire contract and then allocate the whole transaction price to each of the
performance obligation in terms of next step.

Recent change
Recently an amendment has been bought in the MCA wherein a change has
been made regarding the financial bidding process and the evaluation of bids
by NHAI. Now the bidders have to only quote the bid Project Cost. Thus,
unlike the period prior to the said amendment when the bidder is required
to quote Bid Project Cost and the First year O&M cost, now, after the said
amendment the bidders are only required to quote the BPC. Further, the
O&M is fixed as a percentage of BPC.
Post the said amendment the successful bidder is selected on the basis of
BPC only.
Even now, the bidder at the inception of contract has to analyse whether the
BPC quoted by him and the % of BPC fixed as O&M Cost is the amount
that the entity expects in respect of Construction and O&M respectively. If
that be so then the BPC would be considered to be the transaction price
for the construction works and the O&M cost fixed as % of BPC would be
construed to be the transaction price for O&M activity.
If the bidder considers that the BPC quoted by him and the % of BPC fixed as
O&M Cost is the different from the amount that the entity expects in respect
of Construction and O&M respectively then it is required to determine
the transaction price of the entire contract and then allocate the whole
transaction price to each of the performance obligation in terms of next
step.

Factors relevant for determination of transaction price

As per Para 48 of Ind AS 115, while determining the transaction price, an entity shall
consider the effects of all of the following:
216 10 Accounting Review—Ind AS and Revenue Recognition

a. variable consideration
b. constraining estimates of variable consideration
c. existence of a significant financing component in the contract
d. non-cash considerations
e. consideration payable to a customer

In HAM projects, the Bid Project Cost (BPC) and the O&M Payment as
quoted by the Concessionaire are adjusted using Price Index Multiple (PIM).1 This
adjustment on account of inflation is variable consideration. While estimating vari-
able consideration, which is to be based upon the inflation factors prevailing over
a period of 17 years approximately, there shall be substantial degree of estimation.
However, the accountants have no option but to make best estimates as per the
available information.
Para 56 and 57 of Ind AS 115 are very important in this regard. It is however
to be noted that variable consideration shall be included in the transaction price
only if it is highly probable that a significant reversal in the amount of cumulative
revenue recognized will not occur when the uncertainty associated with the vari-
able consideration is resolved. Wherever it is not so probable, it is referred to as
constraining estimates of variable consideration. Thus, in a case involving variable
consideration, if it is estimated that it is quite likely that the said variable consider-
ation would have to be ultimately reversed, the same should not be accounted for.
We believe that a developing country like India which has historically faced sup-
ply side constraints and have always seen inflation, it is quite tenable to assume
that the present trend of inflationary economic scenario would continue even in
the ensuing years. However, while taking an estimate for inflation, considering the
provision (para 56 and 57) of the Ind AS, a conservative rate of inflation may be
factored while considering it as variable consideration.

Change in transaction price

Para 87 to 90 of the Ind AS 115 provides for treatment with regard to any change
in transaction price.

Para 87-90 of Ind AS 115

Changes in the transaction price

87 After contract inception, the transaction price can change for various reasons,
including the resolution of uncertain events or other changes in circumstances that
change the amount of consideration to which an entity expects to be entitled in
exchange for the promised goods or services.

1Please refer to Chapter 7 of the book for a detailed discussion on PIM and methodology of
computation.
10.4 Five (5) Step Model for Applying Ind AS 115 217

88 An entity shall allocate to the performance obligations in the contract any sub-
sequent changes in the transaction price on the same basis as at contract inception.
Consequently, an entity shall not reallocate the transaction price to reflect changes in
stand-alone selling prices after contract inception. Amounts allocated to a satisfied
performance obligation shall be recognised as revenue, or as a reduction of revenue,
in the period in which the transaction price changes.

89 An entity shall allocate a change in the transaction price entirely to one or more, but
not all, performance obligations or distinct goods or services promised in a series
that forms part of a single performance obligation in accordance with paragraph
22(b) only if the criteria in paragraph 85 on allocating variable consideration are
met.

90 An entity shall account for a change in the transaction price that arises as a
result of a contract modification in accordance with paragraphs 18–21. However,
for a change in the transaction price that occurs after a contract modification, an
entity shall apply paragraphs 87–89 to allocate the change in the transaction price
in whichever of the following ways is applicable:

(a) An entity shall allocate the change in the transaction price to the performance
obligations identified in the contract before the modification if, and to the extent
that, the change in the transaction price is attributable to an amount of variable
consideration promised before the modification and the modification is accounted for
in accordance with paragraph 21(a).

(b) In all other cases in which the modification was not accounted for as a separate
contract in accordance with paragraph 20, an entity shall allocate the change in
the transaction price to the performance obligations in the modified contract (ie the
performance obligations that were unsatisfied or partially unsatisfied immediately
after the modification).

Thus, in terms of para 87 to 90 where there is any change in transaction price for
any uncertain reason, such as inflation in raw material prices, then the same be
allocated to the performance obligations on the basis as determined at the contract
inception.
Thus, insofar as the variable consideration could not be included in the transac-
tion value due to constraining estimates, the change in transaction value shall be
accounted for as and when the uncertain event is resolved.

Illustration:

The price of gold between the refinery and the wholesaler is to be adjusted on
the day when the gold is sold by the wholesaler to his buyer on the basis of
London Bullion Metal Association price prevailing on that day. The change
in price over and above the price paid on the date of sale would be accounted
218 10 Accounting Review—Ind AS and Revenue Recognition

for when the uncertain event, i.e. the event of sale by the wholesaler, is
resolved. This amount shall be recognized as change in transaction price.

Further, there are also cases, where variable consideration was included in the
transaction value, on best estimate basis. However, it is but natural that when the
uncertain event actually happens, there would be some difference between the
variable consideration estimated and the actual outcome. For example—The Con-
tractor was to be paid construction value with inflation on the basis of wholesale
price index. WPI was estimated at 5% and hence included as variable consider-
ation while determining transaction price. However, when the construction was
complete and WPI was to be actually taken, it turned out to be 5.1%. The 0.1%
change would be covered within the concept of change in transaction price.
Further the effect of change in the transaction price would be shown in the year
in which the change has happened or in the subsequent year. The revenue/ expense
already recognized in the previous years are not to be changed.

Existence of Significant financing component

Para 60 of Ind AS 115 provide that the effects of significant financing component
must be adjusted while determining the transaction price. The relevant provisions
relating to financing are reproduced below:

Para 60 - 65, page 12 of Ind AS Text

The existence of a significant financing component in the contract

60 In determining the transaction price, an entity shall adjust the promised amount of
consideration for the effects of the time value of money if the timing of payments agreed
to by the parties to the contract (either explicitly or implicitly) provides the customer
or the entity with a significant benefit of financing the transfer of goods or services
to the customer. In those circumstances, the contract contains a significant financing
component. A significant financing component may exist regardless of whether the
promise of financing is explicitly stated in the contract or implied by the payment
terms agreed to by the parties to the contract.

61 The objective when adjusting the promised amount of consideration for a signif-
icant financing component is for an entity to recognise revenue at an amount that
reflects the price that a customer would have paid for the promised goods or services
if the customer had paid cash for those goods or services when (or as) they transfer
to the customer (ie the cash selling price). An entity shall consider all relevant facts
and circumstances in assessing whether a contract contains a financing component
and whether that financing component is significant to the contract, including both
of the following:

(a) the difference, if any, between the amount of promised consideration and the cash
selling price of the promised goods or services; and
10.4 Five (5) Step Model for Applying Ind AS 115 219

(b) the combined effect of both of the following:

(i) the expected length of time between when the entity transfers the promised goods
or services to the customer and when the customer pays for those goods or services;
and

(ii) the prevailing interest rates in the relevant market.

………….

63 As a practical expedient, an entity need not adjust the promised amount of con-
sideration for the effects of a significant financing component if the entity expects,
at contract inception, that the period between when the entity transfers a promised
good or service to a customer and when the customer pays for that good or service
will be one year or less.

64 To meet the objective in paragraph 61 when adjusting the promised amount of

consideration for a significant financing component, an entity shall use the discount
rate that would be reflected in a separate financing transaction between the entity and
its customer at contract inception. That rate would reflect the credit characteristics
of the party receiving financing in the contract, as well as any collateral or security
provided by the customer or the entity, including assets transferred in the contract.
An entity may be able to determine that rate by identifying the rate that discounts the
nominal amount of the promised consideration to the price that the customer would
pay in cash for the goods or services when (or as) they transfer to the customer. After
contract inception, an entity shall not update the discount rate for changes in interest
rates or other circumstances (such as a change in the assessment of the customer’s
credit risk).

65 An entity shall present the effects of financing (interest revenue or interest expense)
separately from revenue from contracts with customers in the statement of profit and
loss. Interest revenue or interest expense is recognised only to the extent that a contract
asset (or receivable) or a contract liability is recognised in accounting for a contract
with a customer.

Determining the cash selling price for adjusting for adjusting significant
financing component
In HAM based road projects, the Authority pays for around 40% of construction cost
in ten (10) milestones during construction period and the remaining cost is financed
which is paid in form of semi-annual installments during the operation period. Fur-
ther, the Authority, along with the annuity payments, makes interest payment on the
reducing balance during the operation period at a rate equal to average of 1 year
MCLR of top 5 scheduled commercial banks plus 1.25%.
As per para 60 to 65 of the Ind As 115, for determining the transaction price,
the promised amount of consideration shall be adjusted for significant financing
component so as to determine the price that a customer would have paid for the
220 10 Accounting Review—Ind AS and Revenue Recognition

promised goods or services if the customer had paid cash for those goods or services
as and when the goods or services are transferred to the customer (i.e. cash selling
price).
In terms of para 60 to 65, the concessionaire needs to analyze whether the price
quoted in the contract is the cash selling price or it includes any amount on account
of significant financing component. An entity shall consider all relevant facts and
circumstances in assessing whether the price mentioned in the contract contains
a financing component and whether that financing component is significant to the
contract, including both of the following:

1) the difference, if any, between the amount of promised consideration and the
cash selling price of the promised goods or services; and
2) the combined effect of both of the following:
(a) the expected length of time between when the entity transfers the promised
goods or services to the customer and when the customer pays for those goods
or services; and
(b) the prevailing interest rates in the relevant market
If there is a significant financing component, the promised amount of consideration
shall be adjusted for the financing component on the basis of the discount rate that
would be reflected in a separate financing transaction between the entity and its
customer at contract inception. That rate would reflect the credit characteristics of
the party receiving financing in the contract.
The rate of interest payable by Authority as per the MCA seems to represent a
fair compensation for financing of the operation period annuity payments, thus, we
understand that generally the BPC and O&M payments quoted by eth concessionaire
would not include any significant financing component. However, in each individual
case, it is for the management to determine this aspect at the contract inception.

Project Highway: Application of Step III

As per the detailed assumptions provided for the case study.2

– Average interest rate of debt as procured by the Concessionaire = 7.45%

– Interest rate for operation period annuity payments paid by the Authority
= 8.50%

2Please refer to Chapter 6 of the book for detailed assumptions for the case study of Project
Highway.
10.4 Five (5) Step Model for Applying Ind AS 115 221

Since the two interest rates are in similar range, it is assumed that there
is no significant financing component in the BPC/contract price for Project
Highway.
Thus, the transaction price for complete project would be INR 1,575 Cr.

10.4.5 Step IV: Allocate the Transaction Price to the Performance

Obligations

This is the fourth step for recognizing revenue in terms of Ind AS 115. This step
requires allocation of transaction price determined in previous step between the
identified performance obligations.
The provisions relating to allocation of transaction price are reproduced below:

Allocating the transaction price to performance obligations

Para 73-75 of Ind AS 115

73 The objective when allocating the transaction price is for an entity to allocate
the transaction price to each performance obligation (or distinct good or service) in
an amount that depicts the amount of consideration to which the entity expects to be
entitled in exchange for transferring the promised goods or services to the customer.

74 To meet the allocation objective, an entity shall allocate the transaction price
to each performance obligation identified in the contract on a relative stand-alone
selling price basis in accordance with paragraphs 76–80, except as specified in
paragraphs 81–83 (for allocating discounts) and paragraphs 84–86 (for allocating
consideration that includes variable amounts).

75 Paragraphs 76–86 do not apply if a contract has only one performance obligation.
However, paragraphs 84–86 may apply if an entity promises to transfer a series of
distinct goods or services identified as a single performance obligation in accordance
with paragraph 22(b) and the promised consideration includes variable amounts.

