Financial Risk Identification and Management of Road Projects in Hybrid Annuity Model

Public–private partnership (PPP) models are in demand for infrastructure development all over the world. Due to financial limitations and growing infrastructure sector has lead to the development of various PPP models in developing countries. Indian highway sector is facing many financial challenges in implementing existing PPP models. There are different PPP models in the highway sector such as build-operate-transfer, design-build-operate-transfer, andbuild-own-operate-transfer. A new variant of the PPP—hybrid annuity model (HAM) is introduced by the National Highway Authority of India in 2016. The research work aims to develop a financial risk model for HAM from the government’s perspective in road infrastructure projects. In this study, NPV (net present value)-@-Risk Model is developed. NPV-@-Risk is the NPV at a specific confidence level. It is the decision-making tool in determining the financial feasibility of the project. From the literature, financial risk parameters are identified and a case study of the road project is selected. Project cash flows are drawn for the project. The probability distribution is applied for risk parameters. Model is developed in @Risk software and Monte Carlo simulation is done to analyze the results. This considers uncertainties involved in project cash flow. The result shows the variation of NPV and the most influencing parameter on project cash flow. This research work provides investment decision and risk evaluation of the project for both government as well as a concessionaire. The limitation of the study is, it is applied to one case study due to limitations in the availability of project financial data.