NHAI Clarifies Applicability of Price Index Multiple on First-Year O&M Payments

The National Highways Authority of India (NHAI), through Policy Circular No. 11.76/2025 dated November 4, 2025 (the “Circular”), has issued an important clarification regarding the methodology for calculating Operation & Maintenance (O&M) payments under Hybrid Annuity Model (HAM) Concession Agreements, specifically in relation to the application of the Price Index Multiple (PIM) on the first-year O&M installment.

Under the HAM framework, O&M payments are released annually in installments that are indexed to inflation through application of the PIM, enabling the compensation to reflect prevailing economic conditions and ensuring fair and balanced financial adjustment over the concession period.

However, during the execution of a recent HAM project, the Project Implementation Unit (PIU) disbursed the first-year O&M payment without applying the PIM, interpreting the illustration under Clause 23.7.3 of the Concession Agreement (CA) to mean that indexation was not applicable to the first installment, as the cost for the first year had already been quoted by the selected bidder as of the Bid Due Date. This approach created ambiguity as to whether the indexation mechanism was to be applied only from the second year onwards. The inconsistency highlighted the potential for alternate interpretations across projects and therefore required policy-level intervention.

The matter was subsequently examined in the Executive Committee (EC) meeting held on March 28, 2025, under Agenda Item No. 658.23. Upon deliberation, the EC concluded and NHAI has now formally clarified, that the PIM is applicable to each installment of O&M payments, including the first-year O&M installment.

The rationale for this clarification lies in the fact that the First-Year O&M cost referenced in Clause 23.7.1 of the CA represents the cost as of the Bid Due Date. Accordingly, the cost must be escalated by applying the PIM to reflect inflationary changes between the Bid Due Date and the actual payment period, including the first year.

With the issuance of the Circular, NHAI has eliminated the scope for divergent interpretations and has reinforced that all O&M installments without exception must be indexed to preserve price parity and economic balance throughout the concession period.

The Circular is expected to enhance consistency, transparency, and contractual certainty across HAM projects. By affirming the applicability of the PIM to the first-year O&M payment, NHAI ensures that both public authorities and concessionaires operate within a fair and predictable financial framework, thereby reinforcing confidence in the strength and credibility of the HAM model.