Thus, from para 73 it is evident that the transaction price shall be allocated to
each of the identified performance obligation in a manner so that the allocated
transaction price depicts the amount of consideration which the entity expects in
exchange of the identified performance obligation.
Apportionment of transaction price to each performance obligation to be made
on a relative stand-alone selling price. The term stand-alone selling price has been
defined in Ind AS 115 as under:
222 10 Accounting Review—Ind AS and Revenue Recognition

The price at which an entity would sell a promised good or service separately to a
customer

Para 79 of Ind AS provides suitable methods for estimating the stand-alone selling
price of a good or service. The list is not limited but includes following:

a) Adjusted market assessment approach—an entity could evaluate the market in

which it sells goods or services and estimate the price that a customer in that market
would be willing to pay for those goods or services. That approach might also include
referring to prices from the entity’s competitors for similar goods or services and
adjusting those prices as necessary to reflect the entity’s costs and margins

b) Expected cost plus a margin approach—an entity could forecast its expected costs
of satisfying a performance obligation and then add an appropriate margin for that
good or service

c) Residual approach—an entity may estimate the stand-alone selling price by refer-
ence to the total transaction price less the sum of the observable stand-alone selling
prices of other goods or services promised in the contract. However, an entity may use
a residual approach to estimate, in accordance with paragraph 78, the stand-alone
selling price of a good or service only if one of the following criteria is met:
i. the entity sells the same good or service to different customers (at or near the
same time) for a broad range of amounts (ie the selling price is highly variable because
a representative stand-alone selling price is not discernible from past transactions or
other observable evidence); or
ii. the entity has not yet established a price for that good or service and the
good or service has not previously been sold on a stand-alone basis (ie the selling
price is uncertain).

In accordance with the above para, the transaction price needs to be apportioned
between each performance obligation on any of the following basis that is most
suitable based on facts of each case. It is important to note that these methods are
illustrative and if any other method is more suitable, the same can be used or a
combination of methods can also be used.
Each of the suggested methods are briefly explained below:

(a) Adjusted market assessment approach—apportionment is based upon the esti-

mated market price of each performance obligation. For this purpose, price
charged by competitors can also be taken into account. Further, the entity can
also make suitable adjustments or reflecting its costs and margins.
10.4 Five (5) Step Model for Applying Ind AS 115 223

(b) Expected cost plus a margin approach—an entity could forecast its expected
costs of satisfying a performance obligation and then add an appropriate
margin for that good or service
(c) Residual approach—apportionment is done by reference to the total transac-
tion price less the sum of observable stand-alone selling price of other services
promised in the contract. This method is used only when the concessionaire
performs each performance obligation for a broad range of amounts; or a clear
market benchmark is not available based on precedent transactions

Here, it would be worthwhile to refer to an illustration for understanding the

application of these methods. In this regard, reference is invited to IASB docu-
ments published to accompany IFRS-15, where illustration 33 has been provided
to elaborate allocation of transaction price to performance obligations. To quote:

Example 33- Allocation methodology

IE164 An entity enters into a contract with a customer to sell Products A, B and C in
exchange for CU 100. The entity will satisfy the performance obligations for each of
the products at different points in time. The entity regularly sells product A separately
and therefore the stand-alone selling price is directly observable. The stand-alone
selling prices of Products B and C are not directly observable.

IE165 Because the stand-alone selling prices for Products B and C are not directly
observable, the entity must estimate them. To estimate the stand-alone selling prices,
the entity uses the adjusted market assessment approach for Product B and the
expected cost plus a margin approach for Product C. In making those estimates,
the entity maximises the use of observable inputs (in accordance with paragraph 78
of IFRS 15). The entity estimates the stand-alone selling prices as follows:

Product Stand-alone Method

Selling price
Product A 50 Directly observable
(see Paragraph 77 of IFRS 15)
Product B 25 Adjusted market assessment approach
(see Paragraph 79(a) of IFRS 15)
Product C 75 Expected cost plus a margin approach
(see paragraph 79(b) of IFRS 15)
Total 150

IE166 The customer receives a discount for purchasing the bundle of goods
because the sum of the stand-alone selling prices (CU150) exceeds the promised
consideration (CU100). The entity considers whether it has observable evidence
about the performance obligation to which the entire discount belongs (in accor-
dance with paragraph 82 of IFRS 15) and concludes that it does not. Consequently,
224 10 Accounting Review—Ind AS and Revenue Recognition

in accordance with paragraphs 76 and 81 of IFRS 15, the discount is allocated pro-
portionately across Products A, B and C. The discount, and therefore the transaction
price, is allocated as follows:

Product Allocated Transaction price

CU
Product A 33 (CU 50/ CU 150 * CU 100)
Product B 17 (CU 25/ CU 150 * CU 100)
Product C 50 (CU 75/ CU 150 * CU 100)
Total 100

For road PPP projects, applying market assessment approach for computing the
stand along selling for each of the performance obligations i.e. construction and
O&M would be difficult. This is so because, every road is different from the
other. Unlike standard machine-made commodities, where it is relatively easier to
determine market price, construction contracts usually have their own peculiarities.
Thus, in HAM projects the stand-alone selling prices should be determined on
the basis of expected cost + margin approach and the said stand-alone selling price
be used for apportioning the Total Transaction price between the two performance
obligations i.e. Construction services and operation and maintenance as identified
in earlier step.

Project Highway: Application of Step IV

For road PPP projects, the selling price of each of the performance obliga-
tions i.e. construction and O&M is difficult to estimate. This is so because,
every road is different from the other.
Unlike standard machine made commodities, where it is relatively easier
to determine selling price, construction contracts usually have their own
peculiarities.
Thus, the stand-alone selling prices should be determined on the basis of
expected cost + margin approach and the said stand-alone selling price be
used for apportioning the Total Transaction price between the two perfor-
mance obligations i.e. Construction services and Operation maintenance as
identified in earlier step.

• Total cost for the project (A) = INR 1320 Cr

• Total revenue for the project (B) = INR 1575 Cr
10.4 Five (5) Step Model for Applying Ind AS 115 225

• Estimate Margin amount (C) = B-A = INR 255 Cr

• Estimate Margin percent = C/A = 19.32%

Based on the estimated margin, the allocated Transaction Price (in real terms
without including the impact of inflation) is provided below.

Parameter Construction (INR Cr) O&M (INR Cr) Total (INR Cr)
Cost 1200 120 1320
Margin % 19.32%
Margin amount 232 23 255
Allocated Transaction 1432 143 1575
Price
Revenue quoted 1500 75 1575

10.4.6 Step V: Recognize Revenue as or When Performance

Obligations are Satisfied

In the fifth and the last step, revenue shall be recognized as and when the per-
formance obligation is satisfied. A performance obligation is said to be satisfied
when the promised goods or service is transferred. A transfer of an asset is said to
be made when the customer obtains the control of that asset. The relevant para of
Ind AS is reproduced below:

Satisfaction of Performance Obligations

Para 31, of Ind AS 115

An entity shall recognise revenue when (or as) the entity satisfies a performance
obligation by transferring a promised good or service (ie an asset) to a customer. An
asset is transferred when (or as) the customer obtains control of that asset.

Para 33, of Ind AS 115

Goods and services are assets, even if only momentarily, when they are received and
used (as in thecase of many services). Control of an asset refers to the ability to
direct the use of, and obtain substantially all of the remaining benefits from, the asset.
Control includes the ability to prevent other entities from directing the use of, and
obtaining the benefits from, an asset. The benefits of an asset are the potential cash
flows (inflows or savings in outflows) that can be obtained directly or indirectly in
many ways, such as by:
226 10 Accounting Review—Ind AS and Revenue Recognition

(a) using the asset to produce goods or provide services (including public services);

(b) using the asset to enhance the value of other assets;

(c) using the asset to settle liabilities or reduce expenses;

(d) selling or exchanging the asset;

(e) pledging the asset to secure a loan; and

(f) holding the asset.

In accordance with above provision, the term ‘control’ has a wide connotation.
It is not restricted to having ownership over the asset. If the customer can direct
the use of such asset or can prevent other entities from directing the use of, or
obtaining the benefit from such asset, the control is said to be present.

Performance spread over years

Where the performance obligation is spread over various financial years, as in the case
of HAM projects, Ind AS 115 states that a performance obligation can be satisfied
over time or at a point of time. It can be said to have been satisfied over time, if any
of the criteria mentioned in para 35 is satisfied.

Performance obligations satisfied over Time

Para 35, page 7 of Ind AS Text

An entity transfers control of a good or service over time and, therefore, satisfies a
performance obligation and recognises revenue over time, if one of the following
criteria is met:

(a) the customer simultaneously receives and consumes the benefits provided by the
entity’s performance as the entity performs (see paragraphs B3–B4);

(b) the entity’s performance creates or enhances an asset (for example, work in
progress) that the customer controls as the asset is created or enhanced (see paragraph
B5); or

(c) the entity’s performance does not create an asset with an alternative use to the
entity (see paragraph 36) and the entity has an enforceable right to payment for
performance completed to date (see paragraph 37).

Thus, even if a single criterion as mentioned in para 35 is satisfied, then the revenue
in respect of performance obligation would be recognized over time.
10.4 Five (5) Step Model for Applying Ind AS 115 227

As per para 35(a) cited above, performance obligation is said to be satisfied

over time if the customer simultaneously receives and consumes the benefits of
the entity’s performance as the entity performs. To understand this further we
shall refer to para B3 and B4 of Application Guidance contained in Appendix B
of Ind AS 115. These Paras are extracted below:

Para B3 and B4 of Application Guidance contained in Appendix B of Ind AS 115

Simultaneous receipt and consumption of the benefits of the entity’s performance

(paragraph 35(a)):

B3 For some types of performance obligations, the assessment of whether a cus-

tomer receives the benefits of an entity’s performance as the entity performs and
simultaneously consumes those benefits as they are received will be straightforward.
Examples include routine or recurring services (such as a cleaning service) in which
the receipt and simultaneous consumption by the customer of the benefits of the entity’s
performance can be readily identified.

B4 For other types of performance obligations, an entity may not be able to readily
identify whether a customer simultaneously receives and consumes the benefits from
the entity’s performance as the entity performs. In those circumstances, a performance
obligation is satisfied over time if an entity determines that another entity would not
need to substantially re-perform the work that the entity has completed to date if that
other entity were to fulfill the remaining performance obligation to the customer. In
determining whether another entity would not need to substantially re-perform the
work the entity has completed to date, an entity shall make both of the following
assumptions:

(a) disregard potential contractual restrictions or practical limitations that otherwise

would prevent the entity from transferring the remaining performance obligation to
another entity; and

(b) presume that another entity fulfilling the remainder of the performance obligation
would not have the benefit of any asset that is presently controlled by the entity and
that would remain controlled by the entity if the performance obligation were to
transfer to another entity.

In terms of para B3 of the Application Guidance, in some cases it is straight

forward to determine whether the customer has simultaneously received the benefit
of the entity’s performance as the entity performs. Example Gym Membership
taken for 1 Year, Cleaning services, etc. Whereas in other type of performance
obligation it is not possible to readily identify whether the customer is receiving
and consuming the benefit of the entity’s performance as and when the entity
performs. In such cases performance obligation is said to be satisfied over time if
the entity determines that another entity would not need to substantially re-perform
the work that the entity has completed to date if that other entity were to fulfill the
remaining performance obligation to the customer.
228 10 Accounting Review—Ind AS and Revenue Recognition

Further, reference is placed on the IASB document published to accompany

IFRS wherein various illustrations are provided to explain the terms of IFRS 15.
In the said document, in Example 14, simultaneous receipt and consumption of
the benefits of the entity’s performance has been explained with the help of an
illustration, reproduced below.

Example 14 - Assessing alternative use and right to payment

An entity enters into a contract with the customer to provide a consulting service that
results in the entity providing a professional opinion to the customer. The professional
opinion relates to facts and circumstances that are specific to the customer. If the
customer were to terminate the consulting contract for reasons other than the entities
failure to perform as promised, the contract requires the customer to compensate the
entity forest costs incurred plus a 15% margin. The 15% margin approximates the
profit margin that the entity earns from similar contracts.

The entity considers the criterion in paragraph 35(a) of the requirements in para-
graphs B3 and B4 of IFRS 15 to determine whether the customer simultaneously
results receives and consumes the benefit of entity’s performance. If the entity were to
be unable to satisfy its obligation and the customer hired another consulting firm to
provide the opinion, the other consulting firm would need to substantially re-perform
the work that the entity had completed to date, because the other consulting firm
would not have the benefit of any work in progress performed by the entity. The
nature of the professional opinion is such that the customer will receive the benefits
of the entities performance only when the customer receives the professional opinion.
Consequently, the entity concludes that the criterion in paragraph 35(a) of IFRS 15
is not met.

