The Ministry of Finance has permitted the use of insurance surety bonds as an alternative to bank guarantees for both bid and performance security under the standard bidding guidelines for power projects.

These projects include solar, wind, hybrid, firm and dispatchable renewable energy, as well as battery energy storage systems, pumped storage projects, and transmission projects.

The Ministry has amended Rules 170(i) and 171(i) of the General Financial Rules 2017, to include insurance surety bonds as an acceptable form of security for government procurement. Insurance surety bonds provide financial security equivalent to bank guarantees while reducing credit exposure and liquidity constraints.

The amendment to Rule 170(i) provides that bid security may now be accepted in the form of insurance surety bonds, in addition to existing instruments such as account payee demand drafts, fixed deposit receipts, banker’s cheques, or bank guarantees from commercial banks or payment through acceptable online modes, safeguarding the purchaser’s interest.

Similarly, Rule 171(i) has been amended to allow performance security to be furnished in the form of insurance surety bonds alongside the previously permitted instruments.

In view of these changes, all states, union territories, and procuring utilities have been advised to incorporate provisions in their bidding documents accepting insurance surety bonds or other instruments permitted under the General Financial Rules as valid instruments for bid and performance security. This applies across long-term, medium-term, and short-term power procurement.

The Ministry of Power had earlier amended the standard bidding guidelines for renewable energy projects to allow the use of insurance surety bonds as an alternative to bank guarantees for earnest money deposits and performance bank guarantees. The move was aimed at reducing developers’ dependence on bank credit lines and easing liquidity constraints, while maintaining financial security for procuring agencies.

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