EPC Driving Growth Efficiently Report FINAL

Foreword Af^jYkljm[lmj] Lg\Yq Dear reader, As the World Bank has recently asked the Roads Ministry to develop new models to expedite projects, India’s Planning Commission envisages a fresh policy on EPC in road projects. Under the new EPC model, the contractor will accept the risk and responsibility for both the design and the construction of work. So while EPC projects have existed, the emphasis on them is freshly brewing. There is a crying need for more professional process in public procurement, better understanding of quality thresholds and technology among (especially) government and public sector developers. The government will soon have a new law in procurement and may introduce a Department of Procurement. This should come as good news to everyone who is aspiring to reach international quality standards and new technology. Most industry experts believe our contract system—not procurement alone—needs major reform. International developers and investors are demanding better processes and adherence to health, safety, environment norms. As internationalization knocks on India’s doors, however, high attrition and lack of labour—especially skilled labour—persists. Thanks to governments in traditionally underserved but overpopulated regions such as Bihar, Orissa and Bengal—from where labour typically migrates en masse to where the action is—developmental and infrastructure projects are coming up aggressively. The government-sponsored MGNREGA, which guarantees employment in rural areas, is another reason. Delays in our development projects are forcing more developers to go the EPC way. The new emphasis on EPC is also, sadly, because investments are looking south. With a double-dip threat in the global economy, the worst industrial growth in eight quarters in India and projects down to a trickle, EPC is a stable option. But if the recent success of India’s largest-ever highway bid-out is any indication, some sectors are all set to change the trend—even as power projects remain suspect owing to poor health of the distribution companies. We’re proud to present a joint paper that outlines and analyses the trends in EPC, a\]flaÕ]k akkm]k$ Yf\ j][gee]f\k hgda[q [`Yf_]k Yf\ oYqk ^gjoYj\& Pratap Vijay Padode Editor-in-Chief, Infrastructure Today and Managing Director, ASAPP Media Information Group Ernst & Young Dear reader, India’s EPC market has come under the global scanner. The sector has witnessed consistent changes over the past few years, with increasing project sizes, scale and market maturity. Riding on India’s af^jYkljm[lmj] j]imaj]e]flk gn]j l`] f]pl Õn] q]Yjk ]klaeYl]\ INR40.9 trillion during the Twelfth Five Year Plan) the EPC sector is likely to make major advances. The order books of numerous players are bulging, and the sector is attracting the increased interest of global majors, and Indian conglomerates as well as infrastructure developers. The sector has become more dependent on infrastructure investments than ever before. This trend is further illustrated by the fact that projects awarded by the Indian Government are gradually shifting toward the Private Public Partnership (PPP) model. Some sectors, such as highways and power, have reached a mature stage, whereas others such as the railways and urban infrastructure are yet to develop through the PPP model. Today, EPC contractors have a healthy mix of government and private sector clients, as compared to their heavy dependence on government clients until few years ago. Therefore, companies have to adapt to such changing environments. Over the past three years, some large EPC companies have seen a ~20% growth in their j]n]fm]k Yf\ gj\]j Zggck& @go]n]j$ o] `Yn] gZk]jn]\ l`Yl làk _jgol` ak fgl j]Ö][l]\ af l`]aj Zgllge daf]$ Yf\ làk ak à_`da_`l]\ Zq l`]aj mf\]jh]j^gjeYf[] af Af\aYÌk ÕfYf[aYd eYjc]lk& Làk kdgo\gof af hjgÕlk eYq Z] YlljaZml]\ lg emdlahd] [Ymk]k È [gkl gn]jjmfk$ afÖYlagfYjq hj]kkmj]k$ hjgb][l \]dYqk$ j]_mdYlgjq Zglld]f][ck$ Y__j]kkan] Za\\af_ gj resource constraints (including that of skilled labor). In the present scenario, companies ^Y[] Yf af[j]Ykaf_ f]]\ lg j]Yda_f l`]aj kljYl]_a]k Yf\ ^g[mk gf hjgÕlYZadalq Yk Y_Yafkl revenue growth. Companies have been constantly exploring and innovating means of overcoming the challenges mentioned above. This report discusses the latest trends and the market direction, as well as the strategies adopted by various players to adapt to the ever [`Yf_af_ f]]\k g^ l`] k][lgj& O] `gh] qgm ]fbgq j]Y\af_ làk j]hgjl Yf\ Õf\ al insightful. Sushi Shyamal Partner, Transaction Advisory Services Transportation Infrastructure and Construction Sector Leader, Ernst & Young India . . Heading 1 6 Engineering. Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq . Today. however. Standard clauses and conditions prevailed. Some contracts include the client’s design requirements. led to a growing reliance on contractors’ capabilities and project management skills. since it places the onus of successful project delivery on the contractor. . This model has gained popularity since it places the responsibility for designing. procurement of materials and construction. . [gfljY[l eg\]d `Yk ]ngdn]\ lg j]Ö][l l`] kà^l af ZYdYf[] g^ jakc Z]lo]]f l`] owner/developer and the contractor. Gradually. 9f =H. Slowly but steadily. [gfljY[l `Yk nYjagmk klYc]`gd\]jk oal` a\]flaÕ]\ jgd]k Yf\ j]khgfkaZadala]k l`Yl are dependent on the contract model. the risk of time and cost overruns has been transferred to the contractor. These are therefore awarded either on a package or turnkey basis or are a combination of the two. gn]j l`] q]Yjk A decade ago.gfljY[l eg\]dk There are several types of construction contracts that are used. but others hdY[] l`] gfmk g^ \]ka_faf_ gf l`] [gfljY[lgj& Km[` [gfljY[lk$ oal` nYjqaf_ Zml kh][aÕ[ hj]%\]Õf]\ l]jek Yf\ [gf\alagfk$ eYq Z] [Yl]_gjar]\ Yk hY[cY_]% ZYk]\ [gfljY[lk& Contracts wherein the onus to deliver the facility for a guaranteed price within a Õp]\ h]jag\$ oal` h]j^gjeYf[] gf l`] ZYkak g^ hj]%[geeall]\ klYf\Yj\k$ da]k oal` l`] contractor are categorized as turnkey contracts. complex projects and multitude small packages and subcontracts. procurement and construction gf l`] [gfljY[lgj& KaemdlYf]gmkdq$ al Ydkg ]fkmj]k ]^Õ[a]f[q Yf\ eala_Yl]k hjgb][l completion time and costs. While some are item jYl]%ZYk]\ [gfljY[lk$ gl`]jk hjgna\] hYkk%l`jgm_` ]k[YdYlagfk Yf\ afÖYlagf hjgl][lagf to the contractor. Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq 7 . Under the package-based model. the EPC industry comprised a handful of large. time and cost overrun risks may lie with the owner or developer.gfljY[lk `Yn] ]ngdn]\ ^jge al]e jYl] hY[cY_]k lg dmeh kme Õp]\ hja[] Zaf\af_ contracts. there is no dearth of high value and complex projects being executed by government and private players.Introduction Understanding EPC =H. Under the turnkey model. The increasing size and complexity of projects has. Engineering. failure to comply with any of the requirements would necessarily have an adverse impact on the contractor. Zml l`] =H. the onus of project management has shifted from the owner/developer to the contractor. along with the responsibility of designing. the project owner or developer appoints an in-house or external consultant to prepare the initial design and manage the tendering process. jgd] eYljap The onus for successful project execution rests with various stakeholders with varying roles and responsibilities.gfljY[lgj `Yk \]Õf]\ j]khgfkaZadalq Owner/developer has to coordinate with several participants along with the contractors Owner/developer to undertake a day to day supervision of most of the activities Ka_faÕ[Yfl jakck j]lYaf]\ oal` l`] gof]j'\]n]dgh]j =H. who monitors and ensures successful delivery of the project. a contractor or a third party agency. Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq . the PMC may be an in-house team of the owner or developer. based on the approved design. the contractor formulates a detailed design. and makes arrangements for procurement and execution. Depending on the size and complexity of the project. In the initial stages. Role matrix Consultant Government/ owner/developer PMC (Third party/in-house) EPC contract Subcontractors Contractor Suppliers/vendors PMC (Third party/in-house) 8 Engineering.Turnkey contract versus packaged-based contract Criteria Price Time Procurement Engineering/Design Responsibility Point of contact Level of Involvement Risk Turnkey contract Guaranteed price for execution Guaranteed timeline for completion Undertaken solely by the contractor Responsibility of the contractor Contractor takes single point of responsibility Contractor is single point of contact for all matters for the project developer Contractor is free to work with limited supervision \]dan]jq Yk h]j Y_j]]\ ead]klgf]k Yf\ kh][aÕ[Ylagfk Ka_faÕ[Yfl jakck Yj] ljYfk^]jj]\ lg l`] [gfljY[lgj Packaged-based contract No guarantee on the price No guarantee on the timeline As per agreement between the two parties Responsibility of the owner/developer . The contractor may subcontract some hgjlagfk g^ l`] [gfljY[l lg làj\ hYjla]k lg ]f`Yf[] lae] Yf\ [gkl ]^Õ[a]f[q& L`] ]f\% to-end execution process is overseen by the project management consultant (PMC). On the EPC contract being awarded. Players have carved out a niche for themselves and have developed their reputation. Ramky Infrastructure. Port Trusts Private sector — Tata Power. Eicher Group. CES. Reliance Power. BHEL. based on their sector focus. Alstom. Soma Local contractors and consultants providing these services Sub-contractors Project Management Consultants (PMCs) =H. NCC. Punj Lloyd. IVRCL. Adani Group. Patel Engg. based on operational segments. with its rising prominence and changing dynamics. lg\Yq The Indian EPC sector. Welspun Projects.Participant Owners/Developers Role and responsibility Illustrative players Public sector — NTPC. Doosan Group Sadbhav. has over 150 participants and a multitude of stakeholders (see Annexure attached) today. Shapoorji Group. ITD Cementation. BGR Energy Systems. thereby segregating the entire EPC space. HCC. Leighton. Sterlite. Coastal projects. Some have also divested their operations in other sectors. Stup. Mitsubishi. IRCON. Afcons. NHAI. machinery and manpower) Delivers project according to the terms of the the contract EYq Yhhgafl kmZ%[gfljY[lgjk lg Zjaf_ af ]^Õ[a]f[a]k Supply materials/equipment required for execution of project Deliver work to the contractor — typically a back-to-back contract with the contractor Supervise work undertaken by contractor and subcontactor Ensure timely procurement and adequacy of resources Report progress and issues to owner/developer/ contractor Consultants EIL. Isolux Contractors Suppliers/Vendors General Electric. JCB.Jacobs L&T. AVB Group <]Õf] k[gh]$ kh][aÕ[Ylagfk$ klYf\Yj\k$ hjgb][l \mjYlagf and cost of project Supervises project work with in-house or external consultants Makes payment according to agreed upon milestones in contract Prepare initial design for tendering document Manages tendering process Prepare detailed design based on agreed upon klYf\Yj\k Yf\ kh][aÕ[Ylagfk Procures 3M resources (material. Indu Projects. Rites. Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq 9 . Engineering. Hitachi. Essar Group. Thermax. Halcrow. GMR Group. Mott Macdonald. GVK Group. Navyuga. JSW. AAI. Gammon. Leighton. Sadbhav. especially for offshore contracts. BGR Energy Shriram EPC. Petron. CCCL. Siemens. Tata Projects. HCC. BL Kashyap. Thermax.5 trillion Power: 37% Roads: 14% Telecom: 11% Railways: 11% Irrigation: 13% ~50% spend on power and roads — above targeted achievement in power sector Eleventh Plan INR 20. with its estimated ghhgjlmfalq kar] g^ AFJ)/&) ljaddagf& ak ]ph][l]\ lg Z] l`] dYj_]kl Z]f]Õ[aYjq g^ investments. Gammon. Toyo Engineering. Era Infra. Saipem. The space is dominated by equipment manufacturers. Foreign players prefer to enter joint ventures (JVs) with India partners. equipment supply or industrial construction. Oil & Gas EPC Power EPC Aker Solutions. Kalpatru. Unity Infraprojects L & T.5 trillion Power: 32% Roads: 14% Telecom: 17% Irrigation: 12% Railways: 10% Power and roads consistently amounting to ~50% of planned expenditure — added focus on telecom 1 Twelfth Plan INR 40.1 trillion Power: 31% Roads: 12% Telecom: 25% Railways: 7% Irrigation: 9% Greater thrust on telecommunications — increased expenditure on ports. Specialized EPC India’s Planning Commission has announced infrastructure investments of INR40. BG Shirke. Dongfang. Shapoorji Pallonji EPC.1 Tenth Plan Planned investments Actual Investments EPC opportunity Sectoral mix INR 8.9 trillion INR 17. Alstom. Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq . ACS. IJM. oil and gas pipelines 1 Pro-rated based on actual investments up to FY 09 10 Engineering. Bechtel. This space comprises players who have carved a niche for themselves in segments such as hydel tunneling. Hitachi. Simplex. Simplex. ECE Illustrative foreign players Isolux.Segment Infrastructure construction Illustrative domestic players L&T.JMC. Supreme. ITD Cementation. Hochtief. Building construction The space is unorganized in nature and is dominated by many local contractors.. architects and consultants. Ansaldo ABB. Foreign players only operate as PMCs. and the EPC sector. Man Infra.6 trillion INR 4. marine construction. SNC Foreign participation —only in project management An insight Increasing opportunities in the infrastructure sector have attracted many new entrants to this space. Mc Nally Bharat BHEL. Nagarjuna L&T. Ahluwalia Contractors. Mitsui There is high competition from foreign participants.5 trillion (E) INR 9. L&T. Punj Lloyd. Bechtel Doosan. Thermax. Navayuga Afcons. Vinci. Leighton. BHEL. IVRCL Patel Engg. Shapoorji Pallonji. Samsung Engg. Coastal Projects. Essar Projects. While the power and highways sectors are expected to continue being the Government’s main investment focus areas. Lanco Infratech. Mitsubishi. the urban infrastructure and telecommunications sectors are also expected to witness enhanced investment. especially from South East Asia.9 trillion during the Twelfth Five Year Plan period. KEC International.5 trillion INR 16. Uhde India.7 trillion INR 9. BE Billimoria. power transmission. While many are gradually diversifying into the asset development business. there is a growing focus on growth g^ hjgÕlYZadalq jYl`]j l`Yf gf j]n]fm] Yf\ gj\]j Zggc _jgol`& @mj\d]k af hjgb][lk range from regulatory bottlenecks.The sector is not however without bottlenecks. deliver successful projects on time and sustain l`]aj hjgÕlYZadalq& EPC is today highly dependent on the infrastructure sector in general and the PPP model in particular to overcome resource constraints and budgetary limitations. given a weakening global economy. others are seeking technical partnerships. a critical factor on any construction platform. there are also opportunities. These [`Ydd]f_]k kge]lae]k l]f\ lg aehY[l imYdalq$ lae]dq \]dan]jq Yf\ [gkl ]^Õ[a]f[a]k& As is the case with every challenge. Engineering. with government agencies gradually handing over asset ownership and development responsibilities to private parties. global construction giants are attracted by India’s growth story. Lastly. land acquisition issues to a resource crunch. companies have developed organic project management teams to put in place and maintain standards. Funding. There is an increasing realization among contractors to concentrate on their core competencies and prudently select projects . there is increasing reliance on the private sector for the growth of the EPC sector. as risks have increased. While Indian players have taken the inorganic route to venture into international markets. has been given the much-needed support required through PE investments. Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq 11 . Furthermore. Contractors implement varied strategies to adapt to changing sector scenarios. especially with foreign players. Furthermore. Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq .2 12 Engineering. the construction opportunity in the infrastructure sector is estimated to be around INR17.964 1.986 1.852 257 40.989 1.900 2.900 4.623 Source: Indian Infrastructure.986 257 4.576 2.050 662 12.1 ljaddagf v. In the case of telecom.852 3.087 Roads and Bridges Railways Ports Airports Power Oil and gas pipelines Telecom* Irrigation Water supply and sanitation Storage* Total *Construction intensity is assumed with comparison to buildings as per data available in the Planning Commission’s report.312 525 278 4. Proposed investments of INR40.185 2.050 662 10.* g^ l`] hdYff]\ afn]kle]flk!$ oà[` hjgeak]k ka_faÕ[Yfl =H. Engineering. With infrastructure investments assuming a position of prime importance in the Indian economy.780 656 1012 2. construction intensity of 10% has been assumed. While =H.222 128 17. ghhgjlmfala]k& Hjghgk]\ af^jYkljm[lmj] afn]kle]flk \mjaf_ Lo]d^l` >an] Q]Yj HdYf *()*Ç*()/! Segment wise break-up of investment planned in Twelfth Five Year Plan (INR billion) 1.500 1.117 12.623 10.117 3.576 2. the EPC sector has also been demonstrating clear signs of positive growth. August 2011 Road & Bridges Airports Telecom Storage Railways Power Irrigation Ports Oil & Gas Water supply Sector Proposed total investment (2012–2017) (INR billion) 4. Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq 13 .992 Construction Intensity (%) 65 78 50 42 38 25 10 75 66 50 - Construction opportunity (INR billion) 3. [gfljY[lgjk [gflafm] lg Z] l`] mdlaeYl] Z]f]Õ[aYja]k g^ af^jYkljm[lmj] afn]kle]flk$ l`] advent of new models has changed the clientele base for them — from government authorities to a mix of public and private clients. During the Twelfth Five Year Plan period.The opportunity pie EPC — infrastructure interdependence The performance of the EPC sector is primarily interlinked with infrastructure investments.9 trillion (an increase of ~ 100% over the Eleventh Five Year Plan) during the Twelfth Five Year Plan indicate that the EPC sector is set to demonstrate corresponding growth. ” Planning Commission website. Transaction Advisory Services. as compared to planned infrastructure investments of INR8.4% 0. though the extent of the competition varies by sector.” Union budget and economic survey website. It should however be noted that actual investments during the Tenth Five Year Plan period had met the target4.1 trillion construction opportunity. as the size of projects tendered for are increasing.6% 12.0% 20.8%% 7. and to maintain the momentum of its growth. Comparison of segment-wise composition of infrastructure expenditure 40. Ernst & Young India While the telecommunications sector is expected to account for ~25% of the planned infrastructure spend. First.1% 12.5% 5.6% 0. “Column: Target 9% growth.1 tn] Twelfth Five Year Plan [INR 40. Concomitantly. accessed 14 September 2011.6% 3.8% 24.4% . http:// indiabudget.7% 2. HdYff]\ af^jYkljm[lmj] afn]kle]flk India’s economy has been growing at a rapid pace.8% 13.8% 1. we have observed two trends.55% during the Eleventh Five Year Plan (2007–2012)2.0% Telecommunications Water supply and sanitation Railways Storage Roads and bridges Oil and gas pipelines Power Irrigation Airports Ports Tenth Five Year Plan (actual investments) [INR 9. via Factiva. p.15% during the Tenth Five Year Plan (2002–2007) to 7. nic.7% 9.in/survey. the Government plans to double its investment in infrastructure to INR40.9 tn] Source: Planning commission Eleventh Five Year Plan (revised projections) [INR 20. 9 September 2011.5 tn] 2 3 4 “Mid-Term Appraisal-Eleventh Five Year Plan (2007-2012).6% 0.6% 0.up.0% 11.0% 37.3 According to the Planning Commission’s report.0% 2.2%% 11. we are also seeing greater competition: the infrastructure pie is being split.in/. accessed on 29 September 2011. Partner. On the other hand.7% 30.2% 6.5 trillion during the Eleventh Five Year Plan period. Transportation Infrastructure and Construction Sector Leader. These trends portend interesting times ahead.293–295. http://planningcommission. Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq 0.0% 6.0% 32.5% 6. the projects themselves are becoming grander and more complex. ”Economic Survey 2010-11.9 trillion during the Twelfth Five Year Plan from INR20. © 2011 Indian Express Online Media Pvt.00% during the Twelfth Five Year Plan (2012–2017). there may not be a corresponding rise in pro rata growth in the EPC space.5% 10.0% 16.0% 13.As the infrastructure space grows in size.1% 9.5% 2. Ltd.1% 30. 14 Engineering. the power and highways sectors are expected to generate 47% of the expected INR17.0% 13. Sushi Shyamal. and that of the Eleventh Plan period may realize 80% of the target.” Financial Express.4% 4.7 trillion during the Tenth Five Year Plan period.nic. the Government has strengthened its focus on infrastructure development in the country.8% 1. It has increased its infrastructure spend as a percentage of the country’s GDP from 5. This is expected to increase to over 9. Riders aplenty. Planned NHAI project awards for 7300 kms. 7. India Infrastructure . Pg. Construction intensity in roads and bridges is projected to be around 65%. 5 Ministry of Road Transport and Highways 2010–11 annual report.000 km of roads from FY2011 to FY 2015 — out of this. Public spending is projected to be predominantly through award of contracts by state governments and strengthening of the rural road network. Oàd] l`] jgY\k k][lgj `Yk j]eYaf]\ ÖYl Yk Y h]j[]flY_] g^ l`] gn]jYdd ha]$ l`] l]d][ge k][lgj is expected to witness a CAGR of ~10% from 2002 to 2017.gov.6 trillion of investments are expected from the private sector. 247 PPP projects were awarded under NHDP. are expected to be awarded in FY12.” Indian Infrastructure. around INR3. Planning Commission. Yf\ Y[[gmflaf_ ^gj 0/&. August 2011 Planned investment: “Investment in Infrastructure during the Eleventh Five Year Plan. During the Twelfth Plan period. almost 25% of investments are expected to be invested in this sector. Engineering.9 trillion. It seeks to award 29.in Private and public share: Investment in Infrastructure during the Eleventh Five Year Plan as published by the Secretariat for Infrastructure Sep 2010 Planned Public Private The National Highway Development Programme (NHDP) has planned expenditure of INR2. May 11. During the Twelfth Five Year Plan period. Source: “Sector focus: infrastructure data.300 km. C]q af^jYkljm[lmj] k][lgjk2 afn]kle]fl scenario JgY\k Yf\ à_òYqk5 India has the world’s second-largest road network.) Till August 2011. www. (Around 70% of such awards are expected to be under the PPP mode. Investments in roads and highways (INR billion) 6000 5000 4000 3000 2000 1000 0 Tenth Plan Eleventh Plan Twelfth Plan Source: “Sector focus: railways.” The Secretariat for Infrastructure. Another sector.infrastructure. out of which INR2.PPP Opportunity.5% of its total infrastructure spend during the Tenth Plan to 6.The telecom sector has been witnessing increasing investment over the past 10 years.185 trillion during the Plan period. which has gained increasing prominence is the oil and gas segment — with the Government’s spend on the sector expected to increase from 3. Ernst & Young publications. Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq 15 .” Indian Infrastructure. 174. (worth INR5 trillion) would result into investments over FY2013– FY2016.5 trillion is likely to be awarded through NHDP projects and the balance through state project awards.5 trillion. which is likely to result in construction opportunities worth INR3.( g^ ^j]a_`l ljY^Õ[& LglYd afn]kle]fl af the Twelfth Five Year Plan is estimated to be INR4. comprising a total length of 4.4% in the Twelfth Plan. g^ hYkk]f_]j ljY^Õ[ Yf\ . August 2011.2 million km. 9?J g^ /&10 ^jge . Ports8 India has 13 major ports and around 200 non-major ports. Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq . Ka_faÕ[Yfl ghhgjlmfala]k af Yj]Yk km[` Yk ^j]a_`l$ ljY[c [gfn]jkagf Yf\ hYkk]f_]j corridors are yet to be unbundled by the IR and may be explored on the PPP mode to change the public-private spending mix. Investments in railways (INR billion) 3500 3000 2500 2000 1500 1000 500 0 Tenth Plan Eleventh Plan Twelfth Plan Source: “Sector focus: railways. August 2011 16 Engineering. India Infrastructure .” Indian Infrastructure. EY Publications. via Thomson Research. making it the world’s thirdlargest rail network in terms of size besides being the largest passenger carrier and the fourth-largest rail freight carrier globally. EY Publications. private sector spending is expected in MRTS systems in cities such as Mumbai. The Indian ports and shipping sector: realizing potential. total investment is estimated to be INR1050 billion. During *((.livemint. www. which will result in opportunities worth INR23 billion during Twelfth Five Year Plan.html “Sector focus: ports and shipping. In the Twelfth Five Year Plan total investment is estimated to be INR29 billion. Construction intensity in ports is around 50%. Planning Commission. http://www.0&/ million tons to 883 million tons. Construction intensity in railways is around 78%.gov.class facilities7.PPP Opportunity.infrastructure. August 2011.” The Secretariat for Infrastructure. In the Twelfth Five Year Plan.000 route km.com/2008/01/03231547/Tatas-Ambanis-DLF-interested.” Indian Infrastructure. which is expected to result in a construction opportunity worth INR525 billion during the 6 7 8 “Indian Infrastructure-Sector report. August 2011 Planned investment: “Investment in Infrastructure during the Eleventh Five Year Plan. During the Twelfth Plan period. However. May 11.Ç*())$ [Yj_g ljY^Õ[ Yl Af\aYf hgjlk af[j]Yk]\ Yl Y . Bengaluru. Hyderabad and Kolkata. The IR is also expected lg afalaYl] HHH hjgb][lk lg eYaflYaf Yf\ \]n]dgh jYadoYq klYlagfk& Al `Yk a\]flaÕ]\ ** stations across India that will be modernized into world.in Private and public share: Investment in Infrastructure during the Eleventh Five Year Plan as published by the Secretariat for Infrastructure Sep 2010 Planned Public Private Rail projects in India have been typically the domain of the public sector. accounting for 95% of the country’s total trade in terms of volume. Mass Rapid Transit System (MRTS) is expected to comprise a major portion of total planned investments in coming years. and around 70% in terms of value..JYadoYqk6 Indian Railways (IR) network spans over 64. 24 June 2010. based on the success of PPP in other infrastructure sectors.” Religare. the Indian Railways (IR) has begun to take steps to explore the PPP route. Twelfth Plan period. Construction intensity in airports is around 42%.gov. During *((/Ç*())$ hYkk]f_]j Yf\ ^j]a_`l ljY^Õ[ Yl Af\aYf Yajhgjlk af[j]Yk]\ Yl Y .G ak af l`] hjg[]kk g^ ÕfYdaraf_ l`] Za\ e][`Yfake& @go]n]j$ ^]YkaZadalq of such large projects continues to be a concern.93%. To achieve this. 9 Engineering. via Thomson Research. respectively. entailing an investment of INR170 billion. since provision of adequate road. 24 June 2010. Planning Commission.9! `Yk Yhhjgn]\ f]o _j]]fÕ]d\ Yajhgjlk oal` Y lglYd afn]kle]fl g^ AFJ+*( Zaddagf& L`] FYna EmeZYa Yajhgjl ak lg Z] l`] dYj_]kl _j]]fÕ]d\ airport in terms of cost and capacity and is expected to be bid out this year. November 2010.anad 9naYlagf Eg.A<. Infrastructure linkages are also immensely important. the Eafakljq g^ . the Ministry of Shipping (MoS) plans to award 24 capacity-expansion projects at major ports. India Infrastructure . These projects include a mega container terminal at Chennai port (INR37 billion) and a mechanized berth at Vishakhapatnam (INR2 billion).9?J g^ 10. The outlook is therefore optimistic for the overall ports sector. May 11. Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq 17 . 7 October 2011. Investments in ports (INR billion) 1200 1000 800 600 400 200 0 Tenth Plan Eleventh Plan Twelfth Plan Source: “Indian Infrastructure-Sector report.” Indian Infrastructure. This is likely to accelerate the process of privatization and port development.infrastructure. However. Ernst & Young publications. institutionalization of a transparent and competitive bidding process is the only way to decide the fate of such large projects. The nodal Y_]f[q . Over time. Planning Commission website Planned investment: “Investment in Infrastructure during the Eleventh Five Year Plan. August 2011. by FY12. despite the global slowdown. www. rail and water transport facilities will be critical for the success of large -scale airport development plans (such as the one planned in the Navi Mumbai area). Total investment is estimated to be INR662 billion in the Twelfth Five Year Plan.44% and 10.PPP opportunity. With prospects for growth in tier II and III cities looking bright.” Indian Infrastructure.” The Secretariat for Infrastructure. The National Maritime Development Programme seeks to add 230 million tonnes per annum in capacity in 10 years. 10 “Sector focus: airports and airlines. which is expected to result in construction opportunity worth INR278 billion. “Defence Ministry told to speed up port project clearance” The Economic Times.” Religare. the only project that has been awarded so far is the Jawaharlal Nehru Port Trust Terminal 49.in Private and public share: Investment in Infrastructure during the Eleventh Five Year Plan as published by the Secretariat for Infrastructure Sep 2010 Planned Public Private Airports)( India has a total of 136 airports with 94 owned by the Airport Authority of India. “Sector focus: civil aviation. 73. August 2011 Planned investment: “Investment in Infrastructure during the Eleventh Five Year Plan. Delhi. The Airports Authority of India is developing 18 new terminals at existing airports on an EPC basis. This makes a compelling case for further large scale investments in the sector.” Indian Infrastructure.infrastructure./(' 12 “Sector focus: power. www. total investment is estimated to be INR12. 32.During the Twelfth Five Year Plan period.780 billion.” Indian Infrastructure. Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq . Planning Commission. Krishna Patnam and Tilaiya ) have already been awarded to private players. Major projects undertaken in the PPP format till now include that of the Hyderabad. In the Twelfth Five Year Plan. Construction intensity in the power sector is around 38% at present and is expected to result in construction opportunity worth INR4.” The Secretariat for Infrastructure. Bangalore and Mumbai airports. Between 2007 and 2010. Out of these. Mundra. Robust economic growth and enhanced industrial Y[lanalq `Yk ka_faÕ[Yfldq af[j]Yk]\ l`] \]eYf\ ^gj hgo]j af l`] [gmfljq$ d]Y\af_ lg Yk much as 12% peak hour power shortages. private sector participation is expected to rise to 65%.11 Investments in airports (INR billion) 900 800 700 600 500 400 300 200 100 0 Tenth Plan Eleventh Plan Twelfth Plan Source: “Sector focus: civil aviation.576 billion.000 MW of generation capacity was added in the country. four (Sasan. 11 `llh2''ooo&ÕfYf[aYd]phj]kk&[ge'f]ok'YYa%lg%k]l%mh%)0%f]o%l]jeafYdk')(. What is most heartening about the power sector is the record growth in generation capacity addition and initiatives that have helped to create sound policies and regulatory frameworks. HjanYl] k][lgj afn]kle]fl ak dac]dq lg af[j]Yk] ka_faÕ[Yfldq af l`] hgo]j k]_e]fl with the announcement of 14 ultra mega power projects (UMPPs).in Private and public share: Investment in Infrastructure during the Eleventh Five Year Plan as published by the Secretariat for Infrastructure Sep 2010 Planned Public Private Power)* India’s total installed power generation capacity (excluding its captive capacity) stood at 1.. August 2011 18 Engineering. which have had a positive effect on promoting competition and investments in the sector.gov.626 MW as of March 2011. Planning Commission.infrastructure.” Planning Commission website Engineering. 