Construction sector falling apart

The construction sector is pivotal to improving the productivity of the economy.

This sector is interlinked with various others, such as cement, steel, chemicals, paints, tiles, fixtures and fittings.

Although it acts as a catalyst for demand in these sectors, in the long run it contributes largely to the augmentation of infrastructure potential. Apparently, the larger share of the construction pie goes to infrastructure (54.0 per cent), whereas industrial expansion accounts for 36 per cent, leaving a miniscule 5 per cent to residential and commercial construction.

As the nation takes the plunge for creating infrastructure, it is imperative to strengthen the capacity and capability of the construction sector.

MATERIAL RESTRICTIONS

In India, the core EPC — Engineering, Procurement and Construction — business is on the rise.

The steady growth of a pipeline of projects bears testimony to this. So, most companies are shifting gears to project themselves as EPC companies. The EPC trend points to crucial issues in the industry. That said, the recent ban on natural materials, such as sand and other aggregates, is an unfortunate development.

A sudden ban without availability of alternative sources has pushed the industry into the doldrums.

Many companies are deliberating on survival strategies. Every care has to be taken to restore the supply of aggregates for a smooth run of the construction industry. The Government wants to put an environment-friendly tag to its move, but it should also understand the plight of a player in this business.

Another point of concern for the construction industry is the available funding options. Companies are always on the look-out for lucrative funding avenues.

In the past, infrastructure bonds were one of the options; now, many companies are going for ECBs – external commercial borrowings. Many proposed alternative investment funds can be brought into the ambit.

When companies foray into international markets and try to compete at global level, low-cost borrowing options become very important.

PROJECT DELAYS

A perennial problem giving sleepless nights to the construction sector is project delays. This can be ascribed to various reasons. Most projects require permission and clearance from various departments.

At present, construction activities are held up by delays in obtaining such statutory approvals from many agencies.

Besides, there is delay in acquisition of land that adds to spiralling costs. There is a large gap between the planning and execution phase, and companies are struggling hard to bridge this gap.

Implementation is delayed due to myriad reasons — financial setbacks, lack of resource mobilisation, ban on supply of materials, lack of integration between spatial planning proposals with economic development plans, lack of alternate funding options and inadequate legislative support and enforcement.

IVRCL has constantly ‘reinvented’ itself, but the core values have remained the same: trust, integrity and customer orientation. The company has shared its success with all stakeholders — customers, investors and employees.

This can be achieved when the company stays profitable in all its endeavours. For that very reason, we have disposed of a major chunk of our BOT projects which are not conducive.

This helps us clear overdues and makes the company a debt-free one.

BOT FAILURE

Due to lack of proper guidelines, build-operate-transfer (BOT) projects have turned into mere collection of toll at toll gates.

Had the same amount been invested on EPC projects, no company would have faced losses and debts of a high magnitude.

The transition from the bidding to financial closure of a BOT project is a crucial factor in overall project cost. If the period is extended, that leads to a price hike.

Also, inflation acts as a detrimental factor when this phase runs into years. Some amendments have to be made to legislations concerned to fix this recurring problem faced by BOT projects.

Or else, companies will consider EPC projects to be a safe haven and take shelter under its aegis.

IVRCL has faced this problem with regard to road projects that are BOT-based as also for the water projects.

DESALINATION EXPERIENCE

IVRCL, along with Chennai Water Desalination Plant Ltd, commissioned the seawater desalination project by reverse osmosis process.

This helps in providing potable water to the residents of Chennai.

The project has been nominated as one of the highly commendable Desalination Deals of the year 2007 at The Global Water Intelligence Conference in Barcelona, Spain. Although this is India’s first and largest desalination project, it had its share of problems at the time of execution.

There are hardly any guidelines for ocean-related environmental issues. This being the first such huge desalination project taken up by the private sector, problems such as right of way within the sea came up and took time to sort out.

If the Government had tweaked the policies a little, there would have been hassle-free project execution.

This is especially true of road and infrastructure projects, where environment and forest issues crop up.

While according highest priority to environmental aspects, a sound policy would require a more transparent tendering process, where issues are put forth.

Besides, it is important to be practical during execution at the ground level — otherwise BOT projects will pose more challenges, rather than ease the development process.

IVRCL’s mantra now is “Focus only on EPC projects and say no to BOT.”

(The author is CMD, IVRCL.)

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