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Infrastructure investment needs to pickup: Official

September 26, 2014

Investment in infrastructure development needs to pickup for better asset creation and delivery of projects, a senior government official said Tuesday.

According to R.P. Singh, chairman, National Highways Authority of India (NHAI): “The infrastructure situation in the country is dismal; the pace of investment is sub-optimal and unless we come out of the subsidy regime and inject substantially more funds into capital expenditure for asset creation, the situation will not look up.”

Singh who was speaking at the Federation of Indian Chambers of Commerce and Industry’s (FICCI) India Infrastructure Summit 2014, attributed the perceived failure of public private partnership (PPP) projects for developing infrastructure projects to the failure of the people who handle such projects rather than the concept.

Singh underlined the need for a rational tolling policy so that the user is not charged arbitrarily, especially where the charge is disproportionately higher in relation to the distance actually travelled.

“Much of the problem on PPP projects is caused by aggressive bidding for projects, and tendency to pass on the risk to the government when the project becomes unviable,” said Singh.

Singh’s views were corroborated by Shipping Secretary Vishwapti Trivedi who said that PPP by itself was not a bad concept.

“If you have the money go for engineering, procurement and construction (EPC) contracts or else build roads through the PPP mode”,” he said.

Recently, the government said that it will develop highways under the EPC (engineering, procurement and construction) rather than PPP mode.

The shift in policy is significant given the new government’s focus on developing infrastructure.

The EPC entails that the contractor build the project by designing, installing and procuring the necessary labour and land to construct the infrastructure, either directly or by subcontracting.

However unlike PPP, the financing is done by the government and not by banks or private equity funds through issuing of sovereign bonds or taking financial guarantees for the project.

The highway sector currently contributes around 4.5 percent to the GDP and is responsible for job creation and has a multiplier effect on the economy. However, delays due to land acquisition, forest clearances, defence land handovers have stalled progress in the sector.

This has caused build up of project non-performing assets (NPAs) worth crores of rupees where banks have participated or helped in financial closure.

Industry estimates the cost of these projects which are worth Rs.60,000 crore to have escalated further.

 

Source:big news network

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NHAI set to award over 1,600 km road projects under EPC route

December 10, 2013

Mihir : New Delhi,

The National Highways Authority of India (NHAI) is set to award road projects of over 1,600 km under the Engineering, Procurement and Contract (EPC) route in the next few months, an indication that momentum is picking up in the sector that has been under pressure in recent times.This is part of the 2,500 km of projects earmarked by the authority for awards this year.

“We have already received bids for five projects covering 502 km and the response is good. The number of bids these projects have received range from as low as 4 to 12. We are satisfied with the response under the EPC,” said a senior NHAI official.

In addition, the NHAI has also called bids for another 225 km and are preparing bids for projects covering 800 km.

The official added that these projects will act as a booster for the slowdown-hit infrastructure companies, who are not showing interest in projects under public-private partnership (PPP).

NHAI had to shift its focus from awarding under EPC after projects offered under PPP mode failed to attract takers. The authority did not find any takers for 20 “viable” projects put up for bids during the current fiscal.

Projects under EPC are virtually risk-free for the contractor, as the government funds the construction. Under this mechanism, the contractor has to quote the cost of constructing or upgrading the road section, and if the bid is accepted, the government funds the project.

The official added that the authority has enough cash to fund these projects under EPC during the current fiscal.

“Money is not an issue during the current fiscal, as these projects would require only 15 per cent of the total project cost during the year. Also, we do not have to acquire a large amount of land because these projects are to be built on the existing alignment and land required will already be in place,” said the official.

With the award of 2,500 km under EPC, NHAI would be able to able to improve its award tally for the current fiscal.

The authority managed to award only 800 km of projects in 2012-13.

During the current fiscal, NHAI has awarded projects covering 859 km so far – a substantial portion under EPC. The road transport ministry has awarded projects covering 463 km.

 

EPC BOOSTER

BIDS RECEIVED for 5 projects covering 502 km

THE average number of bids received range from 4 to 12

BIDS are being called for projects covering 225 km, and preparations are underway for an additional 800 km

The award target for projects under EPC is 2,500 km

859 km of road projects have been awarded in this fiscal

 

Source-http://www.indianexpress.com

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Puzzolana bets on annuity road projects

November 26, 2012

Construction equipment major Puzzolana is expecting the government’s proposal to allot highway projects to contractors on an annuity basis instead of build, operate, transfer (BOT) basis to turn around the road sector.

Puzzolana, which has about 45% share in the Rs1,200 crore construction equipment market, depends on the highways builders for bulk of its equipment sales.

“Till 2008, we were recording about 100% growth. However, for the last 2-3 years, the growth has been 10-15%. The activity in the road sector particularly the highways has been sluggish due to a variety of problems related to the project execution. The construction companies have also been facing problems in financial closures,” Abhijeet Pai, managing director of Puzzolana group, said.

According to him, there are indications that the government would now look at allotting 70-75% of the proposed 15,000 km roads on annuity and operation & maintenance basis. “The share of BOT projects would significantly come down, thereby decongesting the sector. Currently, there are more BOT projects than the annuity. Once this shift takes place,all contracts would be on EPC basis and the sector would get relief from financial troubles,” he said.

To address the changing market conditions, Puzzolana will unveil a new sander equipment at the Bauma Conexpo Show – BC India 2013 at Mumbai in February.

Source: http://www.dnaindia.com

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More road projects via EPC on cards

August 28, 2012

In a bid to provide much-needed impetus to the fund-starved highways sector, the road transport ministry is looking at increasing road projects to be awarded through Engineering Procurement Contract (EPC).