Thus, for the purpose of criteria mentioned in para 35(a) what essentially needs
to be considered is whether the newly appointed entity by the customer needs to
significantly re-perform the work already completed by the entity.
In case of HAM projects, in respect of construction services, it is not that
straight forward to determine whether the NHAI is receiving the benefit of Conces-
sionaire’s performance as and when concessionaire is performing the construction
activity. Thus, in terms of criteria mentioned in para 35(a), the construction ser-
vices would be said to be satisfied over time if the new concessionaire appointed
by the Authority is not required to re-perform the road construction work that con-
cessionaire has performed till date, in case the present concession agreement gets
cancelled.
In author’s view, in the case of construction services that are being provided by
concessionaire to Authority, the quantum of work that concessionaire completes till
date can be used by other contractor appointed by authority and that the said other
contractor is not required to substantially re-perform the work that has already been
performed by concessionaire. Further, in this regard, it is to be noted that in terms
of the MCA, the Independent Engineer would review the monthly progress and
issue its report containing the details of the of work performed by concessionaire
10.4 Five (5) Step Model for Applying Ind AS 115 229

with regard to status, progress, quality etc. (Please refer to clause 21 of MCA read
with Schedule N). This highlights that even the authority recognizes the quantum
of work performed by the concessionaire in each month. Moreover, the site on
which the construction work is being undertaken by the concessionaire belongs to
the Authority, this further substantiates that the construction work performed by
concessionaire would be received and consumed by the Authority as and when
performed by the concessionaire and the other contractor as may be appointed by
the Authority would not be required to substantially re-perform the work that has
already been done by concessionaire.
Since, in respect of construction services the Authority is receiving and consuming
the benefits of Concessionaire’s performance as and when it performs hence the criteria
mentioned in para 35(a) is met and therefore the construction service would be said to
be satisfied over time.
In terms of criteria 35(a) of Ind AS 115, the other performance obligation i.e.
Operation and maintenance is also considered to be satisfied over time. This is so
because Authority would receive and consume as and when concessionaire would
provide the services of operation and maintenance.
As discussed above, both the performance obligations i.e. construction and
operation and maintenance would be considered to be satisfied over time.

Project Highway: Application of Step V

In respect of the case study, both the performance obligations i.e. construc-
tion and operation and maintenance would be considered to be satisfied over
time. The criteria mentioned in para 35(a) i.e. the customer simultaneously
receives and consumes the benefits provided by the entity’s performance
as the asset is created or performed is satisfied for both the performance
obligations.

Measuring Progress
Where it is assessed that performance obligation is satisfied over time, the next
step for recognizing revenue is measuring the progress of work towards complete
satisfaction of that performance obligation. The provisions relating to measuring
progress of work are reproduced below:

Para 39 – 41 and para 44 of Ind AS 115s

Measuring progress towards complete satisfaction of a performance obligation

39 For each performance obligation satisfied over time in accordance with paragraphs
35–37, an entity shall recognise revenue over time by measuring the progress towards
complete satisfaction of that performance obligation. The objective when measur-
ing progress is to depict an entity’s performance in transferring control of goods
or services promised to a customer (ie the satisfaction of an entity’s performance
obligation).
230 10 Accounting Review—Ind AS and Revenue Recognition

40 An entity shall apply a single method of measuring progress for each performance
obligation satisfied over time and the entity shall apply that method consistently to
similar performance obligations and in similar circumstances. At the end of each
reporting period, an entity shall measure its progress towards complete satisfaction
of a performance obligation satisfied over time.

Methods for measuring progress

41 Appropriate methods of measuring progress include output methods and input

methods. Paragraphs B14–B19 provide guidance for using output methods and input
methods to measure an entity’s progress towards complete satisfaction of a perfor-
mance obligation. In determining the appropriate method for measuring progress,
an entity shall consider the nature of the good or service that the entity promised to
transfer to the customer.

44 An entity shall recognise revenue for a performance obligation satisfied over time
only if the entity can reasonably measure its progress towards complete satisfaction
of the performance obligation. An entity would not be able to reasonably measure its
progress towards complete satisfaction of a performance obligation if it lacks reliable
information that would be required to apply an appropriate method of measuring
progress.

In accordance with para 40 of Ind AS 115, an entity has to measure its progress
towards complete satisfaction at the end of each reporting period. Further, it is
stated that an appropriate method be used for measuring the progress. Appropriate
method includes output method and input method. Thus, an entity can measure its
progress towards complete satisfaction either by applying input method or output
method or any other method as may be deemed appropriate by entity.
Further, para B14–B19 of the Appendix B provides guidance for using both the
methods. Para B14 -B19 are reproduced below for ready reference:

Methods for measuring progress towards complete satisfaction of a performance

obligation

B14 Methods that can be used to measure an entity’s progress towards complete satis-
faction of a performance obligation satisfied over time in accordance with paragraphs
35–37 include the following:

(a) output methods (see paragraphs B15–B17); and

(b) input methods (see paragraphs B18–B19).

Output methods
10.4 Five (5) Step Model for Applying Ind AS 115 231

B15 Output methods recognise revenue on the basis of direct measurements of the
value to the customer of the goods or services transferred to date relative to the
remaining goods or services promised under the contract. Output methods include
methods such as surveys of performance completed to date, appraisals of results
achieved, milestones reached, time elapsed and units produced or units delivered.
When an entity evaluates whether to apply an output method to measure its progress,
the entity shall consider whether the output selected would faithfully depict the entity’s
performance towards complete satisfaction of the performance obligation. An output
method would not provide a faithful depiction of the entity’s performance if the output
selected would fail to measure some of the goods or services for which control has
transferred to the customer. For example, output methods based on units produced
or units delivered would not faithfully depict an entity’s performance in satisfying a
performance obligation if, at the end of the reporting period, the entity’s performance
has produced work in progress or finished goods controlled by the customer that are
not included in the measurement of the output.

B16 As a practical expedient, if an entity has a right to consideration from a customer

in an amount that corresponds directly with the value to the customer of the entity’s
performance completed to date (for example, a service contract in which an entity
bills a fixed amount for each hour of service provided), the entity may recognise
revenue in the amount to which the entity has a right to invoice.

B17 The disadvantages of output methods are that the outputs used to measure
progress may not be directly observable and the information required to apply them
may not be available to an entity without undue cost. Therefore, an input method may
be necessary.

Input methods

B18 Input methods recognise revenue on the basis of the entity’s efforts or inputs
to the satisfaction of a performance obligation (for example, resources consumed,
labour hours expended, costs incurred, time elapsed or machine hours used) relative
to the total expected inputs to the satisfaction of that performance obligation. If the
entity’s efforts or inputs are expended evenly throughout the performance period, it
may be appropriate for the entity to recognise revenue on a straight-line basis.

B19 A shortcoming of input methods is that there may not be a direct relationship
between an entity’s inputs and the transfer of control of goods or services to a cus-
tomer. Therefore, an entity shall exclude from an input method the effects of any inputs
that, in accordance with the objective of measuring progress in paragraph 39, do not
depict the entity’s performance in transferring control of goods or services to the
customer………..
232 10 Accounting Review—Ind AS and Revenue Recognition

The concessionaire can use either of the method to measure the progress of the
performance obligation. While applying these methods following must be kept into
consideration:

(a) Output method: Output methods include methods such as surveys of perfor-
mance completed to date, appraisals of results achieved, milestones reached,
time elapsed and units produced, or units delivered. In the case of HAM
projects, the concessionaire may use the report provided by the Project
Engineer to access the performance of performance obligation.
(b) Input method: Input methods recognize revenue on the basis of the entity’s
efforts or inputs to the satisfaction of a performance obligation (for example,
resources consumed, labour hours expended, costs incurred, time elapsed or
machine hours used) relative to the total expected inputs to the satisfaction
of that performance obligation. While applying the input method the entity
should keep in mind that the cost incurred during the financial year does not
relate to the future expenses. For Ex. advance paid to the contractor should
not be considered while applying the input method.

Project Highway: Measuring Progress

In respect of the case study, ACPL may choose any of the two methods to
measure the progress of the performance obligation. Since no definite way
of output method has been provided as per the facts of the case study, Input
Method is assumed and applied to measure the progress of performance
obligation satisfied over time for ACPL.

Project Highway: Measuring Progress

Based on the input method i.e. based on the cost incurred by ACPL, the
measurement of the progress of ACPL’s performance obligation during the
term of concession is provided in the table below (without considering the
impact of inflation3 ).

3 The authors have not considered the impact of inflation or PIM for the purposes of numerical
illustrations provided in Chapter 11 of the book for the ease of understanding.
10.4 Five (5) Step Model for Applying Ind AS 115 233

Financial Year Construction Costs O&M Costs

Amount (INR Cr) % Amount (INR Cr) %
FY 2022 113 9.44% 0 0.00%
FY 2023 435 36.22% 0 0.00%
FY 2024 595 49.61% 0 0.00%
FY 2025 57 4.73% 2 1.67%
FY 2026 0 0.00% 4 3.33%
FY 2027 0 0.00% 4 3.33%
FY 2028 0 0.00% 4 3.33%
FY 2029 0 0.00% 4 3.33%
FY 2030 0 0.00% 4 3.33%
FY 2031 0 0.00% 4 3.33%
FY 2032 0 0.00% 34 28.33%
FY 2033 0 0.00% 4 3.33%
FY 2034 0 0.00% 4 3.33%
FY 2035 0 0.00% 4 3.33%
FY 2036 0 0.00% 4 3.33%
FY 2037 0 0.00% 4 3.33%
FY 2038 0 0.00% 4 3.33%
FY 2039 0 0.00% 34 28.33%
FY 2040 0 0.00% 2 1.67%
Total 1,200 100% 120 100%

From the above table it is evident that:

• During the first financial year FY 2022, 9.44% of the construction work
was complete i.e. there was 9.44% progress towards complete satisfaction
of construction service. Thus, 9.44% of the transaction price apportioned
to construction service would be recognized as revenue.
• Similarly, in the second financial year FY 2023, 36.22% of the transac-
tion price apportioned to the construction service would be recognized as
revenue.
• ACPL started providing O&M services during periods starting FY 2025
till FY 2040.
• During each full operation year, ACPL incurred INR 4 Cr (around 3.33%
of total O&M cost), except for 7th year and 14th year, when additional
cost of INR 30 Cr was incurred on account of major maintenance.
234 10 Accounting Review—Ind AS and Revenue Recognition

• Thus, the progress towards complete satisfaction of O&M service was

3.33%, except for the 7th and 14th years (when the progress towards com-
plete satisfaction of O&M service is 28.33%). Accordingly, the revenue
in respect of the O&M services would be recognized in these proportions.

The schedule of payments made to Concessionaire along with the Transac-

tion Cost/ Price allocation over the concession period of Project Highway
(as per Ind AS 115) is provided in the table below.

Fin. % Constrn % O&M Constrn Constrn O&M cost O&M Progress O&M
Year completion completion cost to be revenue to to be revenue to payment Payment
recognised be recognised be and received
recognised recognised Annuity
received
% % (INR Cr) (INR Cr) (INR Cr) (INR Cr) (INR (INR
Cr) Cr)
FY 9.44% 0.00% 113 135 0 0 60 0
2022
FY 36.22% 0.00% 435 519 0 0 240 0
2023
FY 49.61% 0.00% 595 710 0 0 300 0
2024
FY 4.73% 1.67% 57 68 2 2 30 2
2025
FY 0.00% 3.33% 0 0 4 5 60 5
2026
FY 0.00% 3.33% 0 0 4 5 60 5
2027
FY 0.00% 3.33% 0 0 4 5 60 5
2028
FY 0.00% 3.33% 0 0 4 5 60 5
2029
FY 0.00% 3.33% 0 0 4 5 60 5
2030
FY 0.00% 3.33% 0 0 4 5 60 5
2031
FY 0.00% 28.33% 0 0 34 41 60 5
2032
FY 0.00% 3.33% 0 0 4 5 60 5
2033
FY 0.00% 3.33% 0 0 4 5 60 5
2034
FY 0.00% 3.33% 0 0 4 5 60 5
2035
FY 0.00% 3.33% 0 0 4 5 60 5
2036
FY 0.00% 3.33% 0 0 4 5 60 5
2037
10.5 Financial Asset—HAM Based PPP Projects 235

Fin. % Constrn % O&M Constrn Constrn O&M cost O&M Progress O&M
Year completion completion cost to be revenue to to be revenue to payment Payment
recognised be recognised be and received
recognised recognised Annuity
received
FY 0.00% 3.33% 0 0 4 5 60 5
2038
FY 0.00% 28.33% 0 0 34 41 60 5
2039
FY 0.00% 1.71% 0 0 2 2 30 3
2040
Total 100% 1,200 1,432 120 143 1,500 75

It is pertinent to mention here that the above-mentioned proportions may

significantly vary if the impact of inflation is considered for these amounts.
However, the same is not considered for an easy understanding of the basic
accounting treatment by the users.

