Infrastructure developer IVRCL Limited is going slow on its proposal to monetise three more build, operate and transfer projects in the light of expectations that the Union government will soon take a decision to allow 100 per cent stake sale in BOT projects. “It is just a matter of procedure. The decision will come soon as everybody, including the NHAI (National Highways Authority of India), is in favour of it,” IVRCL chairman and managing director, E Sudhir Reddy, told Business Standard. At present, the Centre allows only 74 per cent stake sale in BOT projects.

Reddy said IVRCL would expedite the process of selling more projects after Centre’s decision in this regard. The Hyderabad-based company recently sold three BOT projects – Salem Tollway, Kumarapalayam Tollway and IVRCL Chengapally Tollway – to the Tata group firm TRIL Roads Private Limited. The stake sale is yet to be approved by the NHAI and institutional lenders. The projects have been reportedly executed at a cost of Rs 2,200 crore and nearly two-thirds of this money had been lent by banks.

Reddy, however, said banks approving the stake sale should not be a problem as the projects were sold to a Tata group company, which has a good standing among the financial institutions. Last month, industry sources said, some of the operators of BOT projects hailing from Andhra Pradesh met the Prime Minister and apprised him of their problems.

More than the high interest rates, they were said to have told the Prime Minister that the rising cost of construction material due to sudden policy changes by state government was making development of BOT projects unviable.For instance, Reddy said, IVRCL was now securing sand from Jharkhand to execute a BOT project in Bihar as the Bihar government had banned sand mining in the state. There was also cost escalation on account of state governments delaying in execution of state-support agreement. These along with other factors were resulting in project costs spiralling by almost 15-20 per cent over the original estimates.

Besides, the developers had tendered for BOT projects assuming the GDP growth rate would be in double digits. With no such thing happening, only 5 per cent of the BOT projects in the country was now stated to be profitable.

Bank of America Corp., the second largest US lender by assets, has started to shift a small part of the projects it had awarded to India’s software companies to local firms or its own centres to ward off political backlash against jobs being outsourced to India. Bank of America,

which has given contracts worth millions of dollars to companies such as Tata Consultancy Services Ltd (TCS) and Infosys Ltd—India’s top two software exporters—as well as Accenture Plc, will bring back some of its information technology (IT) projects to service providers in the US or to their own centres, according to at least two people familiar with the development, who requested anonymity.

The move comes at a time when North American and European clients of India’s $108 billion IT industry are cutting spending on technology because of economic headwinds. For the year ended 31 March, Indian software exports revenue grew by 10.2%—the slowest since the Lehman Brothers collapse in 2008 triggered a global financial meltdown. The Charlotte, North Carolina-based bank joins the ranks of other large American corporations, including General Motors Co. and American Express Co., that have recently moved projects back to their own centres. The companies are sending jobs back to US to fight criticism over outsourcing in the US and in response to rising labour and infrastructure costs in India.

American Express, which has resumed most of its projects with Indian vendors, had temporarily halted outsourcing projects to software vendors in India last year, due to disruptions caused in its US operations by Hurricane Sandy. “There’s a growing feeling that not all work should be moved offshore. Many companies are starting to believe that not all work should be going to a talent factory,” said one of the people mentioned above. Some of the projects are being sent to centres owned by the companies in India.

“Some banks have really well-run captives (in India), with a cost base that is way lower than third parties. They have a much stronger ability to drive productivity in house than through third parties. They’re doing it incrementally, but to great effect,” said the same person. Bank of America did not respond to emails seeking comment last week and on Monday. India’s top IT firms, including TCS and Infosys, declined to comment, citing client confidentiality. Last year, General Motors, which had contracts worth billions of dollars with Indian and multinational service providers, announced that nearly 90% of its IT works would be done by in-house staff in three-five years. American Express had also temporarily halted projects to software vendors in India last year.

In 2002, Bank of America first signed outsourcing agreements with TCS, Infosys and Accenture, according to data provided by outsourcing advisory firm Everest Group. The company also signed contracts with Aon-Hewitt and Hewlett-Packard Co. owned Electronic Data Systems in 2004. To be sure, this move is not a sign that large clients such as Bank of America and American Express are bringing back their entire IT operations back in-house, like General Motors did last year. “They (clients) are not going to bring everything or big chunks back, but it will be a small part that they’re going to bring in-house,” said Ben Trowbridge, chief executive of outsourcing advisory firm Alsbridge Inc.

He declined to comment on whether Bank of America was bringing projects back in-house, but noted that Bank of America was one that had heavily advertised on hiring more people for their IT operations in the US. “Offshore outsourcing is becoming more expensive as the cost of labour in countries like India continues to rise. Also, attrition and movement between companies continues to happen and is growing,” said Debashish Sinha, chief marketing officer at Systems In Motion, a US-based software services provider. “Overall cost of offshoring has gone up…what companies are seeing is a structural shift in the way IT gets delivered with a lot of the infrastructure moving to the cloud.” Banks and financial services companies are also cutting spending on IT, which experts feel might hurt future revenue growth prospects for Indian companies. “Companies like GM, Procter and Gamble, Bank of America, AmEx—they’re not moving everything, they’re starting to move more of it though,” said the first person, who requested anonsSymity.

Source –http://constructionsphere.com

For many Indian chief executive officers (CEOs) planning to start new units, the only problems aren’t land acquisition, environment clearances and fund raising. Getting labour at plant sites is fast becoming extremely difficult, as the National Rural Employment Guarantee Scheme (NREGS)

is creating a labour shortage, they say. Take the Aditya Birla Group’s UltraTech Cement, planning to spend Rs 12,000 crore in expanding its capacity. “We are facing an acute shortage of labour, which is impacting our expansion,” says Adesh Gupta, chief financial officer of Grasim, the holding company of UltraTech. “As we go forward, we have decided to use a lot of machines in our plants to replace labour.”

