Construction Mirror Article detail

India is expected to be ranked as the third largest construction market internationally by the year 2022.India is under the requirement of the investment worth Rs.50 Trillion in infrastructure by 2022 in order to attain the sustainable development within the country. According to ISG, the universal expenditure on engineering services is estimated to be outstretched to $1.4 trillion by 2020.India majorly exports its engineering goods to the US and Europe as well, which reports for more than 60 per cent of the total exports.

EPC (Engineering, Procurement, Construction)

 

Overview of Infrastructure Sector

 

The Increased impetus to evolve and develop the infrastructure of the nation is appealing the domestic and international players as well. The Private sector is emerging as a key player beyond the various segments of infrastructure, ranging from roads and communications to power and airports. In order to increase or boosting up of construction of buildings in the country, the Government of India (GoI) has taken the determination to emerge with a single window clearance facility to accord the swift approvals of the construction projects. India was positioned 44th among 167 countries in World Bank’s Logistics Performance Index (LPI) in 2018. India was also ranked second* in the year 2018 Agility Emerging Markets Logistics Index.

In the index of eight core industries, the cumulative growth was 4.7 per cent in the year 2017-18 and 4.8 per cent year-on-year in April-December 2018. As of April 2018,56 new airports are projected to become functional in the nation over the next succeeding years. The policy of government in the sector of roads is to increase the participation of private sector which has proved to be the privilege for the industry of infrastructure with a large number of private players entering the business through the public-private partnership (PPP) model. India is expected to be ranked as the third largest construction market internationally by the year 2022. India is under the requirement of the investment worth Rs 50 trillion (US$ 777.73 billion) in infrastructure by 2022 in order to attain the sustainable development within the country. The infrastructure sector of India has witnessed the 91 M&A deals worth US$ 5.4 billion in the year 2017.During Dec 2018, infrastructure sector witnessed PE/VC twelve deals worth 500 million and eight US$ 1 billion plus deals. The entire range of villages of India will be connected through a road network by 2019 under Pradhan Mantri Gram Sadak Yojana (PMGSY). In the month of August 2017, a new Metro Rail Policy was circulated for the revitalization of the private investment in the sector. The Government of India is also working on improving and up grading the infrastructure of energy in the country and investment opportunities worth US$ 300 billion will be obtainable in the sector in the coming decade. The sector of infrastructure has become the major focus area of the Government of India. In other words, infrastructure sector is among one on which the government of India is much stressing. Under the Union Budget 2019-20, the sum of US$ 63.20 billion was decided to be granted to this segment. As per the analysis of the Department of Industrial Policy and Promotion (DIPP), the Construction Development sector and Infrastructure activities sector received FDI inflows amounting to US$ 24.90 billion and US$ 13.49 billion, respectively from April 2000 to September 2018. 

 

Engineering contracting services: Benefits and Advantages

 

EPC corporations now-a-days are pacing across tactical outsourcing and are approaching in a much evolved manner towards the contracting operations from a long-term and strategic lookout. Engineering services are the fundamental requirement for the growth and development of organization’s products and fabrication initiative .It requires the assistance and supervision of the CXO level for making the judicious use of the available resources in order to ensure it is a successful collaboration. According to ISG, the universal expenditure on engineering services is estimated to be outstretched to $1.4 trillion by 2020.

Though many EPC leaders chooses to opt for a multi-vendor network to encourage the competition and dispense the risk levels. The optimum corporations of engineering in the recent times are bending towards consolidation of vendor in order to streamline their chain of supply and sensualize the performance of vendor in a better manner and make other benefits from economies of scale. A local-global model generally provide to its end-users customer an ideal scenario – a small house-in-built team to hasten the process of  interchange and an offshore group of players in a different location to restrict the advantage of cost. Considering the grounds of the nature of services contracted, the selection criteria of vendor should be coined – engineering assistance can be contracted to the corporations that are colossal which provide a wider reach of engineering contracting services or to focused companies of engineering.

Most of the providers of the engineering services have emerge out with the option of business models that are flexible and innovative in their nature and pricing models to be convenient to the needs of global EPC majors. Contributors of the engineering services now perform a strategic role in the success of companies of global engineering by contributing their expertise towards streamlining and delivering the creative solutions beyond the segments.

