National Highway builders ask Finmin to clarify arbitration order

The National Highway Builders Federation (NHBF) has requested the finance ministry to issue sector-specific clarification or guidance regarding the ministry's order of 2024 to end arbitration for all projects involving disputes of at least ₹10 crore each.

In a submission to finance minister Nirmala Sitharaman, dated January 17, the federation argued 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.

Following the finance ministry's order of 2024, the road transport and highways ministry amended the model concession agreement for all kinds of highway projects, including the build-operate-transfer (BOT), hybrid annuity model (HAM) and procurement, engineering and construction (EPC), to replace the arbitration mechanism with mandatory conciliation and mediation mechanisms, followed by an appeal in the civil court, if needed.

"Given the long concession periods, high leverage, dependence on stable cash flows and sensitivity of financing structures, dispute resolution mechanisms for the highway projects require sector specific calibration," the NHBF said. "This would ensure that the contractual framework remains balanced, bankable and aligned with the objective of attracting long-term private capital into the national highways programme."

Separately, the federation 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.

"Restricting arbitration makes several BOT/HAM projects structurally unbankable, leading to higher cost of capital, reduced bid appetite and slower infrastructure rollout," said the NHBF. "Further, for the ongoing projects, the high-value claims due to change of scope, delayed payments, prolongation and termination under the new mechanism can lead to cash-flow disruption, covenant breaches and refinancing and infrastructure investment trust (InvIT) exit risk."

Internal estimates suggest there were nearly 2,600 arbitration awards in the highways sector between 2015 and 2025, with concessionaires raising disputes of about Rs 90,000 crore and the arbitration award of more than Rs 30,000 crore.