For the current fiscal, the target is to award around 4,000 km of road projects.

“We have to meet our target of awarding 9,500 km of road projects during the current fiscal. If the projects do not find takers on the public-private partnership (PPP) mode, we may award them on EPC, as funding them is not a problem for us,” said a top road transport ministry official, who did not want to be identified.

The official further said that there is a fund crunch for road projects in the market, as the banks have exhausted their quota for loans for road projects.

“Lot of companies, who got projects last year, are also in the process of achieving financial closure and may not be interested in our projects on offer on PPP mode,” he added.

Two PPP modes on which the projects are awarded, include Build, Operate and Transfer (BOT)-toll and BOT-annuity.

The third mode is EPC, where the project is funded by the government and the road developer is obligated to build the highway within the stipulated time.

Currently, the road transport ministry and the National Highways Authority of India (NHAI) have to achieve an award target of 9,500 km of road projects as set by the PMO.

NHAI, however, feels that awarding projects on EPC will take time and awarding projects in time, and not money, may become a problem.

SOURCE: http://www.indianexpress.comn

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Govt to finalize new model for bidding road projects soon

February 20, 2012

The Road Transport and Highways ministry will shortly finalize a new model to be used for bidding out 20,000 km of two laned highways worth Rs 50,000 crore that it plans to build during the next five years.

Under the new EPC (Engineering Procurement Construction) model, projects would be awarded on a turn key basis. The ministry will specify the project requirement including its cost and pay the entire amount to the lowest bidder at one go. It differs from the earlier EPC model, which was executed on item rate basis, where the ministry separately tendered and billed for every item of expenditure.

The old system was infamous for cost escalation, time overruns and too much official interference.

At a meeting on Monday attended among others by CP Joshi, road minister and Montek Singh Ahluwalia, Planning Commission deputy chairman, some of the sticky provisions of the EPC document including the duration of defect liability period (DLP), subcontracting clauses, bonus to be given to contractors for early completion of projects, etc. were discussed.

“It was decided to sort out all issues within the next fortnight and get the final EPC document approved by the Inter Ministerial Group by month end,” said a official.

The duration of DLP had become a major bone of contention between the plan panel and the road ministry. While the ministry wanted the DLP of 5 years, the plan panel has decided on two years. “The ministry has finally come on board on the issue,” said a official.

Another issue involves subcontracting by the developer. While the ministry wants that not more that 50% of the total length of the highway can be sub contracted, the plan panel wants it to be 70%. The plan panel also wants a bonus of upto 5% of project cost for the contractor for early completion. However, road ministry wants the bonus clause to be deleted.

The model document, which is being prepared by the plan panel, has already undergone six revisions.

The ministry presently adapts two other models for awarding highway projects –BOT (toll) where a developer builds roads and recovers investment through toll collection during the contract period which usually runs upto 20 years and BOT (annuity) where the developer builds the roads and the government pays it in installments.

 

Source: http://www.hindustantimes.com

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World Bank asks NHAI to look for new models

August 23, 2011

Upset with delays in the implementation of highway projects, the World Bank has asked the National Highways Authority of India (NHAI) to look for alternative ways of awarding highway contracts to private companies.

Till now, funding from the World Bank for the National Highway Development Project has been confined to EPC (engineering, procurement and construction) projects costing over Rs 4,000 crore. In an EPC project, the government gives a contract for road construction on an outright payment to whoever quotes least cost.

NHAI is currently awaiting a response after it invited expression of interest. “As part of transaction assistance,” points out a senior NHAI official, “the World Bank has asked us to invite EoIs from consultants to select new mode for implementing highway projects.”

EPC projects have witnessed a lot of delays — some even stretching beyond seven years, when completing a road project normally takes three years. The World Bank customarily withdraws fund for a project that has not been built in seven years, leaving the project funding to NHAI.

Analysts feel that availability-based model would be suitable for India, as it is a large country and no one-size fit solution can be implemented for all. “Globally,” says Arvind Mahajan, executive director of consultancy firm KPMG, “the models are availability-based, depending on the conditions prevalent. And all these models are derived out of the basic model prevalent. NHAI has also experimented various models and a availability-based approach would be the best.”

Others feel that delays in the past is what makes the World Bank find issues with the EPC model. Notes National Highways Builders Federation Director General M Murali.“A hybrid model, with features for BOT (build operate transfer) annuity and BOT (toll) will be the best model for such projects.”

BOT (annuity) mode envisages a private company building the road and the government paying to the company in instalments every six months.

The maintenance of the road is also not the job of the road developer. In BOT (toll), a road developer builds the road and recovers the money through toll collection. The company is allowed to collect toll to recover the investments made during a period called concession period and can range up to 25 years.

The World Bank, apart from funding for developing highways, also fund the VGF (viability gap funding) payments and annuity projects. VGF is done in a BOT (toll) project to make it financially viable.

Source: business-standard.com

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Madhucon to transfer BOT projects to arm

February 22, 2008

Hyderabad: Madhucon Projects Ltd is planning to transfer its major infrastructure projects to Madhucon Infra Ltd, which shall be a holding company for its build operate and transfer (BOT) toll roads, power projects and coal mines.

The Hyderabad-based company is proposing to transfer its BOT toll road projects and other investments in infrastructure, power and coal mine businesses to Madhucon Infra Ltd and would be seeking the approval of shareholders for the transfer by way of postal ballot, according to a release.

The company to segregate the engineering, procurement had necessitated the transfer process due to a decision and consulting (EPC) business and the investments in BOT projects as the net worth and capital required for these would be substantial. The result of the postal ballot would be announced on March 25, the release added.

Source: sify.com

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