 

Contracting Engineering Services: Major Dominance 

 

a)Experience: The providers of engineering service have the major advantage of the broad range of project experiences and expertise accumulated over the years. They have a broader set of proficiency from which they can opt for the optimal solution. They are cautious of best practices of manufacturing and proficient at conveying the option which best suited on your projects.

b)Cost efficiency: Services of contract engineering enables the accessibility to expert the resource for projects without the addition of permanent operational costs. Contract engineering also supplies greater control over costs than in-house evolvement.

c)Enhanced Efficiency: Engineering contractors often have expertise over years and experience of operating in multiple segments with the different range of degrees of scope and scale. In this manner they possess some special comprehension and perspective on the problem solving or solution providing and can provide the innovative solutions thus enhance the value to the project.

d)Higher focus: Hiring an Engineering Service Provider can introduce better discipline and focus around the requirements of projects and deadlines as well. Additionally, the contracted teams of engineering have dedicated focus in opposition to in-house teams that may get stretched in multiple directions and multi-tasking.

e)Outcome of higher quality:  The vendors of engineering services can contribute more sustainable IP and enable the transfer of core knowledge generally more effectively in comparison with internal staff. Contracted providers are bound to convey the well-documented codes for the internal application and are accessible for the re-engagement in the succeeding period.

Most requested segments of engineering services

Industries that constitute the major global engineering spend include:

Manufacturing clients from Chemical, Specialty Chemical, Agrochemical and related industries         

A) Oil & Gas

B) Utilities

C) Construction

D) Automotive

E) Aerospace

F) Telecom

Providers of engineering service are contributing to the broad range of services in a progressive manner counting on designing plant, product designing, process engineering, modular packages and other innovative services as well.

India is a formidable powerhouse that delivers the superior quality of engineering services and operations. The strength of India’s powerhouse lies in the widespread obtaining ability of the A- Grade, highly skilled, English speaking engineers. Under the highly competitive environment of engineering, collaboration is the key, and the evolution and growth of figurehead of engineering will rely on how much they make the judicious use of available resources and partnerships.

Survey of Engineering Industry of India 

The Engineering sector of India has witnessed a striking rate of growth over the last few years which were majorly fueled by the increased investments in the segment of infrastructure and industrial production. The sector of engineering, being closely connected with the sectors of manufacturing and infrastructure, is of strategic value to the economy of India.

India on its pursuit to become a superpower on the global basis has taken the prominent strides towards the evolution of its engineering sector. The Engineering Export Promotion Council (EEPC) is appointed by the Government of India as the pinnacle body in charge of promotion of engineering goods, products and services from India. India is the exporter of the transport equipment, capital goods, other machinery/equipment and light engineering products such as castings, forgings and fasteners to diverse countries of the world. The semiconductor industry of India suggests areas of high growth potential. This is so because the industries which source the semiconductors as inputs are themselves witnessing the rise in demand.

India became permanent member among other countries of the Washington Accord (WA) in the month of June in 2014. The nation is counted among the exclusive group of 17 countries who are the perennial signatories of the WA which can be defined as an elite international agreement on the studies of engineering and mobility of engineers.

Market size and Overview

As per the study and analysis of Tech Navio’s, the market of EPC in India is to rise at a CAGR of 20.26 percent for the period ranging from 2014-2019.

EPC vendors can be understood as the providers of service that accomplish the projects on the grounds of turnkey. The entire aspects such as engineering, procurement and construction are supervised and controlled by EPC vendors. Under the EPC projects, the risk of time and cost overwhelm are resettled to the contractors and the encumbrance of execution of projects that lies with vendors of EPC. Package-based contracts are the other forms of contract under which the risk of cost overruns may lie with the owner of the project. The large conjunctions in India, such as GMR, Jaiprakash Associates, L&T, Nagarjuna Construction and Punj Lloyd administrate the turnkey projects in many different sections alike, Transportation, Power and Telecommunication.

The turnover of the industry of capital goods was calculated to be reached to US$ 70 billion in the year 2017.India majorly exports its engineering goods to the US and Europe as well, which reports for more than 60 per cent of the total exports. For the period of FY18, the engineering exports were US$ 76.20 billion as against US$ 65.23 million in the same period of the preceding year. Exports of the machinery fueled by electricity and equipment grew at a CAGR of 7.00 per cent during FY10-18 to reach US$ 6.7 billion in FY18.The statistics for Apr-Nov 2018 stood at US$ 5.61 billion.

