Can India bite into the $ 680-billion EPC market?

The Government has recognised that the economy is suffering and needs a strong booster dose – placebos just won’t work. Today, all the ministers are brainstorming over revitalising the economy. For our part, CONSTRUCTION WORLD, along with Foundation of Infrastructure Research Studies Training (FIRST), took up the challenge and presented Union Minister of Commerce & Industry Suresh Prabhu with solutions to inject adrenaline into the economy. The overall intent is evident: bring in foreign exchange, enhance employment, contribute taxes and plan for long-term positive development for the country.

One of our solutions is to strategise to attract the ‘engineering research and design’ industry to India. This $ 680-billion industry is projected to move $ 170 billion – 25 per cent of total revenues – to Asia. Companies like Bechtel, AmecFoster & Wheeler, Black & Veatch and others are based in India, employing thousands of engineers creating engineering designs for complex multibillion infrastructure projects around the globe. This brings in foreign exchange, tax payments and employment. In fact, India has a talent pool of nearly 500,000 engineers graduating every year; such companies can help boost their skill sets and hone them as worthy assets for the country’s future technical talent pool. The stakes are high-$ 170 billion as mentioned above – and India should stake a claim. Back home, we have such skill sets in public-sector companies like Engineers India, RITES, IRCON, MECON, Engineering Projects, WAPCOS, and so on. Going forward, our EPC companies can create SPVs with such projects to forge future alliances as the home infrastructure market opens up to these global giants from the design and engineering space.

Our recent exercise in analysing India’s Fastest Growing Construction Companies has thrown up new names into the orbit that have grown geometrically over the past three years. These have shot to challenge the erstwhile fastest growing companies, indicating that new money has found its way to supporting companies that do not carry ‘legacy baggage’. Our jury comprising India’s top three rating companies debated the merits of excluding companies on grounds of questionable governance practices; therefore, some companies had to miss their spot of glory. This issue, bearing an element of surprise, we also present the nominees of this exercise. In our view, to be nominated is an important milestone in itself.

Early this year, CONSTRUCTION WORLD launched a new logo that intended to depict the increase in mechanisation, scale of infrastructure projects, project management expertise and adoption of technology. After scouring over the responses and suggestions received, we have conceded that our old logo stands tall with its leadership image well-entrenched in the minds of our readers and followers! Therefore, we have decided to bring it back amid the festivities of the month. On behalf of the entire team, I wish you all Happy Diwali and a prosperous new year!

Win some, lose some

The balance between social good and infrastructural development is a delicate one. A citizen has a constitutional right to be provided basic amenities but the nation has limited resources, further constrained by a poor administrative system of collection of revenues, making it necessary to depend upon private investment. Private investment has to serve the profit motive, which in turn conflicts with the ´right to be served´ of the citizen.

The recent judgement by Allahabad High Court has split this wound wide open. It denied Noida Toll Bridge Company, which has been awarded the contract of collecting toll from passengers for 30 years, the right to continue collecting toll as it claimed that the concessionaire has earned reasonable profits. Even the Supreme Court has not entertained the plea of the defendant. It has noted that ´the Concessionaire, according to their own financial statements, has recovered Rs 810.18 crore from toll income from the date of commencement of the project till March 31, 2014, and after deduction of operation and maintenance expenses and corporate income tax, the surplus was Rs 578.80 crore (computed before interest, depreciation, and lease rental received by the Concessionaire)´.

Many issues need to be addressed here. Are contracts that provide service to citizens but allow the company providing the service to make profits, void? If power companies, airport operators and port operators can make 16 per cent return or more, why not toll concessionaires? Will this not have a retrograde effect as was the case with retrospective tax, which drove foreign investors away? How will the government, then, fund such projects?

Only funds with a long payout date that are ultra conservative will invest in these projects, provided the government provides sovereign guarantees. Noida Toll Bridge Company is a public-listed entity and its business plan comprised the returns from this project alone. By withdrawing the company´s right to earn tolls, the courts have made the government renege on its commitment and kill shareholder value, apart from scaring away potential investors in such projects. The risk quotient has spiked and shareholder value in such projects has eroded. Moreover, this will set a trend as local leaders with political ambitions will join protests to derail user charges and win the favour of voters.

Meanwhile, GMR has won an arbitration order of $270 million against the Maldives government, which had arbitrarily cancelled GMR´s contract to run its airport. The compensation covers the debt and equity invested in the project along with a return of 17 per cent, as well as termination payments and legal costs.

It´s true what they say – you win some and you lose some! On October 21, 2016, though, we had a room full of winners. This issue brings to life the magical evening that recognised India´s Fastest Growing Construction Companies and Top Challengers. The jury is playing a more responsible role than ever before as it serves as a moral guardian for the integrity of the awards process through its acumen and judgement. Raghav Chandra, Chairman, National Highway Authority of India, hit the nail on the head when he said, ´Construction is an intimate affair.´ His sentiment was echoed by Dilip Suryavanshi, along with Devendra Jain of Dilip Buildcon – while accepting the award for the fastest growing construction company in the large category, he said, ´When my competitor sleeps, I am at work, and the top management needs to be intricately involved in the management of men, materials and machines to deliver a sterling performance.´

We are happy to have been able to bring this evening to your homes by webcasting it live; in case you missed it, you can watch it at Meanwhile, enjoy some of the highlights in this issue. Here´s wishing all our readers a happy and prosperous new samvat year!