10.5 Financial Asset—HAM Based PPP Projects

10.5.1 Background

The Appendix D of Ind AS 115 provides guidance for accounting and recognition
of revenue in case of service concession arrangements such as HAM and has to
be adhered to while recognizing revenue.
Further, Appendix D also provides guidance for determining the nature of the
consideration given by grantor to the operator, its measurement and subsequent
accounting treatment. Relevant paras of Appendix D are reproduced below:

Consideration given by the grantor to the operator

15 If the operator provides construction or upgrade services the consideration

received or receivable by the operator shall be recognised in accordance with Ind AS
115. The consideration may be rights to:

(a) a financial asset, or

(b) an intangible asset.

16 The operator shall recognise a financial asset to the extent that it has an uncon-
ditional contractual right to receive cash or another financial asset from or at the
direction of the grantor for the construction services; the grantor has little, if any,
discretion to avoid payment, usually because the agreement is enforceable by law.
The operator has an unconditional right to receive cash if the grantor contractually
236 10 Accounting Review—Ind AS and Revenue Recognition

guarantees to pay the operator (a) specified or determinable amounts or (b) the short-
fall, if any, between amounts received from users of the public service and specified
or determinable amounts, even if payment is contingent on the operator ensuring that
the infrastructure meets specified quality or efficiency requirements.

……

19 The nature of the consideration given by the grantor to the operator shall be
determined by reference to the contract terms and, when it exists, relevant contract law.
The nature of the consideration determines the subsequent accounting as described
in paragraphs 23–26 of this Appendix. However, both types of consideration are
classified as a contract asset during the construction or upgrade period in accordance
with Ind AS 115.

……

Financial asset

23 Ind ASs 32, 107 and 109 apply to the financial asset recognised under paragraphs
16 and 18 of this Appendix.

24 The amount due from or at the direction of the grantor is accounted for in
accordance with Ind AS 109 as measured at:

(a) amortised cost;

(b) fair value through other comprehensive income; or

(c) fair value through profit or loss.

25 If the amount due from the grantor is measured at amortised cost or fair value
through other comprehensive income, Ind AS 109 requires interest calculated using
the effective interest method to be recognised in profit or loss.

10.5.2 Recognition of Financial Asset

In accordance with above provisions, an entity shall recognize a financial asset

to the extent the entity has unconditional contractual right to receive cash or
another financial asset from or at the direction of the grantor for the construction
services. The operator has an unconditional right to receive cash if the grantor
contractually guarantees to pay the operator specified or determinable amounts.
Further Ind AS 32, 107 and 109 would apply to the Financial Asset recognized
under para 16 of Appendix D.
10.5 Financial Asset—HAM Based PPP Projects 237

As per Article 23, para 23.4 of MCA, concessionaire receives 4% of bid project
cost, adjusted for inflation, during construction period upon physical completion
as per below mentioned milestones:

a) I (first) Payment Milestone - On achievement of 5% Physical Progress

b) II (second) Payment Milestone - On achievement of 10% % Physical Progress

c) III (third) Payment Milestone - On achievement of 20% Physical Progress

d) IV (fourth) Payment Milestone - On achievement of 30% Physical Progress

e) V (fifth) Payment Milestone - On achievement of 40% Physical Progress

f) VI (sixth) Payment Milestone - On achievement of 50% Physical Progress

g) VII (seventh) Payment Milestone - On achievement of 60% Physical Progress

h) VIII (eighth) Payment Milestone - On achievement of 70% Physical Progress

i) IX (ninth) Payment Milestone - On achievement of 80% Physical Progress

j) X (tenth) Payment Milestone - On achievement of 90% Physical Progress

As per Authors’ view, the financial asset should be recognized as and when the
milestone as provided in Article 23 of the Agreement is achieved by the conces-
sionaire and accordingly the payment against that milestone is guaranteed under
the Agreement. However financial asset is to be recognized only to the extent
of 40% i.e. the amount which becomes payable on completion of each of the
milestone.
Further, in terms of Article 15.1 of MCA, the Concessionaire receives an uncon-
ditional right to receive the balance of (approximately) 60% of the bid project cost
as and when the construction is complete and COD is issued. Thus, the Financial
Asset equal to appx. 60% of Bid Project Cost should be recognized on the date
of COD (or provisional COD). The fact that the said balance amount would be
due and payable to the concessionaire in bi-annual installments over the period of
15 years commencing from COD would not make any difference for the purpose
of recognition of financial asset as the unconditional right to receive balance pay-
ment would arise immediately after completion of construction. Article 15 of the
MCA is reproduced below for ready reference:
238 10 Accounting Review—Ind AS and Revenue Recognition

15.1 Commercial Operation Date (COD)

15.1.1 The Project shall be deemed to be complete when the Completion Certificate
or the Provisional Certificate, as the case may be, is issued under the provisions of
Article 14, and accordingly the commercial operation date of the Project shall be the
date on which such Completion Certificate or the Provisional Certificate is issued
{the COD). The Project shall enter into commercial service on COD whereupon
the Concessionaire shall be entitled to demand and collect Annuity Payments in
accordance with the provisions of this Agreement.

10.5.3 Measurement of Financial Asset

In terms of para 24 of Appendix D of the Service Concession Agreement the

Financial Asset so created shall be recognized in accordance with Ind AS 109 and
would be measured at:

a. Amortised cost; or
b. Fair value through other comprehensive income; or
c. Fair value through profit and loss

Further, where the financial asset is measured at amortised cost or fair value
through other comprehensive income, interest should be recognized in the profit
and loss account using the effective interest method (as per the requirement of Ind
AS 109).

Project Highway: Financial Asset

For the case study, the financial asset would be recognized based on the
payment due to ACPL (as per the milestones achieved) and subsequently
adjusted based on the payments made by the Authority to the Concessionaire.
On the COD date, ACPL is required to recognize the financial asset equal to
that remaining portion (60%) of bid project cost which is payable by NHAI
to ACPL in equal bi-annual installments.
The fact that the said balance amount would be due and payable to the con-
cessionaire in bi-annual installments over the period of 15 years commencing
from COD would not make any difference for the purpose of recognition of
financial asset as the unconditional right to receive balance payment would
arise immediately after completion of construction in terms of para 15.1 of
the Concession Agreement.
10.6 Contract Asset and Contract Liability—HAM Based PPP Projects 239

Further, the financial asset created by ACPL shall be reduced each year by
the amount of annuity payments received during that year.

10.6 Contract Asset and Contract Liability—HAM Based PPP

Projects

The concept of contract asset, contract liability and receivable is provided in para
105 to para 109 of Ind AS 115. Para 105 to 109 are reproduced below for ready
reference.

105 When either party to a contract has performed, an entity shall present the contract
in the balance sheet as a contract asset or a contract liability, depending on the
relationship between the entity’s performance and the customer’s payment. An entity
shall present any unconditional rights to consideration separately as a receivable.

106 If a customer pays consideration, or an entity has a right to an amount of con-

sideration that is unconditional (ie a receivable), before the entity transfers a good
or service to the customer, the entity shall present the contract as a contract liability
when the payment is made or the payment is due (whichever is earlier). A contract
liability is an entity’s obligation to transfer goods or services to a customer for which
the entity has received consideration (or an amount of consideration is due) from the
customer.

107 If an entity performs by transferring goods or services to a customer before the

customer pays consideration or before payment is due, the entity shall present the
contract as a contract asset, excluding any amounts presented as a receivable. A
contract asset is an entity’s right to consideration in exchange for goods or services
that the entity has transferred to a customer. An entity shall assess a contract asset for
impairment in accordance with Ind AS 109. An impairment of a contract asset shall
be measured, presented and disclosed on the same basis as a financial asset that is
within the scope of Ind AS 109 (see also paragraph 113(b)).

108 A receivable is an entity’s right to consideration that is unconditional. A right to

consideration is unconditional if only the passage of time is required before payment
of that consideration is due. For example, an entity would recognise a receivable if it
has a present right to payment even though that amount may be subject to refund in the
future. An entity shall account for a receivable in accordance with Ind AS 109. Upon
initial recognition of a receivable from a contract with a customer, any difference
between the measurement of the receivable in accordance with Ind AS 109 and the
corresponding amount of revenue recognised shall be presented as an expense (for
example, as an impairment loss).

109 This Standard uses the terms ‘contract asset’ and ‘contract liability’ but does not
prohibit an entity from using alternative descriptions in the balance sheet for those
items. If an entity uses an alternative description for a contract asset, the entity shall
240 10 Accounting Review—Ind AS and Revenue Recognition

provide sufficient information for a user of the financial statements to distinguish

between receivables and contract assets.

10.6.1 Contract Asset

In terms of para 107, contract asset is created if an entity performs by transferring

goods or services to a customer before the customer pays consideration or before
payment is due, excluding any amounts presented as a receivable. Further, from
para 105 and para 107, it is evident that contract asset is a different concept than
receivable. Receivable is defined as an entity’s right to consideration that is uncon-
ditional. A right to consideration is unconditional if only the passage of time is
required before payment of that consideration is due.
Thus, the contract asset and the receivable i.e. the financial asset are different
rights of an entity. Contract asset arises when the goods or services are transferred
but the payment in respect of such transfer has not been received or has not become
due whereas receivable or the Financial asset is an entity’s right to consideration
that is unconditional. For recognizing receivable the timing of transfer of goods
and service is immaterial.

Project Highway: Contract Asset

For the case study, the contract asset would represent the amount of rev-
enue recognized against the allocated transaction price in respect of the
performance obligation. In the present case, at the end of first year, ACPL
has completed 9.44% of the work. Thus, at the end of first year, 9.44% of
allocated transaction price for construction service would be recognized as
contract asset. However, since some amount has already become due under
the Contract, this shall be reflected as financial asset/ receivable.
The table below provides an illustration for contract asset account of Project
Highway (excluding the impact of inflation).
10.6 Contract Asset and Contract Liability—HAM Based PPP Projects 241

Financial Year Opening Addition (Work Transfer to Closing Contract

done during the Financial Asset Asset
year)
(INR Cr) (INR Cr) (INR Cr) (INR Cr)
FY 2022 0 135 60 75
FY 2023 75 519 240 354
FY 2024 354 710 300 764
FY 2025 764 68 832 0
FY 2026 0 0 0 0

10.6.2 Contract Liability

As per para 106 of Ind AS 115, contract liability arises where the customer pays
the consideration to the entity, or unconditional right (i.e. a receivable) to receive
consideration accrues, before the entity transfers a good or service to the customer.
Further, contract liability is required to be recognised at the time when the pay-
ment is made or the payment is due, whichever is earlier. A contract liability is
an entity’s obligation to transfer goods or services to a customer for which the
entity has received consideration (or an amount of consideration is due) from the
customer.
Contract liability is an entity’s obligation to transfer goods or services to a
customer for which the entity has received consideration (or an amount of con-
sideration is due) from the customer. Thus, in case of HAM project, contract
liability arises in a situation where the entity has received the consideration from
the Authority or the right to receive consideration from the Authority has accrued
but the goods or services under the concession agreement has not been transferred
by the concessionaire.
For instance, contract liability would arise where the concessionaire has
received the advance for construction, but the project is yet to be constructed. Like-
wise Contract liability would also be created where some portion of bid project
cost is construed to be making up for the O&M activity. Thus, if without carrying
out the O&M activity, a percentage of bid project cost becomes due to the entity,
that portion which relates to the O&M shall become contract liability.

Project Highway: Contract Liability

From para 106 of Ind AS 115, contract liability is an entity’s obligation to
transfer goods or services to a customer for which the entity has received
consideration (or an amount of consideration is due) from the customer.
242 10 Accounting Review—Ind AS and Revenue Recognition

Thus, in case of HAM project, contract liability arises in a situation where

the entity has received the consideration from authority or received the right
to receive consideration from Authority but has not transferred the service.
For instance, contract liability would arise where the concessionaire has
received the advance for construction, but the project is yet to be constructed.
Likewise Contract liability would also be created where some portion of bid
project cost is construed to be making up for the O&M activity. Thus, if
without carrying out the O&M activity, a percentage of bid project cost
becomes due to the entity, that portion which relates to the O&M shall
become contract liability.
The table below provides an illustration for contract liability account of
Project Highway (excluding the impact of inflation).

