State-owned National Highways Authority of India (NHAI) announced on Friday that it has accepted the first insurance surety bond for the monetization program of the upcoming bid of Toll Operate Transfer (TOT) Bundle 14. This move aims to enhance liquidity and capacity of bidders.
NHAI stated that this innovative instrument will be utilized as a Bank Guarantee (BG) in the road infrastructure sector for the first time for bid monetization.
Insurance surety bonds involve insurance companies acting as ‘surety’ and providing financial guarantee that the contractor will fulfill its obligations as per the agreed terms.
The Ministry of Finance has placed e-BG and Insurance Surety Bonds on par with Bank Guarantees for all government procurement.
NHAI has collaborated with Highway Operators Association of India (HOAI), SBI General Insurance, and AON India Insurance to implement this initiative.
The statement confirmed that the insurance surety bond has been issued for NHAI monetization bid of TOT bundle 14 at a rate of 0.25% by the insurer, without any margin money.
This move is expected to result in significant savings for concessionaires, thus enhancing liquidity in the market and promoting growth and development in the road sector.
NHAI has called on insurance companies and contractors to consider using insurance surety bonds as an additional mode of submitting Bid Security and /or Performance Security.
The issuance of insurance surety bonds is expected to set a new benchmark for the industry, demonstrating the importance of innovative financial solutions in the evolving landscape of road infrastructure development.
It is seen as a step towards facilitating ‘Ease of Doing Business’ and encouraging private participation in the highway sector.
Since 2022, NHAI has received 1,665 BGs amounting to Rs 15,000 crore. This large volume of BGs provides a significant opportunity for insurance companies, and the wider adoption of surety bonds will increase the availability of capital for road projects.
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First Published: Nov 10 2023 | 5:24 PM IST