The Asian Development Bank (ADB) and the Government of India today signed a $490 million loan for public-private partnership (PPP) project to upgrade about 1,600 km of state highways and major district roads (MDRs) from single-lane to two-lane widths in the state of Madhya Pradesh. An additional $286 million investment will be mobilised through private sector participation under the PPP modality.

The signatories to the loan agreement were Shri Sameer Kumar Khare, Additional Secretary (Fund Bank and ADB), Department of Economic Affairs, Ministry of Finance, and Mr Kenichi Yokoyama, Country Director of ADB’s India Resident Mission.

After signing the loan agreement, Shri Khare said that state highways and major district roads provide a crucial link between rural roads and national highways. The upgradation of these roads under the project will improve rural and peri-urban connectivity in the state and improve access to markets and better services.

While Mr Yokoyama said that the project continues ADB’s engagement with the state’s road sector since 2002. This will open a new partnership by introducing PPP through the hybrid-annuity model (HAM), thereby leveraging government financing and improving sustainability of capital investments.

The HAM is a mix of engineering, procurement, construction, and build-operate-transfer. This passes the responsibility of design, implementation, and operation and maintenance obligations to the private sector, while attracting some private sector financing. Under this model, the government will release 60% of the total project cost during construction, to be paid to the concessionaire in tranches linked to completion milestones. The remaining 40% is arranged by the concessionaire in the form of equity and commercial debt. Once the project is completed, the government will repay the concessionaire’s financial investment over 10 years.

The project will upgrade 750 km of state highways and 850 km of MDRs to two-lane and all-weather standards with road safety features. It will also develop an e-maintenance system, which can record defects or required maintenance, along with a training program to develop capacity on contract implementation and project finance in the Madhya Pradesh Road Development Corporation. Since 2002, ADB has provided the state government with five loans to develop its road network, improving about 7,300 km of roads or about 11% of the total network.

ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. In 2018, it made commitments of new loans and grants amounting to $21.6 billion. Established in 1966, it is owned by 68 members-49 from the region.

Public-private partnership hybrid-annuity model assigns design, implementation and O&M to concessionaire with government milestone payments. A public private partnership using the Hybrid Annuity Model will upgrade about 1,600 km of state highways and major district roads by assigning design, construction, and operation and maintenance responsibilities to a private concessionaire; the government will make phased milestone linked payments during construction while the concessionaire arranges remaining equity and commercial debt and will be repaid over a defined post completion period. The project also mandates two lane all weather standards, road safety features, an e maintenance system, and capacity building for contract implementation and project finance.