Financial Year Opening Addition (O&M Reduction (revenue Closing

revenue is due but not recognised towards
paid) O&M)
(INR Cr) (INR Cr) (INR Cr) (INR Cr)
FY 2022 0 0 0 0
FY 2023 0 0 0 0
FY 2024 0 0 0 0
FY 2025 0 684 + 2 2 68
FY 2026 68 5 5 68
FY 2027 68 5 5 68
FY 2028 68 5 5 68
FY 2029 68 5 5 69
FY 2030 69 5 5 69
FY 2031 69 5 5 69
FY 2032 69 5 41 33
FY 2033 33 5 5 34
FY 2034 34 5 5 34
FY 2035 34 5 5 34
FY 2036 34 5 5 34
FY 2037 34 5 5 34
FY 2038 34 5 5 34
FY 2039 34 5 41 0
FY 2040 0 2 2 0

4 Contract liability created on achieving COD. Portion of BPC relatable to O&M transaction price,
though included in the amount that becomes receivable on COD. Computation 1500 Cr – 1432 Cr
= 68 Cr.
10.6 Contract Asset and Contract Liability—HAM Based PPP Projects 243

Illustrative journal entries for first financial year i.e. FY 2022 have been
discussed below [refer table Project Highway: Measuring Progress in this
Chapter]

S. No. Journal Entry Debit (INR Cr) Credit (INR Cr)

1. Cost of Construction Dr 113 113
To Bank
(For expenses incurred on
construction)
2. Contract Asset Dr 9.44% * 1432 = 135 135
To Revenue
(Revenue shall be recognized as
per progress of construction i.e.
9.44% of construction is
completed in Year 1, 9.44% of the
allocated transaction price for
construction shall be taken)
3. Financial Asset Dr 4% * 1500 = 60 60
To Contract Asset
(Being unconditional contractual
right has arisen with regards to
receipt of 4% of BPC as the
agreed milestone of 5% has been
achieved. Since at this time ACPL
is only engaged in construction,
thus it is assumed that whole of
the milestone relates to
construction activity))
4. Bank Dr 4% * 1500 = 60 60
To Financial Asset
(Being payment received from
authority for one milestone)
Note Inflation has been ignored while passing these entries.

Illustrative journal entries for second financial year i.e. FY 2023 have been
discussed below.
244 10 Accounting Review—Ind AS and Revenue Recognition

S. No. Journal Entry Debit (INR Cr) Credit (INR

Cr)
1. Cost of Construction Dr 435 435
To Bank
(For expenses incurred on
construction)
2. Contract Asset Dr 36.22% * 1432 = 519 519
To Revenue
(Revenue shall be recognized as
per progress of construction i.e.
36.22% of construction is
completed in Year 2, thus,
revenue of 36.22% of the
allocated transaction price is
recognised)
3. Financial Asset Dr 4 * (4% * 1500) = 240 240
To Contract Asset
(Being unconditional contractual
right for 4 milestones of 4% each
has arisen as total of 45.66% of
construction work has been
completed by ACPL. Since at this
time ACPL is only engaged in
construction, thus it is assumed
that whole of the milestone
relates to construction activity)
4. Bank Dr 4 * (4% * 1500) = 240 240
To Financial Asset
(Being payment received from
authority for 4 milestone
payments)
Note Inflation has been ignored while passing these entries.

Illustrative journal entries for fourth financial year i.e. FY 2025 (i.e. the year of
receiving COD) have been discussed below.
10.6 Contract Asset and Contract Liability—HAM Based PPP Projects 245

S. No. Journal Entry Debit (INR Cr) Credit (INR

Cr)
1. Cost of Construction Dr 57 57
To Bank
(For expenses incurred on
construction)
2. Contract Asset Dr 4.73% * 1432 = 68 68
To Revenue
(Revenue shall be recognized as
per progress of construction i.e.
4.73% of construction is
completed in Year 4, thus 4.73%
of the allocated transaction price
for construction shall be
recognised as revenue)
3. Financial Asset Dr 900
To Contract Asset 832
To Contract liability 685
(Being unconditional contractual
right for receiving 60% of BPC
has arisen as COD has achieved.
BPC mainly includes the
consideration towards
construction however, some
portion pertaining to O&M is also
loaded in BPC. The amount of
O&M loaded in BPC is
1500–1432 = 68)
4. Bank Dr 30
To Financial Asset 30
(Being payment received from
authority for annuity)
Note Inflation has been ignored while passing these entries. Payment of annuity has been
accounted for without considering interest.

5 INR 68 Cr is the difference between BPC and allocated transaction price for construction service.

INR 68 Cr depict the consideration towards operation and maintenance service that forms part of
BPC.
 Part IV
International Experience of Hybrid PPPs
Success of Hybrid PPPs
11

Since the 1990s, PPP models have been developed and introduced and have
evolved. Infrastructure development is a priority for many emerging economies to
stimulate economy. PPPs is one of the ways to mobilize private and commercial
capital to overcome constraints on government financial resources for development
of large infrastructure projects. Continuous improvement in policy and regulatory
framework, along with introduction of hybrid approaches and innovative financ-
ing modalities for PPP projects, will be key driving factors to enhance upstream
capability and for better project preparation of such infrastructure projects.

11.1 Hybrid PPP approaches

Hybrid PPPs combine two or more project delivery models to improve bankability
of projects and attract larger interest from private sector developers and financiers,
alike [1, 2].

. Hybrid budget or Government support—Both cash and contract-based budgets

are employed for development of large infrastructure projects. Under the cash-
budget, the payments for infrastructure development should be done within the
same year while under a contract-based budget, the payments for infrastructure
development is earmarked (as a liability on government’s financials) but the
actual payment can be made over a long-term even after the end of the year
(for example, extended annuity payments over 15 years in a HAM based PPP
model for roads sector in India).

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 249
A. Mittal et al., Hybrid Annuity Model (HAM) of Hybrid Public-Private Partnership
Projects, Management for Professionals,
https://doi.org/10.1007/978-981-19-2019-6_11
250 11 Success of Hybrid PPPs

. Hybrid of components—A pure PPP arrangement, like DBFOT, grants private

sector payer more than one function for the infrastructure project delivery. How-
ever, a spectrum of PPP models or a hybrid of components approach may allow
certain functions to be performed by the public sector to reduce the risk borne
by the private sector and enable competition. For example, design and land
acquisition component for a project may be completed by the public sector
while private sector can be employed to construct and maintain the project.
. Hybrid of projects—Another hybrid approach for delivery of smaller infras-
tructure projects is to bundle multiple projects together into one sizable
infrastructure project. There could be a PPP for multiple schools/healthcare
clinical facilities, waste-to-energy project (including solid-waste collection,
processing and incineration for electricity production) etc.
. Hybrid of government agencies—For complex infrastructure projects, there
could be more than one implementing agency from the government/procurer
side given the specific jurisdictions and capability of personnel. For example,
delivery of municipal projects (like solid waste management or water distribu-
tion) often involves urban local bodies/municipal corporations along with the
federal/state governments for possible subsidy/grant funding support needed for
delivery of such projects.

11.2 International Case Studies—Introduction

Internationally, there are some relevant examples wherein the hybrid approach to
PPP projects has helped in faster, cost effective and superior quality infrastructure
projects in roads sector.
In this chapter, three (3) such case studies are discussed with details of the
project background and objectives, project structure, risk allocation and key learn-
ings. A summary of the case studies discussed in subsequent chapters is provided
in Table 11.1.
For each case study, the risk allocation across the construction and operation
phase is contrasted with the HAM based PPP in roads sector in India so as to
give reader a better understanding on how such allocation, specific to each hybrid
PPP model, is relevant given the external factors like project size/capital invest-
ment required, regulatory framework, maturity of capital markets, private sector
capability in a specific geography etc.
References 251

Table 11.1 International Case Studies on Hybrid PPPs—Summary

Country Project Sector Concession Private Sector Role Public Sector Role
Name Length
Ireland N1/M1 Roads 30 years • Operate and maintain • Finance, design and
Dundalk a 43 km section of construction of the
Bypass motorway which was Drogheda Bypass
completed by • Awarding and
government via managing the tender
public works process of the
procurement Dundalk Bypass
• Design, build, • Overall planning and
finance, construct, supervision of the
operate and maintain construction and
a new 11 km section maintenance
to the motorway
• Thus, private sector
would do O&M for
entire 54 km of
motorway
Philippines Clark Airports 25 years • Operation and • Finance of the
International maintenance of the project during
Airport existing terminal and construction phase
upcoming new • Design and
terminal (including construction of the
airfield ancillary New Terminal
airport facilities) Building
• This is the first • Overall planning and
project under supervision of the
Philippines hybrid construction and
PPP model maintenance
• Awarding and
managing the tender
process
United Thames Water 125 years • Coordinate financing • Oversee design and
Kingdom (UK) Tideway and and construction of construction
Tunnel Sewerage the Thames Tideway • Monitor performance
Tunnel • Regulate consumer
• Operate and maintain charges
asset

References

1. From hybrids in PPP to hybrid PPP to hybrid budgeting, Business Mirror. (2018). https://
businessmirror.com.ph/2018/09/10/from-hybrids-in-ppp-to-hybrid-ppp-to-hybrid-budgeting/.
Accessed December 30, 2021.
2. REFORMING the Philippine budgeting system. https://www.dbm.gov.ph/wp-content/uploads/
News/Primer-on-Reforming-the-Philippine-Budget.pdf. Accessed January 30, 2022.
Ireland—N1/M1 Dundalk Bypass
12

The N1/M1 Dundalk Bypass forms part of the strategic north–south route corridor
entitled Euroroute E01 which links Belfast and Dublin and provides access to the
main commercial seaports and airports in the country.
For the purposes of this PPP contract, an already existing bypass, namely the
Dundalk bypass was combined with a yet to be constructed Drogheda bypass;
and the entire length was tendered as a single project for operation by the private
sector:

1. Drogheda Bypass—Construction began in 2000 and was opened to traffic in

June 2003. As with all projects at that time, Drogheda Bypass was procured
via a traditional procurement route. Drogheda needed grant funding as the eco-
nomics of the project indicated it was not a feasible project on a stand-alone
basis. This was due to the forecasted revenue being too low compared to the
capital investment.
2. Dundalk Bypass—Construction began in 2004 and was completed in Septem-
ber 2005. For this particular bypass, the project economics was good and
therefore, the Dundalk Bypass was one of the first projects realized by the
Government of Ireland in its PPP program.

The main reason for the combination of the two projects was an expectation that
better operational and managerial efficiencies would be achieved, and that more
revenue would be generated from tolls.
This chapter provides a detailed review of the transaction structure risk alloca-
tion framework during the operation phase and the key learnings from the complex
delivery of this project which required the coordination of several different
organizations manufacturers, suppliers, subcontractors, and specialists.

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 253
A. Mittal et al., Hybrid Annuity Model (HAM) of Hybrid Public-Private Partnership
Projects, Management for Professionals,
https://doi.org/10.1007/978-981-19-2019-6_12
254 12 Ireland—N1/M1 Dundalk Bypass

12.1 N1/M1 Dundalk Bypass—Project Information

12.1.1 Introduction

N1/M1 Dundalk Bypass was one of the projects announced by the National Roads
Authority (NRA) in June 2000 under Tranche II of the PPP Roads programme.
The Dundalk Western Bypass forms a key part of the M1 road corridor and is also
a part of the Trans-European Road Network (Euroroute E01).
Prior to this project, the M1 motorway terminated to the south of Dundalk
and all traffic had to pass through Dundalk town with resultant delays and con-
gestion difficulties. This project, and the new section of road reduced travel time
significantly for road users.

12.1.2 Key Features of the Project

Table 12.1 provides key project information, including contractual structure and
various stakeholders.
This structure is not a pure hybrid structure, as it actually consists of two sepa-
rate projects; which together form one road: one is a typical PPP project; the other
was publicly procured using Cohesion funding. There was never an intention to
combine the two projects. However, due to the circumstances encountered, the two
projects were linked, and this and this has been successful.
The key success factors in this combination were:

. There was no need to coordinate the timetables of applying for the EU money
and bidding for a PPP project;
. The private bidder on the Dundalk Bypass did not have to assume the risk of
receiving the EU funding.

Hence, the above factors are conditions for any successful hybrid project and this
case study is further explored in detailed in subsequent sections.

