NHAI Clarifies Timing of Change in Law Payments for EPC Costs

The National Highways Authority of India (NHAI) has issued Policy Circular No. 3.3.34/2025, dated September 17, 2025 (the “2025 Circular”), introducing an important clarification regarding the stage of payment for Change in Law impacts attributable to Engineering Procurement Contract (EPC) costs under Hybrid Annuity Model (HAM) projects. This update modifies the earlier framework set out in NHAI’s 2022 Circular and seeks to eliminate ambiguity while aligning payment timelines with formal contractual milestones.

Previously, through Policy Circular No. 3.3.27/2022 dated December 23, 2022 (the “2022 Circular”), NHAI had provided guidance on the applicability of Goods and Services Tax (GST) to road construction under HAM projects.

In addition, it addressed the payment of Change in Law impact on EPC costs, specifying that disbursement would occur upon the “completion of construction work.”

While this wording provided a general basis, it left room for interpretation and disputes, particularly regarding what constituted “completion” for the purpose of release of funds. This ambiguity created challenges for both concessionaires and financiers in aligning project cash flows and documentation.

The 2025 Circular has refined the framework by providing a clear and documentary milestone for release of Change in Law payments. It now stipulates that:

• Payment Stage: The Change in Law impact attributable to EPC costs will be released at the time of issuance of the Provisional Completion Certificate (PCC) or the Completion Certificate (CC) under the concession agreement.
• Balance Adjustments: Any remaining amounts beyond this initial settlement will continue to be adjusted against annuity payments, following the methodology prescribed in Annexure III to the 2022 Circular.

This change replaces the earlier linkage to the general concept of “completion of construction work,” tying the payment instead to specific documentary evidence generated within the concession framework.

Implications for Stakeholders

1. For Concessionaires: The update provides greater certainty and predictability in the timing of Change in Law reimbursements. Earlier, concessionaires faced delays due to varying interpretations of when “completion” occurred. Now, payments are tied to clear contractual milestones, reducing cash flow risk during the transition from construction to operations.
2. For NHAI: The clarification streamlines administrative processes by linking disbursements to formal certification. This reduces subjectivity and potential disputes in claim processing. It also standardizes practice across projects, fostering consistency in implementation.
3. For Financiers and Investors: Predictability in cash flows at the construction-to-operation transition phase improves project bankability and investor confidence.

By anchoring Change in Law payments to issuance of Provisional or Completion Certificates, NHAI has brought much-needed clarity, consistency, and predictability to HAM projects. This move not only streamlines the payment process for concessionaires but also enhances confidence among financiers and investors, thereby supporting the continued growth and stability of India’s highway infrastructure development program. As HAM projects remain a cornerstone of India’s national highway expansion strategy, such regulatory refinements play a pivotal role in strengthening the sector’s legal and financial framework.