A total of 700 km of road projects recently awarded by National Highways Authority of India (NHAI) indicates fairly strong competition for EPC (engineering, procurement and construction) contracts.
Small operators and contractors have gained market share in the segment. There were typically 15-20 bidders for each EPC bid, against five or six for each tender in the BOT (build, operate, transfer) segment.
A UBS report said given the balance sheet issues for a large swathe of the sector and the reluctance of some large companies to bid for BOT projects, it was unsurprising that smaller operators such as Ircon, TRIL and Uniquest Infra had gained market share in EPC. Smaller contractors like GR Infra and Dilip Buildcon have gained a larger share, too, and this could keep competition fierce.
Some of the projects were the 132-km Parwanoo-Solan the one given to GR Infra (Rs 860 crore), a 39-km Ghaaghara Bridge-Vaaaran stretch to Dilip Buildcon (Rs 750 crore), 139-km Jodhpur-Pokharan by GR Infra (Rs 270 crore) and a 52-km Sitarganj-Tanakpur stretch by HG Infra Engineering (Rs 240 crore).
NHAI awarded 3,000 km of road contracts in 2014-15 and aims to award 5,600 km in 2015-16.
PwC partner Manish Agarwal told Business Standard: “While EPC contracts have picked up as expected, the pace will need to increase further. Larger players have still not come back in a big way, partly due to continued financial stress and partly to concerns on project readiness and dispute resolution mechanisms continuing to persist. Many large players had shifted focus abroad during the slowdown. Five to six bidders each for BOT projects is a good number and any more would be worrying. However, the financiability of toll roads, given the current financial stress in the banking system, remains to be seen. The hybrid annuity contract could bring back investors in a big way.”
IL&FS Transportation Networks executive director Mukund Sapre said many of these EPC-turned-concessionaires were finding it hard to raise the requisite equity for BOT projects as well, let alone tie up debt. Not only will EPC projects contribute to better cash flow but the reduced responsibilities on them (as compared to BOT) will help improve their performance on ground. This was a prime reason the fovernment decided to push EPC projects as well.
“We are therefore seeing only the BOT veterans, who have a healthy operational portfolio, participating in BOT bids, experienced in managing their way through downturns during project execution, sustain construction activities and commission projects. This explains the relatively lower participation in BOT bids compared to EPC ones. It is more of a voluntary strategic shift, rather than a move forced by the hurdles in the system,'' said Sapre.