IAS Gyan

Daily News Analysis

BOT Model

27th July, 2021 Economy

Context:

  • Modern Bus Terminus are being developed based on Build-operate-transfer and Hybrid annuity model mechanism.

 

Hybrid Annuity Model:

  • The Hybrid Annuity Model (HAM) is a cross between the EPC and the BOTANNUITY models. The cost of the project is split 40:60 between the government and the private player in this model.
  • The private player is responsible for building and handing over the roads to the government, which will raise tolls (if desired)—maintenance is the private player's responsibility until the annuity period
  • The government pays a fixed amount of economic compensation (called annuity, similar to the BOT ANNUITY model of the past) to a private player for a set period of time (normally 15 years, though it is flexible).
  • The contract is awarded to the private player who offers the lowest annuity (in bidding).
  • The government covers the majority of the major risks in this model, including land acquisition, clearances, operation, toll collection, and commercial, while the risks of inflation and cost overruns are shared in proportion to the project cost sharing.
  • However, the private sector is still exposed to construction and maintenance risks (delays from the government side in clearances and land acquisition have chances to enhance the degree of risks private players are exposed to).

 

BOT-TOLL:

  • The ‘Build-Operate- Transfer-Toll’ was one of the earliest models of PPP. Other than sharing the project cost (with the Government), the private bidder was to build, maintain, operate the road, and collect toll on the vehicular
  • The bid was given to the private company offering to share maximum toll revenue to the government. The private party used to cover “all risks” related to— land acquisition, construction (damage), inflation, cost over-runs caused by delays and commercial. The government was responsible for only regulatory clearances.
  • Due to inherent drawbacks, this model proved to be unsustainable for the private bidder—undue delay in land acquisition due to litigation, cost over-runs and uncertainties in traffic movement (commercial risk)—made the road projects economically unviable.

BOT-ANNUITY:

  • This was an improvement over the BOTTOLL model, which sought to reverse private companies' declining interest in road projects by reducing risk for private players.
  • Apart from sharing project costs, the private player was to build, maintain, and operate road projects without being responsible for collecting traffic tolls.
  • The private players were offered a fixed amount of money annually (called ‘annuity’) as compensation—the party bidding for the minimum ‘annuity’ used to get the project. Toll collection was the responsibility of the Government.
  • This was different from the previous model (BOT-TOLL) in one sense— private players were not having any commercial risk (traffic)—but they remained very much exposed to other risks (land acquisition delays, inflation, cost overruns, construction).
  • Even this model, over the time proved to be unviable for the private sector due to the leftover risks they were exposed to.

 

Strategic petroleum reserves (SPR) programme:

  • Under Phase I of strategic petroleum reserves (SPR) programme, Government of India, through its Special Purpose Vehicle, Indian Strategic Petroleum Reserve Limited (ISPRL), has established petroleum storage facilities with total capacity of 5.33 Million Metric Tonnes (MMT) at 3 locations, namely:
    • Vishakhapatnam (1.33 MMT),
    • Mangaluru (1.5 MMT)
    • Padur (2.5 MMT),
  • all the storage facilities have been filled with crude oil. 
  • The petroleum reserves established under Phase I are strategic in nature and the crude oil stored in these reserves will be used during an oil shortage event, as and when declared so by Government of India.
  • Under Phase II of the petroleum reserve programme, Government has given approval in July 2021 for establishing two additional commercial-cum-strategic facilities with total storage capacity of 6.5 MMT underground storages at Chandikhol (4 MMT) and Padur (2.5 MMT) on PPP