Aggressive bidding for EPC projs in highways: ICRA

Limited investments across the sectors, given the muted private sector spending, is driving the engineering, procurement and construction (EPC) players towards infrastructure projects, especially highways, as per rating agency ICRA.
"ICRA's sample study on EPC bids suggests that more than 2/3rd of the National Highway (NH) projects awarded through the EPC route during FY 2016 and FY 2015, were quoted at a discount to NHAI's base price, with some EPC contracts being awarded for as low as 62-75 per cent of NHAI's base price during the last two years," ICRA said in its latest report.
The number of bidders for these projects ranged between 3 to 12.

The sample study also suggests that some EPC contractors are bidding aggressively even with slim margins in order to shore up the order book, it said.
About 80 national highway projects awarded during FY 2015 and FY 2016 covering 5,300 km in fifteen states were chosen for ICRA study.
ICRA Vice President, Shubham Jain said, "Given the aggressive bidding witnessed in EPC space, some EPC contracts were awarded for as low as 62-75 per cent of NHAI's base price during the last two years. Such aggression could lead to losses/stretched liquidity of developers and thereby impacting the pace of execution."

During FY 2015, the top four bidders together won 17 projects totaling around 1474 km (62 per cent), "the awarded cost is Rs 72.29 billion, a discount of around 13 per cent to NHAI's base cost of Rs 83.42 billion".

"Whereas, during FY 2016 for the top five players which together won 27 projects totaling around 1830 km (61 per cent of awarded length in FY2016) the awarded cost is Rs 187.17 billion, a discount of 6.4 per cent to the NHAI base cost of Rs 199.93 billion," it said.
At the aggregate level, the top three successful bidders over last two years won 32 projects totaling 2,542 km which is around 47 per cent of total awards secured the contracts by quoting a significant discount of 12 per cent to NHAI's base price.

Jain said amount for which players bid depends on parameters like competitive intensity, the nature of the stretch, the credit profile of the EPC contractors and, adequacy of the order book of the developer.
On the positive side, he said, over the last two years, the Government focus on addressing execution bottlenecks have started yielding positive results.
Speedy resolution of stuck projects, granting of forest clearances for regional offices, online filing for clearances to construct ROB and RUBs and increasing limits on sand mining have all helped improve the situation, ICRA said.
These efforts have seen 43 per cent increase in the pace of execution which has increased by 9 per cent during "4M FY2017 to 5.52 km/day, from 5.06 km/day during 4M FY2016", it said.