12.2 Project Structure

This section describes the contractual structure for the project, key stakeholders
and review of their roles and responsibilities in this project [1, 2].
The project was awarded to of Celtic Road (Dundalk) Group Ltd (CRG) in
2004. The project was procured as a 30 years PPP concession to:

. design, construct, finance, operate and maintain a new 11 km section of motor-

way, the Dundalk Bypass, along with approximately 7 km of new link roads,
12 over/under-bridges and a major railway over-bridge; and
. operate and maintain the Drogheda Bypass, consisting of 21.5 km of dual
carriageway (Fig. 12.1 and Table 12.2).
12.2 Project Structure 255

Table 12.1 Project Information—N1/M1 Dundalk Bypass

Background The total project consists of the following toll road projects, procured
separately [1–3]:
1. A public procurement to construct the Drogheda Bypass. This
project has been financed by the Irish Government, and partly
co-financed by the Cohesion Fund of the European Union.
2. A 30 years PPP concession to:
. Design, construct, finance, operate and maintain a new 11 km
section of motorway, along with 7 km of new link road, 12 bridges
and 1 railway over bridge
. Operation and maintenance of 43 km of the existing Drogheda
Bypass
After the end of concession period, the road to be handed back to
authority/ NRA with the residual life span of 10 years.
Project Objectives . Reduce congestion in the center of Dundalk town and reduce journey
times by providing an effective bypass of the town
. Provides a new motorway section linking the major commercial
seaports at Larne, Belfast, Dublin and Rosslare and the major
airports of Dublin and Belfast
. Forms part of the link of the three largest centers of population on
the island (Dublin, Belfast, and Cork)
Private Sector Players 1. Drogheda Bypass: The motorway was designed by NorthConsult
and managed by Meath National roads Design Office. The main
contractors were SIAC O’Rourke JV, SIAC Cleveland Bridge JV and
Uniform Construction.
2. Dundalk Bypass: The contract was awarded to Celtic Roads Group
(Dundalk) Ltd. in October 2003 and the project was reached financial
closed in February 2004. The Celtic Roads Group (CRG) was a
consortium consisting of below players:
The winning consortium, Celtic Roads Group (Dundalk) Ltd (CRG)
comprises:
. Dragados Concesiones de Infraestructuras SA - a subsidiary of
ASC-Dragados;
. the Netherlands based HBG Group (Hollandse Beton Groep NV),
which is part of Royal BAM, operating through two subsidiaries:
– Edmund Nuttall Ltd (UK)
– Ascon Ltd (Ireland)
. NTR plc (Irl)—National Toll Roads plc.
The current holding of the consortium/ project SPV is with below
entities [4]:
. The Royal BAM Group, Netherlands (33.33%)
. DIF, Netherlands (33.33%)
. Semperian, UK (33.33%)
(continued)
256 12 Ireland—N1/M1 Dundalk Bypass

Table 12.1 (continued)

Funding Dundalk Bypass was funded by the CRG consortium.
. Total Cost of building the project was USD 158 Mn [4], excluding
the cost of land acquisition. Estimated cost of land, preliminary
studies and other related costs was approximately USD 55 Mn.
. Around USD 100 Mn of debt was arranged by a group of financing
instructions led by Société Générale, along with other banks
including Allied Irish Bank (Ireland), DEPFA Bank PLC (Ireland)
and KBC Bank (Belgium).
. Further, some amount of debt funding was also provided by Spain’s
Instituto de Crédito Oficial and the European Investment Bank
(Luxembourg).
Government Agency The National Roads Authority (NRA), which was formally established
as an independent statutory body under the Roads Act, 1993.

National Roads Authority (“NRA”)

Drogheda Bypass Dundalk Bypass

Public Procurement Design, Build, Finance, Operate and Maintain

30 years
concession
Design Contract Construction Contract
SIAC O'Rourke JV,
SIAC Cleveland Celtic Road (Dundalk)
NorthConsult Bridge JV and Group Ltd (“CRG”)
Uniform
Construction
Multiple Subcontracts

Design & Construct:

Operate and Maintain of both bypasses: Dragados Obras Y
NTR Ltd. Projectos S.A.
Dragados Ireland Ltd. Ascont Ltd.
Ascon Ltd. Nuttall Ltd.

Fig. 12.1 Contractual Structure—N1/M1 Dundalk Bypass, Ireland

12.3 Risk Allocation

This section describes the risk allocation of the N1/M1 Dundalk Bypass project
during the design, construction and operation phases of the project. For each risk
parameter, a comparison is drawn with the Hybrid Annuity Model (HAM) based
road PPP projects in India to enhance the understanding of the reader (Table
12.3).1

1The risk allocation is interpreted based on information collated from various publicly avail-
able information and experience of authors, and may require further verification from actual PPP
contracts for completeness.
12.3 Risk Allocation 257

Table 12.2 Key Stakeholders—N1/M1 Dundalk Bypass, Ireland

Type Stakeholder Roles and Responsibilities
Government Authority National Roads Authority . Responsible for analyzing and
(NRA) preparing the project, as well as
for awarding and management of
the tendering process
. Overall responsibility for planning
and supervision of construction
and maintenance works on these
roads
Design—Drogheda Bypass NorthConsult . Complete the full detailed design
of all new build elements
Build—Drogheda Bypass SIAC O’Rourke JV, SIAC . Construct all the new works
Cleveland Bridge JV and . Upgrade aspects of the existing
Uniform Construction motorways
. Assume responsibility for ground
conditions, archaeological
monitoring and resolution, utility
relocations and landscaping
Design, Build Operate and Celtic Road (Dundalk) Group The Dundalk Western Bypass PPP
Maintain—Dundalk Bypass Ltd (CRG) scheme involves [4, 5]:
. The construction of a new 12-km
bypass, the Dundalk Western
Bypass;
. The tolling of approximately
15-km on the southern end of the
M1 Northern Motorway,
comprising the Boyne River
Bridge. The operation of tolling
would start six weeks after the
award of the contract;
. Operation and maintenance of
approximately 42-km of Existing
Road, comprising the Dunleer-
Dundalk Motorway, the Dunleer
Bypass and the Northern
Motorway from three months after
the awarding of the contract; and
. Operation and maintenance of the
New Road once it was completed.
Thus, CRG is responsible to manage
the road (both Dundalk and
Drogheda Bypass) in terms of safety,
traffic management; and operate the
tolling system to the required levels
of service and upgrade it as
necessary to match demand.
258 12 Ireland—N1/M1 Dundalk Bypass

Table 12.3 Risk Allocation—N1/M1 Dundalk Bypass, Ireland

No. Risk categories N1/M1 Dundalk Bypass Comparison with HAM based
PPP Projects
1 Design Risk Borne by the private sector. Borne by the private sector.
– the risk potential for a . CRG has principal . The design risk is minimal in
design to fail to satisfy the responsibility for adequacy road projects since detailed
requirements for a project of the design of the system project specifications are
and its compliance with the provided by the government.
output/performance . If the private sector intends
specification. to use a new construction
technology or material, they
are allowed to do so
provided it is already proven
and successful in past
projects.
2 Environmental and Social Risk Borne by the private sector. Borne by the public sector.

– the risk of the damage to the . CRG has primary . Government is responsible
environment or local responsibility to manage the to perform necessary studies
communities by a project environmental and social relating to environmental
strategy across the project, and social aspects prior to
as well as obtaining all the implementation of the
required licenses, permits project.
and authorizations, as . The nodal agency (e.g.
necessary. However, the NHAI in case of national
government support and highway projects) is also
facilitation was provided responsible for rehabilitation
when needed. and resettlement (R&R) in
case of displaced houses due
to land acquisition.
3 Land purchase and Site risk Borne by the public sector. Borne by the public sector.
– the risk of acquiring land for . Public sector bears the . Availability of Project site
a project and geophysical principal risk as it selects and right of way for the 80%
conditions and acquires the required length of project before
land interests for both the appointed date, with the
Drogheda and Dundalk remaining land to be
project. provided within 90 days of
the appointed date as per the
concession agreement.
4 Construction Risk Borne by the private sector. Shared between public and
private sector.
– the risk associated with the . As CRG contracts with the
construction cost increase sub-contractors, it assumes . Project Capital Cost is
and time delays for a project project management risk and inflation indexed (through a
risk of cost overrun where Price Index Multiple/PIM,
no compensation/relief event which is the weighted
applies. average of Wholesale Price
Index (WPI) and Consumer
Price Index (CPI) (IW) in
the ratio of 70:30.
(continued)
12.3 Risk Allocation 259

Table 12.3 (continued)

No. Risk categories N1/M1 Dundalk Bypass Comparison with HAM based
PPP Projects
5 Demand Risk Borne by the private sector. Borne by the public sector.

– the risk of revenue variation . Road users pay tolls to the . During operational phase,
linked to the demand or use operator which is contracted responsibility of toll
of a project by end-users by CRG. Hence, any collection is with
decrease in road users would government authority and
directly impact CRG’s hence, the demand risk is
revenues. fully borne by the public
sector/government authority
. Cash flow to concessionaire
is assured in the form of
annuity payments on
semi-annual basis covering
60% of the bid project cost;
and interest shall be due and
payable on the reducing
balance of completion costs
at an interest rate equal to
average of 1 year MCLR of
top five scheduled
commercial banks plus
1.25%
6 Maintenance Risk Borne by the private sector. Borne by the private sector.

– the risk of maintaining the . CRG takes the primary risk . Concessionaire is
asset to the appropriate that the toll road will be responsible for the operation
standards and technical maintained to a sufficient and maintenance of the
specifications level of quality and project.
reliability to ensure that it . The concessionaire receives
can continue to attract semi-annual inflation
business. indexed O&M payments (as
. For the Drogheda Bypass, as quoted during the bid stage).
CRG accepted responsibility . The inflation index used of
for the road that had already indexation of O&M
been built, there is additional payment is Price index
latent defect risk, which multiple (PIM)
affects future maintenance
risk.

Box: What worked well for the N1/M1 Dundalk Bypass project
Although not intended as a hybrid PPP at the time of project concep-
tualization, this project is seen as a successful case study due to below
factors:
260 12 Ireland—N1/M1 Dundalk Bypass

. Procurement went smoothly, and took only 3 months from announcing a

preferred bidder to the financial close (whereas 6–8 months on average
for traditional PPPs). No other complexities have been identified.
. The Dundalk Bypass opened 4 months ahead of schedule.
. The Drogheda Bypass was already operating when the procurement for
Dundalk Bypass was announced. The bidders competing in the tender for
Dundalk had readily available information about the traffic levels on the
road and better projections as traffic at Drogheda would give a very good
indication of traffic at Dundalk.
. Excess traffic volumes in the initial years of the opening of the Dundalk
Bypass have resulted in some unanticipated revenue share payments to
the NRA.

12.4 Key Learnings

The two projects originally developed separately: Drogheda Bypass as traditional

procurement cofounded by the Cohesion Fund, Dundalk Bypass as a PPP. They
were combined at a later stage. The rationale for the combination was the ability
of the private sector to generate more toll revenue. The combination was a coin-
cidence, rather than an intended structure, and it was successful model which can
be adopted for other road transport projects as a Hybrid PPP structure.
Listed below are the key lessons learnt from the implementation of this project
for both public and private sector:

. A divisible infrastructure project can be considered when the individual project

structures can be determined according to the project economics at the time of
procurement.
. O&M contractor should be involved in specifying the design of the project to
optimize whole-of-life costs in achieving performance obligations.
. Payment mechanism should be structured appropriately to achieve objectives.
For example, include payment incentives for private sector for improving O&M
performance.
. Timeline of multiple projects should be coordinated to facilitate a seamless
transition from the end of construction to start of operations.
. Additional latent defect risk has to be accounted for when the private sector
has to accept responsibility for the maintenance of the toll road that has already
been built.
References 261

References

1. Transport Infrastructure Ireland, The Dundalk Western Bypass Public Private Partnership
Project. https://www.tii.ie/projects/road-schemes/projects/n1m1-dundalk-western-by-p/.
Accessed December 15, 2021.
2. Hybrid PPPs: Levering EU funds and private capital. https://documents1.worldbank.org/cur
ated/en/754071468139203978/pdf/375530Hybrid0PPPs01PUBLIC1.pdf. Accessed December
15, 2021.
3. Transport Infrastructure Ireland, Public Private Partnership Post Project Reviews. http://www.
tii.ie/tii-library/post_project_reviews/Public-Private-Partnership-Post-Project-Reviews.pdf.
Accessed February 15, 2022.
4. BAM PPP. https://www.bamppp.com/en/our-projects/m1-dundalk-western-bypass. Accessed
January 30, 2022.
5. Transaction Deals Inframation. https://www.inframationnews.com/. Accessed January 30, 2022.
6. Iridium Concessions. http://www.iridiumconcesiones.com/concesiones.php?id=42&lang=en.
Accessed January 30, 2022.
Philippines—Clark International
Airport 13

The Clark International Airport (CIA) passenger terminal expansion project is the
first hybrid PPP in the Philippines under the Build, Build, Build program of Philip-
pines launched in 2017 by the Government of Philippines. The program is aimed
at financing of big-ticket infrastructure projects to speed up the process and cut
on projects costs, so it could deliver the economic benefits of these projects to the
people at the soonest possible time.
This particular hybrid PPP model involves private sector participation under
two separate contracts during the construction and operation phase of the project
with a key success factor being management of the interface risk between the two
private sector players.
Under this, the government will fund, using its own funds or secured through
borrowings or official development assistance, design and build, either through
procurement or administration, infrastructure project. After completion of con-
struction or a certain period, the same or a different private sector concessionaire
(selected again through a competitive bid process) will operate, manage and
maintain the infrastructure project. In this case, the hybrid is sequential, not
simultaneous (Fig. 13.1).
Examples of projects under the hybrid PPP scheme of Philippines include the
Clark International Airport New Terminal Building Project and Central Luzon
Expressway (CLLEX) Phase 1 O&M and Phase 2 Project. In this chapter, the
first project is discussed in detail.

