Bitumen crisis: Cabinet approves compensation to govt contractors

Kochi: In a major policy intervention aimed at breaking the deadlock paralyzing the state’s road networks, including in Ernakulam district, the state cabinet has approved the provision of compensation to road project contractors based on fluctuating material costs, especially that of bitumen.“The cabinet on Tuesday approved our long-pending demand to provide compensation for the sharp rise in prices of bitumen following the Gulf crisis. The Govt Order (GO) in this regard is out today (Thursday),” Varghese Kannampally, president of Kerala Gov Contractors Association told TOI.Aligning with central guidelines previously issued by the ministry of road transport and highways (MoRTH), the state govt approved the relief package based on recommendations from the state’s chief engineers’ committee.

The price variance relief will apply specifically to contracts where tender deadlines were fixed before April 1, 2026, and where price escalation clauses were originally absent.According to the order, the financial compensation for the excess cost incurred between April 1, 2026, and Aug 31, 2026, will be calculated on a monthly basis. However, the price revision is strictly confined to bitumen; no other construction raw materials qualify.

The association has been demanding that the state follow the lead of the National Highways Authority of India (NHAI) by introducing a Price Variation Clause (PVC) in all agreements.“Without a mechanism to adjust payments based on fluctuating material costs, the contractors were suffering financially, leading to their refusal to take up key projects. Now, the path has opened for speedy implementation of road projects,” Kannampally said.The development comes even as the chief engineering committee recommended allocating contracts based on actual market rates of raw materials like bitumen. The crucial recommendation has been forwarded to the finance department for final approval.The policy shift comes in the wake of sharp geopolitical disruptions in West Asia, which have triggered a steep rise in raw material prices. Because bitumen is a direct derivative of crude oil, regional volatility has inflated local prices by nearly 40% in a single month.

Mid-April market rates show standard VG-30 grade bitumen retailing at approximately Rs 97 per kg, while natural rubber modified bitumen (NRMB) has climbed to Rs 111 per kg.Faced with skyrocketing costs, govt contractors increasingly refused to take up new public works, arguing that fixed-price contracts signed months prior are financially unviable. The “undeclared shutdown” disrupted road maintenance across the state, and many of the local bodies like the Kochi corporation were unable to successfully float new tenders.Key stretches currently in disrepair in Ernakulam include Keerthi Nagar-Deshabhimani road section, Elamakkara-Ponekkara road section, Konthuruthy Road, Mullassery Canal Road, A K Sheshadri Road and the Thammanam-Pullepady Road.