Highway builders write to FM, road ministry; seek review of new arbitration norms

NEW DELHI: The apex body of highway builders, NHBF, has opposed the road transport ministry’s move to end arbitration in disputes with claims of over Rs 10 crore even for ongoing and contracted projects where arbitration has not been invoked yet. It has also requested finance minister Nirmala Sitharaman to issue sector-specific clarification or guidance regarding her ministry’s 2024 order to end arbitration for all such projects.

In its circular with regard to revised dispute resolution issued on Jan 12, the road transport ministry, while referring to the finance ministry order, said that any dispute between parties involving value of Rs 10 crore or more will not be referred to arbitration, and these will be resolved by conciliation.

In its letter to road transport secretary V Umashankar, the National Highway Builders Federation (NHBF) has said invoking this provision in ongoing projects is “against settled principle of fair contracting” and would have a cascading impact on lenders and highway builders. It has urged the ministry to withdraw the revised provisions to ongoing projects, claiming that such a move will “impair project cash flow and debt servicing ability”, “trigger lenders concerns” as well as shift financial stress to the banking system.

In a separate letter to Sitharaman dated Jan 17, the federation has submitted that the revised dispute framework, in its present form, discourages investment, increases project cost, delays execution and transfers the financial risk to the banking system.

“Given the long concession periods, high leverage, dependence on stable cash flows and sensitivity of financing structures, dispute resolution mechanisms for highway projects require sector-specific calibration,” the NHBF said.

Separately, NHBF has flagged the issue with bankers and financial lenders, suggesting they assess the impact of ending arbitration on highway loan portfolio with respect to ongoing projects as well as bankability of future projects under the amended model concession agreements of BOT, HAM and EPC.

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