Infrastructure Firms Struggle to Tap 75% Disbursement of Arbitration Amount

HCC and Reliance Infrastructure (R-Infra) are two such companies which expected to get funds under the directive

The government's August 31 directive for state agencies to pay 75% of an arbitral award they wish to dispute into an escrow account is not being implemented, say infrastructure companies. No such disbursement (against a margin-free bank guarantee) has taken place, they complain.

HCC and Reliance Infrastructure (R-Infra) are two such companies which expected to get funds under the directive, issued by the Cabinet Committee on Economic Affairs (CCEA). The aim was to revive the construction sector. 

“It is difficult to say what are the reasons but how the order has to be implemented, the operating procedures and its monitoring, are still being discussed. (Hopefully) very soon, everybody should start giving the bank guarantees and start getting the money out,” said Praveen Sood, finance head at HCC.

The CCEA intent was to use the escrow account for repaying bank loans or to meet commitments in ongoing projects. HCC alone had arbitration awards worth Rs 3,427 crore as of end-September; it is also under a big debt load — Rs  5,000 crore of standalone and Rs 10,000 crore of consolidated debt.

R-Infra has arbitration awards of Rs 170 crore from two projects of National Highways Authority of India (NHAI). This month, it said it had yet to get the money. “It is a chicken-and-egg question — should NHAI give its approval and then the beneficiary gives the bank guarantee and take it or do they wait for the beneficiary to give the bank guarantee and then NHAI will react,” said K K Mohanty, managing director, Gammon Infrastructure.

Noting the confusion, NHAI issued proposed guidelines to claim the disbursements and had called for suggestions on these. 

It did not reply to an e-mail query from Business Standard on this. Infra company officials say NHAI has started the process to bring clarity but similar steps are awaited from other government agencies.

The CCEA decision also covers public sector utilities. An e-mail query to NTPC and NHPC also remained unanswered.

“Nothing much has been done in terms of the procedures. So, companies are waiting for clarity. The government will have to take the lead and give confidence. Companies are not going to incur costs on bank guarantees and then wait for clarity,” said Ramesh Vaidyanathan, managing partner at Advaya Legal.

Reference - http://www.business-standard.com/article/companies/infrastructure-firms-struggle-to-tap-75-disbursement-of-arbitration-amount-116112500033_1.html