NHAI accepts first insurance surety bond as bid security

• The National Highways Authority of India (NHAI) has accepted first insurance surety bond for the monetisation program of the upcoming bid of Toll Operate Transfer Bundle 14 at the rate of  0.25 per cent by the insurer without any margin money.

• It is the first time this innovative instrument is being utilised as a bank guarantee in the road infrastructure sector for monetisation of bids.

• NHAI has been working closely with Highway Operators Association of India (HOAI), SBI General Insurance and AON India Insurance to implement this initiative.

• This will translate into big savings for concessionaires, which will further enhance liquidity in the market, thereby fostering an environment conducive to the growth and development of the road sector.

Significance of insurance surety bond

• Insurance surety bonds are instruments where insurance companies act as ‘surety’ and provide the financial guarantee that the contractor will fulfil its obligation as per the agreed terms.

• Surety bonds act as a viable option to bank guarantees and offer longer maturity terms than the traditional banking products. Surety bonds are one of the most cost-effective ways to finance contract security options.

• NHAI has urged insurance companies and contractors to use insurance surety bonds as an additional mode of submitting bid security or performance security. 

• So far, over 40 surety bonds have been issued for various NHAI contracts.

• Issuance of insurance surety bonds will set a new benchmark for the industry, highlighting the importance of innovative financial solutions in the evolving landscape of road infrastructure development.

• It will encourage private participation in the highway sector and will be a significant step towards facilitating ‘Ease of Doing Business’.

• The ministry of finance has made electronic bank guarantee (e-BG) and insurance surety bonds at par with bank guarantees for all government procurement.

• Since 2022, NHAI has received 1,665 bank guarantees amounting to Rs 15,000 crore. This large volume of bank guarantees offers a huge scope for insurance companies and wider adoption of surety bonds will boost availability of capital for road projects.

National Highways Authority of India (NHAI)

• The National Highways Authority of India (NHAI) was set up through an Act of Parliament, namely the National Highways Authority of India Act, 1988. 

• The NHAI became operational in February 1995.

• The NHAI is responsible for the development, maintenance and management of the National Highways entrusted to it and for matters related or incidental thereto. 

• Its main objective is to ensure that all contract awards and procurements conform to the best industry practices with regard to transparency of process, adoption of bid criteria to ensure healthy competition in award of contracts, implementation of projects conform to best quality requirements and the highway system is maintained to ensure best user comfort and convenience.

• India has the second largest road network in the world of about 63.32 lakh km. This comprises national highways, expressways, state highways, major district roads, other district roads and village roads.

• The national highways have a total length of 1,44,955 km, which in totality serve as the arterial network of the country.

• Although national highways constitute only about 2 per cent of the road network, it carries 40 per cent of the total road traffic. 

• Rapid expansion of passenger and freight traffic makes it imperative to improve the road network in the country. Accordingly, the government launched major initiatives to upgrade and strengthen National Highways through various phases of National Highways Development Project (NHDP).

Functions of NHAI:

i) To develop, maintain and manage National Highways vested in it by the government.

ii) To collect fees on National Highways, regulate and control the plying of vehicles on National Highways for its proper management.

iii) To develop and provide consultancy and construction services in India and abroad and carry on research activities in relation to the development, maintenance and management of highways or any other facilities there at.

iv) To advise the central government on matters relating to highways.

v) To assist on such terms and conditions as may be mutually agreed upon, any state government in the formulation and implementation of schemes for highway development.

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