Disclaimer: Education only. Model concession agreements are revised from time to time; the specific project's signed concession agreement always governs. Figures are as of the date shown at the end of the page.

In simple words (if you are in class 10)

Suppose the government wants a new road. It has five ways to get it done:

Model Everyday analogy Who pays to build? Who collects money from cars?
EPC You hire a carpenter to make a table and pay him in full when done Government Government
BOT (Toll) A shopkeeper builds a shop on your land with his own money and keeps the earnings for 20 years, then hands it back Private company Private company
BOT (Annuity) The shopkeeper builds it, and you pay him a fixed "rent" every six months for years Private company Government (company gets fixed payments)
HAM You pay 40% of the cost while it's being built, and the rest in instalments with interest over 15 years Shared: 40% government, 60% company Government
TOT You already own a working shop; someone pays you a big amount today to run it and keep its earnings for 30 years Already built (government) Private company

The key question for an investor is: who gets hurt if fewer cars come? In BOT (Toll) and TOT, the private company does. In HAM and annuity, the government does, because it pays fixed instalments.

The professional view

Construction support from the authority: 40Completion cost funded by the concessionaire, repaid as annuities: 6040 : 60HAM funding split
  • Authority, during construction (40%)
  • Concessionaire, repaid by annuities (60%)
How a HAM project is funded40% of the indexed bid project cost is paid during construction (now in 10 instalments of 4%); 60% is repaid as half-yearly annuities over 15 years with interest.

Risk allocation matrix

Risk EPC BOT (Toll) BOT (Annuity) HAM TOT
Design and construction Contractor (limited, fixed-price) Concessionaire Concessionaire Concessionaire (with 40% support) N/A (built)
Financing Government Concessionaire Concessionaire 60% concessionaire Upfront fee by concessionaire
Traffic / revenue Government Concessionaire Government Government Concessionaire
Inflation on cost Government (price variation) Concessionaire, offset by toll escalation Concessionaire Mostly government via indexation Concessionaire, offset by toll escalation
Interest rate Government Concessionaire Concessionaire Partly government (interest paid on reducing balance) Concessionaire
O&M and major maintenance Government Concessionaire Concessionaire Concessionaire (paid O&M) Concessionaire

BOT (Toll)

  • The concessionaire designs, finances, builds, operates and maintains the road and collects toll for the concession period, then transfers it back.
  • Governed by MoRTH's Model Concession Agreement (MCA) for BOT (Toll), with revisions published on the MoRTH standard documents page.
  • March 2024 MCA amendments (summary by JSA):
  • Bar on an additional tollway now covers the whole concession period; if one is built, the concession can be extended for the traffic shortfall, capped at 30% of the original period.
  • Buy-back at design capacity: NHAI may buy back a project if average daily PCUs reach design capacity in 2 financial years within any 3 continuous years, paying the higher of a formula amount (80% of average monthly fee × 75% of remaining concession, less major-maintenance costs in the financial model) or the indirect political force majeure termination payment.
  • No competing road before the 10th anniversary of the appointed date unless traffic exceeds 90% of design capacity; breach now leads to compensation and extension.
  • Construction plus equity support up to 40% of Total Project Cost, paid in 10 instalments; NHAI's aggregate termination liability raised to 115% of Total Project Cost.
  • Why investors care: traffic risk, but upside from traffic growth and annual toll escalation.

Hybrid Annuity Model (HAM)

Per CARE Ratings' HAM methodology (Oct 2022):

  • Construction support: 40% of the bid project cost, adjusted by the price index multiple. The original agreement paid it in five instalments of 8%; the revised agreement of 10 November 2020 pays 10 instalments of 4% at 5%, 10%, 20% and so on up to 90% physical progress (ICRA via NBM&CW).
  • Remaining 60%: funded by the concessionaire (debt and equity), repaid by the authority as semi-annual annuities over a 15-year operations period.
  • Interest: paid on the reducing balance of the completion cost. Originally at bank rate + 3%; the revised agreement uses the average one-year MCLR of the top five scheduled commercial banks + 1.25% (same source). Check the specific concession agreement.
  • O&M payments: quoted by the bidder, paid with each annuity, inflation-indexed.
  • Indexation: bid project cost is indexed until COD using a Price Index Multiple, a 70:30 weighted WPI and CPI.
  • Key risks: land and approvals delays, cost overruns beyond indexation, interest-rate reset (lower bank rate means lower interest receipts), and deductions for not meeting maintenance standards.
  • Accounting: usually a financial asset under Ind AS (see Part 8), because the authority pays regardless of traffic.

Why InvITs like operational HAM assets: government counterparty, no traffic risk, so they can carry more debt. Why they are not risk-free: payment delays, annuity deductions, and interest-rate sensitivity.

Toll-Operate-Transfer (TOT)

  • NHAI awards the right to collect toll and the obligation to operate and maintain an existing, publicly funded highway for a long period (30 years for the first bundles) in return for an upfront lump-sum concession fee.
  • First bundle (2018): nine operational highways in Andhra Pradesh and Gujarat; NHAI's base price ₹6,258 crore; won by Macquarie at ₹9,681 crore; concession agreements signed 26 April 2018 (Cyril Amarchand Mangaldas blog; see also the World Bank PPP note). Total length 680.64 km (Indian Infrastructure, Sep 2018).
  • Why investors care: no construction risk, but full traffic risk, major maintenance obligations, and a big upfront payment that must be recovered from toll over the concession.
  • ICRA notes that TOT made up 53% of NHAI monetisation between FY2019 and FY2025, with the InvIT route growing since FY2022 (ICRA).

Where InvITs fit

Seller Typical asset Why sell to an InvIT
Private developer Operational BOT (Toll) or HAM SPVs Recycle equity into new bids
NHAI Publicly funded operational highways (via a TOT-like concession to the InvIT's SPV) Monetisation under the National Monetisation Pipeline
Financial investors Bundles bought under TOT Exit or long-term hold with listed liquidity

A director-level checklist when comparing models

  1. Revenue certainty: annuity counterparty strength vs traffic study quality.
  2. Remaining concession life vs debt tenor (the "tail" left after debt is repaid).
  3. Major maintenance timing and whether reserves (MMRA) are funded.
  4. Termination payment protection under each type of default.
  5. Change-in-law and force majeure relief mechanisms. In 2020 the ministry suggested the COVID lockdown be treated as force majeure under concession agreements; the remedy (extension, compensation) depends on each agreement's version.

Sources

Previous: Part 4 · Next: Part 6: Toll revenue, traffic and concessions

Education only. This page is not investment, tax, legal or accounting advice, and it does not recommend buying, selling or holding any security. Laws and rules change: check the linked primary source and consult a qualified professional before acting.

Last reviewed 25 October 2026. Spotted an error? Tell us and we will correct it.