NREGS, launched by the central government in 2005, offers 100 days of guaranteed work in a year to each rural household. The scheme is a hit among unskilled workers, as they needn’t migrate to other areas in search of work. Apart from NREGS, the other government welfare schemes have also resulted in more rural incomes, encouraging labour to stay at home.(HOW THE GOVT SPENDS IN RURAL INDIA)

“There is a growing shortage of labour,” said Rahul Mehta, who has 30-odd years of experience in the apparel business and is president of the Clothing Manufacturers Association of India, with nearly 2,000 manufacturer members and 15,000 members which are retailers. “The surplus labour situation that India was known for is fast-changing with schemes such as NREGS. Also, our outdated labour laws result in problems in employing contract labour.”

This shortage comes at a time when corporate India plans to restart work on new projects and expansion, after a prolonged slowdown. Many big companies – Reliance Industries, Steel Authority of India and Oil & Natural Gas Corporation – plan to spend hundreds of crores to expand capacity. With interest rates cooling, oil prices falling and European and American markets recovering, many companies feel this is the right time to start work on raising capacity to prepare for the upturn expected in the second half of the current financial year. However, say analysts, with labour shortages getting worse, many which plan new units, such as Maruti or Honda, will expedite schemes to mechanise their plants on the lines of US and European companies.

Apart from NREGS, the Union and state governments are running several programmes in rural India to address critical issues on education, health and sanitation. Apart from NREGS, the Sarva Shiksha Abhiyan and spending on the National Rural Health Mission add to rural incomes, as they expand jobs for teachers and support services. A little more than half of welfare spending is on education and of this, about a fifth is on teacher salaries. In 2011-12, about 4.2 million teachers were hired by the government to support its programmes. Spending by state and central governments on education have risen quite sharply after FY06. Despite a minor slowdown in FY12, government spending now totals Rs 2.7 lakh crore, almost six times the expenditure on job generation programmes.

“All these programmes have resulted in labour staying at home (villages) and not working in harsh working conditions,” says a CEO of an infrastructure company. While total spending on other programmes like rural electrification is not as large as on welfare schemes, its impact on productivity has been dramatic. Analysts believe this, combined with the jump in telecom penetration, is the prime reason for the jump in rural wages in recent years. And, this expenditure is to pick up in coming years. “All this is good news for the country but for Indian companies, this (labour) is an unexpected problem in hand and the only way forward is to spend heavily on machines to replace them,” says a CEO.

Source- http://constructionsphere.com

The wheels of the Government seem to be turning to get new and stalled projects in the power, road, iron and steel, cement, and port sectors off the ground.

Following Finance Minister P. Chidambaram’s meeting with the chiefs of public sector banks (PSBs) and state-owned financial institutions on March 18, the process of region-wise stock-taking of new and stalled projects has begun.

The first meeting, organised by Canara Bank, was held in Bangalore last week. Top representatives of major banks headquartered in the South, their large clients having projects in the region and top Finance Ministry officials were present at the meeting.

Similar meetings would be held in Delhi, Mumbai and Kolkata.

GDP AND INFRASTRUCTURE

The stock-taking initiative on new and stalled projects comes at a time when growth has decelerated significantly. India’s GDP growth at 4.5 per cent, in the October-December quarter of 2012-13, was the weakest in the last 15 quarters.

According to Reserve Bank of India Deputy Governor H.R. Khan, infrastructure development facilitates economic growth and economic growth in turn increases demand for more infrastructure. Thus, development of adequate and quality infrastructure is a necessary condition, if not sufficient, to maintain growth momentum in any economy.

Finance Ministry estimates show that there are 215 projects, each with a project size of Rs 250 crore and above, that are stalled. Out of 215 projects, 106 are in the power sector, 79 in roads, 20 in iron and steel, and 5 each in cement and port sectors.

All these projects, which collectively involve an outlay of over Rs 7 lakh crore, have been supported by PSBs. As at December-end 2012, PSBs had disbursed Rs 54,000 crore to the projects.

Delays in land acquisition, resettlement and rehabilitation issues, environmental clearances, tie-up of project financing, non-availability of fuel for power generation, lack of infrastructure support and linkages are some of the reasons for the projects being stalled.

During the current financial year up to December 2012, PSBs received 126 new projects — in power, power, road, iron and steel, cement, and port sectors — involving a collective outlay of Rs 3,55,880 crore. The projects are at various stages of appraisal and sanction.

ADDRESSING BOTTLENECKS

At the March 18th meeting, Government officials sought to assure bankers that the issues relating to coal linkages are getting addressed with bids being called for new projects.

Delays associated with environmental clearance are also likely to be sorted out shortly with the proposal to de-link forest clearance from environment clearance and an agreement being reached between various Ministries to expedite the clearance process.

Most of the issues relating to highway projects were being addressed and there is a likelihood of the various roadblocks being duly addressed by the Cabinet Committee on Investment. Issues relating to 37 road projects, where the selected promoters were not performing, would also be addressed shortly.

As regards electricity distribution companies, issues with related to settlement on the interest rate (on outstanding loans) to be charged are likely to be resolved.

AREAS OF CONCERN

Iron ore mining was still stuck in the courts and it was not clear when this issue would be addressed.

Gas supply for power projects remains a concern.

In the case of road projects, huge funds are stuck in arbitration. Hence, bankers want the Finance Ministry to intervene and impress upon the National Highways Authority of India to settle these cases out of court at the earliest so that funds could be released into the system.

Escalation in project costs due to time and cost overruns is likely to raise problems for banks.

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Source-http://www.thehindubusinessline.com