Insurance Surety Bonds in India's Oil & Gas Sector: GAIL, IOCL, and the Mandate That Covers All MoPNG CPSEs
- Rajeev Chari
- Jul 30
- 9 min read
TL;DR
GAIL and IOCL have both formally adopted insurance surety bonds. Contractors bidding on these tenders no longer need to lock capital in a bank guarantee cash margin when an ISB delivers the same security outcome at a fraction of the cost.
Every MoPNG CPSE, including ONGC, BPCL, and HPCL, is legally required to accept ISBs under GFR Rule 170(i), Rule 171(i), and the DFS September 2024 directive. A refusal is non-compliance with a Ministry of Finance instruction, and contractors have clear legal grounds to push back.
GAIL and IOCL have not published standardised ISB proformas the way SECI has. Contractors should not expect a named format in their tender annexure. The GFR framework governs the instrument; the SBD may or may not have been updated to reflect it yet.
The Coal Ministry's July 2026 amendment to the MMDR Act now permits ISBs as an alternative to performance bank guarantees for coal block allocatees. This is the clearest signal yet that ISB acceptance is becoming standard across all extractive and energy sectors in India, not just roads and power.
Introduction
Oil and gas is one of India's most capital-intensive procurement sectors. GAIL alone tenders cross-country pipelines, city gas distribution networks, LNG infrastructure, and compressor stations worth thousands of crores each year. IOCL procures refinery EPC, crude and product pipelines, retail infrastructure, and increasingly green hydrogen and solar projects. Together, these two CPSEs represent a major share of India's annual public sector procurement.
Until recently, most of that procurement ran on bank guarantees. A contractor bidding on a major GAIL pipeline project would lock significant capital in a cash margin before the first shovel broke ground. That has now changed.
GAIL and IOCL have both adopted insurance surety bonds. Every Ministry of Petroleum and Natural Gas CPSE is now legally required to accept them. This article explains the regulatory chain behind this obligation, documents the confirmed position at GAIL and IOCL, covers ONGC, BPCL, and HPCL, and explains what the July 2026 coal sector development signals for India's entire energy procurement landscape.
For a full list of PSUs accepting insurance surety bonds across all sectors, see the verified PSU acceptance list.
The Regulatory Framework: Why Every MoPNG CPSE Must Accept ISBs
The starting point is the procurement law governing these entities. GAIL, IOCL, ONGC, BPCL, and HPCL are all central government CPSEs under the Ministry of Petroleum and Natural Gas. Unlike defence procurement, which operates under the Defence Acquisition Procedure 2020, there is no separate oil and gas procurement law. All MoPNG CPSE procurement is governed by the General Financial Rules 2022. This is the single most important fact for a contractor considering ISBs for an oil and gas tender.
Four regulatory steps built the current acceptance framework:
Year | Development | Effect on MoPNG CPSEs |
January 2022 | IRDAI Surety Insurance Contracts Guidelines | Authorised Indian insurers to underwrite and issue insurance surety bonds for the first time |
February 2022 | Ministry of Finance amendment to GFR Rule 170(i) and 171(i) | Placed ISBs on equal legal footing with bank guarantees for EMD and performance security across all GFR-governed procurement |
June 2024 | IRDAI Master Circular | Extended ISB scope from government infrastructure to all commercial contracts |
September 2024 | Department of Financial Services directive | Made ISB acceptance mandatory at all central government departments and CPSEs; removed departmental discretion |
A GAIL or IOCL procurement officer who refuses a valid insurance surety bond from an IRDAI-authorised insurer is acting contrary to a Ministry of Finance instruction. That is the legal ground a contractor stands on.
For context on how ISB acceptance language appears in individual tender documents, see insurance surety bond clause in government tenders.
GAIL: ISB Adoption in the Energy Sector
What Is Confirmed
GAIL India has adopted insurance surety bonds in the energy sector. Indian Infrastructure's July 2026 analysis names GAIL alongside NTPC, SJVN, and NHPC as entities that "have adopted it in the energy sector." The same confirmation appears in Indian Infrastructure's May 2025 report and in BimaBro/Business Standard's February 2025 coverage.
At the tender level, GAIL's active tenders for natural gas infrastructure including city gas distribution projects list ISBs as one of several accepted EMD instruments, alongside Demand Draft, FDR, Bankers Cheque, Bank Guarantee, NEFT, and RTGS. The ISB sits at equal standing with the other instruments listed.
What Is Not Yet Standardised
GAIL has not published named ISB proformas in its tender annexures the way SECI has. There is no GAIL equivalent of Format 16 or Format 27. Contractors should not expect a ready-made ISB template in a GAIL tender document. The instrument is accepted; the format is governed by IRDAI guidelines and GFR requirements, not a GAIL-published proforma. For a reference guide on SECI's standardised format approach, see insurance surety bond for SECI tenders.
