Nepal | November 30, 2020

MoF mulls hybrid annuity in infra sector

Contractor to be made responsible for 10 years after project completion

Umesh Poudel
Share Now:

Kathmandu, February 19

To make contractors more responsible, the government is preparing to introduce a provision whereby the contractors will be made accountable for the project they have developed for up to 10 years after its completion.

Along with the provision to hold the contractor accountable for a longer period — which in turn is expected to enhance the quality of work, especially in large infrastructure projects, such as hydropower, roads, airports and railways — the Ministry of Finance (MoF) is also mulling over implementing the Hybrid Annuity Model (HAM).

In financial terminology, hybrid annuity means that the government makes payment in a fixed amount for a considerable period and then in a variable amount in the remaining period.

Currently a large number of countries have been following the HAM method for projects developed under different models, including public-private partnership (PPP) and engineering, procurement and construction (EPC).

Under HAM method, the contractors who have contracted to construct infrastructure project do not receive full payment during the project period. The contractor does not receive full payment during the construction and repair period either. At the end of the repair period, the government clears the payment according to the prevailing interest of the amount payable to the contractor.

Shree Krishna Nepal, head of International Economic Cooperation Coordination Division and joint secretary at the Ministry of Finance, informed that the government plans to immediately initiate the HAM method for new infrastructure projects, with special focus on donor-backed and those being developed through loan assistance.

“We are holding discussions on paying 70 per cent of the cost to the contractor during the project period and paying the remaining amount with interest at the end of the repair period of 10 years,” he added. “If we are able to implement HAM, it will make contractors more responsible as they will have to invest 30 per cent of the stipulated amount in the project.”

As per Nepal, MoF has forwarded the details of the plan to the Ministry of Physical Infrastructure and Transport for further processes.

Informing that the related technical issues need to be sorted out still, he said, “The existing Public Procurement Act needs to be amended before we can implement HAM.”

He further said that once the act is amended, the MoF plans to first test HAM on a large project financed by the World Bank — expansion of the 96-kilometre-long Thankot to Mugling strategic road section into four lanes.

The Department of Roads is preparing the detailed report of the said project.

“The defect liability period will be included in the contract agreement of the project.”

In India, the HAM is a mix of build, own, operate and transfer (BOOT) annuity and EPC models. As per the design, the Indian government contributes 40 per cent of the project cost in the first five years through annual payments (annuity).

The remaining payments are made on the basis of the assets created and the performance of the developer.


A version of this article appears in print on February 20, 2020 of The Himalayan Times.


Follow The Himalayan Times on Twitter and Facebook

Recommended Stories:

More from The Himalayan Times:

National Covid-19 tally reaches 231,978 on Sunday with 1255 fresh infections

KATHMANDU: The countrywide Covid-19 tally reached 231,978 as 1255 additional infections emerged on Sunday. The capital hosts the highest amount of active cases which, on an average, reports half of the daily reported live infections. Likewise, 1404 people who were earlier infected with the vir Read More...

25 more fatalities registered today; Covid-19 death-toll advances to 1,479

KATHMANDU: Twenty-five more fatalities were reported in the last 24 hours with which Nepal’s Covid-19 death-tally has now advanced to 1,479. Meanwhile, 1,255 fresh coronavirus cases as reported today took the nationwide coronavirus case count to 231,978. Over 1.4 million deaths from the dis Read More...

Kathmandu Valley records 548 new cases on Sunday

KATHMANDU: The three districts of Kathmandu Valley reported a total of 548 new cases of coronavirus infection on Sunday. Of the new cases, 244 are females and 304 are males. As many as 422 cases were recorded in Kathmandu district while Lalitpur and Bhaktapur reported 61 and 65 cases respectiv Read More...

Chinese Defence Minister calls on PM Oli

KATHMANDU: Chinese Defence Minister Wei Fenghe has called on Prime Minister KP Sharma Oli at the latter's official residence in Baluwatar. The State Councilor and Defence Minister of China arrived here this morning on a one day official visit. Fenghe had asserted that his short visit to Ne Read More...

Bayern made to sweat for 3-1 win at Stuttgart

STUTTGART: Kingsley Coman scored one goal and set up another as Bayern Munich came from a goal down to beat VfB Stuttgart 3-1 on Saturday and stay top of the Bundesliga. It was the seventh consecutive game that Bayern, who face Atletico Madrid in the Champions League next week, conceded a goa Read More...

Liverpool held, City on fire and Everton lose again

LONDON: Liverpool were held to a 1-1 draw at Brighton after conceding a VAR-inspired stoppage-time penalty while Riyad Mahrez scored a hat-trick in Manchester City's 5-0 crushing of Burnley in the Premier League on Saturday. Carlo Ancelotti's Everton suffered their fourth defeat in five games aft Read More...

Worldwide coronavirus cases cross 62.06 million, death toll at 1,450,479

LONDON: More than 62.06 million people have been reported to be infected by the novel coronavirus globally and 1,450,479​ have died, according to a Reuters tally. Infections have been reported in more than 210 countries and territories since the first cases were identified in China in December Read More...

Warner injured, Smith shines as Australia seal series

SYDNEY: Steve Smith was at his imperious best as he scored a second successive 62-ball century to drive Australia to a 51-run victory over India at the Sydney Cricket Ground on Sunday, sealing the one-day series 2-0 with a match to spare. The clash, almost a carbon copy of Australia's 66-run wi Read More...