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Wednesday, July 24, 2024

NHAI Introduces Innovative Insurance Surety Bond for Monetization Bid of ToT Bundle 14

NHAI Introduces Insurance Surety Bonds in Monetization Program for TOT Bundle 14 Bid in Collaboration with Title Agency. This groundbreaking move aims to enhance liquidity and capacity for bidders, marking the first instance of utilizing insurance surety bonds as Bank Guarantees (BG) in the road infrastructure sector for bid monetization.

Insurance surety bonds involve insurance companies acting as ‘surety,’ providing financial guarantees that contractors will fulfill their obligations according to agreed-upon terms. The Ministry of Finance has equated e-BG and Insurance Surety Bonds with Bank Guarantees for all government procurement.

NHAI collaborated closely with the Highway Operators Association of India (HOAI), SBI General Insurance, and AON India Insurance to implement this initiative.

The statement from NHAI highlighted that the insurance surety bond for the TOT Bundle 14 monetization bid was issued at a rate of 0.25% by the insurer, without requiring any margin money.

This move is expected to result in significant cost savings for concessionaires, contributing to increased liquidity in the market and fostering a favorable environment for the growth and development of the road sector.

NHAI encourages insurance companies and contractors to adopt insurance surety bonds as an alternative method for submitting Bid Security and/or Performance Security.

The issuance of insurance surety bonds is poised to set a new industry benchmark, emphasizing the importance of innovative financial solutions in the evolving landscape of road infrastructure development. It is anticipated to stimulate private participation in the highway sector and represents a substantial stride towards facilitating ‘Ease of Doing Business,’ according to the NHAI statement.

Since 2022, NHAI has received 1,665 Bank Guarantees amounting to Rs 15,000 crore. The substantial volume of Bank Guarantees presents a significant opportunity for insurance companies, and the broader adoption of surety bonds is expected to enhance the availability of capital for road projects.

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