Sunday, November 19, 2017

Cover Story

India’s Global EPC Footprint

 

Project Exports Rs.1576.91 cr ($246.69 mn) | Dominates Emerging Markets | Expertise across Value Chain, across Infra Verticals

 

Grappling with a prolonged recession at home, Indian EPC players turned to the global market for business, and developed competence and capacities across infra verticals ranging from oil & gas, to ports and airports. Some even operated airports in the BOOT mode, recovered their RoI and monetized their investment by selling out their stake to raise equity for new projects. Dominating emerging markets, India’s EPC majors rank in the global big league…..finds Satish P. Chavan. 

 

Many a times adversity opens new doors of opportunities, which is what has happened in the case of India’s Engineering Procurement Construction (EPC) sector. Having to survive a prolonged recession at home, many Indian EPC companies began wading across to foreign shores. And they have spread everywhere, executing projects across continents, from Asia, to Africa, Europe, and Russia and the CIS (Commonwealth of Independent States) region. Many of these companies have developed competence and capacities across infra verticals, ranging from power generation and T&D, transport infra including roads-ports-airports, oil &gas and refinery sector, etc. Most of these companies won projects with competitive bidding in the face of stiff international competition from the global EPC big league. But more importantly, Indian EPC companies are now dominating tough markets like the GCC market in the Gulf region. Also, Indian EPC Contractors are most preferred in emerging markets because we operate on the Rupee Standard, which is much cheaper than the Dollar, Euro, or Yen, Standard, hence more affordable for emerging markets in developing countries in Africa, Asia, CIS, etc.  A majority of these players have expanded into the markets of Middle East and Africa, besides South East Asia and South Asia.  This trend of EPC project exports is reflected in the growing amount of exports over the last four years, as seen in below in the data collected by the Project Exports Promotion Council of India (PEPC).

 

Export trends: The Contracts secured by PEPC member companies as reported by them over the last four years are as follows:

 

2013-14

2014-15

2015-16

2016-17

  2017-18 (Apr-May)

$ Million

4436.19

5493.04

5014.9

8146.70

  801.53

Rs. Crore

26197.95

33581.38

33056.78

54024.18

  5341

The Project Export figures for F.Y. 2016-17 were highest since the inception of the Council. In terms of percentage growth, Project Exports showed a significant growth of 62.06 per cent in Rupee terms and 62.44 per cent in $ in F.Y. 2016-17, as compared to 2015-16.

Source: Project Exports Promotion Council of India

 

 

As seen in the table, there is a rising trend in projects exports over the years, as of September 2017, the value of exports in 2017-18 till April-May has already exceeded the total value of exports in 2016-17.

 

MAJOR CHALLENGES

The biggest challenge in executing overseas projects for Indian EPC contractors is taxation issues on a project, both in the host country and in India. Also many a times the terrain is rough or mountainous making project execution difficult, or a company has to deal with project affected people at the site on their own. But the worst is an unstable political environment or an economic crisis in the host country, which could jeopardize timely project execution. But the most difficult challenge is getting advance export credit for an overseas project. Fortunately India’s   Export Credit Guarantee Corporation (ECGC), is doing a yeoman’s job helping EPC contractors by providing them export credit for their overseas projects.

Commenting on major challenges to  EPC project exports from India, Ambuj Chaturvedi, Executive Director, Overseas Infrastructure Alliance (OIA),  says,  "Project Exports are an exception to the basic framework which deals with products and services separately, since they encompass both products and services. Facilitating Project Exports may need creation of some customized policy framework. However, in view of vast prospects of Project Exports from India with accompanying economic/strategic value and number of products and services it bundles in, it makes a compelling case to undertake these efforts.

The Government should recognize separately the project exports in FTP so that they can get required impetus from all stakeholders. Project exports face no or less volatility from customers as compared to the exports of goods and services, since it is difficult to shift the project of sugar plant from one country to another due to costs and time involved in it."  OIA is an EPC major focused on the African market. 

 

CHALLENGES FACED BY INDIA’S EPC SECTOR

The sector has witnessed many consistent changes over the past few years.

