New norms to ease fund flow for disputed projects

NEW DELHI: In a boost for the construction sector, the finance ministry has issued new norms that will help facilitate release of funds of projects where arbitration award has been challenged by government departments. The move will meet the need of much-needed liquidity for companies, some of whom have been caught in disputes with government agencies that have been lingering for years. A part of the funds is also meant to be used for completion of projects, which may have been held up due to disputes. In fact, a decision on release of funds for such projects was taken five years ago but it is only now that the expenditure department has issued detailed guidelines that change the Centre’s General Financial Rules (GFR). The move is seen to be part of attempts by the government to ensure that pending payments are cleared and liquidity is available with companies, which can be ploughed back into new projects and contracts and create demand for related industries such as steel and cement. The finance ministry has been pushing departments to meet their capital expenditure targets for the current financial year and has promised that it is ready to release funds to agencies that want more resources to take up productive, asset-generating projects. Finance minister Nirmala Sitharaman has been meeting various ministries on the issue. In this case, the expenditure department said that based on Niti Aayog’s recommendations, GFR have been amended to provide that in cases where a government department has challenged an arbitration award, resulting in the amount not being paid to the developer or the contractor, 75% of the award money (including interest) will be paid to the concessionaire or the developer against submission of bank guarantees (BG). The BG will become payable to the ministry or the department concerned in case the court orders the contractor to refund the money. The finance ministry said that the money will be deposited into an escrow account with the stipulation that funds be first transferred to lenders and then used for completion of projects. Any remaining amount can be used by the concessionaire, subject to approval from the lead banker. For long, companies in the construction sector have complained of disputes holding up funds as well as projects that had been awarded to them. Several developers have faced problems with lenders as money has been held up in disputes for years, resulting in them having had to stop taking up government projects.

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