Which GAIL Contract Types Are Most Relevant
Insurance surety bonds apply across GAIL's full procurement range. The contract types where they are most operationally significant include:
Cross-country natural gas pipeline EPC
City gas distribution network infrastructure
LNG terminal and regasification facility construction
Compressor station EPC
Pipeline O&M service contracts
Telecom and fiber network construction along pipeline corridors
IOCL: Extending ISBs to the Hydrocarbon Sector
What Is Confirmed
Indian Oil Corporation Limited has extended insurance surety bonds to the hydrocarbon sector. Indian Infrastructure's July 2026 report confirms this directly: "Indian Oil Corporation Limited has extended the product to the hydrocarbon sector." This aligns with the May 2025 report and the February 2025 Business Standard coverage.
At the tender level, IOCL accepts ISBs for EMD above Rs. 1 lakh. Performance security at IOCL is set at 10% of the contract value excluding GST. ISBs are an accepted instrument for this obligation, and the performance security is retained through contract completion and the 12-month defect liability period.
What Is Not Yet Standardised
Like GAIL, IOCL does not publish a named ISB proforma. ISBs are listed alongside bank guarantees in IOCL tender conditions as an accepted EMD instrument, but no proforma text is prescribed. Contractors should use an IRDAI-compliant bond with unconditional and irrevocable language and be prepared to confirm compliance in writing to IOCL's procurement team if requested.
Which IOCL Contract Types Are Most Relevant
IOCL's procurement portfolio spans some of India's largest capital projects:
Refinery construction, expansion, and modernisation EPC
Crude oil and product pipeline projects
Retail outlet construction
Petrochemical plant EPC
Green hydrogen and solar energy projects
Refinery and depot O&M service contracts
The capital saving from switching to an insurance surety bond on a large IOCL refinery EPC project is significant. On a Rs. 100 crore contract with a 10% performance security requirement, a bank guarantee typically blocks Rs. 10 crore in cash margin before mobilisation begins. An insurance surety bond replaces that with a premium. For a detailed cost comparison, see cost of an insurance surety bond in India.
ONGC, BPCL, and HPCL: What the DFS Mandate Means for Them
All three are central government CPSEs under MoPNG. All three operate under GFR 2022. The DFS September 2024 directive applies to all three. This is the current position:
PSU | Sector Focus | ISB Status | Basis |
GAIL | Natural gas, CGD, LNG | Confirmed adoption | Indian Infrastructure May 2025 and July 2026 |
IOCL | Refining, pipelines, retail | Confirmed adoption | Indian Infrastructure May 2025 and July 2026 |
ONGC | Upstream oil and gas | GFR and DFS mandate applies | GFR Rule 170 and 171; DFS September 2024 |
BPCL | Refining, city gas, marketing | GFR and DFS mandate applies | GFR Rule 170 and 171; DFS September 2024 |
HPCL | Refining, pipelines, LPG | GFR and DFS mandate applies | GFR Rule 170 and 171; DFS September 2024 |
For ONGC, BPCL, and HPCL, no tender-level ISB confirmation has been documented in published sources at the time of writing. This is a documentation gap, not a legal barrier. A contractor submitting a valid ISB to any of these three entities has the same legal standing as at GAIL or IOCL. The absence of updated SBD language does not override the GFR obligation.
Which Contract Types in Oil and Gas Are Covered
Insurance surety bonds apply at the same four contract stages in oil and gas as in any other GFR-governed procurement:
Contract Stage | Bond Type | Replaces | Regulatory Basis |
Bid submission | Bid security bond | Earnest Money Deposit | GFR Rule 170(i) |
Contract award | Performance security bond | Performance Bank Guarantee | GFR Rule 171(i) |
Advance mobilisation | Advance payment bond | Advance Payment Bank Guarantee | IRDAI Guidelines 2022 |
Post-completion | Retention money bond | Retention Money Bank Guarantee | IRDAI Guidelines 2022 |
Bid security and performance security bonds have the most documented acceptance across oil and gas CPSEs. Advance payment and retention money bonds are available under IRDAI guidelines but are not yet uniformly reflected in individual GAIL or IOCL SBDs. Always verify each bond category against the specific tender document. For a guide to each bond type, see types of insurance surety bonds in India.
The Field-Level Gap: When Your Tender SBD Has Not Been Updated
The DFS mandate operates at the framework level. Individual Standard Bidding Documents are updated at different speeds across field offices, regional project teams, and procurement divisions. A contractor may encounter a GAIL or IOCL project office where the SBD still lists only bank guarantees. This is a documentation lag, not a legal position.
When this happens, submit the ISB alongside a written representation that includes the following:
Confirm that the entity is a central government CPSE governed by GFR 2022. Both GAIL and IOCL are.
Cite the GFR amendment: Ministry of Finance, Department of Expenditure, Office Memorandum No. F.1/1/2022-PPD dated 2 February 2022. This placed insurance surety bonds on equal legal footing with bank guarantees across all government procurement.