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 263
A. Mittal et al., Hybrid Annuity Model (HAM) of Hybrid Public-Private Partnership
Projects, Management for Professionals,
https://doi.org/10.1007/978-981-19-2019-6_13
264 13 Philippines—Clark International Airport

Public Agency

Phase 1 Phase 2
Design and Construction Operation and Maintenance

Construction Contract
Project Agreement
Design Contract

Project Company

Multiple Subcontracts
Construction Company
Design Company

Maintenance Company

Operations Company

Public Works Component PPP Component

Fig. 13.1 Hybrid PPPs in Philippines—An illustration

13.1 Clark International Airport—Project Information

13.1.1 Introduction

The Philippines’ Greater Capital Region (GCR) of Metro Manila is served by the
Ninoy Aquino International Airport (NAIA). Due to existing constraints at NAIA
in terms of its terminal design capacity, runway capacity and apron capacity; there
were frequent flight delays, diversion to other airports and cancellations leading to
significant costs to airlines and passengers [1].
In 2016, the government owned corporation Bases Conversion Authority
(BCDA), appointed the International Finance Corporation (IFC), with the sup-
port of the Global Infrastructure Facility (GIF), came to decision on modernize
Clark International Airport through an innovative hybrid PPP scheme to become
the second airport gateway of the GCR.
Under the hybrid PPP approach, the government finances the entire construction
cost of the project since it in a position to borrow money cheaper than the private
sector due to:
13.2 Project Structure 265

. Steady revenue stream from Tax Reform for Acceleration and Inclusion Act
(TRAIN),
. Increased flow of official development assistance (ODA), and
. Issuance of bonds due to increased investment-grade credit ratings by S&P.

The construction of the project was completed in October 2020 and became
operational in September 2021 [2, 3].

13.1.2 Key Features of the Project

Table 13.1 provides key project information, including contractual structure and
various stakeholders.

13.2 Project Structure

This section describes the contractual structure for the project, key stakeholders
and review of their roles and responsibilities in this project [1, 2] (Fig. 13.2 and
Table 13.2).

Table 13.1 Project Information—Clark International Airport, Philippines

Background BCDA, the nodal agency of the Government of Philippines for the
project, called it the ‘fastest PPP’ to be auctioned by the national
government, having awarded the EPC contract to Megawide-GMR.
The entire process of evaluating, opening technical and financial offers
was compressed to two (2) weeks.
Project Objectives The Government of the Philippines (GOP) intends to facilitate the full
development of CIA as a major gateway to and from the Philippines.
This is expected to alleviate traffic congestion in the Ninoy Aquino
International Airport (NAIA) and to accommodate the growing traffic
through North and Central Luzon, CIA’s organic catchment area.
Funding GMR-Megawide entered the lowest bid of PHP 9.3 bn (USD 180 Mn).
100% of the EPC price was funded by BCDA through General
Appropriations Act (GAA).
The O&M contract, with a term of 25 years, will be funded by the gross
revenues being generated by airport in term of passenger handling fees,
Government Agency Bases Conversion and Development Authority (BCDA), Government
of Philippines.
BCDA is responsible for PPP in public infrastructure such as roads,
airport, seaport etc. BCDA is the government authority which has
awarded EPC and O&M contract to different companies as stated
below. BCDA is also responsible for handling project monitoring office
with the coordination of Department of Transport (DOT), Philippines.
(continued)
266 13 Philippines—Clark International Airport

Table 13.1 (continued)

Private Sector Players The construction contract was awarded to Megawide-GMR consortium
[3], with a timeline of construction set as 24 months, comprising:
• Megawide Construction (Philippines)
• GMR Infrastructure (India).
The O&M contract has been awarded to North Luzon Airport
Consortium (NLAC) comprising of below members:
• Filinvest Development Corporation (Philippines)
• JG Summit Holdings, Inc., (Philippines)
• Philippine Airport Ground Support Solutions, Inc. (Philippines)
• Changi Airport Group (Singapore)
NLAC’s financial bid offer of 18.25% annual gross revenue percentage
share (to the government) was almost twice the minimum rate set at
10% as approved by the government.
The project was completed in October 2020 and became operational in
September 2021.

13.3 Risk Allocation

This section describes the risk allocation of the Clark International Airport (CIA)
passenger terminal expansion project during the design, construction and operation
phases of the project. For each risk parameter, a comparison is drawn with the
Hybrid Annuity Model (HAM) based road PPP projects in India to enhance the
understanding of the reader (Table 13.3).

Bases Conversion and Development Authority (“BCDA”)

Turnkey EPC 25-year O&M Agreement

Contract

Design & Construct: Independent Consultant

Megawide (“IC”): Operate & Maintain:
Construction and GMR DCCD Engineering North Luzon Airport
Infrastructure Corporation and EGIS Consortium (NLAC)
Consortium AVIA Consortium

Fig. 13.2 Contractual Structure—Clark International Airport, Philippines

13.3 Risk Allocation 267

Table 13.2 Key Stakeholders—Clark International Airport, Philippines

Type Stakeholder Roles and Responsibilities
Government Bases • Responsible for funding of the project during construction
Authority Conversion and phase
Development • Award and management of the tendering process
Authority • Overall responsibility for planning and supervision of
(BCDA) construction and maintenance of the airport
• Provide passenger security, customs, immigrations, health &
quarantine, and air traffic control services
Design and Megawide-GMR • Responsible for the design and construction of the New
Construct Consortium Terminal Building and support its commissioning
• Undertake the supply and installation of all requisite
facilities and equipment, and related landside developments
in accordance with the EPC Contract
Independent Consortium of • The IC, procured by the PPP Center under the Project
Consultant DCCD Development and Monitoring Facility (PDMF), has been
(IC) Engineering tasked with providing feedback and services to BCDA and
Corporation; the EPC contractor at critical junctures in the EPC
and EGIS AVIA Agreement, such as design review, quality control during
construction, acceptance and commissioning of the facility
(including the handover).
• The IC to review the design, construction, supply, and
installation scope of the O&M Concessionaire as well as the
operational phases vis-à-vis the prescribed minimum
performance specifications and standards (MPSS).
Operate North Luzon • Operation of the existing terminal building until the
and Airport handover of the New Terminal Building from the EPC
Maintain Consortium contractor
(NLAC) • Management, operations, and maintenance of the Clark
International Airport (both the existing and New Terminal
Building) as set out in the O&M contract, but not the airside
facilities and air traffic control
• Completion and fit-out of the New Terminal Building (i.e.
internal structure such as baggage handling) upon its
completion and successful commissioning by the EPC
contractor
• Manage the Operational Readiness, Activation and
Transition (ORAT) process for the New Terminal Building
268 13 Philippines—Clark International Airport

Table 13.3 Risk Allocation—Clark International Airport, Philippines

S. Risk categories Clark International Airport Comparison with HAM based
No. (CIA) expansion project PPP Projects
1 Design Risk Borne by the private sector. Borne by the private sector.
– the risk potential for • Megawide-GMR engaged • The design risk is minimal
a design to fail to BUDJI, ROYAL Architecture in road projects since
satisfy the Design and Integrated Design detailed project
requirements for a Associates, Ltd. (IDA-HK) specifications are provided
project. for the design of the New by the government.
Terminal Building. • If the private sector intends
• Hence, the private sector to use a new construction
bears the design risk unless it technology or material, they
is a government-initiated are allowed to do so
change in design leading to provided it is already
additional costs. proven and successful in
past projects.
2 Environmental and Shared between public and Borne by the public sector.
Social Risk private sector.
• Government is responsible
– the risk of the • Government is responsible to to perform necessary
damage to the perform necessary studies studies relating to
environment or local relating to environmental and environmental and social
communities by a social aspects prior to the aspects prior to the
project implementation of the implementation of the
project. project.
• Megawide-GMR is • The nodal agency (e.g.
responsible to make sure that NHAI in case of national
their construction abides by highway projects) is also
the applicable responsible for
recommendations to mitigate rehabilitation and
social and environmental resettlement (R&R) in case
impact, if any, of the project. of displaced houses due to
land acquisition.
3 Land purchase and Site Borne by the public sector. Borne by the public sector.
risk
• BCDA will deliver the • Availability of Project site
– the risk of acquiring Project Land for the new and right of way for the
land for a project and terminal and any required 80% length of project
geophysical access roads free and clear. before appointed date, with
conditions the remaining land to be
provided within 90 days of
the appointed date as per
the concession agreement.
(continued)
13.3 Risk Allocation 269

Table 13.3 (continued)

S. Risk categories Clark International Airport Comparison with HAM based
No. (CIA) expansion project PPP Projects
4 Construction Risk Borne by the private sector. Shared between public and
private sector.
– the risk associated • Megawide-GMR is required
with the construction to construct the New • Project Capital Cost is
cost increase and Terminal Building under inflation indexed (through a
time delays for a fixed price turnkey EPC Price Index Multiple/PIM,
project Contract and as per the which is the weighted
agreed timeline. average of Wholesale Price
Index (WPI) and Consumer
Price Index (CPI) (IW) in
the ratio of 70:30.
5 Demand Risk Shared between public and Borne by the public sector.
private sector.
– the risk of revenue • During operational phase,
variation linked to • O&M Concessionaire, now responsibility of toll
the demand or use of awarded to NLAC, will pay a collection is with
a project by fixed fee to BCDA and a government authority and
end-users variable component which is hence, the demand risk is
dependent on gross revenue, fully borne by the public
hence demand risk is shared. sector/government authority
• However, if operating • Cash flow to concessionaire
revenues fall much below the is assured in the form of
forecast, the O&M annuity payments on
Concessionaire is more semi-annual basis covering
severely impacted. 60% of the bid project cost;
and interest shall be due
and payable on the reducing
balance of completion costs
at an interest rate equal to
average of 1 year MCLR of
top five scheduled
commercial banks plus
1.25%
6 Maintenance Risk Borne by the private sector. Borne by the private sector.
– the risk of • O&M concessionaire may • Concessionaire is
maintaining the asset refuse to accept latent defect responsible for the
to the appropriate risk (related to design and/or operation and maintenance
standards and construction quality). of the project.
technical • Latent defect risk may result • The concessionaire receives
specifications in higher than anticipated semi-annual inflation
maintenance and indexed O&M payments (as
refurbishments costs quoted during the bid
stage).
• The inflation index used of
indexation of O&M
payment is Price index
multiple (PIM)
270 13 Philippines—Clark International Airport

13.4 Key Learnings

The Clark International Airport PPP project is seen as a highly successful hybrid
PPP project by the Government of Philippines, more specifically in terms of imple-
mentation since it was the fastest procurement process to be implemented by the
government. The project broke ground in only 6 months (January 2018) after it was
approved by the National Economic and Development Authority (NEDA) board
in June 2017.
Listed below are the other key learnings from the implementation of this project
for both public and private sector:

. The procuring authority needs to properly manage the timeline between the
EPC and O&M tender, and ensure proper communication between the EPC
contractor and O&M concessionaire during the construction phase to minimise
interface risk.
. In this case, the government is keen to award the O&M contract as soon as
possible in order to reduce the interface risk, so that the operator can work with
the EPC contractor during the construction phase.
. Provide clear demarcation of roles and investments under O&M and EPC
contract. If not, there is a potential conflict risk on investment allocation.
. In Clark airport, O&M player will invest in internal structures such as bag-
gage handling systems and check-out areas. The main EPC contract entails
construction of the main shell of the building.
. The operator should assess risk and perform due diligence on quality of
construction before taking on the operation and maintenance of the asset.

References

1. Clark International Airport Operation and Maintenance Concession—Information Mem-

orandum. https://ppp.gov.ph/wp-content/uploads/2018/05/BCDA_PROJ_Clark-Airport-Inf
oMemo_20180507.pdf. Accessed October 30, 2021.
2. Megawide-GMR tandem eager to start Clark Airport project. https://www.philstar.com/bus
iness/2017/12/20/1770257/megawide-gmr-tandem-eager-start-clark-airport-project. Accessed
December 30, 2021.
3. Transaction Deals Inframation. https://www.inframationnews.com/. Accessed January 30, 2022.
4. Airport Technology. https://www.airport-technology.com/. Accessed January 30, 2022.
UK—Thames Tideway Tunnel
14

The Thames Tideway Tunnel (TTT) is the largest water and sewerage infras-
tructure project in the United Kingdom (UK) since the industry was privatized
in 1989 [1]. The TTT is designed as 7.2-m wide and 25-km long sewer under
the tideway of the Thames River with an objective to reduce instances of raw
sewage spill events per year through diversion of combined rainwater runoff and
raw sewage [1].
Figure 14.1 provides an illustration of the solution provided by Thames Tideway
Tunnel, UK.

