Road projs under hybrid annuity model have stable credit risk: Crisil

PTI New Delhi

A large portion of under-construction road projects under the hybrid annuity model (HAM) are trailing on execution schedule, yet their credit risk profiles remain stable, supported by protection under concession agreements, rating agency Crisil said on Thursday.

In the HAM, the government pays a predetermined amount to the private construction company as an annuity until the expiry of the concession period. According to Crisil, the majority of these projects received a time extension from the concessioning authority, given that the delays were due to reasons beyond the control of the concessionaire.

Though this increases project cost, the inflation indexation available under the concession agreement will limit the impact on credit risk profiles of concessionaires, the rating agency said. The finding is based on an analysis of a pool of 72 under-construction HAM projects, covering 2,600 km, forming about one-third of the length awarded by the authority, which are under construction with an appointed date between 2021 and 2025. 

Crisil Ratings Director Anand Kulkarni said the delays expose the concessionaire to cost-overrun risks. "As per our estimates, the delays have increased project costs by 5% to 10% on average," Kulkarni said.