 The industry of electrical equipment has observed a record of seven years high growth by 12.8 per cent in the year 2017-18. On the grounds of enlargement, the government is expending over the non-urban and household electrification schemes and initiatives to raise the extent of power distribution. The industry of construction equipment is projected to be up graded by 18 per cent during the period from 2018-2019.

 

Investments

 

The sector of engineering in India entices the interest from foreign players at an impressive level reason being it enjoys the supremacy on comparison in terms of manufacturing costs, technology and innovation. The above coupled with favourable regulatory policies and growth in the manufacturing sector has allowed the several foreign players to invest in India.

The Foreign Direct Investment (FDI) inflows into the miscellaneous mechanical of India and industries of engineering during April 2000 to June 2018 stood at around US$ 3.45 billion, as per data released by the Department of Industries Policy and Promotion (DIPP).

In the recent past there have been many major investments and developments in the Indian engineering and designing sector:

SANY India, the Indian arm of Beijing-headquartered construction equipment maker SANY Group, is scheming to invest Rs 1,000 crore (US$ 142.49 million) to enlarge its construction machinery production to 25,000 units, as of December 2018.

Schneider Electric and Temasek acquired Larsen & Toubro’s (L&T) electrical and automation business in May 2018.

 Initiatives on part of Government (GoI)

The Indian engineering sector is of strategic importance to the economy owing to its        intense integration with sectors of other industry. The sector has been de-licensed and enjoys 100 per cent FDI. With the objective of boosting the sector of manufacturing, the government has moderated the excise duties on factory gate tax, capital goods, consumer durables and vehicles.

The government of India has allocated US$ 92.22 billion for the infrastructure sector in the Union Budget 2018-19. The allotment was raised up to US$ 45.57 billion for the defence segment under Union Budget 2018-19. Moreover, the policy of ‘Make in India’ is being followed cautiously to reach to greater self-sufficiency in the area of defence equipment including air-craft.

The Union Cabinet has approved and accepted the incentives up to Rs 10,000 crore (US$ 1.47 billion) for investors by amendment of the M-SIPS scheme, in order to continue the incentivize investments further  in the segment of electronics and electricity, creating the employment opportunities and reducing the dependence on imports by the year 2020.

 

Road Ahead

 

As per the market study, the turnover of the industry of capital goods is projected to magnify to US$ 115.17 billion by the year 2025F. Engineering R&D market of India will enhanced from US$ 28 billion in FY18 to US$ 42 billion by FY22F. Sales of construction equipment are anticipated to reach 90,115 and 100,000 in 2018 and 2022, respectively, while the market size of construction equipment industry is expected to grow from US$ 4.3 billion in FY18 to US$ 5 billion by FY20. The manufacturing of machine tools industry is anticipated to magnified by Rs 9,000 crore (US$ 1.40 billion) in 2018-19.

Exchange Rate Used: INR 1 = US$ 0.0142 as of Q2 FY19.

The ongoing sensation in the landscape of EPC

Localization content of Jaitapur plant is probable to extend up to 60%, declare by EDF.

As per the sources the EDF, state-owned French power major, state that the objective is to radically elevate the contribution of Indian corporation for the reactors to be supplied for the suggested mega nuclear power plant at Jaitapur, in Maharashtra’s district of Ratnagiri.

The reactors to be supplied are six in numbers, mutually by the EDF and US multinational GE. The former needs to provide the required technology for about 10 Gw plant; the previous agreement says the local (Indian) content could reach up to 60 per cent for the last two among the six reactors.

Government-owned Nuclear Power Corporation of India (NPCIL) is to manage the plant.

EDF says that elevating the local content would rely on the Indian supply partners by composing the investment related in their amenities and processes, in order to meet up with needed design requirements.

Vakis Ramany, senior vice-president at EDF, told to Business Standard by way of e-mailed interview that they were seeking to minimize the value at Jaitapur, to lower the cost of supplied power. In the preceding month, a formal techno-commercial proposal was sent on their part to NPCIL, subsequent to an agreement signed in the last month of March.