24 June 2010.infrastructure. August 2011 Planned investment: “Investment in Infrastructure during the Eleventh Five Year Plan.” Indian Infrastructure.in Private and public share: Investment in Infrastructure during the Eleventh Five Year Plan as published by the Secretariat for Infrastructure Sep 2010 Planned Public Private Gad Yf\ _Yk)+ India’s oil and gas sector continues to grow steadily.gov.” Religare. Some of the major projects under way in the oil and gas segment af[dm\] Yf )0 EELH9 j]Õf]jq Z]af_ k]l mh Zq Af\aYf Gad . boosted by enhanced investments. via Thomson Research Planned investment: “Investment in Infrastructure during the Eleventh Five Year Plan.gjhgjYlagf ogjl` AFJ+*.EELH9 g^ Y\\alagfYd petrochemicals capacity and 25.(&+ EELH9 g^ j]Õf]jq [YhY[alq$ /&(. Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq 19 . www.in Private and public share: Investment in Infrastructure during the Eleventh Five Year Plan as published by the Secretariat for Infrastructure Sep 2010 Planned Public Private 13 “Mid-term Appraisal — Eleventh Five Year Plan (2007–2012).Investments in power (INR billion) 14000 12000 10000 8000 6000 4000 2000 0 Tenth Plan Eleventh Plan Twelfth Plan Source: “Sector focus: power. which is expected to result in construction opportunities worth INR656 billion.” The Secretariat for Infrastructure. which is estimated at INR158 billion.” Indian Infrastructure.3 MMTPA of new LNG terminals. billion) and a cracker unit of 5 MMTPA capacity by Reliance Industries Limited (RIL) in Jamnagar.623 billion in the Twelfth Five Year Plan. af[j]Yk]\ hjg\m[lagf Yf\ Y jak] af hjanYl] hYjla[ahYlagf& Af l`] f]pl Õn] q]Yjk$ hdYff]\ Y\\alagfk af[dm\] . www.” The Secretariat for Infrastructure. Total investment is estimated to be INR2. August 2011. Construction intensity in oil and gas is around 25%.gov. Planning Commission. “Indian Infrastructure-Sector report. Investments in oil and gas (INR billion) 3000 2500 2000 1500 1000 500 0 Tenth Plan Eleventh Plan Twelfth Plan Source: “Sector focus: oil and gas. Both government and independent YfYdqk]k hjgb][l [gdgkkYd Õ_mj]k ^gj l`] f]pl \][Y\]& MjZYfarYlagf ak Ydkg ]ph][l]\ to lead to a structural shift in the Indian economy. August 2011 20 Engineering. Cities such as Mumbai and Delhi are cracking under the population pressure being exerted on them. which is leading to abysmally low levels of basic infrastructure facilities for water. These areas are already facing severe infrastructure constraints and this situation will only get worse if remedial action is not taken. transportation. Indian cities are expected to contribute up to 70% of the country’s GDP and around 85% of its taxes. etc. This poses both a challenge and an opportunity. 14 “Sector focus: urban infrastructure. The magnitude of the challenge can be understood from the fact that our urban areas may be required to accommodate an additional 250–300 million people in about two decades. Given the eYfm^Y[lmjaf_ Yf\ af\mkljaYd ZYk] Ydj]Y\q hj]k]fl af l`]k] [ala]k$ Yf af[j]Yk]\ afÖmp g^ people at a time of economic growth is likely to lead several of these cities emerging as mega cities in coming years. however. The opportunity. which is likely to have a positive effect on the number of =H.MjZYf af^jYkljm[lmj]). Factors including rapid economic growth and migration of the rural population to urban areas is leading to a never before seen growth in urbanization levels. Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq . which is likely to transition from primarily being an agrarian economy to a more service and manufacture-driven one. hjgb][lk Z]af_ YoYj\]\& L`] lgh *(Ç+( [ala]k Yj] hjgb][l]\ lg YlljY[l Y ka_faÕ[Yfl portion of the rural population.” Indian Infrastructure. Urban infrastructure investment requirement: 2012-31 (INR billion) 45000 40000 35000 30000 25000 20000 15000 10000 5000 0 Renewable and redevelopment including slums Total expenditure Storm water drains Capacity building LjY^Õ[ kmhhgjl infrastructure Solid waste management Street lighting Water supply Urban transport Other sectors Urban roads Sewerage Source: Report on urban infrastructure and services by the high powered expert committee from national institute of urban affairs Increased urbanization is expected to lead to the emergence of more megacities and bigger population clusters. The importance of urban infrastructure as a component of India’s infrastructure story can be gauged from the fact that by 2030. India is witnessing a sharp change in its demographic composition. lies in the fact that the Government estimates that its urban infrastructure investments will be around INR40 trillion over the next two decades. who migrate in search of job opportunities. sanitation. 8 trillion on water supply Yf\ kYfalYlagf$ AFJ) ljaddagf gf ajja_Ylagf$ AFJ) ljaddagf gf jmjYd jgY\k Yf\ Öqgn]jk Yf\ INR1 trillion on urban transport facilities including MRTS/ BRTS/monorails and water transport facilities.6% of the total 533 projects. Under the JNNURM. Sector Drainage/Stormwater drainage Roads/Flyovers Water supply Sewerage Urban renewal Mass Rapid Transport System Other urban Solid waste management Development of heritage areas Preservation of water bodies Parking Others Total No of projects 70 97 147 108 11 21 15 41 6 4 5 8 533 Out of the total 533 projects. JNNURM Spending by sector for UIG and UIDSSMT 3% 12% 1% 41% Water supply 24% Sewerage Roads and transport Drainage Solid waste management Urban renewal 19% Source: Report on urban infrastructure and services by the high powered expert committee from national institute of urban affairs 15 Assuming construction intensity of 66% . Maharashtra has the maximum number of projects (78). a total of 533 projects have already been sanctioned as of June 2011. sewerage. The Twelfth Five Year Plan envisages an investment of INR1.G^ làk$ ÖY_kàh _gn]jfe]fl k[`]e]k km[` Yk l`] BYoY`YjdYd F]`jm FYlagfYd MjZYf Renewal Mission (JNNURM) are estimated to involve investments of about INR605 billion. which translates to around INR400 billion worth of EPC works15. In terms of absolute spending. 27.5% are water supply projects. Among the states. Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq 21 .based on construction intensity of water supply and irrigation Engineering. 20. water. which comprise 14. and roads and transportation have taken up almost 84% of the funds spent under JNNURM.2% sewerage hjgb][lk$ )0&* jgY\ Yf\ Öqgn]j hjgb][lk$ )+&) Yj] j]dYl]\ lg \jYafY_] Yf\ /&/ lg solid waste management. urban infrastructure promises to be the story of the next decade. The majority of JNNURM projects are awarded in heavily urbanized states such as Tamil Nadu.. and sometimes. the quality of water is questionable. while oil and gas see doubled investments in the XIIth plan. Also as the process of privatization has begun for ports. Encouragingly. we have not even scratched the surface as far as plugging the infrastructure gap that currently exists is concerned. Transportation Infrastructure and Construction Sector Leader.The infrastructure linked EPC sector is set for a big leap in India. Sushi Shyamal. as do the airports segment where Tier II and III cities are the focus of attention. We are expecting to see projects in roads and highways go on the fast track. A look at the ranking of states in terms of urbanization levels points to geographies where an opportunity exits. etc. However. L`] j][]fl Ömjjq g^ afn]kle]flk Yf\ hjgb][l Yffgmf[]e]flk af l`] mjZYf af^jYkljm[lmj] space has caught the attention of the private sector and has led to many companies queuing up to take up such projects. construction intensity is one of the highest (at 66%) for urban infrastructure projects. Ernst & Young India Around 41% of the funds have been expended on water supply. which are seeing traction by way of government and private investment. unbundling of reforms are eagerly awaited. the bulk g^ l`] [YhalYd kh]fl ak gf =H. Partner. we will see an unparalleled business opportunity for the private sector. authorities have now noticed these issues and we are witnessing ka_faÕ[Yfl afn]kle]flk eY\] af l`]k] Yj]Yk& KaeadYjdq$ mjZYf ljYfkhgjlYlagf$ oYkl] management and mass housing are urban sub-sectors. As our cities swell. On a positive note. Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq . Urbanisation ranking: top 10 major states in India Tamil Nadu Maharashtra Gujarat Punjab Karnataka Haryana West Bengal Andhra Pradesh Madhya Pradesh Kerala 0% 10% 20% 30% Urban population Source: Report on urban infrastructure and services by the high powered expert committee from national institute of urban affairs 40% 50% 60% In the case of projects relating to water supply. The power sector is expected to see private players get a boost. Maharashtra. Transaction Advisory Services. the sector shows positive prospects. sewerage. 22 Engineering. Even if a fraction of the projected capital is spent on urban infrastructure. and going forward. While the MRTS is a step forward for the railways. Gujarat. which will lead to the emergence of a new set of infrastructure “czars” in the private sector.$ oà[` lYc]k mk lg l`] [jmp g^ l`] klgjq l`Yl ka_faÕ[Yfl business opportunities exist in the urban infrastructure space. transportation. Specialized companies are emerging that have capabilities in urban infrastructure. and value is getting created for all stakeholders. ka_faÕ[Yfl [YhalYd `Yk lg Z] kh]fl bmkl lg [Yl]j lg l`] `m_] h]fl%mh \]eYf\ ^gj oYl]j& The need for reliable water infrastructure is accentuated by the fact that no Indian city can claim to have 24x7 water supply — many continue to get water for only a couple of hours every day. Andhra Pradesh and Karnataka. which are facing severe infrastructure pressures due of urbanization. waste management and urban transport system. As the PPP model gains popularity. are gradually gathering steam. hdYq]jk lg Z] l`] Za__]kl Z]f]Õ[aYja]k Attractive PPP and EPC projects With the increasing need for accelerating infrastructure development to fuel India’s economic growth. there can be no doubt that the EPC sector is in an advantageous position. The private sector is driving this growth opportunity by investing equity in such PPP infrastructure projects. This has resulted in huge opportunities for EPC contractors.length ZYkak gj lg làj\ hYjlq [gfljY[lgjk& 9f =H. oil and gas.=H. and power have relatively higher construction opportunities since these segments have reached a relatively mature stage. Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq 23 . The Government has chosen to adopt various models to award contracts and for execution of projects. Sectors including roads. Contractors are increasingly opting to convert themselves from executors to developers and risk takers due to the Government’s preference for awarding models on an ownership basis. It is evident that the PPP mode is gaining prominence in infrastructure development. On the other hand. project owners or developers ultimately award work as EPC or other forms of contracts to either their own contracting entities on an arms. This has led to the entry of an increasing number of private players in l`] k][lgj& :] al afl]jfYlagfYd Yf\ \ge]kla[ \]n]dgh]jk gj ÕfYf[af_ afklalmlagfk$ ]n]jq private participant is eager to tap this opportunity. there is likely to be a higher dependence on the private sector for contracts being awarded. Model shift for EPC players EPC market dependency Infrastructure construction Sub-sector Roads Railways Ports Airports Urban infrastructure Building construction Oil & gas EPC Power EPC Specialized EPC Building construction Oil & gas Power Marine Hydro Industrial Source: Ernst & Young analysis * Assumption Clientele base* (government-private ratio) 50: 50 80: 20 50: 50 50:50 80: 20 20: 80 80: 20 20: 80 20: 80 80: 20 20: 80 Order of models adopted by Government PPP -> Annuity -> EPC EPC -> PPP PPP -> EPC EPC -> PPP EPC -> limited PPP Cash contracts -> EPC EPC EPC EPC EPC EPC The Government is expected to continue awarding projects in the EPC and PPP formats. in the PPP model. With its clear focus on undertaking and encouraging infrastructure development in the country. [gfljY[lgj ak ]ph][l]\ lg Z] Z]f]Õl]\ through contracts awarded by government clients and private developers. However. particularly water supply. sectors such as urban infrastructure. Engineering. the Government is giving high preference to the PPP model. Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq . 24 Engineering.5 trillion in Twelfth Five Year Plan. the increasing number of private sector clients have given rise to negotiated contracts as compared to the traditional competitive bidding format. hence the facility is made more ]^Õ[a]fl& Returns on equity investments Project may deliver upsides On the private player The revenue of the private player is generally dependent on the smooth running of the project Private partner is responsible for operation and maintenance of the facility =^Õ[a]f[q g^ l`] ^Y[adalq Returns Upsides Project risk Market risk Operation and Maintenance Ernst & Young analysis HjanYl] hdYq]jkÌ afn]kle]flk Projects being awarded in the PPP mode have gained in popularity because they minimize _gn]jfe]flYd gmlÖgo& Làk `Yk _an]f jak] lg nYjagmk [dYkk]k g^ hjanYl] k][lgj hYjla[ahYflk from traditional EPC contractors to Indian business conglomerates. which increased to 36% in the Eleventh Five Year Plan (2007–2012) and is expected to increase further to around 50% in the Twelfth Five Year Plan (2012–2017). delay in revenue generation force a private operator under a PPP contract to complete project development within schedule and budget. there has been a substantial rise in the number of new entrants in the sector. stringent contractual penalties.Modes of project award Criteria EPC PPP Government EPC contract award EPC contractor Government PPP contract award EPC contractor (owns asset) EPC contract award Contract execution Contract execution SPV (operates and maintains asset) Ownership Model Lae] Yf\ [gkl ]^Õ[a]f[q Government Contract Af]^Õ[a]fl af j]\m[af_ lae] Yf\ cost overrun – especially due to external risks such as land acquisition. With such rapidly growing opportunities. This translates into an increase from INR2. Furthermore. regulatory approvals Contractor job stops after construction and handover of the facility Based on project margins None Only execution risk Contractor’s revenue is dependent only on the construction of the facility Contractor is only responsible for constructing the facility Private Concession Accumulating interest costs.3 trillion in Tenth Five Year Plan to INR20. HjanYl] hYjlq `Yk lg jmf l`] ^Y[adalq Yf\ af]^Õ[a]fl ^Y[adalq may dent its revenue. Private sector participation in Indian infrastructure projects was around 25% in the Tenth Five Year Plan (2002–2007). The rise in such clients is expected to improve payment mechanisms and the working capital cycles of EPC contractors. Plus Expressway India entry strategy – through available opportunities In-house and subcontracting of low value works SREI.4 25% 20.g. Balfour Beatty. Vinci.0 INR trillion 36% 30. Reliance Group. NCC. Essar.5 20.8 2. Adani Group Strategy Long term asset play across infrastructure sectors In-house capabilities or third party Investors with high sector expertise becoming joint developers Third party or JV partner Late entrants. who are now competing with a host of EPC players. JSW. a space that was earlier dominated by large EPC players and a few infrastructure developers. Soma. SBIMacquarie. Indian business conglomerates and infrastructure developers. is now witnessing multiple participants. Patel Engg. August 2011 Engineering. Atlantia. GVK L&T. Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq 25 . power. Leighton. HCC. highways.0 50% 41. ITNL. airport etc Entry into EPC as a means of backward integrations 2-3 decades of presence in the EPC business Participation in PPP projects to gain captive EPC contracts Preference to award PPP -> Annuity -> EPC contracts by government Established global concessionaires in European / Asian markets Interest in India as high growth market Degrowth in their local markets Domestic and local infrastructure funds/ institutions Participation in the sector as an infrastructure investment strategy Cash rich industrial groups Participation in the infrastructure sector due to its high growth and captive EPC businesses Entry strategy through M&A Illustrative Players GMR.1 7.1 10. IVRCL. Infrastructure investments (INR trillion) 50. IRB. Lanco. Madhucon.0 20. AVB. Thus. Hochtief.Infrastructure Developers Genesis Construction Companies Foreign Participants Financial Investors Business Conglomerates Presence across various facets e. Isolux. Welspun. IDFC.0 0. Gammon. L&T Infra Tata. preferring inorganic growth route In-house capabilities or third party EPC Execution Capabilities Ernst & Young analysis LYhhaf_ l`] ghhgjlmfalq The fact that the sector has witnessed the recent entry of global construction giants.0 40. Indian Infrastructure. KMC.5 60% 50% 40% 30% 20% 10% Private Private (% of total investment) Source: Planning commission. amply demonstrates the growth potential of the sector. Sadbhav EPC participation and asset development for captive EPC In-house IJM.0 13.3 0% 9. each set on carving out a piece of the EPC pie.5 20.0 Tenth Five Year Plan (actual) Public Eleventh Five Year Plan (planned) Total Twelfth Five Year Plan (planned) 6. sectors such as the railways and buildings are relatively lower on the attractiveness scale — the railways await unbundling and buildings the recovery of the real estate sector. These sectors are also attracting the interest of foreign players. This may be due to relatively low entry barriers in these markets. On the other hand. Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq . and it is the ability of players to identify such risks and challenges that will help to sustain this dynamic market. others have chosen the inorganic route to tap its growth potential. with opportunity comes associated business risks. the market as a whole has become a mixed bag of opportunities in which a variety of players are participating. 26 Engineering. a strong project pipeline or the huge opportunity size.EPC Market Sub-Sector Competition Complexity Government Role (Facilitator) Entry Barriers Opportunity Size Foreign players interest Current Status Infrastructure Construction Roads Railways Ports Airports Urban Infrastructure » X ± X ± » X » X X ± X X » » » X » X » » ± X ± » ± ± X » X » » X X X » » X X ± X ± ± X » X ± ± » » X » ± ± » High » X » » ± X » » ± ± ± Low » X ± » » X ± » ± ± » Medium Building Construction Oil & Gas EPC Power EPC Specialized EPC Building Oil & Gas Power Marine Hydro Industrial Ernst & Young analysis » ± X Sectors such as roads. However. As a result. Some have transformed themselves in order to adapt to the ever changing needs of the market. power and urban infrastructure are very attractive for investors in Indian markets. airports. Engineering. Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq 27 . Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq .Heading 3 28 Engineering. the EPC market is serviced by several large. it is essential for these players to take a sound and informative decision before bidding for EPC projects. Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq 29 . assess and mitigate risks. each looking to outperform its peers and grab a larger share g^ l`] ]n]j af[j]Ykaf_ ha]& @go]n]j$ oàd] ljqaf_ lg eYaflYaf l`]aj dYkl Õn]%q]Yj . Some key aspects of these factors have been highlighted below: . While most companies focus on creating healthy order books. While some uncertainties and risks are beyond the control of contractors and cannot be mitigated.informed project selection team with adequate market intelligence to scrutinize every project before expending resources on detailed investigations is crucial.9?J g^ over 20%.Yj]^md k]d][lagf g^ hjgb][lk ^gj `]Ydl`q _jgol` When opportunities are aplenty and competition is intense. not only does improper project selection Y^^][l l`] ÕfYf[aYd `]Ydl` g^ Y [gehYfq$ Zml al Ydkg f]_Ylan]dq Y^^][lk alk _gg\oadd& Oàd] some delays are due to regulatory hurdles.Heading Key business challenges Opportunities are often accompanied by challenges. A careful examination of a project prior to bidding is essential to mitigate any unexpected future developments. competitive bids. Engineering. project selection becomes l`] c]q lg eYaflYafaf_ hjgÕlYZadalq& J][]fl ]pYehd]k [al]\ af kmZk]im]fl k][lagfk! indicate that if they are not selected judiciously. etc. Therefore. pre-tendering project selection is not the only challenge in a project. projects may drain resources without providing commensurate returns. Therefore. A wellselected project is still subject to execution risks. However. others are caused by force majeure factors. the role of an effective risk management team has become more important than ever before due to its ability to foresee. regulatory bottlenecks.. Today. Land acquisition delays. medium and small players. can lead to time and cost overruns and have an adverse impact on perceived project margins. A well. it is also important for them to ensure the quality of these. and challenges are best overcome by mitigating associated risks. working capital management glitches. these may be avoided through effective planning and establishment of a contingency plan. Mid-Consolidated Construction Consortium Lt. IVRCL Ltd. the market cap of construction companies has declined by 5% to 27% over the same period. Larsen &Turbo. Sadbhav Engineering Ltd. When their performance is studied through this categorization. mid (INR20 billion > revenue > INR10 billion) and small (revenue < INR10 billion). Era Infra. Jyoti Structures Ltd. 16 For our analysis we have included following construction companies: large sized — HCC Ltd. Pratibha Industries Ltd. J Kumar Infraprojects Ltd. JMC Projects (India) Ltd. Small-KNR Constructions Ltd. a clear pattern emerges. ITD Cementation India Ltd. NCC Ltd. change in governments Post-bid stage <]dYq af YhhjgnYdk Yf\ land acquisition =fnajgfe]flYd YhhjgnYdk Execution stage – Environmental risks – Unfavorable climatic condition Yf\ lghg_jYh`q Mf^YeadaYjalq oal` lghg_jYh`q' terrain.gkl ]klaeYl]k Yf\ ÕfYf[af_ Ykkmehlagfk <]ka_f [`Yf_]k'afY\]imY[a]k Resource availability. SPML Infra Ltd. Ahluwalia Contracts (India) Ltd. 30 Engineering. Gammon India Ltd. This can be partly attributed to the global economic downturn. Simplex Infra. While the BSE SENSEX has yielded a 19% positive movement over FY05–FY11. but it is also due to the diminishing hjgÕlYZadalq g^ [gfkljm[lagf [gehYfa]k& >gj l`] hmjhgk] g^ Y daeal]\ YfYdqkak16. site conditions Financial risks Liquidity and credit shortage Foreign exchange and interest jYl] Öm[lmYlagf <]dYq af hYqe]flk ^jge [da]fl3 unavailability of resources Unfamiliarity with the local dYok$ lYp Yf\ j]_mdYlagfk Contractual/legal risks – Economic downturn Force majeure risks Unfamiliarity with the local laws and regulations Unfamiliarity with the local laws and regulations Limited say in contract negotiations Source: Ernst & Young analysis EYj_afk'hjgÕlYZadalq Yf\ fgl gj\]j Zggc lg drive growth Construction companies have demonstrated a weak performance at the bourses. utility shifting Technical risks Afkm^Õ[a]fl hj]daeafYjq j]k]Yj[` gf k[gh]$ j]kgmj[] YnYadYZadalq$ technology requirement leading to inaccurate time and cost estimations . Patel Engineering . Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq . Tantia Constructions and Welspun Projects. resettlement and rehabilitation. Supreme Infrastructure India Ltd. construction companies can be broadly categorized into three categories: large (revenue > INR20 billion).Key risks in an EPC contract Stage of EPC contract Pre-tender stage Political risks Political stability of the country. 5 and mid and small companies at multiples of 4. Driven by economic growth and high infrastructure spending.and small-sized companies were not so lucky — the mcap of mid.5 1. BSE 0. respectively. Engineering.5 0 FY05 FY06 EV/EBITDA Source: Company annual reports.sized companies declined by a staggering 20 % and those of small. 20% and 41% in large.0 FY07 P/E FY08 FY09 FY10 FY11 Market Cap/Sales (secondary axis) Things were much brighter for the industry between FY05.6 and 2. construction companies registered high hjgÕlYZadalq Yf\ kljgf_ nYdmYlagfk& DYj_] gj_YfarYlagfk kYo Yf Ydd%lae] à_` af nYdmYlagfk trading at a P/E multiple of 29. because their advantage of economies of scale seem to have acted in their favor. The track became slippery once the recession set in — while revenue growth was still strong due to order book positions (with revenue growth of 22%. Large companies: movement in valuation multiples 2. while mid and small companies traded at multiples of 19.08. respectively.sized companies by 27 % during the same period.5 60 2. Large companies were trading at a P/E multiple of 6. in FY09. the mcap of large companies declined by 5% over FY05–11.0 20 0.0 40 1.1 and 12. Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq 31 . Mid.7 in FY07.1. The blow of losses ^jge kge] hjgb][lk o]j] ZYdYf[]\ Zq l`] hjgÕlk g^ gl`]jk& >gj ]pYehd]$ oàd] eYjc]l capitalization (mcap) declined across all categories of companies. ea\% Yf\ keYdd [gehYfa]k$ j]kh][lan]dq!$ egkl j]hgjl]\ eml]\ hjgÕlYZadalq d]Y\af_ lg reduced valuations.Market performance of companies 600 500 400 300 200 100 0 FY 05 FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 Mcap (Large) Sensex Mcap (Mid) Mcap (Small) Source: Bombay Stock Exchange (BSE) EYjc]l h]j^gjeYf[] Large companies have been hit less hard than smaller companies.7. 32 Engineering.2 40 1.0 0.0 FY07 P/E FY08 FY09 FY10 FY11 Market Cap/Sales (secondary axis) J]n]fm] Yf\ hjgÕlYZadalq Construction majors have seen mixed fortunes since FY05.6 60 1. mid and small-sized companies are in the range of 14.0 0.4 0. BSE 0. they are still trading at huge discounts. Current trading P/E multiples for large. Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq .6 60 1.4 1.2 0 FY05 FY06 EV/EBITDA Source: Company annual reports.0 FY07 P/E FY08 FY09 FY10 FY11 Market Cap/Sales (secondary axis) Today.2 40 1. respectively. BSE 0.6 20 0. Small companies: movement in valuation multiples 1.8 and 4.2 0 FY05 FY06 EV/EBITDA Source: Company annual reports. while companies have recovered from FY09 levels.8 0.4 0. the period from FY08 onwards saw a drop in l`] gj\]jk$ j]n]fm]k Yf\ hjgÕlYZadalq eYj_afk g^ egkl gj_YfarYlagfk& 9k dgf_ Yk l`] slowdown lasts.0. It has been observed that small-sized companies are under the maximum stress in current market conditions.Mid companies: movement in valuation multiples 1.8 0.3. it is prudent for construction companies to preserve their capital by la_`l]faf_ l`] k[j]ok gf ]^Õ[a]f[q Yf\ hjg\m[lanalq$ Yf\ Zq ^g[mkaf_ gf hjgb][lk l`]q are competent to execute. While their growth was strong until the onset of the recession.4 1. 12.6 20 0. Interest and depreciation costs — Increased across all category of companies.6% 5. C]q Õf\af_k gn]j >Q(-Ç>Q))!2 Revenue — ~20% growth over FY08-FY11 While this is not comparable to the growth over FY05–FY08. execution hurdles and rising interest rates.5% 2.&) ^gj dYj_]$ ea\% Yf\ keYdd Õjek$ j]kh][lan]dq! Yf\ hjgÕlk CAGR (+4%.1% 11. +8% and -19%.Làk lj]f\ Yhh]Yjk lg `Yn] eYfa^]kl]\ alk]d^ af hjgÕl Õ_mj]k Yk o]dd È l`] H9L eYj_afk g^ dYj_]% kar]\ [gehYfa]k o]j] Yl .9% 4.3% 1.6% 16. All these factors.9% 13.0% 7.6% 3. This has resulted in stretched working capital and has led to an increased debt burden on the balance sheet.&1$ oàd] l`]q \ahh]\ ^gj ea\% Yf\ keYdd Õjek Yl )&) Yf\ -$ j]kh][lan]dq$ af >Q(-& KaeadYj lj]f\k o]j] gZk]jn]\ af l`]aj Yn]jY_] hjgÕlYZadalq af >Q)) +&0$ +&.6% 4.9% 1.8% 3. adversely impact project cash Ögok af[j]Ykaf_$ l`] f]]\ lg gZlYaf làj\ hYjlq ^mf\af_ ^jge ZYfck Yf\ ÕfYf[aYd afklalmlagfk& L`] Y\\]\ \]Zl Zmj\]f Y^^][lk gn]jYdd [gehYfq hjgÕlYZadalq Yf\ `Yeh]jk shareholder returns.7% 3.9% 1.7% 11.9% 13.3% 3. respectively). inability to receive design in time and scope change approvals from clients include only some of them. With valuations increasingly being driven by earnings rather than by the order book. Yf\ .3% 4.15% % of revenue % of revenue % of revenue % of revenue 6. revenue performance over the past three years has been robust. [gfkljm[lagf klg[ck `Yn] \][daf]\ ka_faÕ[Yfldq& L`]j]^gj]$ l`] ^g[mk [d]Yjdq f]]\k lg shift from top-line growth to bottom-line recovery today.1% 5.6% 1. Between FY08 and FY11. af\a[Ylaf_ af[j]Yk] af \]Zl Zmj\]f Yf\ \][daf] af Ykk]l lmjfgn]j ]^Õ[a]f[q PAT margins — Declined to 3%-4% across all companies Order books — Remained robust and increased at a CAGR of around 20% . however. Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq 33 .6% % of revenue % of revenue % of revenue % of revenue 10.9% 3.0% 4. companies have been adversely impacted by the slowdown in project awards.3% 2.8% 3.8% 1.0% 2.4% 3.3% 4.5% 3.8% FY05 FY08 FY11 L`] j]Ykgfk ^gj làk kdgo\gof af hjgÕlk Yj] eYfq È lae] gn]jjmfk \m] lg j]_mdYlgjq Zglld]f][ck$ [geeg\alq hja[] Öm[lmYlagfk$ fgf%j][]ahl g^ lae]dq hYqe]flk ^jge clients.8% 3.0% 13. =:AL<9 eYj_afk È v )+ gn]j l`] kap q]Yj h]jag\ Ea\%kar]\ Õjek `Yn] oalf]kk]\ pressure on their EBITDA margins. Engineering.5% 1.4% 1.35% Unit Large-sized companies EBITDA margins Interest Depreciation PAT margins Mid-sized companies EBITDA margins Interest Depreciation PAT margins KeYdd%kar]\ [gehYfa]k EBITDA margins Interest Depreciation PAT margins % of revenue % of revenue % of revenue % of revenue 13. 0% Revenue growth FY 05-FY 08 Source: Company annual reports 184.6% 40.0% 35.0% 20.0% 22.0% 20.1% 46. Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq .0% 40.0% PAT growth FY 08-FY 11 Order book growth 34 Engineering.0% 120.0% 50.0% 0.0% 19.0% Revenue growth FY 05-FY 08 Source: Company annual reports 57.0% 80.0% 50.6% Growth comparison for medium companies 140.0% 30.Growth comparison for large companies 60.7% PAT growth FY 08-FY 11 Order book growth 21.2% 64.0% 4.0% 105.0% 10.0% 20.6% 100.0% -19.3% -50.0% 0.0% 0.4% 40.0% 60.9% Revenue growth FY 05-FY 08 Source: Company annual reports 130.4% 7.0% 100.7% 35.4% 41.0% 150.0% PAT growth FY 08-FY 11 Order book growth Growth comparison for small companies 200.0% 40. 3% escalation. Out of the delayed projects. 23 February 2011. while 67 projects were delayed by 13–24 months. © 2011 Adsert Web Solutions Pvt. amounting to a 22. out of a total of 559 ongoing infrastructure projects in India. Project status of 559 infrastructure projects 22% Delayed 52% 2% On schedule Ahead of schedule Fg Õp]\ \Yl] g^ [geeakkagfaf_ 15% Source: “Infrastructure data.7 billion. Engineering. The 293 delayed projects have added an incremental cost of INR682. Other key sectors plagued by cost overruns are the petroleum. Cost overrun in various segments17 Sector Roads and transport Power Oil & gas Railways Urban infrastructure Coal Other Number of projects delayed 111 41 33 25 2 18 63 Delay period (months) 1 – 90 1 – 83 1 – 74 3 – 225 NA 8 – 64 Cost overrun (INR billion) NA 45 (4%) 181 (45%) NA 154 (102%) 22 (16%) - 17 “293 delayed projects led to cost overrun of Rs 68K crore.” Realty Plus. As on February 2011. Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq 35 . Ltd. 293 were delayed. via Factiva. predominantly due to land acquisition and Right of Way issues. power and the railways.9ll]flagf lg Ydd]naYlaf_ lae] Yf\ cost overruns It is a belief that most construction projects have to face the risk of time and cost overruns — statistics back this belief. The highway sector has seen the maximum number of delayed projects.” India Infrastructure. 69 were a month to a year behind schedule. 107 by 25-60 months and 37 by over 60 months. August 2011 Oal` afÖYlagfYjq hj]kkmj]k hdY_maf_ l`] Af\aYf ][gfgeq$ km[` lae] \]dYqk d]Y\ lg Yf effective cost escalation. 