India could see infrastructure orders worth $300 billion, or nearly Rs 14 lakh crore, in the next three years, according to a report by UBS Investment Research.
More than a third of the orders will be in power, while roads and railways will account for one-sixth each, Sandeep Bansal and Pankaj Sharma wrote in the report dated June 10.
But bottlenecks abound. “Our analysis of key projects/ programmes across sectors suggests that delays in government-related processes such as project awards, formulation of contract structures, clearances and land acquisition, among others (between the announcement and ground breaking), have been the key bottlenecks,” wrote Bansal and Sharma.
According to them, the government is expected to come up short on the projection of an infra spend of $500 billion in the Eleventh Five-Year Plan (2007-12), with the actual spend likely to be between $270 billion and $320 billion.
Delays in awarding projects are largely to blame, execution delays were not as significant.
PR Easwar Kumar, chief financial officer, BGR Energy, concurred with the report. “It takes a year from conceptualising a project to awarding it. One of the reasons is there are only 4-5 consultants to help prepare the tender documents,” he said.
He said there are not many concerns about the execution capabilities of Indian companies given their track record.
“Even the pipeline looks great. We are targeting 15-20 power projects worth Rs 50,000 crore which will come up for bidding in the next one year,” Kumar said.
BGR is an engineering, procurement & construction (EPC) player in the power space.
The government has targeted a capacity addition of 78,000 mw in the current Five-Year Plan, of which it is expected to achieve 70,000 mw. In the next Five-Year Plan, the target is 1,00,000 mw.
Shailesh Kanani, research analyst, Angel Broking, said not all delays could be attributed to the government. “There are times where companies are not able to mobilise their equipment on time but the execution delays are not as long as that of the government,” he said.
Land acquisition has plagued many infra sectors, particularly roads and highways. After Kamal Nath took charge of the ministry, land acquisition was given top priority and 120 units were set up across the country to expedite the process.
According to the UBS report, there has been considerable progress on the policy front and in the awarding of projects in the last 12 months.
A senior official from GMR Infrastructure, requesting anonymity, said despite whatever improvements by the government, there are bound to be slip-ups in such a huge programme. There are delays which cannot be attributed to either the infrastructure developer or the government.
“We have an ambitious power capacity addition programme but we have only a handful of companies like Bhel and L&T to supply the equipment and we have to import from China and other countries. This causes delays in some projects,” he said.
While both companies and industry observers agree that project funding is no longer an issue, they say the key is minimising delays which can come about only through a combination of an efficient regulatory framework and timely execution.
Comments