Government Eases Exit Framework for Hybrid Annuity Highway Projects

The Ministry of Road Transport and Highways (MoRTH) has revised the Model Concession Agreement (MCA) for Hybrid Annuity Model (HAM) highway projects, introducing a “harmonious substitution” mechanism that enables a concessionaire to replace itself or its equity partners in stalled projects before formal termination for default.

Under the revised framework, substitution may be invoked in specified circumstances, including an uncured Authority Default such as delays in providing land or statutory clearances, failure by the concessionaire to infuse equity or mobilise resources and a request by the concessionaire to exit after the Commercial Operations Date. The mechanism is intended to facilitate continuity of projects while avoiding abrupt termination and abandonment.

The revised MCA also clarifies the financial consequences of delays attributable to the Authority, including the National Highways Authority of India (NHAI). A prolongation cost is to be calculated at 8% of the value of incomplete work for the period of delay, thereby establishing a defined basis for compensation in place of discretionary assessment of delay-related damages.

The HAM framework continues to provide for 40% of the project cost to be paid by the Authority during construction, with the balance released through annuity payments together with applicable interest. The revised provisions seek to address project continuity and risk allocation within this existing payment structure.

The revised MCA further incorporates local content requirements aligned with regulations issued by the Department for Promotion of Industry and Internal Trade (DPIIT), thereby introducing requirements relating to the use of domestic content in project implementation.

Changes have also been introduced in relation to changes in ownership of the concessionaire. The revised framework sets out conditions including the absence of termination or damages notices and approval from lenders. Change in ownership already requires NHAI approval, which reportedly often takes over 10 months; industry participants have expressed concern that the additional conditions may tighten bureaucratic control over such transactions.

The revised MCA retains the Government’s position against arbitration in HAM contracts, which developers had opposed when the same approach was adopted for Build-Operate-Transfer (BOT) Toll projects.