State-owned National Highways Authority of India (NHAI) announced on Friday that it has accepted the first insurance surety bond for the upcoming bid of Toll Operate Transfer (TOT) Bundle 14 under its monetization program. This move aims to enhance liquidity and capacity of bidders.
NHAI stated that this is the first time an innovative instrument is being utilized as a Bank Guarantee (BG) in the road infrastructure sector for monetization of bids.
Insurance surety bonds are instruments where insurance companies act as ‘surety’ and provide the financial guarantee that the contractor will fulfill its obligations as per the agreed terms.
Additionally, the Ministry of Finance has made e-BG and Insurance Surety Bonds at 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 highlighted that an insurance surety bond has been issued for NHAI monetization bid of TOT bundle 14 at 0.25% by the insurer without any margin money, leading to significant savings for concessionaires and enhancing liquidity in the market.
NHAI has encouraged insurance companies and contractors to use 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 and encourage private participation in the highway sector, ultimately facilitating ‘Ease of Doing Business’.
Since 2022, NHAI has received 1,665 BGs amounting to Rs 15,000 crore. The high volume of BGs provides a significant opportunity for insurance companies, and wider adoption of surety bonds will boost availability of capital for road projects.
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First Published: Nov 10 2023 | 5:24 PM IST