2011 – Construction in India towards a new dawn

India is one of the fastest growing economies in the world, second after China. The construction industry in India is an integral part of the economy and plays key role in country’s development. Backed by the rapid industrialization, urbanization, economic development and improved quality of living; the construction industry poised for huge growth. Though we saw a lot of infrastructure across the country in 2010, we expect 2011 will opens many new vistas. Analyses Subhajit Roy.
 
Construction is the second largest industry in India after agriculture. The industry accounts for more than 60% of the total investment in infrastructure and is the biggest beneficiary of ongoing infrastructure boom. Nearly 11% of country’s Gross Domestic Product (GDP) is invested in construction sector. The Planning Commission of India has projected that investment in infrastructure is expected to get doubled at $1025 billion in the 12th Plan (2012-17), compared to $514 billion in the 11th Plan (2007-12). The Government is looking at $1 trillion in investments in the infrastructure over the next five years and plans to disinvest up to $8.7 billion in public sector undertakings. This huge investment towards developing power, roads, bridges, ports, airports and other basic infrastructure would provide a huge boost to the construction industry as a whole. The allowed foreign direct investment has lured many foreign players to venture into India’s real estate sector. But, the real estate and related sectors have experienced slowdown for the last few months. However, Sachin Sandhir, MD & Country Head, RICS India says, “While land and capital will remain the predominant focus of the private sector, the call for skill development and capacity building will get stronger in 2011, as inherent skill shortages threaten to slow down future real estate and infrastructure development. Given the experiences of the Commonwealth Games construction process and the growing realisation of the demand supply gap, Government will be seen promoting skills development for the sector”.
 
2010 – Government’s initiatives in Infrastructure development Roads
The country needs revolution in road buildings to support its infrastructural growth. Earlier the Government has set a target of constructing 20 km of roads a day or 7,000 km a year. However, according to the Government resources, during the period of 1st Jan 2010-30th Nov 2010, the ministry has been able to complete merely 1,930.81 km of roadways at a rate of 6.34 km per day. Highlights of the initiatives taken by Government in road building are as follows:
 
EPC Contractors to maintain roads for 3 years: The contractors executing the National Highway projects having total project cost for more than Rs. 5 crore have to maintain the works for 3 years. The Ministry has made amendments in the Standard Bidding Document for EPC projects whereby the Defect Liability Period has been increased to three years from the existing one year.
 
Technical cooperation: India and Italy have signed a MoU for enhancing bilateral technical cooperation in road infrastructure sector and greater involvement of Italian Infrastructure companies in the highways sector in India. The Country has also signed a MoU with China to enhance cooperation in highway construction, exchange of technology and investments in the sector.
 
Road development under LWE Scheme: The Government has awarded works on total 98 road stretches covering 2,629 km length costing Rs. 3,036 crores in the naxal affected areas under the LWE Scheme. Under the LWE Scheme, the Government has approved improvement of 5,565 km roads (1,202 km of National Highways and 4,363 km of State Roads) in 34 Left Wing Extremism (LWE) affected districts in 8 States at an estimated cost of Rs. 7,300 Crores. The project is likely to be completed by March 2013.
 
Converting of single lane highways to two lane by 2014: World Bank loan assistance has been sought for an amount of US $ 2.96 billion for conversion of single lane / intermediate lane to 2 lane/ 2 lane with paved shoulders configuration for 33 stretches of various National Highways for a length of about 3,770 km. The tentative time for completion of these stretches is up to year 2014.
 
Arunachal Pradesh should be the biggest beneficiary with 1,940 km of its single lane highway proposed to be upgraded to 2 lane with paved shoulders. The other top five States which would benefit include Bihar (1,738 km), Madhya Pradesh (1,622 km), Uttarakhand (1,437 km), Orissa (1,255 km) and Rajasthan (1,200 km).
 
Ports and Shipping
The capacity on major ports has been increased from 574.77 million tonnes as on 31st March, 2009 to 616.73 million tonnes as on 31st March, 2010.
 
An agreement for development of Container Terminal at Ennore Port at a cost of Rs. 1,407.00 crores was signed during June, 2010.
 
The project on development of Mega Container Terminal at Chennai port on PPP basis at a cost of Rs. 3,686.00 crores with a capacity of 4 million TEU’s has been approved by the Government.
 