23 “Chennai Metro awaits Cabinet nod. 29 September 2010. sub-contractors. it is Nonstarter”. etc) Delay in regulatory clearance Af]^Õ[a]fl hjgb][l Zm\_]laf_ Yf\ dY[c g^ contingency funds Rise in the cost of raw materials Delay in payments by the owner Impact on time Delay in arrival of detailed drawings by consultant Delay in project completion Impacts several activities. via Factiva (c) 2010 Kasturi & Sons Ltd . via Factiva © 2011 The Times of India Group. 2 July 2011.gkl g^ khaddoYq ka_faÕ[Yfldq ]k[YdYl]\ lg INR13.com/india/news/ chennai-metro-project-cost-likely-to-rise-23/409557/ (not found in Factiva).3 billion27 18 ÉE]ljg gf] kdYl]\ ^gj *()* Õfak`2 EEJ<9Ê$ Hindustan Times.” DNA. 26 “Polavaram project cost escalates. © 2009 The Associated Press. depending on the need for equipment in the critical path Delay in dependent activities impacting subsequent activities as well Impacts overall project time line and resource utilization Idle time of several resources <]jYad hjgb][lk Zq af\]Õfal] lae]daf] _ _ EYq \]dYq l`] hjgb][l a^ mfYZd] lg Õdd l`] gap created by the delay in payments Impact on cost _ =phgk]k hjgb][l lg afÖYlagfYjq [gkl ]k[YdYlagfk Overall increase in project cost due to idle time of several resources Overall increase in project cost due to idle time of several resources Impacts cost and working capital cycles due to the extra work Extra cost incurred due to lower productivity and increased idleness =phgk]k hjgb][l lg afÖYlagfYjq [gkl ]k[YdYlagfk % ]kh][aYddq Õp]\ [gklk g^ ]imahe]flk Yf\ dYZgj Cost of project deviates from budget with high variation Impacts margins as cost escalation clause may only cover some of the costs Contractor may have to raise funds through additional equity or debt to fund working capital Some recent cases of EPC projects getting delayed or experiencing cost overruns181920212223242526 Project Mumbai Metro 119 Kalindi Kunj by-pass project20 Bandra-Worli sea link project21 Reason for delay Execution challenges in most crowded areas Project awaiting land approval from UP government Midway design adjustments along with issues related to environmental clearance and public interest litigations State government requesting change in original design and scope Chhattisgarh UMPP delayed due to unavailability of coal linkages Lack of consensus between Planning Commission and Urban Development Ministry about the project partners Clearances from The Central Electricity Authority (CEA) and The Expenditure & Finance Committee (EFC) of the Ministry of Finance due Cost or time escalation Anticipated one year delay Time delay of seven years and cost escalation Lae] \]dYq g^ Õn] q]Yjk Yf\ [gkl ]k[YdYlagf Worli – Haji Ali project22 Ultra Mega Power Project (UMPP)23 Chennai Metro Rail24 No estimates released as of now Project yet to take off Project cost likely to increase by 23%25 Polavaram Project in Andhra Pradesh26 . 19 November 2009. © 2010. NBM & CW. via Factiva. © 2010. 21 “Work On Worli-Haji Ali Sea Link Not Starting On July 3. 36 Engineering.business-standard. via Factiva.Some key issues and their impact of delay in time and cost overruns: Issue Ambiguity in design and engineering kh][aÕ[Ylagfk Land acquisition challenges Delay in procurement and delivery of critical equipment Shortage of construction materials Change of scope Lack of coordination between various participants (vendors. 19 “Seven Years Later. HT Media Ltd .” The Hindu. 5 September 2011. 21 December 2008. © 2011. 1 May 2010. Diligent Media Corporation Ltd. via Factiva. via Factiva. via Factiva. NBM Media.”. 31 May 2010.” The Times of India. © 2008 The Times of India Group 24 “Chennai metro project cost likely to rise 23%. 25 “Fresh hurdles may further delay Polavaram project. Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq . (c) 2009 Kasturi & Sons Ltd.’ The Hindu. 20 “New Mumbai bridge to open after a decade of delay as India struggles to improve infrastructure”. Associated Press Newswires. 1 May 2010. 22 “Coal glitches will delay Chhattisgarh UMPP bids.” The Economic Times. Business Standard. http://www. 30 June 2009 via Factiva. Engineering. 18September 2011. A construction association’s interaction with construction industry participants reveals that construction projects are getting delayed due to around 40% shortage of skilled construction workers. © 2011 The Hindu Business Line.” Centrum Research. Almost simultaneously. via Thomson Research.28 Based on India’s economic growth and the sector’s opportunity potential.3 May 2011. global markets have seen abrupt Öm[lmYlagfk af [geeg\alq hja[]k$ oà[` afl]fkaÕ]k l`] f]]\ ^gj kgmf\ ^mlmj] kljYl]_a]k based on price movements and procurement strategies. As discussed earlier. Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq 37 . 29 ‘Construction industry facing manpower crunch’.” Business Line (The Hindu). it is estimated that about 58.27 However.3 million people will be employed in the sector by 2022.2 million and unorganized manpower of over 30 million. af >Q (1 Ç Yklgmf\af_ n]jq ka_faÕ[Yfl increase of 50% from FY05 prices. via Factiva. In recent years. delivery and costs. contractors have realized the need for strong project management frameworks. 30 August 2010. For instance.” Business Line (The Hindu).30 Hjg[mj]e]fl g^ jYo eYl]jaYd The magnitude of upcoming infrastructure projects in the country – currently under nYjagmk klY_]k g^ \]n]dghe]fl È oadd \]Õfal]dq d]Y\ lg Y `m_] \]eYf\ ^gj jYo eYl]jaYdk such as cement.$//. government guaranteed job schemes for villagers and emergence of opportunities in other emerging sectors has or can potentially lure away much of the workforce. cement prices had peaked at INR4.Some factors such as land acquisition and environmental clearances may be beyond the hmjna]o g^ l`] [gfljY[lgjÌk k[gh]& @go]n]j$ ]^Õ[a]fl hjgb][l eYfY_]e]fl [Yf eala_Yl] many controllable risks. via Thomson Research 28 “Labour shortage proves a challenge in Gujarat. coal and steel. 30 “Construction Sector. alternative opportunities such as in the IT sector. As increasing cost escalations and project delays become a reality in today’s infrastructure and construction space.” Centrum Research.. 30 August 2010. the exponential growth in the sector has generated a labor crunch. via Factiva.29 The Indian Government has implemented its National Commission of Skill Development program to create human capital for various sectors including construction in response of the country’s need for skilled labor. +E \qfYea[k2 eYfhgo]j$ eYl]jaYd Yf\ eY[àf]jq A booming economy. there are various EPC contracts. and depending on escalations built into contracts. contractors have either absorbed 27 “Construction Sector. large construction opportunities and bulging executable order Zggck `Yn] [j]Yl]\ Y kljgf_ \]eYf\%hmk`%afÖYlagf k[]fYjag af l`] k][lgj& Al ak imperative for Indian EPC players to overcome execution challenges faced due to k[Yj[alq g^ eYfhgo]j$ Yf\ \a^Õ[mdla]k h]jlYafaf_ lg hjg[mj]e]fl g^ jYo eYl]jaYdk Yf\ ]^Õ[a]f[q g^ eY[àf]jq& L`]j] ak Ydkg l`] Y\\]\ afYZadalq g^ eYfq hdYq]jk lg jYak] Y\]imYl] ÕfYf[]& 9dd l`]k] ^Y[lgjk [memdYlan]dq aehY[l l`] af\mkljq gf l`j]] ^jgflk È quality. thereby increasing the demand for the existing workforce.920/ ton in FY 10 — an astounding 60% increase from FY05 hja[]k& Kl]]d hja[]k `Y\ h]Yc]\ Yl AFJ. K[Yj[alq g^ eYfhgo]j The Indian construction sector has organized manpower of nearly 1. (c) 2011 The Hindu Business Line. 000 40.000 4.000 10.000 2. Cement prices (INR per tonne) 6.these variations or been insulated from such movements. 31 9kk]l Lmjfgn]j JYlag2 \]Õf]\ Yk fmeZ]j g^ lae]k j]n]fm]k'lmjfgn]j Y[à]n]\ gn]j l`] Ykk]l base owned by a company 38 Engineering.000 20. The key takeaway from this phenomenon is the necessity to factor in all anticipated variations while ensuring cost competitiveness to win orders.000 3. they need to realize that when they procure and own an asset base g^ kh][aYdar]\ eY[àf]jq j]imaj]\ ^gj kh][aÕ[ gf]%lae] bgZk$ l`]q jakc \][j]Ykaf_ l`]aj ]^Õ[a]f[a]k Yf\ a\d] j]kgmj[]k& L`]j]^gj]$ lg eYaflYaf l`]aj hjgÕlYZadalq$ [gehYfa]k k`gmd\ hdYf l`]aj j]imaj]e]fl ^gj eY[àf]jq ]^Õ[a]fldq$ c]]haf_ af eaf\ ]^^][lan] gf% going utilization and cost impacts.000 30.31 Moreover.000 FY05 Source: CRISIL Researc FY06 FY07 FY08 FY09 FY10 FY11 Steel prices (INR per tonne) 50. it has been observed that there has been a concomitant increase in their preference to be owners of equipment as compared to the hire model. It is also essential for companies to maintain a prudent mix of owned and leased assets and work on healthy asset turnover ratios. Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq . Evidence substantiates this fact through increasing depreciation costs over the years.000 5.000 1.000 FY05 Source: CMIE FY06 FY07 FY08 FY09 FY10 FY11 =^Õ[a]f[q g^ eY[àf]jq With many Indian companies winning high-value and complex projects. Their requirement of funds needs to be met through private equity capital infusion. most of them have resorted to equity dilution in public markets in the recent past in order to raise the required funds to funnel the high growth witnessed by the sector in the last few years. and in the medium term will correct to levels that will help companies squeeze in additional margins. Working capital requirements of EPC companies range from 30% –70% of their annual revenues. while interested in such companies.sized companies have been observed to be under the highest pressure for ^mf\k& Oàd] l`]j] Yj] ka_faÕ[Yfl _jgol` ghhgjlmfala]k$ egkl keYdd kar]\ [gehYfa]k dY[c the scale and size to bid. Furthermore. While all the risks cannot be mitigated. Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq 39 . Therefore. but existing capital markets are not conducive for an Initial Public Offering (IPO). most EPC companies are leveraged lg Yf ]pl]fl l`Yl l`]aj [Yk` Ögok \g fgl h]jeal Y\\alagfYd Zgjjgoaf_ kmhhgjl& L`] ]n]j%af[j]Ykaf_ afl]j]kl jYl] Zmj\]f gf l`] Af\aYf ][gfgeq \g]k fgl Zggkl l`] ÕfYf[]k of these companies. Only strong promoter-backed companies with healthy order books have been successful in raising funds and entering the high growth trajectory. In addition. some such companies are crunched for funds due to their investments in the asset development business. l`]j] Yj] ka_faÕ[Yfl ]imalq ^mf\k YnYadYZd] l`jgm_` _dgZYd Yf\ \ge]kla[ kgmj[]k l`Yl Yj] willing to help companies tide over the current tight situation. On the other hand.sized projects. slow payment mechanisms and litigations add to the increased requirement for working capital. L`] gfdq ÕfYf[aYd j]khal] l`]q _]l ak l`] egZadarYlagf Y\nYf[] l`Yl Zja\_]k short-term hurdles. Private equity players.sized unlisted companies have private equity investors who had invested capital in these companies. win and execute large. promoter infusion or alternative sources of ÕfYf[] km[` Yk e]rrYfaf] [YhalYd& Lastly.gfkljYaflk gf ^mf\ jYakaf_ Ç Yf Y\\]\ ]d]e]fl One of the key challenges for the sector in the backdrop of market turmoil. it is best to be informed and provide for such unforeseen events to ensure l`Yl ]Y[` hjgb][l ak k]d^% kmklYafYZd] Yf\ \g]k fgl Y\n]jk]dq Y^^][l l`] [Yk` Ögok Yf\ hjgÕlYZadalq g^ l`] [gehYfq& Engineering. are very selective about the ones in which they invest.sized companies are listed entities that currently trade Yl dgo nYdmYlagfk& L`]aj ]imalq af^mkagf Yl ]paklaf_ nYdmYlagfk eYq d]Y\ lg ka_faÕ[Yfl dilution. Most large. how do companies meet their immediate requirements? It is well known that interest rate scenarios are only short-lived. Today. In the interim period. Promoters of large construction companies do not own stakes of more than 50%-60% in their companies. It has been observed that fund-raising challenges vary depending on the size and scale of the companies. Most mid. fears of a kdgo\gof Yf\ Y [j]\al [jmf[` ak l`] YZadalq lg jYak] Y\]imYl] ÕfYf[af_ j]imaj]\ lg ^mf\ the execution of existing large order books.. Companies are keen to provide an exit option to such investors. The only consideration for gj_YfarYlagfk ak lg \]l]jeaf] l`] Öggj d]n]dk mh lg oà[` l`]aj gof]jk oYfl lg retain control. without loss of control. thereby restricting their ability to raise further funds through equity dilution. cost overruns. delays. small. Any project is therefore subject to several events — some known and some not — that may cause delays in completion and overruns in costs. Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq .4 40 Engineering. 5 1 1.Overcoming challenges: Key trends and recommendations As is evident from the previous sections of this report. contract mining. While building a niche is important.5 Competetion Source: Ernst & Young analysis Oil and gas Power Railways Water Roads Irrigation Storage 3 3. as is customary in any business. These include the highways where there is stiff competition. with changing times.5 4 4. railways which are yet to freely explore privatization or airports which have yet to develop a critical mass for \]n]dghe]fl& >gj Yfq hYjla[mdYj kmZ%k][lgj lg kmklYaf [gfklYfl _jgol` ak \a^Õ[mdl af Yf environment with evolving viewpoints and policies. complexity and competition 5 Railways 4 Complexity Ports 3 2 1 0 0 0. nuclear. It is a known fact that concentration in a particular sub-sector could lead to impediments to the future growth of organizations. it is equally necessary to have competence in other sub-sectors. irrigation where the project pipeline has been ka_faÕ[Yfldq \]hd]l]\$ hgjlk l`Yl Yj] à_`dq j]_mdYl]\$ hgo]j o`]j] kgmj[af_ g^ [gYd and obtaining environmental clearance prevent project take-off. aerospace. K][lgj \an]jkaÕ[Ylagf Players traditionally developed skill-sets in their chosen infrastructure sub-sectors. power transmission and urban infrastructure segments Engineering.5 2 2. diversify.focused companies to diversify Stiff competition and pricing in the highway space resulting in some players being reluctant to participate Exploration of new sectors including the defense.gehYfa]k `Yn] gn]j lae] Y\ghl]\ a varied approach to overcome business challenges – some have been discussed in this report. However.5 5 Recent trends Slow movement of irrigation projects causing irrigation. the EPC sector has evolved over l`] q]Yjk& L`] ?gn]jfe]fl `Yk a\]flaÕ]\ af^jYkljm[lmj] Yk Y [gj] k][lgj ^gj [gflafm]\ economic growth. Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq 41 . L`]j]^gj]$ Yk l`] Y_]%gd\ kYqaf_ _g]k É\an]jkaÕ[Ylagf ak l`] Z]kl eala_Yfl lg Zmkaf]kk adversities.” Companies are spreading their services to several sub-sectors to reduce l`]aj Zmkaf]kk jakck Yf\ eYaflYaf `]Ydl`q gj\]j Zggck$ Zmad\ imYdaÕ[Ylagfk$ aehjgn] ]^Õ[a]f[a]k$ khj]Y\ l`]aj [da]fl ZYk]$ j]\m[] \]h]f\]f[a]k$ ]f`Yf[] l`]aj hjgÕlYZadalq$ and above. the YhhjgY[` lYc]f Zq [gehYfa]k f]]\k [gfklYfl aehjgnakYlagfk lg eYaflYaf ]^Õ[a]f[a]k Yf\ hjgÕlYZadalq Yf\ ]daeafYl]'eafaear] Y\n]jkala]k& . Sector reference: size. None of the sectors are insulated from the vagaries of time. construction and management (EPCM). Contractors and developers interchangeably perform dual roles. and cost and time constraints. and the selection criterion for bidding. contractors and suppliers. requirement of technical expertise and knowhow.=jfkl Qgmf_Ìk hgafl g^ na]o Explore sectors with future potential Explore wider geographies and expand client base Carefully select projects Avoid the rat race :mkaf]kk'Jgd] \an]jkaÕ[Ylagf The value chain generally encompasses multiple-functions and roles comprising developers. Suppliers and ÕfYf[]jk Yj] Y\ghlaf_ l`] jgd]k g^ [gfljY[lgjk Yf\ \]n]dgh]jk& The primary reasons leading to the emergence of new roles across the value chain in the engineering and construction industry are rising competition. Contractors are forming alliances with project management companies to handle complex projects and enter the arena of engineering. Inter-changing roles Developer Financer EPC contrator's inter-changing roles Project manager Design consultant Contractor Supplier 42 Engineering. including tender offer eligibility norms. Developers have been adopting strategies ranging from inorganic growth to in-house startups to play a greater role within the construction space. procurement. the increasing complexity of projects. Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq . along with other participants such as design [gfkmdlYflk$ hjgb][l eYfY_]jk Yf\ ÕfYf[]jk& Af j][]fl q]Yjk$ [gfkljm[lagf [gehYfa]k have demonstrated an increasing trend and willingness to gain a presence across the value chain. Sadbhav. McNally’s venture into power EPC – JSW Energy venture into equipment manufacturing Supplier Lanco’s foray into power development – Source: Ernst & Young analysis =jfkl Qgmf_Ìk hgafl g^ na]o :] Ö]paZd] lg Y\Yhl lg [`Yf_af_ jgd]k Have a presence across the value chain to enhance overall margins Control various functions to complete projects within timelines and budgets 32 “Projects. IL&FS has ventured into project development through ITNL and subsequently entered contracting through IL&FS Engineering 32. Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq 43 . Navayuga. Hyundai. Most civil EPC contractors are foraying into PPP opportunities. Tecpro.asp accessed on 3 October 2011 Engineering. HCC. based on their infrastructure skills.” IL&FS company website. IVRCL. Mitsui. For example. TRF. GMR Energy and GVK Energy have opted to chose suppliers through joint ventures with international suppliers such as Mitsubishi. etc. Mitsubishi have now turned into equipment suppliers Contractor – Developer GMR. Kge] ÕfYf[aYd afklalmlagfk km[` Yk AD>K Yf\ A<>.Recent trends . Most private power producers such as Lanco Infratech. Kge] ]pYehd]k g^ jgd] \an]jkaÔ[Ylagf Egn]e]fl Ydgf_ l`] nYdm] [`Yaf Æ kge] addmkljYlagfk . Large construction companies and developers are moving higher along the value chain and creating in-house PMC and high value engineering divisions. `Yn] egn]\ Ydgf_ l`] nYdm] chain. turned developers to capture captive EPC Supplier Doosan. Gammon.com/projects. NCC.gehYfa]k `Yn] \an]jkaÕ]\ aflg k][lgjk l`Yl g^^]j f]o ghhgjlmfala]k af Y ZjgY\% based revenue base.ilfsindia. http://www. Hitachi andAlstom. GVK developing in-house construction business BGR energy foray into EPC. GE.gfljY[lgj Developer L&T. Financial institutions are venturing into the development space. especially into the highway sector. Four Naf[a$ :gmq_m]k$ @g[`la]^ Yf\ 9. several European players are exploring the possibility of an entry into the Indian markets. Several other international players such as Toyo of Japan. Samsung of Korea. Leighton of Australia. Global economies have seen extreme contraction in recent years.?dgZYdarYlagf2 gh]jYlaf_ Y[jgkk geographies The Government’s approval for 100% FDI investment in infrastructure projects through the automatic route has encouraged various international players to establish their presence in India.K! gml g^ l`] lgh Õn] =mjgh]Yf _dgZYd [gfljY[lgjk33 are evaluating the prospect of entering India and are seeking joint ventures on Indian turf. While some are kljm__daf_ lg kmjnan]$ Af\aY ak j][gj\af_ Y `]Ydl`q ?<H _jgol` Yf\ hjgna\af_ ka_faÕ[Yfl opportunities in the infrastructure andconstruction space. DataMonitor Country Report Due to the shrinking global economy and increasing opportunities in India. GDP growth of India and the world 20 15 GDP growth (%) 10 5 0 -5 -10 2007 World 2008 India Europe 2009 USA China 2010 Source: World Bank website. These global giants provide the latest technology and quality to domestic contractors through strategic alliances.construction.asp 44 Engineering.com/toplists/GlobalContractors/001-100. Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq . a strategic partnership between Reliance Industries Ltd. The presence of global players in the Indian industry provides the following value additions: Access to latest technology and equipment: For instance. joint ventures and partnerships. (RIL) and British Petroleum (BP) would help RIL to gain access to deep water exploration technology for its KG basin and augment its production levels. Access to global project management and risk management capabilities Elimination of out-dated practices and improved quality and work-practices due to increased competition Indian players planning to diversify to new sectors without any prior experience in them — opportunity to move up the value chain by partnering with foreign players with sector expertise 33 http://enr. Bechtel of USA and IJM of Malaysia have already established their presence in India and undertaken some landmark projects in the country. 6 billion took place across the infrastructure sectors. asset funding or debt retirements. Companies necessarily resort to raising ÕfYf[]k l`jgm_` l`] hjanYl] ]imalq jgml] af [aj[meklYf[]k o`]j]af l`]aj ZYdYf[] k`]]lk are over-leveraged and it may not be healthy for them to raise more debt.. 208 private equity deals worth INR697. especially in the highways sector. Lastly. primarily in the Middle East and Africa. Recent trends Active interest of international players in Indian PPP projects. Private equity is also raised under circumstances wherein companies want to establish their benchmark valuations. regulatory environment and resource availability Identify clear strategic intent to enable value maximization Enter JVs with international majors to gain access to technology and new regions ?jgol` l`jgm_` hjanYl] ]imalq Yf\' or mergers and acquisitions and joint ventures L`] af^jYkljm[lmj] k][lgj `Yk oalf]kk]\ Y ka_faÕ[Yfl af[j]Yk] af hjanYl] ]imalq investments. Primarily. While most purchases have been distress acquisitions. Between FY07 and FY11 (up to August 2011). HCC (through its Swiss acquisition) are making selective entries on a case-to-case basis. the Middle East and Africa =jfkl Qgmf_Ìk hgafl g^ na]o Enter new geographies after assessing political situation. Others such as Gammon (through its Italian acquisition). 8 of which had foreign partners Indian companies evaluating distress purchase options in international markets. especially in Europe. e. the recent award of the Kishangarh-Udaipur-Ahmedabad mega highway project that had 11 shortlisted bidding consortiums.” BAIN & Company Engineering.Similarly. driven by government support and attrctive opportunities available in India. many contractors have expanded their horizons to bid and execute projects in global markets. Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq 45 .35 Private equity in the construction sector has been to the tune of 8% of the total private equity infrastructure investment over this period. Patel (through its US acquisition). 34 ÉK][lgj ^g[mk2 Af^jYkljm[lmj] Yf\ ÕfYf[]$Ê Af\aY Af^jYkljm[lmj]$ 9m_mkl *()) 35 “India private equity report 2011. Punj Lloyd and KEC International have already enhanced their international presence in regions where rapid infrastructure development and industrial growth offer ample opportunities.34 Maximum investment has been made in the power sector (close to 45% of the total private equity infrastructure investment between 2008 and 2010). L&T.g. leading Indian construction houses have ventured into global waters seeking strategic tie-ups and superior technologies. the strategic intent has been to bring home the technology. the funds are utilized to meet working capital requirements. Ernst & Young India Mergers and acquisitions are also popular. Sequoia Franklin Templeton Standard Chartered PE Standard Chartered PE Target GVR Engineers KMC Infratech Ltd GR Infraprojects PNC Infratech Pratibha Industries Vijay Nirman Company Coastal Projects GKC Projects Man Infraconstruction Ramky Infra Deal size (INR billion) 1. Partner and Leader. wherein the former contributes the technology and knowhow and the latter local expertise and coordination. corporate organizations wanting to establish their presence in the infrastructure sector are also actively pursuing opportunities to acquire construction companies. 08 june 2006.” mergermarket. 3637 Selected private equity transactions Date May-11 Mar-11 Mar-11 Jan-11 Nov-10 Dec-09 Dec-09 Dec-09 Aug-09 Aug-09 Source: Press clippings Investor IDFC 3i Group Motilal Oswal/ IDFC Jacob Ballas Chrys Capital Aquarius India Barings. via merger market.0 4. SapuraCrest Petroleum form JV.0 0.0 0. they have been observed to be selective about their investments.0 0.Competition is ushering an urge for consolidation by major companies.8 1.6 0.7 3. 37 “L&T. ©2006 mergermarkets limited 46 Engineering.1 0. They are also forming joint ventures with construction houses. global players are treading a similar path to establish their footprints in the country.3 2.7 0.5 4.5 1. Kuljit Singh. Several pure-play developers who did fgl `Yn] Y [gfkljm[lagf hj]k]f[] Yj] fgo k]]caf_ lg k][mj] l`]aj hjgÕlYZadalq af the construction business in addition to their own segment and have been exploring possibilities to develop the required expertise either organically or inorganically.4 1. Large foreign corporates increasingly view M&A as an entry strategy and domestic players are buying stake in foreign companies ^gj k[Yd] Yf\ l][`fgdg_q!$ Oàd]$ l`]j] ak Ydkg Y ka_faÕ[Yfl afl]j]kl ^jge hjanYl] ]imalq Õjek oal` Yf interest in infrastructure.6 0. Transaction Advisory Services-Infrastructure Practice.0 Stake 20% NA NA NA 12% NA 16% 12% 16% 10% Selected merger and acquisition transactions Date Apr-11 Dec-10 Mar-10 Mar-10 Sept-08 Jun-08 Apr-07 Sept-06 Jun-06 Oct-04 Source: Press clippings Buyer Welspun Infra Projects Sintex Infra Projects HCC Welspun Infratech Gammon India Gammon India Larsen & Toubro Kirloskar Brothers Ltd Larsen& Toubro Italian-Thai Development Plc Target Leighton Contractors Durha Constructions Karl Steiner (Switzerland) MSK Projects KgÕfl]j k&h&Y& AlYdq! Franco Tosi Meccanica Spa (Italy) Mitsubishi Heavy Industries Aban Constructions SapuraCrest Petroleum Skanska Cementation Deal size (INR billion) 4. 18 April 2007.8 Stake 35% 30% 66% 61% 50% 75% 51% 36 100% 60% 37 80% 36 “Larsen & Toubro enters JV with Mitsubishi Heavy Industries to make super-critical boilers. Moreover. which would grant them immediate access to resource pools and opportunities. Moreover.” The Economic Times.7 2.6 5.5 0.5 5. Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq . or to gain access to technology and participate in complex projects. Most merger and acquisition transactions have been undertaken as an entry strategy — be it a new geography or sector. Ineffective project management not only cause delays. The resources deployed on a project can be outsourced. investors have chosen to make selective investments in the sector. While Indian companies have been traditionally outsourcing such services.gfkgda\Ylagf ak Ydj]Y\q l`] ÖYngj Yf\ làk ak l`] ja_`l lae] lg hYjlf]j oal` Y kgmf\ company to complement one’s existing skill-sets. Private equity investors are keen on investment due to their long-term infrastructure potential. but having an overall control through an experience project management team is considered the key to mitigating time and cost overrun risks. =jfkl Qgmf_Ìk hgafl g^ na]o H= afn]klgj ak fgl gfdq Y ÕfYf[aYd hYjlf]j$ Zml Ydkg Y\\k ka_faÕ[Yfl nYdm] l`jgm_` management participation. A valuation and pricing mismatch may be bridged through innovative structured instruments. small and mid-sized players may use consider mergers with similar-sized companies as means of inorganic growth. EPC projects are large in size and require huge resources. Investors have shown an interest in investing growth capital in companies with imYdalq gj\]j Zggck$ fa[`] Yj]Yk g^ gh]jYlagfk Yf\ kgmf\ ÕfYf[aYd `]Ydl`& With over 150 participants in the sector and multitude investment opportunities. many are now moving toward owning such capabilities in-house. Engineering. Companies that are unwilling to divest at an early stage have also shown a keen interest in raising their mezzanine capital. Mergers and acquisitions may evolve into an optimal strategy for the creation of size and scale.party involvement and a substantial risk for the contractor to complete a project within time and budget. but [Yf Ydkg j]kmdl af gl`]j Õp]\%[gkl j]kgmj[]k dqaf_ a\d]$ l`]j]Zq Zjaf_af_ af af]^Õ[a]f[a]k to a project and the company. <]n]dghaf_ hjgb][l eYfY_]e]fl kcadd%k]lk Ç eYcaf_ [gehd]p hjgb][lk ]Ykq Today. .Recent trends The nature of private equity transactions have changed from plain vanilla equity investments to structured deals (be it convertibles or preferential instrument). Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq 47 . multi. Most global players give project management utmost importance and demonstrate their capabilities through superior project designing and effective project management. To manage and coordinate multiple and \an]jk] Y[lanala]k kaemdlYf]gmkdq$ [gfljY[lgjk f]]\ lg Zmad\ l`]aj ]ph]jlak] af l`] Õ]d\ g^ project management. They entail complex interlinked activities. utility shifting Cost estimates Technical Technical Financial/ Operational Financial Liquidity and credit shortage Foreign exchange and afl]j]kl jYl] Öm[lmYlagfk Delay in payment from owner Unfamiliarity with the local laws and regulations Risks associated with external hazards Financial Market Contractual and legal Force majeure events 48 Engineering.d]Yj mf\]jklYf\af_ g^ klYf\Yj\k Yf\ kh][aÕ[Ylagfk hjagj lg Za\\af_ Appropriate remedies in contracts to factor in any change in design Adequate studies to source procurement of materials and build appropriate transport costs =fkmj] r]jg lgd]jYf[] af JJ Yk al d]Y\k lg af\]Õfal] \]dYqk Appropriate contractual obligations on owner for unforeseen delays due to utility shifting Detailed understanding of scope of work Detailed BOQ estimation at time of bid Provision for unforeseen costs escalation Clear contractual obligations on both parties for cost escalations to avoid ambiguities Clear payment mechanisms for change in scope provisions Adequate mobilization advance Milestone payments to be recovered within time Appropriate hedging mechanisms for foreign exchange Appropriate interest rate budgeting during bid —may also resort to hedging =^Õ[a]fl Zaddaf_ [q[d]k lg Z] Y\ghl]\ Appropriate remedies in contracts to penalize client for delay in payments Consult appropriate legal experts Clearly understand variations from home country laws Appropriate remedies in contracts to factor in force majeure events Political/ Regulatory Environment Unfavorable climatic condition and topography Technical Design changes/ inadequacies Availability of resources Resettlement and rehabilitation. Category Political Risk Political stability of the country Delays in approvals and land acquisition Diligence measure Adequate studies to understand economic and political cycles in the country Appropriate remedies in contracts to factor in any force majeure events Ensuring substantial approvals and land are in place prior to work commencement Onus of procurements to lie with the owner Environment Impact Assessment clearance Adequate geo-technical surveys and climate surveys prior to construction phase planning . It has been witnessed that Indian companies are placing more and more importance on pre-bid project evaluation. Several measures are mf\]jlYc]f lg eafaear] l`] jakc afngdn]\ af l`] k]d][lagf g^ Yf\ Za\\af_ ^gj a\]flaÕ]\ project.=jfkl Qgmf_Ìk hgafl g^ na]o Create an in-house team of experienced project management personnel Adopt and rely on sophisticated project management tools and techniques Develop a tracking system for all critical activities to avoid slippages on a daily basis Kljaf_]fl \ada_]f[] \mjaf_ Za\\af_ Increasing project opportunities bring with them the added onus of appropriate project selection. Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq . Owners are increasingly focusing on the technical capabilities and establishments of the bidder. EPC/Turnkey projects.d]Yjdq \]Õf]\ k[gh] Yf\ lae] h]jag\k ^gj \]dan]jq HYqe]fl [dYmk]k Yf\ Zaddaf_ [q[d]k YhhjghjaYl]dq \]Õf]\ Price escalation clause with a standard formula Early completion incentive framework/delay penalties Clear process framework in the event of change in scope and design MfYeZa_mgmkdq \]Õf]\ [dYaek hjg[]\mj] Interest penalty in the event of delay in payments Clear distinction between defect liability and maintenance periods Dispute resolution framework ?gn]jfe]flÌk l`jmkl Ç Ya\af_ l`] hjg[]kk In India. the Indian Government has been continuously attempting to simplify the approval process.gfljY[lmYd YoYj]f]kk After a contract is awarded. FIDIC membership today numbers 86 national member associations. build and operate projects. 