  • Constant fluctuating prices of materials and shortage of skilled manpower.
  • Shortage of machinery and materials
  • Most of the infrastructure projects get delayed. Alleviating time is a big concern.
  • Constant increase in project sizes, scale and market maturity leading to cost overruns.
  • Excessive tendering crippled with limited scope
  • Dearth of geological supply of raw material and new technologies in the auction bid.
  • High procurement cycle time
  • Increase in production, transportation and investment costs
  • Difficult operations while reverse auction
  • Vendor Identification and Screening
  • Transportation

 

 

ECGC WINS BEST ECA AWARD

In July this year ECGC won the ‘Best Export Credit Agency’ award conferred by the Trade and Forfaiting Review (TFR), a leading trade and supply chain finance information resource.  A Diamond Jubilee win for ECGC is a happy coincidence. In its 60th year of operation it headed the popular vote in a hotly contested category.  ECGC has tagline “You focus on exports, we cover the risks,” which is very apt on it winning the ‘Best Export Credit Agency’ award. In 2016-17, ECGC’s total business stood at  $40.8 bln, which is close to 16 per cent of Indian exports. In the past five years ECGC received a capital contribution of $70 mn from the Government, over the same period it returned $153 mn in taxes and dividends.  “ECGC thus is one of the rare ECAs functioning commercially while ensuring its mandate of export promotion by being an all weather partner to Exporters and Bankers in India,” says Geetha Muralidhar, Chairman & MD, ECGC.

ECGC is in discussion with African Trade Insurance Agency (ATI) to explore possibilities of supporting exports to African Region through reinsurance and coinsurance. ATI provides political risk and trade credit risk insurance products with the objective of reducing the business risk and cost of doing business in Africa. TFR awards are prestigious in the trade industry acknowledging exemplary achievements under categories of export credit agencies, trade banks, international financial institutions and trade technology, among others. This year the excellence award for ECA had 15 nominations from 12 countries.

 

 

EPC player

Geography of expansion

Focus areas

Larsen & Toubro Ltd.

The UAE, Saudi Arabia, Kuwait, Oman, Qatar, Singapore, Malaysia, Indonesia, Kenya, Mozambique, Algeria, Russia, Bahrain, Sri Lanka, Bangladesh, Jordan, Thailand

Engineering and construction projects in power transmission and distribution, metro rail, expressways and highways, railway infrastructure (civil and track, electrical and mechanical, signalling and telecom packages) as well as residential construction

Engineers India Ltd.

The UK, the UAE, Saudi Arabia, Malaysia, China, Italy

Oil and Gas, petrochemicals, solar power, water and waste management, fertilizer plants

Gammon India Ltd.

The US, Canada, Malaysia, Oman, Bangladesh, Bhutan, Nepal, Libya, Iraq, the UAE, Nigeria and Sri Lanka

Water supply, power plants, highways, desalination plant, bridge and jetty construction

IVRCL

Nepal, Sri Lanka, the Middle East, The UAE, Kenya and Africa

Hydroelectric power plant, residential project, water reservoirs, canals and non residential buildings

AFCONS Infrastructure Ltd.

Mauritius, Oman, Indonesia, Kuwait, Qatar, Madagascar, Jordan, Liberia, Yemen, the UAE, Bahrain

Industrial EPC, chemical plants, cement plants, mining projects, highway construction

Tata Projects Ltd.

South Africa, Mauritius, Kenya, Qatar, The UAE

Third-party inspection services for power T&D projects, power transmission lines, oil and gas terminals

Ramky Infrastructure

Singapore, the UAE and Gabonese Republic

Infrastructure development, waste management, environment and property development

 

Shapoorji Pallonji & Co. Ltd.

The UAE, Kuwait, Ghana, Qatar, Saudi Arabia, Algeria, Gambia, Nigeria, Sri Lanka and Kenya

Contracting services for residential, commercial, industrial, hospitality, health care, and mixed use buildings

Punj Lloyd

Indonesia, Malaysia, Qatar, Kazakhstan, Oman, Turkey, Singapore

Offshore platforms, gas field development, oil and gas pipelines, storage tanks and terminals

Essar Projects Ltd.

Singapore, the UAE, Zimbabwe, the US, Papua New Guinea

Marine facilities and storage terminals, industrial plants, pipelines, steel plant, roads, water and hydroelectric power and airport projects

 

 

 INDIA’S EPC BIG LEAGUE

The list of Indian companies playing in the global EPC market is quite long. The population is a diverse mix of companies executing projects in various modes like BOT, BOOT, OMT, etc, and the projects executed/under execution range across  all infra verticals.

 

L&T leads India’s EPC Big League

Larsen & Toubro (L&T) is India’s top EPC company and ranks among global EPC majors. Recently its Hydrocarbon Division bagged a Rs.1,700 crore contract for a crude oil pipeline in Kuwait, from Kuwait Oil Company (KOC) for a new 48" Crude Transit Line (TL-5) from North Kuwait to Ahmadi. The project is expecting completion by 2020. L&T is currently executing Gathering Centre-30 (GC-30) project for KOC, and has been involved in serving the onshore hydrocarbon sector since the early 1990s.

