Proposed infra investment to promote EPC business

“India’s Planning Commission has announced infrastructure investments of Rs 40.9 trillion during the 12th Five Year Plan period, and the EPC sector, with its estimated opportunity size of Rs 17.1 trillion is expected to be the largest beneficiary of investments,” comments PP Gupta, Managing Director, Techno Electric
Please discuss about the advantages of EPC highlighting the cost and quality advantages.EPC contractors can bring in the best in-class project management tools and techniques that improve sourcing. They have an in-house team of experienced project management personnel. Developing and understanding of engineering design, particularly for complex projects, requires competency that can be delivered by experienced EPC players. The many hurdles faced during project implementation can be addressed through proper supervision such as process design flow, project funding, procurement & raw material costs, risk assessment, manpower shortages etc. The right handling of these challenges may not completely eliminate delays but it brings down costs significantly and results in better project execution.
How do you see the potential and current status for EPC market in India?The industry certainly is going to witness tremendous growth on back of growing infrastructure activities in the country. Planning Commission has announced infrastructure investments of Rs 40.9 trillion during the 12th Five Year Plan period, and the EPC sector, with its estimated opportunity size of Rs 17.1 trillion is expected to be the largest beneficiary of investments. With such an addressable market for infrastructure, EPC players will have to meet up with the demands of large infra players.
The concept of EPC has been gaining ground since last few years in India. It is now recognised as a preferred mode of contracting as it fixes a single-point responsibility that facilitates to monitor and coordinate easily, which was not a scenario before. However, today companies prefer awarding contracts to specialised companies having complete experience of handling engineering, procurement and construction. The owners thus remain unaffected to a large extent with the sole onus being that of the contractor.
EPC contracting has very good potential considering the robust investment being planned in the infrastructure sector. The industry is likely to grow at a reasonably good rate for the next few years.
Tell us on the market size and your market share.India’s Planning Commission has announced infrastructure investments of Rs 40.9 trillion during the 12th Five Year Plan period, and the EPC sector, with its estimated opportunity size of Rs 17.1 trillion is expected to be the largest beneficiary of investments. While the power and highways sectors are expected to continue being the Government’s main investment focus areas, the urban infrastructure and telecommunications sectors are also expected to witness enhanced investment.
What are the prime challenges the EPC players in India are facing today? Skilled manpower shortage: EPC is a manpower run business. India has produced quality engineers over time with majority of them being focused on Information Technology. This has led to scarcity of engineers from other curriculum such as Electrical, Mechanical and Civil. Many colleges and universities have even dropped Civil Engineering as a curriculum since it was not a preferred choice for the generation at the time. This has emerged as a serious problem for the industry. Techno is no exception to the situation and is trying hard to deliver the most of the limited manpower resources. This challenge shall continue and there are no short-term solutions to it.
Unhealthy competition: With the qualifying criteria being reduced for bidding for projects due to reasons such as competitive pricing for customers and their confidence and experience in delivering such projects has resulted in competition from inexperienced players leading to tough competition and inexperienced bidding. This is not only a challenge for Techno but is harmful for the nation since many projects get awarded to untested players leading to low quality projects and execution delays.
Time and cost overruns: There can be various reasons for time and cost overruns during implementation of EPC projects like delay in start and completion of projects, ambiguity in design, wrong construction methodology, lack of coordination between availability at the source and supply of various construction materials, frequent changes in decisions of client, poor cash flow, law and order problems in the project area, land acquisition issue, non availability of labour, bad project management, local issues etc. But without doubt, the rising prices of various key material inputs along with increasing labour cost remains one of the main reasons for project cost escalation.
Availability of labour: Labour cost has risen rapidly in the last few years and the Mahatma Gandhi NREGA only helped to aggravate the situation further. With jobs having minimum guaranteed wages being made available closer to their home – the rural migrant worker no longer travels to the nearest town in search of work thereby leading to shortage of workforce and higher wage rates to the available workers. Also the development projects at national levels have also increased. These factors have resulted in scarcity of labour in major construction locations thereby pushing up labour rates significantly. These factors along with inflation have pushed up the labour cost in the recent years.
In addition, majority of construction labourers come from Jharkhand and Bihar States. In recent times, lot of development has started in these states as well, creating enough employment opportunities in their home states which in turn have created a big vacuum in the availability of labour.
Land issues: Procurement of land adds to the woes of project developers. Foreign investors are shying away due to land issues faced in the country. Global companies have put their plans on hold and are eyeing less risky places where land, fuel, tariff structure or regulatory clearances are not much of an issue. Large projects require huge tracts of land. The process comes with a package of issues starting from rehabilitation of the existing dwellers, a monetary compensation for the displaced, assured employment guarantee once the project is commissioned and not to forget the emotional quotient of parting with land in a country like ours.
What is your current order booking?Techno’s current order backlog stands at Rs 900 crore, Generation forming around 28 per cent of order book, T&D at 66 per cent and Industrial at 6 per cent.
What are your expansion plans?Techno is moving layers above the value chain within the power sector. From a mere EPC company it has now become a leading IPP in renewable energy. Techno will invest Rs 10,000 crore in the power industry – Rs 7,000 crore in Generation and Rs 3,000 crore in T&D by 2020.
In our EPC business, we foresee a modest growth of around 8 – 10 per cent each year. The cash flow generated in our EPC business will be utilised in developing assets of our own under generation and transmission projects. We plan to have a capacity of 1,250 MW of power generation capacity from renewable sources by the year 2020 adding about 150-200 MW of capacity every year. We plan to add one transmission line annually to our portfolio so as to have around 5 projects by the end of 12th Five Year Plan.

 Some of the landmark projects where Techno had an association are:• 23 MW plant for TATA Chemicals at Mithapur, Gujarat• Installation of power plant electricals for CESC Ltd at Budge Budge, West Bengal• Balance of Plant Mechanical Package for 100 MW Unit-II for Hindalco Industries Ltd at Hirakud, Orissa• 12 MW waste heat recovery power plant for Electrosteel Castings Ltd at Haldia, West Bengal• Fuel oil handling system for Chandrapur Thermal Power Station Unit 5 and 6 (2×500 MW) for Maharashtra State Electricity Board at Chandrapur, Maharashtra• 400/220KV substation for Power Grid Corp of India Ltd at Bhiwadi, Rajasthan• 400/220KV substation for Power Grid Corp of India Ltd at Wagoora, Srinagar, Jammu & Kashmir• 400/220 KV substation for NTPC Ltd at Kalpaka, Vishakhapatnam• Installation and revamping of substations for Assam State Electricity Board at Guwahati, Assam• Yard piping work for CPP 2nd phase expansion for NALCO Ltd at Angul, Orissa• Underground piping and fire water network for Haldia Petrochemicals Ltd at Haldia, West Bengal• 1.25 MTPA of aluminium smelter expansion for Vedanta Aluminum Ltd at Jharsuguda, Orissa• Installation of 40 per cent fixed series compensation package for 400 KV double circuit D/C Khandwa-Seoni transmission line in association with Nokian Capacitors Ltd, Finland for Power Grid Corporation of India Ltd• Modernisation of Grid stations at Bihar Sharif and Bari Pahari for the Bihar State Electricity Board.

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