“The offer has drawn on 50 years of experience of the French nuclear industry. As per the (March agreement), the EDF will proceed essentially as the supplier of EPR (the pressurised reactor) technology. Therefore, the offer sheaths the entire sketch of the engineering phase and acquisition of the components,” he said.

EDF shall also be involved in securing the funds which are required, he said. The group will be providing the support to NPCIL in both, the construction and commissioning phases as well. “At the time of performing, we will continue to improve on the safety standards and conserve the activity of these assets of great value for the longer duration.”

As per the sources, the project was in the accordance with the ambitious energy policies of India, where the nuclear potential is to become a crucial part. The solidity of the nuclear generation assists the growth and development of renewable energy, as it compensates for the latter’s naturally fluctuating output.

As per sources, in the absence of details of any details, that the electricity power produced will be under the state of competition over decades. “The possibility of being able to construct the six EPR units at a single site will create the prominent economies of scale. Our experience of EPR projects in France, the United Kingdom and China is also a major factor of cost cutting.”

Larsen & Toubro (L&T) and Reliance Industries, alongside Bureau Veritas India and Egis India, are among the corporations that EDF view as the strategic partners in the project. “L&T has vigorous experience pertaining to industry. Their ranking as a supplier of NPCIL naturally led us to a partner with them. Our subsidiary, Framatome, regularly its historical cooperation with L&T for the process of fabrication of certain components of the nuclear island in India’

EDF, with Assystem, Egis India, and Bouygues, is part of this platform. The signing of a pre-bid agreement between EDF, Reliance, and Assystem in July 2018 is intended to permit the entire localisation of the auxiliary systems at Jaitapur.

 

L&T secure the contracts of constructing hospitals, commercial complex, manufacturing capacity.

The corporation said that the instruction and orders fall under the classification of “large” which ranges from Rs 2,500 crore and Rs 5,000 crore as per its classification of contracts.

 

L&T is an Indian multinational company deals with technology, engineering, construction, manufacturing and financial services with over USD 18 billion in revenue. 

As per the sources, the Infrastructure Company, Larsen & Toubro (L&T) said, it has won various contracts across India, including for construction of hospitals in Jharkhand, a commercial complex in Hyderabad and a manufacturing capacity in Gujarat. The company state the orders fall under “large” category which ranges between Rs 2,500crore and Rs 5,000crore as per its classification of contracts.

“The construction arm of L&T has assured the orders from the renowned clients across different states in India,” statement given by L&T. The buildings and factories business has assured an order by the side of Jharkhand State Building Construction Corporation Ltd for constructing the two 500-bed hospitals at Jamshedpur and Dumka, respectively, it said. 

It has also secured an order from a leading developer to construct a 108-metre tall commercial complex at Raidurgam in Hyderabad. 

“Spread across a built-up area of 3.6 lakh square meter, the project will comprise leasable area, high street retail frontage, grand retail plaza, recreational activities, landscape areas, and amenities like multi-level car parking spaces. The scope of work includes civil, structural works, architectural finishes and MEP works,” the statement said, adding the projects is to be completed in 32 months.

The company said it has also secured an order from a renowned construction machinery manufacturer in Gujarat. The water and effluent treatment business has received four orders from the Public Health Engineering Directorate, Government of West Bengal, for the design and construction of intake well, water treatment plant, intermediate pumping station, groundwater reservoirs, overhead reservoirs, transmission mains, water distribution network and metering works in various blocks of Bankura district in West Bengal. The business has also secured another repeat EPC (engineering, procurement and construction) order from the Andhra Pradesh Capital Region Development Authority for the investigation, design and construction of water supply, sewerage, roads, drains, culverts, utility ducts for power, reuse waterline for Krishnayapalem(P) and Venkatapalem (P) in Amaravati City. 

Another EPC order has been secured from Faridabad Smart City Ltd for laying of civic infrastructure, construction/upgradation of roads networks (Phase 1&2), underground cabling of HT/LT transformers, street lighting and landscaping works, among others. The company said it has also secured an order from Patna Smart City Ltd for retrofitting and re-development of storm water drains, development of smart road network as per urban street design principles, development of footpaths, utility corridor, streets caping, vendor and parking zone creation, installation of street furniture with smart street lighting, smart bus stops and allied works in Patna. L&T is an Indian multinational company engaged in technology, engineering, construction, manufacturing and financial services with over USD 18 billion in revenue.