L&T has won new orders worth Rs.4,000 crore from the hydrocarbon sector in the international market, primarily in the Middle East and Africa. It won a major onshore engineering EPC order for a large petrochemical facility in the Middle East. It also won orders for modularized structures and skids for ongoing refinery projects in the Middle East and Africa.

In a major breakthrough order from Metro Express Limited owned by  Government of Mauritius, L&T bagged a Rs.3,375-crore major to design and build an ‘Integrated Light Rail’ based Urban Transit System. The project was won in face of stiff international competition. Although the project is scheduled to be completed in 48 months, L&T has commited to complete and deliver a priority section of 13 km in 24 months.

“We are delighted that we have been able to carry our credentials as the foremost builders of metro and light rail transport systems in India and the Middle East to Africa too,” comments S.N. Subrahmanyan, CEO & Managing Director, L&T, describing this famous win. “We are extremely grateful to the Government of Mauritius for having reposed faith in our expertise and we are confident of meeting their expectations and requirements. The new light rail system will significantly transform the way Mauritius will commute in the future and will also bring in economic benefits along the route.”

“This order is perfectly in sync with our strategy to expand L&T’s Railways business into markets beyond India and we are extremely happy to have found a foothold in the African continent,” opined Rajeev Jyoti, CEO, Railways Strategic Business Unit that resides within the Transportation Infrastructure business vertical of L&T Construction, the construction arm of L&T. He adds, “We are already building the Riyadh and Doha metros apart from 17 other metros in India and with this project we are looking forward to spreading our influence in Africa too.”

L&T’s power T&D business won its single-largest order from Kahramaa, Qatar General Electricity and Water Corporation, for its ongoing Qatar electricity transmission and network expansion. The contract involves 30 new gas insulated sub-stations of varying voltage levels of 220 kv, 132 kv, and 66 kv underground cables approximately 560 km.

Over the years, L&T has outgrown its national boundaries and extended its activities into the Indian Ocean Rim countries. L&T's international presence is increasing, with worksites in 20 countries that encompass South Asia, South East Asia, the Middle East, Russia, CIS countries including African countries.

 

GMR, monetizing “Asset Light, Asset Right’ strategy

The ultimate in EPC expertise is to develop assets and monetize on them via the Operate-Maintain-Toll (OMT) route, which is what GMR has been doing across the globe for a long time. So much so that after developing Istanbul’s Sabiha Gokcen airport and operating it for many years, GMR agreed to sell its entire 40 percent stake in it for euro €225 million to Malaysia Airports Holdings Bhd (MAHB.KL), which holds 20 per cent stake in the airport, Turkish firm Limak, which owns 40 per cent, and GMR acquired the operating rights to the airport for 20 years for €1.93 billion in 2007. Malaysia Airports had the right of first refusal for the GMR stake. In keeping with its ‘Asset Light, Asset Right ‘ GMR has been divesting stakes to cut its debt load. Earlier it exited a Singapore power project for $532 million.

GMR has been raising funds by selling assets to raise funds for new green field projects. It has successfully bid for an EPC of the project in Greece for the new Heraklion Crete International Airport, in a consortium with GEK Terna Group of Greece, involving Design-Construction-Financing-Operation-Maintenance for a  Concession period of 35 years including Phase 1 Construction of 5 years.

“We are excited about the project and the opportunity to partner with GEK Terna in Greece. This new airport will definitely boost the tourism industry and aid the growth of international tourists that Greece has been witnessing over the past couple of years. The airport is in line with the asset light strategy we have adopted for overseas expansion and will see GMR participate in project management and commercial management in addition to airport operations,” informs Srinivas Bommidala, Business Chairman, GMR Airports.

“This selection reinforces the position of GMR Airports as a major global airport operator. This will be GMR Group’s second foray into Europe after having developed Istanbul’s Sabiha Gokcen airport. Having been selected, we expect to complete necessary documentation and concession signing over the next few months,” explains Sidharath Kapur, President, GMR Airports Limited.

Upon award, GMR Aviation Ltd will be the airport operator for this project. Under the Bid conditions, it is mandatory for the airport operator to hold a minimum of 10 per cent equity stake in the consortium.

Commenting on the development, a GAL spokesperson, said: “The bid submission is in line with the GMR Group’s asset light growth strategy with value build up from this project coming to GMR more from leveraging the airport platform, leading to enhanced revenue based services, than just equity.”  

 GMR has pre-qualified for development and operation of Nikola Tesla airport in Belgrade, Serbiaand , and Norman Manley airport in Jamaica. Apart from the aforementioned opportunities, GMR is selectively exploring new opportunities in South East Asia, Middle East and Eastern Europe.

Few Indian EPC majors have entered the OMT segment in airports abroad successfully and divested their  stake once the RoI is recovered.

