The Ministry of Road Transport and Highways (MoRTH) has introduced a new compensation mechanism to support highway developers facing increased diesel prices. This measure provides crucial relief to contractors and concessionaires engaged in National Highway projects, who have been grappling with elevated fuel costs linked to ongoing geopolitical disruptions in West Asia.
Fuel Cost Compensation Mechanism
Under the new framework, contractors can claim compensation for surges in the cost of petroleum, oil, and lubricants (POL), specifically bulk diesel used in construction and maintenance activities. The ministry's decision is aimed at ensuring the uninterrupted execution of vital highway infrastructure projects across the country by mitigating the financial burden of higher input costs.
The compensation will apply to work carried out between May 1 and June 30, 2026. MoRTH has indicated that this relief period could be extended if global conditions continue to exert upward pressure on fuel prices.
How Compensation is Calculated and Applied
- EPC Projects: Fuel-related price adjustments for Engineering, Procurement, and Construction (EPC) contracts will be linked to the official bulk price of high-speed diesel (HSD) at the nearest Indian Oil Corporation (IOC) refinery. Compensation will be based on the difference between diesel prices on the project's base date and the average bulk diesel price during the relevant billing period.
- Other Contract Types: The benefit extends to Performance-Based Maintenance Contracts (PBMC), where fuel indices will now align with official bulk diesel prices. For Hybrid Annuity Model (HAM) projects, Short-Term Maintenance Contracts (STMC), item-rate contracts, and projects lacking a price-escalation clause, MoRTH will assume a POL component of 10% of the work value for calculating fuel cost compensation.
- BOT Projects: Build-Operate-Transfer (BOT) projects currently under construction are also covered. Concessionaires can opt for this fuel and bitumen cost adjustment mechanism as an alternative to seeking relief under force majeure provisions.
To claim compensation, contractors must submit original invoices for bulk diesel purchases from the nearest public sector refinery undertaking.
Addressing Geopolitical Impact and Project Stability
This proactive step by MoRTH comes as infrastructure developers nationwide face rising input costs, largely driven by geopolitical tensions in West Asia that have pushed up global energy prices. Industry experts anticipate that this compensation mechanism will help protect contractor margins, reduce the risk of project delays, and ultimately support the timely completion of critical highway construction works, ensuring continued progress in India's infrastructure development.