Daily Current Affairs : 14-November-2023

In a significant move aimed at enhancing liquidity and capacity among bidders, the National Highways Authority of India (NHAI) has embraced the use of insurance surety bonds in its Toll Operate Transfer (TOT) Bundle 14 monetization program. This groundbreaking step marks the first instance of such an instrument being employed as a Bank Guarantee (BG) in the road infrastructure sector for bid monetization.

Understanding Insurance Surety Bonds

Definition and Functionality

Insurance surety bonds involve insurance companies acting as ‘Surety,’ offering a financial guarantee that contractors will fulfill their obligations as per agreed terms. The Ministry of Finance, Government of India, has equated e-BG and Insurance Surety Bonds with Bank Guarantees for all government procurements.

Collaborative Efforts

NHAI has collaborated closely with the Highway Operators Association of India (HOAI), SBI General Insurance, and AON India Insurance to implement this pioneering initiative.

Importance of Insurance Surety Bonds

Strengthening National Highway Infrastructure

The introduction of Insurance Surety Bonds is poised to fortify the development of National Highway Infrastructure, with far-reaching positive consequences for the Indian economy.

Savings and Liquidity Enhancement

This innovative financial instrument is expected to result in substantial savings for concessionaires, fostering increased liquidity in the market. This, in turn, creates an environment conducive to the growth and development of the road sector.

Encouraging Private Participation

By facilitating private participation in the highway sector, the acceptance of Insurance Surety Bonds by NHAI is a significant stride towards improving the ‘Ease of Doing Business.’

Important Points:
  • NHAI’s Milestone Decision:
    • NHAI has accepted the use of insurance surety bonds for the monetization program of Toll Operate Transfer (TOT) Bundle 14.
    • This marks the first instance of such an instrument being employed as a Bank Guarantee (BG) in the road infrastructure sector for bid monetization.
  • Understanding Insurance Surety Bonds:
    • Insurance surety bonds involve insurance companies acting as ‘Surety,’ providing a financial guarantee that contractors will fulfill their obligations as per agreed terms.
    • The Ministry of Finance, Government of India, has equated e-BG and Insurance Surety Bonds with Bank Guarantees for all government procurements.
  • Collaborative Efforts for Implementation:
    • NHAI has collaborated closely with the Highway Operators Association of India (HOAI), SBI General Insurance, and AON India Insurance to implement the initiative.
  • Importance of Insurance Surety Bonds:
    • Strengthening National Highway Infrastructure:
      • The introduction of Insurance Surety Bonds is expected to fortify the development of National Highway Infrastructure.
    • Savings and Liquidity Enhancement:
      • Substantial savings for concessionaires are anticipated, fostering increased liquidity in the market.
    • Encouraging Private Participation:
      • The initiative is a significant stride towards improving the ‘Ease of Doing Business’ by facilitating private participation in the highway sector.
Why In News

The State-owned National Highways Authority of India (NHAI) has embraced a groundbreaking approach by accepting the first insurance surety bond for the monetization program of the upcoming bid of Toll Operate Transfer (TOT) Bundle 14, marking a pivotal step towards enhancing liquidity and fortifying the capacity of potential bidders.

MCQs about NHAI’s Adoption of Insurance Surety Bonds

  1. What is the significance of NHAI’s acceptance of insurance surety bonds in the road infrastructure sector?
    A. A routine administrative decision
    B. A groundbreaking move to boost liquidity and capacity among bidders
    C. An exclusive application in toll collection
    D. A symbolic gesture with no practical implications
    Correct Answer: B. A groundbreaking move to boost liquidity and capacity among bidders
    Explanation: NHAI’s acceptance of insurance surety bonds is groundbreaking as it marks the first use of such an instrument as a Bank Guarantee (BG) in the road infrastructure sector, aiming to enhance liquidity and capacity among bidders.
  2. How do insurance surety bonds function in the context of government procurements?
    A. They are exclusive to road infrastructure projects
    B. They serve as a substitute for Bank Guarantees
    C. They are unrelated to financial guarantees
    D. They are only applicable to insurance companies
    Correct Answer: B. They serve as a substitute for Bank Guarantees
    Explanation: Insurance surety bonds act as a financial guarantee in government procurements and are equated with Bank Guarantees by the Ministry of Finance, Government of India.
  3. Which organizations collaborated with NHAI in implementing the initiative of using insurance surety bonds?
    A. Ministry of Finance and State Bank of India
    B. AON India Insurance and Toll Operators Association
    C. Highway Operators Association of India (HOAI), SBI General Insurance, and AON India Insurance
    D. National Highways Authority of India (NHAI) and Indian Road Congress
    Correct Answer: C. Highway Operators Association of India (HOAI), SBI General Insurance, and AON India Insurance
    Explanation: NHAI collaborated with Highway Operators Association of India (HOAI), SBI General Insurance, and AON India Insurance for implementing the initiative.
  4. What is the expected impact of insurance surety bonds on the road sector?
    A. No significant impact on the road sector
    B. Increased financial burden on concessionaires
    C. Strengthened National Highway Infrastructure and enhanced liquidity in the market
    D. Exclusively beneficial for NHAI’s administrative processes
    Correct Answer: C. Strengthened National Highway Infrastructure and enhanced liquidity in the market
    Explanation: Insurance surety bonds are expected to strengthen National Highway Infrastructure and result in substantial savings for concessionaires, fostering increased liquidity in the market.

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