Ministry of Power introduces Insurance Surety Bonds as an alternative to Bank Guarantees for power procurement frameworks

The Ministry of Finance had, through an Office Memorandum dated February 2, 2022, amended Rules 170(i) and 171(i) of the GFR, 2017 to formally recognize Insurance Surety Bonds as acceptable instruments for both bid security and performance security. In furtherance of these amendments, the MoP had already incorporated provisions relating to ISBs in the standard bidding guidelines applicable for renewable energy projects (including solar, wind, hybrid and dispatchable renewable energy projects), pumped storage projects and transmission projects.

Key Direction issued by the MoP:

1. Through its Office Memorandum dated April 6, 2026, the MoP advised all States, UTs and procuring utilities to suitably amend their bidding documents to allow for the acceptance of: Insurance Surety Bonds; and any other instruments permitted under the GFR (as amended from time to time), as valid instruments for furnishing bid security and performance security. The direction applies across procurement frameworks for long-term, medium-term and short-term power procurement, as well as Battery Energy Storage Systems (BESS) procurement. The MoP noted ISBs provide financial security which is equivalent to traditional bank guarantees while substantially reducing the credit exposure and liquidity constraints faced by project developers and contractors. By expanding the use of ISBs across the power sector, the Government aims to improve ease of doing business and facilitate broader and more competitive participation in procurement processes.

2. Applicability:

The Office Memorandum has been addressed to:

• • Principal Secretaries/Secretaries (Power/Energy) of all States and Union Territories;

• • CMDs/MDs of the State DISCOMs and generating companies; and

• • State Electricity Regulatory Commissions and Joint Electricity Regulatory Commissions,

requiring them to incorporate the revised security framework in their respective procurement documents.

Conclusion

The notification is likely to have a significant impact on project developers, independent power producers, transmission developers, EPC contractors and energy storage participants by providing greater flexibility in meeting bid security and performance security requirements. The measure would also reduce dependencies on banking limits and working capital facilities, thereby improving the bidders’ ability to participate in multiple tenders simultaneously. Further, the adoption of such a uniform approach across the renewable energy, transmission, conventional power procurement and BESS projects would promote consistency in procurement practices across the sector. This reform represents another step in the Government’s ongoing efforts to enhance financing flexibility, reduce transaction costs and improve competitiveness in the Indian power and infrastructure sectors.