39 FIDIC website$ `llh2''ooo)&Õ\a[&gj_'^]\]jYlagf' 40 “Construction sector. As part of its policy reforms. ak o]dd cfgof af l`] [gfkmdlaf_ ]f_af]]jaf_ af\mkljq ^gj alk ogjc af \]Õfaf_ [gf\alagfk of contract for the construction Industry worldwide. Many contractors chose to follow the FIDIC38 silver book for EPC contracts. However. Realizing that planned infrastructure creation cannot succeed without the participation of the private sector and foreign players. and design. The implementation of BK Chaturvedi’s recommendation in the highway segment has resulted in increased activity. the Government’s role in infrastructure creation is inevitable.” Centrum Research. Other segments such as the ports and railways are also attempting investment-conducive regulations. to maintain standardization. the Indian Government has created a policy framework that is conducive to private and foreign investments and offers attractive opportunities for PPPs. representing about one million professionals39. which the contractors are unable to negotiate. Furthermore. Most Indian public sector clients have standard contracts. =jfkl Qgmf_Ìk hgafl g^ na]o The critical parameters to be observed in the contract are highlighted below: . private sector clients have negotiated contracts. easing out credit generation for the infrastructure sector and setting up agencies to expedite growth through a planned release of projects.40 38 >A<A. and astuteness at the early stages can minimize arbitration risks. Plant and Design-build. via Thomson Research Engineering. Over the years. It is best known for its range of Standard Conditions of Contract for Construction.. Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq 49 . various general and special conditions are captured through a contractual arrangement. liberalization of regulations and the planned strategy of the Indian Government to promote infrastructure development has spelt opportunities for EPC companies. several awarding authorities have also initiated regulatory changes to hjgna\] Y d]n]d hdYqaf_ Õ]d\ lg ]paklaf_ Yf\ f]o hdYq]jk \ge]kla[ Yf\ afl]jfYlagfYd!& The power and highway segments have seen constant improvements during the past decade due to regulatory transformations. with more players bidding for projects. 30 August 2011. LIC and IDFC entered an MoU to avail of takeout of debt of up to 50% of the total project cost in the ratio of 20:20:10 by the three institutions. borrowings through external commercial borrowings (ECBs) have increased by over 65% to US$17. 50 Engineering.wherein the contractor will accept the risk and responsibility for design as well as construction Infrastructure companies permitted to raise funds from overseas markets: In the infrastructure sector. (Source: SEBI) The Government has initiated a proposal for the creation of Infrastructure Debt >mf\k A<>k! lg Y[[]d]jYl] Yf\ ]f`Yf[] l`] Ögo g^ dgf_%l]je \]Zl af af^jYkljm[lmj] projects — the proposal is still at the policy stage. j]kh][lan]dq& Làk e][`Yfake ak ]ph][l]\ lg `]dh af ÕfYf[af_ l`]e lg l`] lmf] g^ INR300 billion. Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq . Announcement of the Takeout Financing scheme under the Union Budget 200910 and setting up of the India Infrastructure Finance Company Limited (IIFCL) as a kh][aYd hmjhgk] n]à[d] ^gj hjgna\af_ dgf_%l]je ÕfYf[aYd YkkaklYf[] lg af^jYkljm[lmj] projects: Recently. IIFCL. Dgf_%l]je affgnYlan] n]à[d]k k`gmd\ Z] dYmf[`]\ lg hjgna\] ]Ykq ÕfYf[] lg =H. =jfkl Qgmf_Ìk hgafl g^ na]o ?gn]jfe]fl Yml`gjala]k k`gmd\ \]nak] egj] lYp Z]f]Õlk ^gj =H. players. DYf\ Y[imakalagf hjg[]\mj]k k`gmd\ Z] kaehdaÕ]\ lg ]Yk] l`] ]flaj] hjg[]kk& Grievance redressed mechanism should be more active. hdYq]jk lg af[j]Yk] their participation in infrastructure building.4 billion between September 2010 and August 2011.Recent trends New EPC models in the process of development by NHAI . Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq 51 .Engineering. Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq .5 52 Engineering. not through reduction in pricing or margins. but by constant technical innovation and strategic tie-ups to gain an edge over one’s peers. <an]jkalq af jgd]k oadd Zjaf_ af aee]\aYl] hjgb][l ]^Õ[a]f[a]k$ Zml al ogmd\ Ydkg Z] prudent to diversify into other sub-sectors and regions. consolidation is inevitable. Engineering. Moreover. With global giants entering Indian markets. With the gargantuan size of projects on offer. global funds have demonstrated their keenness to invest in the sector through ]klYZdak`]\ Yf\ kgmf\ hdYq]jk& Ka_faÕ[Yfl afn]kle]flk `Yn] Z]]f eY\] af k]n]jYd companies in the last few years. the Indian EPC market has a plethora of opportunities to offer . giving due consideration to risks that can span the life cycle of a project. Resource constraints in manpower. Oal` l`] n]jq ka_faÕ[Yfl _jgol` af l`] k`]]j kar] g^ hjgb][lk$ [gfljY[lk `Yn] lg Z] viewed with long. being able to adapt and secure contracts based on the requirements of infrastructure development may be a long-term mitigant of the vagaries of time. Indian players are foraying into the international arena on an opportunistic basis. However. to ensure that onpaper sketches reach their logical conclusion with the desired results – if not better ones. Challenges are inevitable in the current EPC market scenario. Competition has to be defeated. The EPC market is promising.gehd]e]flaf_ this requirement is the deteriorating working capital requirements of companies. over the Twelfth Five Year Plan — 50% of such opportunities are expected to be funded by the private sector. Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq 53 . It is also a good idea to absorb multiple roles in the value chain to control the overall process – along with related revenues and margins. of course! Effective project management is increasingly being recognized as a large contributor lg l`] gn]jYdd km[[]kk g^ lae]dq \]dan]jq$ Zjaf_af_ oal` al ]^Õ[a]f[a]k af [gkl& While Indian contractors have mastered the art of planning.term commitments. regional players are also realizing the importance of having a pan-India presence in this competitive environment.leveraged balance sheets. Diversity in skill-sets. domestic players are in the process of doing so. Af\aY ak ]na\]fl$ Zml Ê\janaf_ _jgol` ]^Ô[a]fldqË ak l`] key to success. What will differentiate one player from the other is the soundness with which such opportunities are secured and managed. there is little scope for raising funds through this route.Conclusion Driven by and dependent on the infrastructure growth story. Some are also exploring the possibility of inorganic growth through the merger and acquisition route.1 billion. the passion of domestic players lg Y[à]n] à_` _jgol` j]imaj]k ka_faÕ[Yfl [YhalYd afn]kle]fl& . In certain highly competitive sectors. but the approach to management of such challenges will be the key to continued success. the need for regular supervision and monitoring is gaining prominence among them. with rising interest costs and over. EPC contractors wanting to ride the wave of double-digit growth will have to constantly improvise and improve their modus operandi to maximize value for their shareholders. the areas of infrastructure development could shift focus over the years within infrastructure sub-sectors. With FDI in infrastructure opening up. Global players have adopted this approach. material. in which complementing skill-sets are acquired to achieve quick growth. but with the buoyancy in political policies.an estimated spend of INR17. Lg kme mh$ _jgol` af =H. machinery and funds are a distasteful reality in the sector. 6 54 Engineering, Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq Supplemental: Know your tax Taxability, under the Indian direct tax laws, of foreign EPC companies undertaking projects in India has always been on the top of the mind; there are controversies on taxability of consortium, offshore supply etc. On indirect tax front, GST is likely to be introduced in near future to overcome the current myriad of multiple indirect taxes being levied at different stages. <aj][l lYp]k Given the different ways (mentioned above) adopted by the players to execute EPC contracts in India, the taxability of the income steam is a relatively complex and fact-driven exercise. Some relevant direct tax implications for EPC contracts are elucidated below. LYpaf_ g^^k`gj] kmhhdq One of the integral and most crucial elements of an EPC contract is the supply of equipment, which often has been the domain of foreign companies (barring a few Indian [gehYfa]k km[` Yk :@=D Yf\ DL l`Yl `Yn] Z]]f Y[lan] af làk k]_e]fl!& 9k ka_faÕ[Yfl as the supply of equipment is to an EPC contract, so has been its taxation, and this has drawn existing and active foreign companies into prolonged tax litigation in Indian courts and with the tax authorities. Generally, offshore supply should not be taxable in the following cases: All the elements of the supply of equipment is concluded or undertaken outside India (title of goods, delivery, risk, etc.) The contract is on principal-to-principal basis. While law and jurisprudence seem to be in favor of non-taxability of offshore supplies, the issue is far from settled, as is evident from the fact that several companies are still engaged in litigation with tax authorities. In view of the uncertainty of tax costs, more and more foreign companies are now approaching the Authority for Advance Ruling to seek certainty on tax costs on offshore supplies and avoid prolonged tax battles. LYpaf_ g^^k`gj] k]jna[]k Historically, services rendered outside India in connection with Indian projects were taxed in India. However, the Supreme Court, in one of its rulings, interpreted the tax laws to mean that for taxes to be levied by the country, the offshore services should be rendered in India. This was followed by a series of judgments, and some of them disagreed with the Supreme Court’s ruling. The Government sought to clarify its position on taxability of offshore services by bringing about amendments in its tax laws. Pursuant to amendments in domestic tax law, offshore services have been brought within the tax net. L`] [gfkgjlame Yf_d] More often than not, large infrastructure projects witness the joint venture or partnership of two or more companies that form a consortium to bid for a project. The bid, if found technically and commercially competitive, is selected and the project owner awards the contract to the consortium. The consortium members, either under the contract with the project owner or through an inter-se agreement between the consortium members, agree on the respective scope of work and fees. The project owner generally insists on a single contract being signed, and at times, make payments in favor of a lead consortium member in India. Furthermore, the project owner insists on having joint and several liabilities on the consortium members. Engineering, Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq 55 The taxation of consortiums has in the recent past attracted the attention of the Indian Revenue Authorities (IRA). The IRA takes a cue from such acts of project owners, and more often than not seeks to tax a consortium as an Association of Persons (AOP) and disregards the independent tax status of the members of the consortium as taxable ]flala]k& L`] akkm] e]jalk ka_faÕ[Yf[] kaf[] Yf 9GH ak [gfka\]j]\ lg Z] Y lYp j]ka\]fl of India, unless its control and management is situated wholly outside India. If the consortium is taxed as an AOP in India, its worldwide income may become taxable in the country. As a result, the income of a member of the consortium, which might otherwise have not been subjected to tax in India (in the hands of the members as independent taxable entities), it is likely to be taxed in the country if the consortium is treated as an AOP, e.g., income arising from offshore supply of goods by a foreign contractor. Stability and consistency in the tax policies of the Government are much needed at this stage to sustain the growth of the infrastructure sector in India. H]jeYf]fl =klYZdakè]fl H=! Foreign companies are often required to maintain an onshore presence (in India) to undertake or monitor the onshore scope of work. This often results in a continuation of their taxable presence in India — popularly known as PE. The IRA has in the recent past aggressively sought to evaluate the role played by the PE of a foreign company constituted in India in the execution of the project, and attribute a large portion of the hjgÕlk gj lYp]k af Af\aY& L`]j]^gj]$ ^gj]a_f [gehYfa]k f]]\ lg [Yj]^mddq ]nYdmYl] l`] need for their presence in India as well as the role played by their PEs. Oal``gd\af_ lYp]k Under Indian direct tax laws, a project owner is required to withhold taxes on payments made to EPC contractors. This includes those made for offshore as well as onshore work. However, the rate at which the taxes require to be withheld depends on the fact pattern of each case. <gmZd] LYpYlagf 9nga\Yf[] 9_j]]e]fl <L99! India has entered the DTAA with various countries. This provides a mechanism for avoiding being levied taxes on income in the home country as well as in the source [gmfljq& L`] hjgnakagfk g^ l`] <L99 gj l`gk] g^ l`] 9[l$ oà[`]n]j ak Z]f]Õ[aYd$ ak applicable for a tax resident of a country having a DTAA with India. L`] <aj][l LYp]k ;g\] <L;! With current direct tax laws proposed to be replaced by the DTC, it is imperative to analyze its impact. While tax provisions under the DTC are broadly similar to current tax laws vis-à-vis the EPC sector, the following key changes proposed by DTC merit some discussion: Offshore services The DTC enumerates unambiguously that offshore services will be taxed in India, irrespective of where the services are rendered. Therefore, the controversy surrounding the taxability of offshore services seems to be put to rest. While this may add to the tax cost of foreign companies, and ultimately to that of projects, the certainty of tax costs will make it easier for foreign companies to take a decision on pursuing Indian contracts. 56 Engineering, Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq ) to foreign companies are to be withheld as per the rates prescribed under the Act or the relevant tax treaty. Af\aj][l lYp The EPC Industry is at present subjected to multiple indirect taxes. While the Yhhda[YZadalq g^ l`] Z]f]Õ[aYd hjgnakagfk g^ l`] 9[l nak%%nak l`] lj]Ylq ak kladd af ^gj[]$ l`] rate increase in the DTC could adversely affect the overall tax liability for the offshore services. etc. it is crucial for companies executing EPC contracts to structure their contracts.024% under the Act). whichever was more Z]f]Õ[aYd lg l`] hYq]] gj lYp hYq]j& Lqha[Yddq$ lYp lj]Yla]k hjgna\] Y lYp jYl] g^ 10%-15% for royalty or fees for technical services. under the proposed DTC.30%) LYp gf hjgnakagf g^ kh][aÕ]\ k]jna[]k _]f]jYd effective rate 10. while the Act prescribed a rate of 10% (plus surcharge and cess) in the absence of a PE. both at the Central and state levels. withholding tax rates on aforesaid payments have increased to 20%.) State government State governments/ Local authorities Engineering. foreign companies may constitute a PE in India (for EPC contracts in the country) by virtue of the presence of its employees in the country or by setting up Y ^gjeYd Zmkaf]kk hj]k]f[] af al ]&_&$ Y hjgb][l g^Õ[] gj Y ZjYf[` g^Õ[]!