14.1 Thames Tideway Tunnel—Project Information

14.1.1 Introduction

London’s inefficient and inadequate sewerage system led to cholera epidemic in

19th Century due which the government decided to build a new sewerage system
named as Victorian sewer system, designed by chief engineer of the Metropolitan
Board of Works—Joseph Bazalgette.
The Victorian sewer system was built in 1865. It was designed to serve 4 million
people. Currently, population using this sewer system is 9 million. Due to which
the sewer overflows the pollution into Thames River. These events occur when
rainfall volumes surpass the limit of London sewerage framework (Mainly Bazal-
gette’s and other sewerage systems). To overcome this problem a new sewerage
(Thames Tideway Tunnel) was identified by British government.

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 271
A. Mittal et al., Hybrid Annuity Model (HAM) of Hybrid Public-Private Partnership
Projects, Management for Professionals,
https://doi.org/10.1007/978-981-19-2019-6_14
272 14 UK—Thames Tideway Tunnel

Before TTT:
The Low-Level interceptor sewers
fill up and millions of tonnes of raw
sewage spills, untreated, into the ….The low-level
Thames river interceptor
sewer fills up the overflow Thames River
and… is diverted to
After TTT:
tunnel
The sewer overflow will be diverted
into a 25km Super Sewer under the
Thames to intercept those spills
and clean up Thames river

Fig. 14.1 Thames Tideway Tunnel, UK—An illustration

The Thames Tideway Tunnel will be a 25 km long under the tidal section
(estuary) of the River Thames and 65 km below the ground, combined sewer
running mostly covering Inner London that would capture, store and convey almost
all the raw sewage and rainwater that that presently floods into the estuary. This
contains all the residue that is developed during times of drier climate and causes
the most harm.
The key information regarding the project is summarized in Table 14.1 [1].

14.2 Project Structure

This section describes the contractual structure for the project, key stakeholders
and review of their roles and responsibilities in this project [1, 2] (Fig. 14.2 and
Table 14.2).

Box: Joint Incentive Mechanism for multiple construction contracts

An alliancing agreement and joint incentive mechanisms were put in place

to try to deal with the potential disadvantages of splitting construction into
parcels. For the Thames Tideway Tunnel (TTT) project, having multiple con-
tractors may have limited incentives for effective co-ordination across the
project and created interface problems at the boundaries of each construction
parcel. To give contractors incentives to work together to ensure the over-
all project succeeds, all construction contractors share in a GBP 1.6 billion
bonus pool if the whole TTT is delivered early or below the target price.
 273

Table 14.1 Project Information—Thames Tideway Tunnel, UK

Background The Thames Tideway Tunnel (TTT) will be a 7.2 m wide and 25 km
long sewer under the tideway of the Thames River in London, UK, due
for completion in 2027. It is the largest water and sewerage
infrastructure project in the UK since the industry was privatized in
1989.
It will start at the Acton Storm Tanks in London’s west and head
towards the east of the city, then link with the Lee Tunnel at the
north-east, which connects to the Beckton sewage treatment works.
Project Objectives Along its path, the TTT will connect with 34 Combined Sewer
Overflows (CSOs), diverting combined rainwater runoff and raw
sewage from spilling into the tideway. CSOs spilling into the tideway
prevent backing up of the sewerage system and overflows from
manholes. Hence, reducing instances of raw sewage spilling into the
tideway would in turn prevent raw sewage from flooding roads and
buildings in built up areas of London.
The TTT is expected to reduce spill events to a maximum of 4 per year
which would be compliant with the European Union directives. It also
ensures sufficient strategic sewer capacity to accommodate London’s
growth for at least the next 100 years.
Funding Expected cost of project: GBP 4.2 bn (made up of GBP 3.2 bn to
construct the TTT and GBP 1.0 bn to connect CSOs to the tunnel).
. This is financed by investors who provided equity to Bazalgette (GBP
1.2 bn), loan from European Investment Bank (GBP 700 mn) and the
balance is made up of a mix of bank debt and bonds (not all project
debt secured at financial close due to length of construction period).
. Additional consumer charges will ultimately fund the TTT.
Government Agency Water Services Regulatory Authority (Ofwat), the independent
economic regulator for the water and sewerage sectors in England and
Wales.
Private Sector Players 1. Thames Water, the private company responsible for water and sewer
services in the tideway.
2. Bazalgette Tunnel Limited (Bazalgette)
. a special purpose vehicle whose investors include Allianz, Dalmore
Capital, Amber Infrastructure, Swiss Life Asset Managers and
International Public Partnerships.
. Bazalgette owns the TTT, co-ordinates the TTT’s financing and
construction, and will ultimately operate it.

14.3 Risk Allocation

This section describes the risk allocation of the Thames Tideway Tunnel (TTT)
project during the design, construction and operation phases of the project. For
each risk parameter, a comparison is drawn with the Hybrid Annuity Model
(HAM) based road PPP projects in India to enhance the understanding of the
reader (Table 14.3).
274 14 UK—Thames Tideway Tunnel

Water Services Regulatory Authority (“Ofwat”)

Project license

Build, Finance, Own, Operate and Bazalgette Tunnel Limited

Maintain for 125 years (“Bazalgette”)

Design: Construct: Operate and Maintain:

Thames Water (with oversight by Split into 3 construction contracts Bazalgette Tunnel Limited
Ofwat) (central, west and east) (“Bazalgette”)

Fig. 14.2 Contractual Structure—Thames Tideway Tunnel, UK

Table 14.2 Key Stakeholders—Thames Tideway Tunnel, UK

Government Authority Water Services Regulatory . Ofwat is responsible for making

Authority (Ofwat) and UK sure that Bazalgette comply with
Government their licence conditions, and
regulates the charges consumers
pay to the private companies.
. Ofwat will also monitor
Bazalgette’s performance to ensure
it delivers the project both on time
and budget.
. The UK government has ultimate
responsibility for compliance with
environmental protection
legislation.
. The UK government also
developed a government support
package (GSP), under which they
would provide contingent financial
support in relation to exceptional,
low-probability but high-impact
risks.
Design Thames Water (with Ofwat . Thames Water developed detailed
oversight) planning and cost estimations prior
to tendering for construction
contracts.
. Greater detail about project plans
educes uncertainty, which reduces
risk and the need for construction
bidders to have large contingency
budgets. As a result, it placed
downward pressure on price.
(continued)
14.3 Risk Allocation 275

Table 14.2 (continued)

Construct Multiple Contractors . Main works contractors are
required to design, build and/or
procure equipment including
tunnel boring machines and
diaphragm walling equipment to
construct the relevant sections of
the tunnel (main tunnel drive
including shafts and connections).
. The construction was split into
three parcels (west, central and
east). Splitting construction into
parcels increased the number of
companies that could realistically
bid for any single parcel; and hence
increased competition for the
construction contracts, placing
downward pressure on prices.
– West Contract: BAM Nuttall,
Morgan Sindall and Balfour
Beatty Group JV
– Central Contract: Ferrovial
Agroman UK and Laing
O’Rourke Construction JV
– East Contract: Costain, Vinci
Construction Grands Projets and
Bachy Soletanche JV
– System Integration Contract:
Amey, who is responsible for
providing process control,
communication equipment and
software systems for operation,
maintenance and reporting
across the Thames Tideway
Tunnel system.
Operate and Maintain Thames Water Utilities . The TTT will connect with and
Limited (TWUL) operate in conjunction with the
sewer network.
. Bazalgette is responsible for
providing an effective and efficient
public sewer. It is required under
an Ofwat licence to comply with
relevant legislation and to comply
with the obligations set out in the
Urban Waste Water Treatment
Directive (UWWTD) for its area.
276 14 UK—Thames Tideway Tunnel

Table 14.3 Risk Allocation—Thames Tideway Tunnel, UK

S. No. Risk categories Thames Tideway Tunnel Comparison with HAM based
(TTT) Project PPP Projects
1 Design Risk Shared between public and Borne by the private sector.
private sector.
– the risk potential for a . The design risk is minimal in
design to fail to satisfy the . Thames Water provided road projects since detailed
requirements for a project detailed designs for the TTT, project specifications are
with oversight from Ofwat, provided by the government.
hence removing a lot of the . If the private sector intends
design responsibility from to use a new construction
the construction bidders. technology or material, they
. Ofwat scrutinizing and are allowed to do so provided
challenging the plans helped it is already proven and
in placing downward successful in past projects.
pressure on some of Thames
Water’s proposed costings.
2 Environmental and Social Risk Shared between public and Borne by the public sector.
private sector.
– the risk of the damage to the . Government is responsible to
environment or local . The TTT must tunnel perform necessary studies
communities by a project through ground conditions relating to environmental
that cannot be known and social aspects prior to
perfectly in advance under a the implementation of the
large complex city in project.
relatively close proximity to . The nodal agency (e.g.
buildings and other NHAI in case of national
challenging infrastructure. highway projects) is also
. Hence the GSP was responsible for rehabilitation
developed, under which the and resettlement (R&R) in
UK government would case of displaced houses due
provide contingent financial to land acquisition.
support in relation to such
low-probability but
high-impact risks.
3 Land purchase and Site risk Borne by the private sector. Borne by the public sector.

– the risk of acquiring land for . Thames Water was . Availability of Project site
a project and geophysical responsible for acquiring and right of way for the 80%
conditions land necessary for the length of project before
construction of the tunnel, appointed date, with the
until Bazalgette took over. remaining land to be
provided within 90 days of
the appointed date as per the
concession agreement.
(continued)
14.3 Risk Allocation 277

Table 14.3 (continued)

S. No. Risk categories Thames Tideway Tunnel Comparison with HAM based
(TTT) Project PPP Projects
4 Construction Risk Shared between public and Shared between public and
private sector. private sector.
– the risk associated with the
construction cost increase . Individual construction firms . Project Capital Cost is
and time delays for a project are given a target price to aim inflation indexed (through a
for in relation to their section Price Index Multiple/PIM,
of the TTT. If a contractor which is the weighted
delivers its section below the average of Wholesale Price
target price, it is rewarded Index (WPI) and Consumer
with 50% of the underspend. Price Index (CPI) (IW) in the
Symmetrically, a contractor ratio of 70:30.
must absorb 50% of any
costs above the target price.
5 Demand Risk Borne by the public sector. Borne by the public sector.

– the risk of revenue variation . Ofwat determines charges . During operational phase,
linked to the demand or use based on the regulatory responsibility of toll
of a project by end-users capital value of the collection is with
infrastructure rather than government authority and
how often it is used. hence, the demand risk is
. This is similar to the way an fully borne by the public
availability-based PPP sector/government authority
shields investors from . Cash flow to concessionaire
demand risk and gives them is assured in the form of
substantial certainty that they annuity payments on
will receive a return on their semi-annual basis covering
investment. 60% of the bid project cost;
and interest shall be due and
payable on the reducing
balance of completion costs
at an interest rate equal to
average of 1 year MCLR of
top five scheduled
commercial banks plus
1.25%
6 Maintenance Risk Borne by the private sector. Borne by the private sector.

– the risk of maintaining the . Bazalgette is responsible for . Concessionaire is

asset to the appropriate the maintenance of the responsible for the operation
standards and technical infrastructure. and maintenance of the
specifications project.
. The concessionaire receives
semi-annual inflation
indexed O&M payments (as
quoted during the bid stage).
. The inflation index used of
indexation of O&M payment
is Price index multiple (PIM)
Source: Public Information, Author Analysis (the risk allocation is interpreted based on information collated
from various publicly available information and news articles; and may require further verification from
actual PPP contracts for completeness)
278 14 UK—Thames Tideway Tunnel

14.4 Key Learnings

The overall structure and mechanisms of the TTT’s hybrid approach are a useful
and innovative contribution to the field of infrastructure development. It is clear
that substantial care has been taken to combine good practices from incentive
regulation, project finance and alliancing to design measures that are capable of
providing incentives for the private sector to finance and deliver large, new infras-
tructure efficiently. However, this model is likely to be replicated in jurisdictions
with a sophisticated and robust regulatory capacity.
Listed below are the other key learnings from the implementation of this project
for both public and private sector:

. Risk-based structuring of transactions brings value-of-money. Government sup-

port can be tailored to address project-specific risks that are difficult to quantify
so as to encourage and facilitate private investment in infrastructure.
. As expenditure related to operations is usually a small proportion of overall
cost, extracting efficiencies in the construction phase is central to delivering
value for money to consumers.
. It is important to ensure highest quality construction and full consideration
for whole life maintenance costs in selection of materials and construction
techniques.
. Involving the O&M contractor in the detailed design of the construction can
help to bring down overall project costs.
. Where many stakeholders are involved, alliancing agreement and joint incentive
mechanisms should be considered to encourage effective co-ordination across
the project.

References

1. Tideway Tunnel Delivery Model. https://www.tideway.london/corporate-info/delivery-model.

Accessed December 15, 2020.
2. International Transport Forum, Thames Tideway Tunnel: A Hybrid Approach to Infrastruc-
ture Delivery. (2018). https://www.itf-oecd.org/sites/default/files/docs/thames-tideway-tunnel_
3.pdf. Accessed December 15, 2020.