May 19 2017 | India Opportunities

Reliance Infrastructure gets compensation of Rs 2,950 crore as per termination provisions

Reliance Infrastructure Ltd (RInfra) is one of the largest infrastructure companies, developing projects through various Special Purpose Vehicles (SPVs) in several high growth sectors such as Power, Roads and Metro Rail in the Infrastructure space and the Defence sector.

Delhi Airport Metro Express Pvt Ltd (DAMEPL), an associate of Reliance Infrastructure Ltd (RInfra), has recently announced that it has been awarded compensation of Rs 2,950 crore by a three member Arbitration Tribunal in a unanimous decision. The tribunal was constituted from a panel nominated by DMRC. The award to RInfra has been granted on the basis of termination provisions of the Concession Agreement where the arbitration tribunal has held termination by DAMEPL as valid. The compensation covers damage as a result of breach by DMRC of its obligations under the Concession Agreement and Material Adverse Effect on the ability of DAMEPL to perform its obligations under the Concession Agreement.

The Tribunal heard the submission made by both the parties and after detailed proceedings in 68 hearings; the tribunal has issued its final order whereby it has awarded the compensation to DAMEPL.

The award is the right step forward that builds confidence in PPP projects. Private sector companies would dare to take up such projects as well as not shy away to exit projects that are unviable and structurally defective. The termination of the concession agreement by Delhi Airport Metro Express Pvt Ltd (DAMEPL) citing defects in the civil structure on the elevated section of the line was ratified by the arbitration tribunal. Public sector partners would have to double check, ensure all aspects are studied and proper project report is created before the project reaches the bidding stage. Projects which are generally floated just to take advantage of the political gains would be discouraged. Defect liability clause make all stakeholders ensure best workmanship at all times. This award also assures the banking and financial institution of their loans not turning into NPA. It's a booster to the banks to fund infra projects in the coming days and months.

Under CCEA approved guidelines issued by Niti Ayog vide their Office Memorandum dated September 5, 2016, PSUs are expected to pay 75% of the award amount against Bank Guarantee even if they propose to challenge the arbitral award. Therefore RInfra is expected to get Rs. 2,210 crore as per above guidelines against Bank Guarantee in case DMRC proposes to challenge the award.