Construction and development of two berths namely EU-I and EU-1A have been approved for Visakhapatnam Port Trust which will add a capacity of around 14 MTPA under PPP mode.
 
During the year 2009-10, 13 PPP projects were awarded at the Major Ports envisaging an amount of Rs. 265,377 crore and a capacity of 65.65 MTPA. In addition, 6 PPP projects have been awarded in the previous year till December 2010.  This private investment is expected to inject Foreign Direct Investment into the port sector and to result in creation of additional capacity in the ports.
 
Railways
India’s largest infrastructure project, Dedicated Freight Corridor (DFC) project covering 2,762 kms. on the Western and Eastern corridors, is one of the most ambitious projects of Indian Railways. Once completed, DFC would meet the transport requirements of the two busy trunk routes for the next 15-20 years and would also help segregation of passenger and freight traffic on these routes. The Western DFC (1,534 kms.) will be from Jawaharlal Nehru Port (JNPT) in Mumbai to Tughlakabad and Dadri near Delhi and would cater largely to the container transport requirements between the existing and upcoming ports in Maharashtra and Gujarat and the northern hinterland. The Eastern DFC will be from Ludhiana in Punjab to Dankuni (1,839 kms.) near Kolkata to be extended in future to serve the new deep sea port proposed in Kolkata area and will largely serve coal and steel traffic.  In the first phase of this Eastern corridor project, work has been started for laying 25.41 kilometers of new dedicated line from Dankuni to Chandanpur.
 
In 2010, the Indian Railway has set up following new units to support its rapid developments:
•      Electric Loco Factory at Madhepura, Bihar
•      Rail Coach Factory, Kancharapara, West Bengal
•      Ancillary unit for CLW at Dankuni, West Bengal
•      Diesel Locomotive Factory at Marhowra, Bihar
•      Rail Coach Factory, Rae Bareli, Uttar Pradesh
•      Diesel Multiple Unit factory at Sankrail, West Bengal
•      New Rail Axle Factory in New Jalpaiguri, West Bengal.
 
JV with NTPC for captive power plant:
In a major initiative, the Railways signed a MoU with NTPC to set up its own captive power plant at Adra in West Bengal internal power generation to meet its electricity requirements. The Adra power plant will have capacity of 1,320 MW (2 units of 660 MW, super critical units). This power plant will employ super critical technology which is more environment friendly.
 
2010 – Private sector’s initiatives in Infrastructure development
GMR Group
GMR Group, the Bangalore based infrastructure major with interests in Airports, Energy, Highways and Urban Infrastructure including SEZ has successfully employed the public-private partnership model to build a portfolio of high quality assets. The Company has 14 power projects in its portfolio of which 3 are operational (808 MW) and 11 projects (8,448 MW) are under various stages of implementation. It has 9 road projects, of which 6 are operational (421 km) and 3 are under construction (309 km). In the Airports sector, it has developed and commissioned the Greenfield International Airport at Hyderabad. The Group, besides operating and modernising the existing Delhi International Airport, has also constructed the integrated terminal T3 that was inaugurated in July 2010.
 
HCC Ltd.
Hindustan Construction Company Ltd (HCC), the engineering, construction and infrastructure development company, specializes in large-scale infrastructure development deploying new age construction technologies.
 
In May last year, HCC was awarded a project by NPCIL to carry out the civil works for the main plant of Rajasthan Atomic Power Project (RAPP), Units 7 & 8 (2×700 MW) PWHR at Rawatbhata, Kota, Rajasthan.
 
Further, HCC has signed a Cooperation Agreement with VINCI Construction Grands Projets to work on identified power, water, transportation and infrastructure projects in India, as well as in other countries. The proposed nuclear reactor 2×1,650 MW EPR of Areva, France at Jaitapur in Ratnagiri district of Maharashtra, is a targeted joint project under this agreement where the two companies will collaborate to participate in the construction of the project in a value added approach.
 
Larsen & Toubro’s (L&T)
L&T is a USD 9.8 billion technology, engineering and construction group, with global operations. The Company has achieved many land mark infrastructure projects in 2010. Few of them are as follows:
 
L&T’s Water & Effluent Treatment business unit secured orders worth Rs. 530.84 crore from Tamil Nadu Water Supply & Drainage Board for water supply schemes in Hogenakkal. The Company has also received orders worth Rs. 110.60 crore from Punjab Water Supply & Sewerage Division for the development of a sewerage network and construction of Sewage Treatment Plant in Hoshiarpur and Jalandhar.
 
