EPC a welcome move in highways [June 2013]

EPC a welcome move in highways
"EPC allows more breadth in the market, given the current scenario of restricted project financing.” – Parameswaran Sivalingam, CEO, EPC Division, GMR Infrastructure Ltd.
EPC players receive a little flexibility on innovation and design savings, which is one of the biggest challenges in the EPC market. However, the opening of the EPC projects in highways is welcomed well. Parameswaran Sivalingam discusses how the opening for EPC projects may lead to continued low margin in the sector. In 2012, the government announced to award road construction projects via EPC. How do you see the market going ahead with this development?The opening of the EPC projects in highways is a welcome news as it allows more breadth in the market given the current scenario of restricted project financing. The highways sector has a high degree of competition, and we expect the same to be reflected in the projects bided out under EPC mode. This may lead to continued low margin in the sector. What are the issues faced by EPC players in India? How is the industry coping up with those challenges?Due to required conformance to codes, which are mostly outdated, EPC tenders end up being dressed up item rate contracts. This gives very little flexibility on innovation and design savings. This is also a major hindrance in the EPC market.
Another problem is unreliable sub-contractors with a high failure rate and a claim-oriented mindset. This forces EPC players to develop large delivery teams and large equipment base, instead of focusing on the most value-adding activities.
Lack of readily available trained manpower is another major challenge. EPC players have to spend their time and money in training the manpower.
Most of the NHAI road projects are being built on DBFOT model through PPP route. Viability of these projects is affected because of escalating input costs. Are there any distant possibilities of fulfilling road building target of about 8,000 km a year?If the funding issues and inflationary pressures ease, it might be possible to achieve the target.
How lucrative is the sector for foreign players?The construction market is highly fragmented and competitive. In this scenario, foreign players can compete only on the basis of technology. Unfortunately in India, these technical innovations get restricted due to adherence to outdated codes; hence, we have seen that foreign players find it difficult to compete in the sector.
Are the Indian EPC players capable enough to compete with international EPC contractors?In the Indian EPC market, Indian players are more competitive. In international market, an entrenched contractor might be more competitive.
Brief us about EPC projects undertaken by your company.We have undertaken EPC works in three major highways; namely, Hyderabad Vijayawada, Chennai Outer Ring Road and Hungund Hospet. We are also active in the buildings and energy sector. We have undertaken EPC works for residential townships, commercial towers and hospitals in the buildings segment and coal handling plants, raw water reservoirs and non-plant buildings in energy segment.
Brief us about your expansion plan.Earlier we were confined to do works within the GMR Group. Now we are open to take up EPC projects independently. Hence, we will expand into the broader market in our current segments of highways, buildings and energy. We are also venturing into new segments like DFC in railways and metros in urban transportation and hydro power plants. We are also exploring EPC opportunities in South Asia, Middle East and Africa.

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