Cite the DFS September 2024 directive, which instructed all government departments and CPSEs to accept insurance surety bonds as equivalent to bank guarantees.
Attach the IRDAI licence certificate of the issuing insurer confirming authorisation to issue surety insurance contracts.
Submit the bond and the representation together before the bid deadline.
Most field-level objections at central government CPSEs resolve on this basis. The rejection is typically a knowledge gap, not a deliberate policy refusal. For guidance on the ISB application process, see how to apply for an insurance surety bond in India.
The Coal Sector Signal: MMDR Act Amendment, July 2026
In July 2026, the Ministry of Coal notified the Coal Blocks Allocation (Amendment) Rules 2026. Under these rules, coal block allocatees governed by the Mines and Minerals (Development and Regulation) Act, 1957 can now furnish an insurance surety bond as an alternative to a performance bank guarantee. Companies that have already submitted bank guarantees under MMDR allocations can replace them with ISBs. The Ministry has also initiated the process of extending this provision to coal blocks allocated under the Coal Mines (Special Provisions) Act, 2015.
This development matters for two reasons. First, ISB acceptance is no longer a roads-and-renewables story. It is now active in natural gas, oil refining, and coal mining. Second, the ability to replace existing BGs opens a capital recovery opportunity for energy sector contractors currently holding large BG positions across multiple contracts.
A contractor running simultaneous contracts with GAIL, IOCL, and a coal block operation can now manage all three under a single instrument type.
Source: Business Standard, July 2, 2026.
About axiTrust
axiTrust is a technology and consulting platform that helps contractors, developers, and EPC companies navigate insurance surety bond requirements across government and public sector procurement in India. axiTrust works with contractors bidding on GAIL, IOCL, NTPC, NHAI, SECI, and other central and state procuring agencies.
Talk to an axiTrust consultant before your next oil and gas tender submission.
Frequently Asked Questions
Does GAIL India officially accept insurance surety bonds?
Yes. GAIL has adopted ISBs in the energy sector, confirmed in industry sources from May 2025 and July 2026. Active GAIL tenders list ISBs as accepted EMD instruments alongside bank guarantees.
What is the performance security percentage at IOCL?
10% of the contract value, excluding GST. ISBs are accepted for this obligation and are retained through contract completion plus the 12-month defect liability period.
Can I submit an ISB to ONGC, BPCL, or HPCL even if their tender does not mention it?
Yes. GFR Rule 170(i) and the DFS September 2024 directive make ISB acceptance mandatory at all central government CPSEs. Submit the bond alongside a written representation citing both authorities.
Does GAIL publish standardised ISB formats like SECI does?
No. GAIL does not publish named ISB proformas. The bond must comply with IRDAI guidelines and GFR requirements. Work with an IRDAI-authorised insurer to issue a compliant bond.
Can a coal block developer replace an existing bank guarantee with an insurance surety bond?
Yes, under the Coal Blocks Allocation (Amendment) Rules 2026 notified in July 2026. This currently applies to MMDR Act allocations; extension to Coal Mines (Special Provisions) Act allocations is in process.
References
Indian Infrastructure. Promising Instrument: Surety Bonds Emerge as a Preferred Option for the Infrastructure Sector. July 3, 2026. https://indianinfrastructure.com/2026/07/03/promising-instrument-surety-bonds-emerge-as-a-preferred-option-for-the-infrastructure-sector/
Indian Infrastructure. Small Steps, Big Benefits: Wider Adoption of Surety Bonds to Expedite Infrastructure Development. May 6, 2025. https://indianinfrastructure.com/2025/05/06/small-steps-big-benefits-wider-adoption-of-surety-bonds-to-expedite-infrastructure-development/
Business Standard / BimaBro. Budget 2025 Catapults Surety Bonds to New Heights. February 11, 2025. https://www.business-standard.com/content/press-releases-ani/budget-2025-catapults-surety-bonds-to-new-heights-simplify-it-with-bimabro-125021101021_1.html
Business Standard. Coal Block Allocatees Now Have Option to Produce Insurance Surety Bonds. July 2, 2026. https://www.business-standard.com/economy/news/coal-ministry-allows-insurance-surety-bonds-instead-of-bank-guarantees-126070201152_1.html
Ministry of Finance, Department of Expenditure. Amendment to General Financial Rules 2017. February 2022. https://doe.gov.in/files/procurement-policy-division/Amendment_to_General_Financial_Rules_2017.pdf
IRDAI. Surety Insurance Contracts Guidelines, 2022. https://irdai.gov.in/documents/37343/366029/IRDAI+(Surety+Insurance+Contracts)+Guidelines+20220103_signed.pdf/3cc74752-2c32-c008-c7a1-303874c2e497
IOCL. eProcurement Portal. https://iocletenders.nic.in
