J K Valecha, the managing director of Valecha Engineers & Contractors, a Mumbai-based infrastructure firm, was disappointed when his firm lost the Indore-Ujjain bypass project last year by a whisker after emerging as a second-lowest bidder.
But, today Valecha is happy his firm didn’t win that build, operate and transfer (BOT) project.
A few months back his company was thinking of getting into BOT road projects. “But now we are happy we did not. Apart from achieving closure for the project, there are issues like acquisition of land for pass-through for road projects, which could prove to be a major hurdle in execution,” Valecha said.
The worsening credit crisis and liquidity sap has made it difficult for companies to raise funds for such projects, under which an infrastructure firm bids for a project floated by the government, and after winning the contract, raises funds and builds it.
The firm then operates the project for a specified period and then returns it to the government. However, such projects are vulnerable to interest-rate volatility and in case of ports or highways, density of traffic.
Valecha Engineers is not the only firm shying away from BOT contracts and increasingly eyeing engineering, procurement & construction (EPC) contracts.
Amitabh Mundhra, director of Simplex Infrastructures, also feels fortunate that they did not get into BOT contracts.
Simplex has projects worth Rs 10,600 crore to be executed over 30 months.
Under EPC, the infrastructure company conceptualises and develops a project from scratch and hands it over to the third party.
Tying up funds for BOT projects has been no cakewalk in the past few months with high interest rates and tight liquidity. IRB Infrastructure Developers, which operates the Mumbai-Pune expressway, saw a two-month delay in achieving closure for its Rs 2,800-crore Surat-Dahisar six-lane project.
Such a scenario means that there are few takers for projects awarded by the National Highways Authority of India (NHAI).
Brijesh Koshal, head of infrastructure services, Enam Securities, said, these companies are absolutely right in focusing on EPC contracts rather than BOT projects. “In a BOT project, the company has to bring in the equity and has to be concerned about the traffic over the concession period,” he said.
The duration of a BOT project vis-à-vis that of an EPC contract is also influencing the bias towards turnkey contracts.
Valecha said, “It makes more sense to do an 18-24 month EPC project, get paid and carry on, than invest in a 20-year BOT project.”
In the next one year, the company is not planning to bid for any BOT projects, he said.
H S Bharana, chairman and managing director, New Delhi-based Era Group, agrees with the rationale of concentrating on EPC contracts. “EPC contracts are better to the extent that in them the liability ends with the completion of the project.”
However, he said, the company might look at BOT annuity projects, in which the government pays half-yearly. Era is currently executing three BOT road projects worth Rs 1,050 crore, two annuity contracts and a toll contract.
Koshal said it is important that EPC players look at government contracts rather than private contracts.
Though over 60% of Simplex’s projects are from the private sector, Mundhra said, “I don’t see any problem with that. We have not seen any unusual delay in payments by our clients in the last couple of months.”
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