Hybrid Annuity Model (HAM): how it works, the 2026 rules and what it means for foreign firms

India’s Cabinet approved HAM in January 2016 for highway projects that were not viable as toll concessions. The private partner (the concessionaire) designs, builds, partly finances and maintains the road; the government authority collects tolls and keeps traffic and revenue risk, as well as inflation risk.^[1]

HAM sits between a fully government-funded EPC contract and a fully private toll concession:^[5]

The roads ministry (MoRTH) published a revised HAM model concession agreement in September 2026. Its main payment terms are:^[4]

• Construction support: 40%. 40% of the inflation-adjusted bid project cost is paid in ten instalments of 4%, triggered at set physical progress milestones (5%, 10%, 20% and so on to 90%) and paid within 15 days of the independent engineer’s certificate.
• Annuities: 60% over 15 years. The balance is paid in 30 half-yearly annuities, rising from 2.10% to 4.75% of the outstanding completion cost.
• Interest. Interest on the unpaid balance is the average one-year lending rate (MCLR) of the top five banks plus 1%, down from plus 1.25% in the 2020 terms; the original 2016 terms used the RBI bank rate plus 3%. Annuities start 180 days after the commercial operation date.^[4][2][3]
• Inflation indexation. The bid project cost is indexed by a price index multiple weighted 70% to wholesale prices and 30% to consumer prices, from bid date to each payment.^[4]
• Operation and maintenance. O&M is paid as fixed, indexed amounts (for flexible pavement, nil in year one, 0.40% of bid project cost a year in years two to four and 0.60% after that, plus a renewal allowance). Costs above these amounts are the concessionaire’s.^[4]
• Mobilisation advance. Up to 10% of project cost, recovered from the construction instalments.^[4]

Model agreements are templates; individual tenders can vary terms. Check the agreement attached to each tender.

To see how the money flows, take a highway with a bid project cost of ₹1,000 crore. This is an illustration only: it ignores inflation indexation, GST and the exact milestone timing.

Illustration based on the September 2026 model concession agreement and typical equity levels.^[4][6] Actual tenders set their own figures.

The concessionaire’s return therefore depends on three things it controls: building on time and on budget, keeping financing costs below the interest it is paid, and maintaining the road for less than the fixed maintenance payments. Traffic does not enter the calculation.

HAM grew out of a model annuity agreement prepared by the Planning Commission in April 2014; decisions on how to deliver highway projects were delegated to the roads ministry in September 2014.^[1] The terms have been revised twice since the 2016 launch:

Sources: 2016 and 2020 terms from CARE Ratings and NBM&CW; 2026 terms from MoRTH.^[2][3][4]

Rating agency CARE called the 2020 changes “credit positive”, estimating that they raised project returns by about 1.1 percentage points.^[2] The 2026 model trims the interest margin but tightens land readiness and termination terms, shifting the balance of risk again.

In January 2016 the Cabinet also approved HAM for sewage treatment under the Namami Gange programme for the river Ganga.^[8] The sewage version differs from roads:

• 40% of the bid cost is paid during construction and the other 60% in 60 equal quarterly instalments over 15 years, with operation, maintenance and power charges paid quarterly against performance targets.^[9]
• The National Mission for Clean Ganga must keep an escrow funded with the next two years of annuity, interest, O&M and power payments, which gives operators strong payment security.^[9]
• Haridwar and Varanasi were the first awards; Mathura became the first “One City One Operator” project, in which one operator builds new plants and runs the existing ones, with Indian Oil buying 20 MLD of treated water.^[10][11] Patna’s 150 MLD Digha and Kankarbagh plants were awarded to a WABAG subsidiary in 2021.^[12]
• By 2025 Namami Gange had 37 HAM projects in 29 packages worth ₹14,044 crore, for 3,133 MLD of treatment capacity across five states.^[13]

See our guide to water and wastewater in India and the India Water Market Playbook for the wider sewage market.

• Funded escrow. Once a plant is running, the National Mission for Clean Ganga must keep two years of annuity, interest, operation and power payments in escrow.^[9]
• Termination. If the operator defaults before completion, it receives 85% of debt due, which protects its lenders.^[9]
• Performance-linked payments. Operation, maintenance and power charges are paid quarterly against key performance indicators, so operating expertise is paid for directly.^[9]
• Professional preparation. IFC acted as transaction adviser on the first sewage HAM projects, and US engineering firm Black & Veatch defined the scope and drafted the contract for Prayagraj.^[11][32]

The model is still growing: the mission added 538 MLD of treatment capacity through 18 projects in FY2025-26.^[34] Some states have adopted the city-wide approach without HAM: Uttar Pradesh awarded One City One Operator operation and maintenance contracts for Agra and the Ghaziabad zone to WABAG in 2022.^[33]

