Highway Builders Challenge Government's Arbitration Ban
The National Highway Builders Federation (NHBF) has strongly opposed a recent government move. The road transport ministry wants to end arbitration for disputes involving claims of over Rs 10 crore. This change applies even to ongoing projects where arbitration has not started yet.
Federation Calls Decision Unfair
In a letter to Road Transport Secretary V Umashankar, the NHBF expressed serious concerns. The federation stated that applying this new rule to existing contracts goes against fair contracting principles. They warned this decision could create a cascading negative effect on lenders and builders across the highway sector.
The NHBF has urgently requested the ministry to withdraw these revised provisions for ongoing projects. Builders argue this move will directly harm project cash flows. It could also impair their ability to service debt and trigger significant concerns among financial lenders.
Financial Risks to Banking System
The federation highlighted a major risk. They believe ending arbitration could shift substantial financial stress directly onto the banking system. Highway projects typically involve long concession periods and high leverage. These projects depend heavily on stable cash flows for their financing structures to work properly.
In a separate communication to Finance Minister Nirmala Sitharaman, the NHBF elaborated further. They submitted that the revised dispute framework in its current form creates multiple problems. It discourages new investment, increases overall project costs, delays execution timelines, and transfers financial risk to banks.
Request for Sector-Specific Clarification
The NHBF has specifically asked Finance Minister Sitharaman for clarification. They want sector-specific guidance regarding her ministry's 2024 order. This order aims to end arbitration for all projects with disputes exceeding Rs 10 crore.
The road transport ministry referenced this finance ministry order in its January 12 circular. The circular outlined revised dispute resolution procedures. It stated that disputes involving Rs 10 crore or more will no longer go to arbitration. Instead, these disputes must be resolved through conciliation processes.
Warning to Financial Institutions
Separately, the NHBF has alerted bankers and financial lenders about this issue. They suggest financial institutions carefully assess the potential impact. Ending arbitration could affect both existing highway loan portfolios and the bankability of future projects.
This assessment is particularly important for projects under various model concession agreements. These include Build-Operate-Transfer (BOT), Hybrid Annuity Model (HAM), and Engineering, Procurement, and Construction (EPC) frameworks. The federation emphasizes that highway projects require specially calibrated dispute resolution mechanisms due to their unique financial characteristics and long timelines.
