Rs 8,000-crore retention funds to be released to EPC highway contractors

By: |
June 8, 2020 12:52 PM

Developers are required to keep 5% of the project cost as retention money with the government during the construction period.

Retention money is the amount a concessionaire has to keep with the government during the construction period, in proportion to the work already executed.Retention money is the amount a concessionaire has to keep with the government during the construction period, in proportion to the work already executed.

The ministry of road transport and highways (MoRTH) has decided to release Rs 7,500-Rs 8,000 crore of retention money to provide liquidity support to engineering, procurement and construction (EPC) concessionaires. Retention money is the amount a concessionaire has to keep with the government during the construction period, in proportion to the work already executed.

“Currently, around 1,260 EPC projects, measuring 36,000 km, are in various stages of construction at an estimated cost of Rs 3.65 lakh crore. Retention money lying with the MoRTH for these projects could be anywhere between Rs 7,500 crore and Rs 8,000 crore,” said ICRA’s Rajeshwar Burla.

Developers are required to keep 5% of the project cost as retention money with the government during the construction period.

The ministry has said no fresh deductions of retention money would be made in the next three to six months. Bulk of the contractors’ cash profit remains stuck in the form of retention money. Therefore, release of this money on an immediate basis will be a liquidity breather for contractors, Burla said.

The MoRTH said the decision to release the retention money was taken after due consideration of the representations received from the construction industry. It would provide urgent relief to contractors, concessionaires and developers of the road sector in view of the prevailing situation, it said.

The ministry said for projects being developed on the Hybrid Annuity Model/Build-Operate-Transfer basis, performance guarantee may be released on a pro-rata basis, as per the contract, if the concessionaire is not breach of contract.

The MoRTH has extended time to contractor/concessionaire for meeting their obligation under the contract for three months to up to six months depending on site conditions. It has also waived off penalty for delay in submission of performance security/bank guarantee in new contract entered during March 2020 and September 2020.

The concession period of BOT contracts will be extended by a period equal to the duration of three months to up to six months, it said, adding that further for loss in user fee, the concession period will be extended by a period in accordance with the contract till the time daily collection is below 90% of the average daily fee.

It also said that for all national highway tolling contracts, loss in collection of fee may be compensated in accordance with the contract.

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