• Since 2016, about 433 highway projects covering 19,100 km and worth ₹5.29 lakh crore have been awarded under HAM; awards peaked at 95 projects in FY2021-22.^[14] Across all road awards in FY2023-24, EPC made up about 70–75%, HAM 25–30% and toll concessions almost none.^[15]
• Under the Bharatmala highway programme, HAM accounted for 11,269 km, or 43% of length awarded, worth ₹4.37 lakh crore.^[18]
• For the National Highways Authority of India (NHAI) alone, HAM was about 65% of length awarded in FY2024-25 and 82% of the early FY2025-26 total.^[16][17] NHAI’s FY2025-26 bid pipeline listed 29 HAM projects worth ₹76,150 crore against four toll projects.^[20]
• Competition is intense: average HAM bids came in 16% below the authority’s estimate in FY2024-25 and 21% below in the first ten months of FY2025-26.^[19]

Toll concessions are being revived alongside HAM, with a revised BOT-Toll model agreement in August 2026 and new rules letting sovereign, pension and private equity funds bid, but HAM remains the default for projects that cannot show a strong toll return.^[7][21] New HAM corridors were still being approved in 2026, such as Odisha’s ₹8,301 crore coastal highway.^[22]

The government wants more projects back on toll concessions, where private capital also takes traffic risk. Toll concessions reached about 210 km, roughly 10% of awards, in FY2024-25, and NHAI set a target of about 1,000 km for FY2025-26, but new toll projects must show a return of at least 15% on actual FASTag traffic data; projects that cannot are awarded as HAM or EPC.^[21]

In 2026 the roads ministry revised the toll model agreement to add revenue support and a buyback option, opened toll bidding to sovereign, pension and private equity funds, and listed 54 projects worth about ₹1.8 lakh crore for 2026-27.^[7] For bidders, the practical result is a mixed pipeline: toll for the strongest corridors, HAM for the rest.

• Capital structure. Equity is typically 12–15% of bid project cost.^[6] One 2025 rating showed funding of 37% authority grant, 47% debt and 16% equity, with NHAI’s AAA credit standing behind the annuities and escrow and reserve accounts protecting lenders.^[23]
• Payment record. NHAI annuities have mostly been paid on time after early procedural delays; HAM projects with state authorities have seen more payment delays.^[6]
• Refinancing. A June 2025 NHAI circular lifted refinancing restrictions after the commercial operation date.^[24]
• Exit to InvITs. Infrastructure investment trusts bought 48 operating HAM assets in FY2022–25 for a combined enterprise value of ₹30,450 crore, at a median of about six times EBITDA.^[14] About 34 more HAM assets worth around ₹24,000 crore were in the process of sale at the time. This gives developers a clear exit once projects are operating, and gives long-term investors a steady, government-backed income stream.

Bidders compete on the bid project cost, and with average bids now 16–21% below the authority’s estimate, the margin for error is small.^[19] Before committing bid costs, check:

1. The authority

   NHAI and Namami Gange projects have stronger payment records and escrow arrangements than many state projects.^[6][9]

2. Land and approvals

   How much right of way is already in hand, and how realistic the appointed date is.^[4][30]

3. Your partner

   Whether your Indian partner’s completed works and finances meet the pre-qualification rules, and how risk and returns are shared between you.

4. Financing

   Lender appetite for the project, refinancing options after completion and the exit route to an InvIT.^[24][14]

5. Contract terms

   Termination payments, the dispute route and GST treatment in the specific agreement.^[4][31]

Foreign capital is already a large owner of operating HAM roads through infrastructure investment trusts:

• KKR. The KKR-backed Highways Infrastructure Trust, now Vertis, bought 12 road assets from PNC Infratech in 2024, 11 of them NHAI HAM projects, for ₹9,006 crore. By 2026 it held 15 operating HAM projects with annuities received on time.^[25][26]
• Cube Highways. Backed by I Squared Capital, ADIA, BCI and Mubadala, Cube Highways Trust agreed in 2024 to buy seven road assets, six of them HAM, for ₹5,172 crore.^[27][28]
• GIC and Cintra. Singapore’s GIC held about 49% of IRB Infrastructure Trust, and Spain’s Cintra (Ferrovial) agreed in 2024 to buy 24%.^[29]

For foreign contractors and technology firms, HAM’s appeal is the 40% construction support and the government-backed annuity: the main risks are execution and the Indian partner, not traffic. Most foreign firms take part through a consortium or joint venture with an Indian developer that has the track record to pre-qualify. Our joint venture guide explains how those partnerships are structured.

• Delays before the start date. In early 2025, more than ₹1 trillion of NHAI HAM projects were delayed by over six months.^[30] The September 2026 model agreement requires 90% of the right of way before the appointed date (up from 80%), lets the contract lapse if the appointed date is not reached within a year, and compensates authority-caused delays at a set formula.^[4]
• Thin bid margins. Bids 16–21% below estimates leave little room for cost overruns, which sponsors must fund beyond what inflation indexation covers.^[19][6]
• Termination. Under the 2026 model, concessionaire default during construction pays nothing at the first milestones, rising to 85% of debt due; after completion, 90% of debt due. Authority default before completion pays debt due plus 120% of adjusted equity.^[4]
• Disputes. The 2026 model allows arbitration only for claims below ₹10 crore; larger claims go to conciliation or the courts.^[4]
• Tax. GST is charged on HAM as a continuous supply, falling due at invoice or payment, whichever is earlier, including on the construction portion.^[31]
• State authorities. Payment security is weaker on HAM projects run by state bodies than on NHAI or Namami Gange projects with funded escrows.^[6][9]