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Arbitration claims stump NHAI as it stares at Rs 18,000 crore payout

Arbitration claims stump NHAI as it stares at Rs 18,000 crore payout

(This story originally appeared in on Oct 11, 2019)

NEW DELHI: Exorbitant arbitration claims by highway developers — which in one case may add up to 13 times of the project cost — has stumped National Highways Authority of India (NHAI), which could be staring at nearly Rs 17,000-18,000 crore payout on this account over the next couple of years.

Currently, around 180 arbitration cases are going on with claims of highway builders and concessionaires totalling nearly Rs 71,000 crore. On its part, NHAI has made counter claims of around Rs 37,000 crore. Sources said assuming that arbitral awards have been around 25% of the claim amounts, it’s roughly estimated that NHAI may need to provision for a large sum.

Some cases show how several highway builders have made huge claims against the work done. In one case, Madhucon has made claims of Rs 8,199 crore against total project cost of Rs 629 crore – over 13 times the cost of Madurai-Tuticorin prject. In another case, Soma-Isolux has made claims of Rs 7,036 crore, two-and-a-half times the project cost of Rs 2,747 crore.

An analysis of the claims made by private players shows that the claim amount were mostly high and almost similar to the value of works executed by them. The list of developers, making high claims reads like the who’s who of the road sector who took up projects under the public-private partnership model.

NHAI data show that till March 2018, works worth Rs 1.2 lakh crore were carried out by developers in 426 projects. The highway builders had gone for arbitration in 740 seeking total claims of Rs 1.07 lakh crore. NHAI also made counter claims of Rs 37,200 crore on road builders for their failures.

How claims are largely inflated by road builders is evident from the fact that in 560 arbitration cases out of the total 740, claims of Rs 36,100 crore was finalised with total arbitral awards of Rs 9,171 crore, which was barely a quarter of the claim amount. While NHAI has settled 220 of these arbitral awards of Rs 2,098 crore for only Rs 805 crore, in rest of cases the authority has either challenged the arbitration awards or these are under scrutiny.

Some of the highway contractors TOI spoke to admitted that they raise large claims knowing fully well that many of them will be shot down during arbitration process.

“The reasons for seeking claims range from NHAI failing provide land, getting clearances, shifting of utilities to give clear land for carrying out construction to idling of machines and manpower. Seeking exorbitant claims has become the trend in the industry. They go for high claims with the hope that all of them cannot be struck down,” said a senior executive of a major road building firm.

Industry sources said about 4-5 years back, the authority had decided to make counter claims to tame the road developers, though it has not been successful enough to put a brake on the developers seeking high compensation.

Amid growing criticism from within and outside the government on the trend of government entities challenging most of the arbitration awards, an NHAI official said, “The awards are not mechanically challenged. We challenge cases where the amounts awarded by the tribunal where it’s more than the contract price, breach of supplementary agreement is allowed or higher interests have been awarded.”

Officials said to find alternative ways to reduce arbitration cases, NHAI had set up an Independent Settlement Advisory Committee (ISAC), headed by a retired high court judge in 2013. The panel had settled 124 cases of Rs 19,424 crore claims with Rs 1,814 crore, which was only 10.7%. This also indicates how exorbitant the claims of private contractor are.

Since June 2017, the authority has put in place a Conciliation Committee of Independent Experts (CCIE) which has settled 16 cases and conciliation process is still on in 15 cases.

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