The Electrical & Gulf Projects Operating Company (E&GP OC), a part of Larsen & Toubro’s (L&T) Construction Division, secured the orders aggregating to Rs. 2503 crore from Transmission, Substation & Railway Construction projects in the domestic and international markets during the third quarter of 2010-11.
 
Punj Lloyd
Punj Lloyd, the diversified global EPC conglomerate received a contract worth Rs. 539 crore from GAIL for gas pipe laying and terminal work from Dabhol to Bangalore. Punj Lloyd has to lay 7 spreads comprising 820 km of the pipeline.
 
Nagarjuna Construction
In Oct 2010, Nagarjuna Construction Company Ltd. has secured orders worth Rs. 540 crores for water supply and sewage projects across the country. One order valued at Rs. 388 crores is secured from the Tamilnadu Government for construction of Hogenakkal Water Supply and Fluorosis Mitigation Project IV. Another order valued at Rs. 73 crores has been secured from the U.P. Jal Nigam for Agra Water Supply Gangajal Package No. 4. Order valued at Rs. 41 crores was also secured from the Chennai Metropolitan Water Supply and Sewerage Board for construction of sewerage facilities at Chennai. NCCL has also got Rs. 38 crores order from the Salem City Municipal Corporation for water supply scheme.
 
Tata Projects
In December 2010, Tata Projects Limited (SBU – Transmission & Distribution) received an order of approximately Rs. 170 crore from Powergrid for the supply and construction of 765 kV single circuit Chamradol – Satna section of Vindhyachal Pooling – Satna Ckt-I, Part-II Transmission Line package associated with Rihand-III and Vindhyachal-IV super thermal power projects in Madhya Pradesh. In the same month, the Company has received an order from PGCIL for supply and construction of a new 400/220 kV sub-station at Saharanpur, part of the Northern Region Transmission Strengthening Scheme (NRTSS) and the extension of the existing 400 kV Saharanpur and 400kV Roorkee Sub-stations in Uttar Pradesh. The entire project is valued at approximately Rs. 75 crore.
 
Material handling industry in 2010 and road ahead
According to Preet Heri, MD & CEO, Armsel MHE Pvt Ltd, “The EOT Crane industry in India has shown a CAGR of approximately 24% for the period FY2004 to FY2010. Over the past couple of years growth has been strong in mainly steel, oils & gas and power sectors while we have observed a general slowdown from the manufacturing sector. However, the past half year has seen demand increasing in the manufacturing sector also. Overall, we expect a CAGR of approximately 15% for the next four years”. 
 
Construction Equipment industry in 2010 and road ahead
According to Arun Savanur, VP & Head, Construction Equipment Division of Greaves Cotton Ltd., “India is currently the fourth largest Mining & Construction Equipment market in the world. In 2010 Mining & Construction Equipment industry in India was estimated to touch around 56,000 units which would be approximately Rs. 160 billion. In terms of numbers it represents a growth of around 37% compared to the previous year”. In 2010, the Company has introduced motor graders, wheel loaders and 60 CBM Pan Mixer Batching plant in India. “2011 is of prime importance for us as we are launching a slew of cutting edge technology products in premium category to provide one stop shop experience to all our customers”, Mr. Savanur adds.
 
Infrastructure and Construction Equipment Finance industry in 2010 and road ahead
DK Vyas, CEO, Srei BNP Paribas, thinks “2010 has been a good year for the construction industry in India, especially after the difficult phase from the 4th quarter of 2008 till the second quarter of 2009. There was a marked improvement in the business sentiment from Q4 FY10. GDP grew at 8.6% in that quarter. A series of prompt fiscal and monetary steps taken by the Government ensured that the global financial crisis had minimum impact on India. The next two quarters registered growth of 8.9% each. And we expect the last quarter of 2010 (i.e. Q3 FY11) to clock at least 8.6%. Thus, 2010 is likely to see a GDP growth of 7.75%”. The thrust provided to the infrastructure sector maintained the growth momentum of the construction industry. That translated into brisk business for the infrastructure and construction equipment (ICE) sector”.

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