& Af km[` [Yk]k$ the DTC proposes to levy BPT at 15% on the income attributable (directly or indirectly) to the PE. A gist of the relevant indirect tax levies applicable to the EPC industry are tabulated below. the taxes from such payments (for provision of drawings. and therefore.30%) Tax on sale of goods between two states at [gf[]kkagfYd jYl] g^ * kmZb][l lg kh][aÕ]\ conditions) LYp gf kYd] g^ _gg\k af Af\aY jYl]k kh][aÕ[ lg k]dd]jÌk state and commodity) – typically the VAT rate varies from 5% to 15%. while considering various tax implications arising under Indian domestic tax laws. However.:jYf[` HjgÕl LYp :HL! As discussed earlier. Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq 57 . Key indirect taxes applicable to the EPC Industry in India Tax/Duty Customs duty Excise duty Service tax Central Sales Tax (‘CST’) Value Added Tax (‘VAT’) Entry tax/ Octroi Governing authority Central Government Central Government Central Government Central Government Nature of levy Duty on import of goods into India (general effective rate 26. The overall impact of such levies is substantial. Levy on entry of goods into a particular state or local area (Entry tax rate varies from State to State.85%) Duty on manufacture of goods in India (general effective rate 10. While the tax rate applicable to foreign companies has Z]]f j]\m[]\$ alk Z]f]Õl `Yk f]_Yl]\ lg Y []jlYaf ]pl]fl Zq afljg\m[lagf g^ :HL& Oal``gd\af_ lYp]k Under the Act. The BPT will be in addition to the normal corporate tax rate of 30% (reduced from 42. designs rendering of technical services. depending on the nature of the output activity orservices undertaken by a EPC contractor. A single consolidated contract for kmhhdq g^ _gg\k Yf\ k]jna[]k eYq d]Y\ lg lYp af]^Õ[a]f[a]k Yf\ jYak] k]n]jYd jakc Yf\ concerns. commissioning or construction services needs to be evaluated in detail since this may be restricted. authorities can levy tax on the value of goods being provided by the project owner to an EPC contractor for use in the execution of the contract. 58 Engineering. Importers may explore the possibility of effecting high sea sales or sales in the course of import to mitigate the VAT or CST exposure. Furthermore. Furthermore. CST paid on purchases will not be available as input credit. the jYl] g^ oà[` \]h]f\k gf lYja^^ [dYkkaÕ[Ylagf& >mjl`]j kmhhda]k g^ aehgjl]\ ]imahe]fl for customers may attract VAT or CST implications if the title to goods is passed in India. as listed below: <a^Õ[mdlq af kmZklYflaYlaf_ l`] [gfka\]jYlagf j][]an]\ gf Y[[gmfl g^ hmj] kmhhdq g^ goods and services. Usually. this is a cost to the project owners. Offshore service Provision of offshore services may attract levy of Service tax in India under a reverse charge mechanism as import of services. the liability to pay service tax is of the recipient of the service. Availability of credit for erection. the rationale for splitting an EPC contract is to limit the tax exposure and liabilities. In the case of import of services. supply and services components. Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq . Service tax or Sales tax may also be levied on the value of services or goods provided free of cost.Typical indirect tax implications in respect of the various components of the EPC contract are outlined below: G^^k`gj] ]imahe]fl kmhhdq Import or procurement of equipment from outside India attracts levy of custom duty. which may result in a dispute with respect to the value on which Service tax or Sales tax is paid by an EPC contractor. Gfk`gj] [gfljY[l ^gj [anad ogjck EPC contractors may cover the entire scope of their work (supply of goods and services) under a single consolidated contract for a lumpsum price or may split this between civil works. Gfk`gj] ]imahe]fl kmhhdq Procurement of equipment within India may attract levy of Excise duty. Onshore services Hjgnakagf g^ kh][aÕ]\ k]jna[]k oalàf Af\aY ak ]da_aZd] lg d]nq g^ K]jna[] lYp& L`] possibility of claiming Cenvat credit for Service tax paid may be explored to mitigate the overall reduction in the Indirect tax cost of a project. The possibility of claiming input credit of excise duty paid to equipment vendors may be explored. and accordingly. supply of locally procured equipment to a customer will attract VAT/ CST duty. EPC contractors may explore the possibility of effecting a sale.transit to mitigate their VAT/CST exposure.in. the following typical indirect tax implications are highlighted: Service tax is levied on consideration received for pure service portion of a contract. This may deprive the [gmfljq g^ Y\nYf[]\ Yf\ ]^Õ[a]fl f]o l][`fgdg_a]k$ oà[` Yj] j]imaj]\ lg \]n]dgh alk infrastructure at an accelerated pace. it is imperative to identify the appropriate nature of a contract. Ernst & Young India Engineering. Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq 59 . VAT/CST will be levied on consideration received for supply of goods.gf[dmkagf The moot point for the Government to consider as regards EPC contracts is that uncertainty of taxation and prolonged litigation is likely to increase the implementation cost of infrastructure projects. . whether it is a spilt or consolidated contract. Tax Director and Sub-sector Leader . This could work as a deterrent for foreign EPC contractors wanting to enter India’s infrastructure space. “Given the current regime of complex tax structure and involved litigation due to ambiguities. An EPC contractor may explore the option of paying Service tax at the rate of 4. it appears that while making decisions on structuring of an EPC project or contract.. An EPC contractor may explore the ghlagf g^ hYqaf_ N9L mf\]j l`] [gehgkalagf k[`]e] hj]k[jaZ]\ mf\]j klYl]%kh][aÕ[ N9L legislations. The Indian Government is therefore encouraged to maintain consistency in its tax policies for taxation for EPC contracts. Assuming that a onshore civil works contract is a spilt contract.12% under the composition scheme prescribed under India’s Service tax legislation. Therefore. sooner aehd]e]flYlagf g^ ?KL ogmd\ k]l%mh Y d]n]d hdYqaf_ Õ]d\Ê “Establishment of fast track dispute resolution or advance rulings for all players would enhance [gfÕ\]f[] Yf\ []jlYaflq gf lYpYlagfÊ Samir Kanabar. i.e. while evaluating indirect tax implications on onshore civil works contract. companies need to take into account Indirect tax implications and address appropriately Indirect tax issues that may arise in the future.Accordingly.Ports & Shipping. Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq .7 60 Engineering. Simplex Infrastructure Thermax Toyo Engineering Uhde India Mid-sized Ahluwalia Contracts (India) Ltd. Roman Tarmat Ltd. Nagarjuna Construction Co. BGR Energy BHEL Eicher India Era Infra Engg. Madhucon Projects Ltd. Welspun Projects Additionally. J Kumar Infraprojects Ltd. MBL Infrastructure Ltd. Shriram EPC SPML Unitech Power Transmission Small-sized Atlanta Ltd. B. CCCL Continental Construction Ltd. Genus Power Infrastructure HCC I V R C L Infrastructures & Projects Ltd. Sujana Towers Supreme Infrastructure Limited Tantia Constructions Ltd. McNally Bharat Engineering Co. ARSS Infrastructure Projects Ltd. Man Infraconstruction Ltd. Punj Lloyd Ltd. IL&FS Engineering IRB Infrastructure KEC International Lanco Infratech Larsen & Toubro Ltd. Ircon International J M C Projects (India) Ltd. Petron Engineering Construction Ltd. Gammon India Ltd. Pratibha Industries Ltd.L. Diamond Power Infrastrcutures Engineering Projects Ltd Gayatri Projects Ltd.Annexure: Indian EPC participants (listed players) Large-sized ABB India Alstom Projects Ashoka Buildcon Ltd. Ramky Infrastructure Ltd. Kashyap B. I T D Cementation India Ltd. Ltd. Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq 61 . Jyoti Structures Ltd. Sadbhav Engineering Ltd. the market has over 100 unlisted promoter-driven companies that are active participants in the EPC space. Ltd. Kalindee Rail Nirman (Engineers) Ltd. Engineering. Patel Engineering Ltd. Kashyap BSEL Realty C & C Constructions Ltd. Jaihind Projects KNR Constructions Marg Limited P B A Infrastructure Ltd.L. Valecha Engineering Ltd. Transstroy (India) Ltd Unity Infraprojects Ltd. Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq .Notes 62 Engineering. Procurement and Construction (EPC)2 <janaf_ _jgol` ]^Õ[a]fldq 63 .Notes Engineering. Transaction Advisory Services-Infrastructure Practice Sushi V Shyamal Partner.Sector Leader – Ports and Shipping Authors Sushi V Shyamal Partner. Transaction Advisory Services Helly Ajmera Associate Vice President.Ernst & Young leadership team Ajit Krishnan Tax Partner and Leader-Infrastructure and Real Estate Kuljit Singh Partner and Leader. Transaction Advisory Services Transportation Infrastructure and Construction Sector Leader Samir Kanabar Tax Director Sub. Transaction Advisory Services Transportation Infrastructure and Construction Sector Leader Saket Jalan Associate Director. Transaction Advisory Services . Advisory O] hjgna\] k]jna[]k lg `]dh qgm j]lYaf [gfÕ\]f[] of investors.com/industries Subscribe to our.ey. manage your risk... Read more on www.ey. strengthen your control and achieve your potential. Publications — easy to use subscription form www.com/thoughtcenter/ The choice is yours! Go to www. we’ll help direct you to the right place.com . Center of excellence for key sectors We have specialized teams that bring sector knowledge to you. Assurance.. www.com/Services Sector knowledge.ey..More ways to stay connected to Ernst & Young Services for you.com/india @Yn] im]klagfk YZgml Y kh][aÕ[ =Q k]jna[]7 Whatever your inquiry. Tax.ey.ey. Read more on www.ey. Transactions.com/subscription-form Webcasts and podcasts http://webcast... directory services.asappmedia. CW Interiors. seminars. share knowledge and experiences and collaborate. India Metro Rail. airports.com Since 2003. Infrastructure Finance. Some of our well known conferences are: India Roads. ÕfYf[] Yf\ aehd]e]flYlagf akkm]k& In August 2011. research reports and newsletters. ASAPP Media Information Group ASAPP Media is a 14-year-old multinational b-to-b media information group with diverse media properties in print. India Coal. ASAPP Media provides a 360-degree information experience through special interest business publications. conferences. our monthly business magazine Infrastructure Today (IT) has grown to a stature of national leadership in its domain. Projects Info. and covers roads. Power Today. CW Property Today. focusing on policy.com (portal at www. Sewree (W) Mumbai-400 015. Infrastructure Today received an honourable mention—the only Indian publication: Its Anniversary Issue 2010 was placed 20th among over 400 nominations in the Best Single Issues category at the prestigious New York-based Tabbie Awards. ASAPP’s events foster the growing network of professionals and business owners interested in infrastructure. and India Airports. Deepak Building 13. Tel: +91-11-4656 1818 Fax: +91-11-4656 1840 UAE IKAN Media FZ LLC P. industry portals. Indian Cement Review. exchange. railways. IndiaRail. industry recognition awards. Publications Include: Construction World. United Arab Emirates. Tel: +9714-428 0690 Fax: +9714-336 2788 www. Infrastructure Today International. CW Architect & Builder Awards. deliberate. 6th Floor. ports. They are designed to provide a platform to all stakeholders within the sector to discuss. India. Equipment India. construction & realty sector and encourage the exchange of policy. India. Equipment India.com) Industry Awards: Construction World Annual Awards. G^Õ[] Fg& ** Dubai. oYl]j$ ]f]j_q Yf\ l]d][ge k][lgjk& L`] eY_Yraf] fgo Yaek Yl Zmad\af_ k[a]flaÕ[Yddq reasoned and objectively analysed public opinion in its domains. India H2O. Infrastructure Today. India Ports. Infrastructure Today is a publication from ASAPP Media Information Group.About Infrastructure Today G^Õ[]k Mumbai ASAPP Media A-303. . Infrastructure Today Awards ASAPP Conferences is a division of ASAPP Media that organizes seminars and conferences. constructionupdate.O. operational. India Realty. technical and commercial expertise and knowhow. Tel: +91-22-2419 3000 Fax: +91-22-2417 5734 Delhi ASAPP Media 43. It is committed to providing the most authentic and timely information on the construction. Box 500717. Media Business Center – 3 AL-Thuraya Tower 2.ASAPPmedia. Project Reporter. Nehru Place New Delhi-110019. Navabharat Estates Zakaria Bunder Road. the world’s best known b-2-b publication awards. infrastructure and realty sectors. web and events spaces. Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited. Mumbai 400028 Tel: + 91 022 6192 0000 Fax: + 91 022 6192 0030 Block B-2. does not provide services to clients.]flj] Hitech City. (. The Ruby 29 Senapati Bapat Marg. Worldwide. tax. 5th Floor Nirlon Knowledge Park Off.000 people are united by our shared values and an unwavering commitment to quality. our 152. each of which is a separate legal entity.)+l` Öggj! Chennai LHD @gmk]$ *f\ Öggj No. our clients and our wider communities achieve their potential. 3 Cenotaph Road Teynampet Chennai . Western Express Highway Goregaon (E) Mumbai .110 001 Tel: + 91 11 4363 3000 Fax: + 91 11 4363 3200 4th & 5th Floor. For more information about our organization. please visit www. a UK company limited by guarantee. Ernst & Young Global Limited. India Tel: + 91 22 6192 0000 Fax: + 91 22 6192 3000 NCR Golf View Corporate Tower B Near DLF Golf Course Sector 42 Gurgaon .400 063. Sector 126. transaction and advisory services.l` Öggj Panchshil Tech Park Yerwada (Near Don Bosco School) Pune . Canberra Block )*l` )+l` Öggj No. Kerala 682304.700 016 Tel: + 91 33 6615 3400 Fax: + 91 33 2281 7750 Mumbai .()$ . India Tel: + 91 484 3044000 Fax: + 91 484 2705393 Kolkata 22 Camac Street :dg[c Ë.122002 Tel: + 91 124 464 4000 Fax: + 91 124 464 4050 . Plot No 2B.500081 Tel: + 91 40 6736 2000 Fax: + 91 40 6736 2200 Kochi 9th Floor. India Tel: + 91 120 671 7000 Fax: + 91 120 671 7171 Pune . Dadar (W). Gmj g^Ô[]k Ahmedabad *f\ Öggj$ KànYdac Ak`YYf Near CN Vidhyalaya Ambawadi Ahmedabad . Maradu PO Kochi.560 001 Tel: + 91 80 4027 5000 + 91 80 6727 5000 >Yp2 # 1) 0( **)( .400 021 Tel: + 91 22 6192 0000 Fax: + 91 22 6192 2000 The Ruby 14th Floor. ABAD Nucleus NH-49. We make a difference by helping our people.Ì$ +j\ Öggj Kolkata .l` Öggj$ @L @gmk] 18-20 Kasturba Gandhi Marg New Delhi .com. Madhapur Hyderabad .About Ernst & Young Ernst & Young is a global leader in assurance.24 Vittal Mallya Road Bengaluru .l` Öggj$ =phj]kk Lgo]jk Nariman Point Mumbai .ey.411 006 Tel: + 91 20 6603 6000 Fax: + 91 20 6601 5900 Artwork by AGK and JG .%.600 018 Tel: + 91 44 6632 8400 Fax: + 91 44 2431 1450 Hyderabad GnYd G^Õ[]$ )0$ aDYZk .1. U.P. Tower 2.((( )*l` Öggj! >Yp2 # 1) 0( ***.380 015 Tel: + 91 79 6608 3800 Fax: + 91 79 6608 3900 Bengaluru “UB City”. NOIDA 201 304 Gautam Budh Nagar. Ltd.Ernst & Young Pvt. transaction and advisory services. Ltd.com.ey. Neither EYGM Limited nor any other member of the global Ernst & Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited. please visit www. We make a difference by helping our people. Worldwide. All Rights Reserved. This publication contains information in summary form and is therefore intended for general guidance only. our clients and our wider communities achieve their potential.700016 © 2011 Ernst & Young Pvt. each of which is a separate legal entity. a UK company limited by guarantee. is one of the Indian client serving member firms of EYGM Limited. 3rd Floor. EYIN1110-113 . For more information about our organization. please visit www. Assurance | Tax | Transactions | Advisory About Ernst & Young Ernst & Young is a global leader in assurance. Ernst & Young Global Limited. 1956 having its registered office at 22 Camac Street. Ltd. It is not intended to be a substitute for detailed research or the exercise of professional judgment. is a company registered under the Companies Act. tax.ey.com/india Ernst & Young Pvt. Kolkata . reference should be made to the appropriate advisor. does not provide services to clients. For more information about our organization. Ernst & Young Pvt.000 people are united by our shared values and an unwavering commitment to quality. Ltd. Block C. our 152. On any specific matter.

EPC Driving Growth Efficiently Report FINAL

Comments

Description