Govt approves bank loan to pay contractor bills worth `2,782 cr

Bengaluru: The state government has approved a bank loan of up to Rs 400 crore to pay contractors' bills related to development works implemented by the Bruhat Bengaluru Mahanagara Palike (BBMP) during 2020 - 21 and 2021 - 22.

The BBMP will repay the loan to the bank. However, the interest till the loan repayment period has to be paid by the contractor. BBMP owes contractors Rs 2,782.22 crore for a total of 5,586 bills from 2020 - 21 and 2021 - 22.

As a result of Covid, resource mobilization of the corporation has been stagnant for two years. Thus, on October 19, 2022, the Chief Commissioner of BBMP requested the government to approve the introduction of 'Optional Vendor Bill Discounting System' (OVDS) to temporarily solve the plight of contractors. On January 18, 2023 the government gave conditional permission. Every year the time period in paying the outstanding bills to contractors is increasing. BBMP is implementing projects like major roads, flyovers, corridors, major canals etc. The bills for these works have not been paid till now. If payment is not made on time, the progress and quality of the work will suffer. The contractor is demanding payment of the outstanding bill. Thus, the government has been requested to release a special grant of Rs 1,000 crore in the form of loan to BBMP. The commissioner requested in the letter that the OVDS system to be considered and should be allowed.

All nationalized and other scheduled banks are eligible to participate in this system. Banks themselves can approach the corporation and provide OVDS at suitable interest rate. In this system, the needy can get the money by willingly discounting the bill in the bank with which the corporation has entered into an agreement and the interest rate and tenure is fixed for the contractor. Banks may allow participation in this scheme only for bills payable by the corporation within a specified period based on the period fixed by the banks.

In this system, the interest rate has to be borne by the contractor. The corporation will pay the full amount of the lease to the concerned bank on seniority basis. For example, for a bank offering 18-month bill discounting facility, bills payable within the next 18 months will be discounted. Only bills payable within six months to the issuing bank are discounted. Contractor also explained that the burden of interest will not fall on the corporation.

The contractors who have expressed their anger at the action of BBMP have alleged that 'this is a scandal in which the government, BBMP officials and ruling party legislators are involved'. He also questioned why the bill was paid only during the BJP regime.

This rule is being imposed by breaking the lease agreement. BBMP officials are billed by the payer. Most of the MLAs of the ruling party have obtained work as benami in the last two years and have submitted false bills. He also complained that this is a conspiracy to collect the bill amount from other contractors who have not done the work, leaving the other contractors whose bills are due for a long time.

What are the conditions?

BBMP should open an 'escrow' (designated) account for loan repayment and deposit all proceeds into that account. BBMP should ensure that the cost (interest) of the loan does not fall on the palike. The government is also not responsible for such expenses. The BBMP should follow a transparent procedure including open publication of OVDS bids (after approval of contractors) with fixed date for reimbursement. A contract should be entered into with the bank that bids the lowest. OVDS should be auctioned on the basis of seniority of bills. Details of the contractor, progress of work and expected date of loan repayment from BBMP should be in the bid. Government is not responsible for breach of contract. Only scheduled commercial banks should be allowed to participate.