Economics · Economy
In the context of financing large-scale infrastructure projects in India, the Hybrid Annuity Model (HAM) for national highway construction is often favored over the traditional Build-Operate-Transfer (BOT)-Toll model. Which of the following is the primary risk mitigation feature of HAM that makes it more attractive to commercial banks for lending purposes?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1HAM requires the private developer to source 100 percent of the debt from international financiers, reducing the foreign exchange risk for domestic banks.
- 2HAM provides for the government (NHAI) to pay 40 percent of the project cost during the construction phase and ensures the remaining 60 percent is paid as a fixed annuity, thereby eliminating Traffic Risk for the private developer.✓
- 3HAM guarantees the concessionaire a minimum Internal Rate of Return (IRR), insulating the project from both Traffic Risk and Interest Rate Risk.
- 4HAM shifts the entire Construction Risk from the private concessionaire to the National Highways Authority of India (NHAI), guaranteeing timely completion.
Correct answer
HAM provides for the government (NHAI) to pay 40 percent of the project cost during the construction phase and ensures the remaining 60 percent is paid as a fixed annuity, thereby eliminating Traffic Risk for the private developer.
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