 

Punj Loyd, projects in the Pipeline

Global EPC conglomerate, Punj Lloyd is another Indian EPC major specializing in Oil& Gas, especially in laying pipelines. Recently it won an EPC contract on LSTK basis in Yanbu, Saudi Arabia Rs.312 crore. The ‘Clean Fuels Interfacing Facilities Project’ was awarded to Punj Lloyd subsidiary, Dayim Punj Lloyd, by the Yanbu Aramco Sinopec Refining Company Limited (YASREF), to interface with the Aramco Yanbu Refinery to supply low sulphur clean transportation fuel - diesel and gasoline - for domestic distribution. Additionally, the pipeline system will allow transport of YASREF refined products to the western regional pipeline hub. Lloyd’s scope of work includes:Two new pipeline systems, 30” x 7 km each, for diesel and gasoline – to be installed to deliver YASREF refined products to Yanbu Refinery (YR) for

domestic distribution. Speaking on this new opportunity, Punj Lloyd Director , Atul Jain said, “This is the third contract by YASREF to Dayim Punj Lloyd which is reflective of the strong

partnership that has been formed between YASREF and Punj Lloyd, focusing on quality, safety and successful delivery of projects .” Prior to this contract, Punj Lloyd had successfully completed the Offsite Pipeline Package and is due to complete the pipeline relocation.

Punj Loyd has also successfully executed one of the largest pipelines of Malaysia, a $822 mn for the construction of the 512 km, 36 inch dia pipeline for Petronas to transport gas from Sabah Oil & Gas Terminal to its LNG Complex at Bintulu, Sarawak.

“The completion of this landmark project gives us a sense of contentment, pride and achievement. This is an important milestone for Punj Lloyd as we have completed the project to our client’s satisfaction and have received the Final Acceptance certificate from them. Our relationship with Petronas has been built on trust and delivery and we are committed to complete their other ongoing project - RAPID Tank Farm to their satisfaction. This is the largest EPC Pipeline project that Punj Lloyd has executed till date,” prides Atul Jain, Director - Punj Lloyd.

The pipeline construction involved 3000 crossings including eight major and 1,711 minor river crossings, 29 major road crossings, 1157 minor road crossings, 17 thrust boring and 24 horizontal directional drilling crossings. The Horizontal Directional Drilling was performed in deep valleys and the thrust boring in swamp areas. The pipeline passed through rocky mountains and swampy stretches of 56 km, air crane helicopters were deployed for airlifting and transporting pipes in inaccessible areas. All vehicles were provided with full width off road tyres and excavators with special track grip for steep slopes up to 76 degrees. Specially designed internal crawlers were used for non-destructive testing of the pipeline.

 

KEC International, power player

Focused on the power sector, KEC International has secured new orders of Rs.1,024 crore in the Transmission & Distribution (T&D) business, including of Rs.610 crore across India, SAARC, Middle East, Africa, East Asia Pacific regions and the Americas.  Two turnkey orders for construction of 230 kV and 132 kV Transmission Lines in Bangladesh, a turnkey order for 400 kV T&D line from PGCIL supply orders across the Americas.

“We have closed the year on a very good note. We are pleased that we have delivered better than our guidance on both profitability and order inflows. Our order intake for FY17 at Rs.12,358 crore has improved significantly, up 42 per cent Y-o-Y. The new financial year has begun on a highly positive note for us. We have secured substantial orders, specifically in the EHV Cabling and Civil Businesses, both of which are our focus growth areas. Our robust order book position and strong L1 pipeline gives us good visibility and confidence of a strong performance going forward,” comments Vimal Kejriwal, MD & CEO, KEC International Ltd.

 

NBCC, playing in CIS market   

Public sector NBCC recently signed an agreement with Belarus for executing EPC projects in both countries jointly. In presence of PM Modi and Alexander Lukashenko, President, Republic of Belarus, Dr. Anoop Kumar Mittal, CMD, NBCC, and Vital Bandaryk, Director General, BZS of Belarus, signed an MoU last month in New Delhi. The MoU pertains to Strategic Cooperation has been entered between NBCC and BZS for Joint Participation in the upcoming Infrastructure and energy development projects in both countries.

 

GLOBAL PROSPECTS

India has a teeming population of EPC contractors across infra verticals who are playing in the global market.  These include EPC conglomerates, and small and medium size players executing piecemeal contracts on a smaller scale. Some have expertise in executing infra projects, while others like Thyssen Krupp Industrial (India), have a niche focus on executing plant projects in the industrial segment. Other EPC majors playing in the global market include Tata Consulting Engineers Limited (TCE), which is focused on Africa, GVK, etc.

It won’t be long before Indian EPC contractors dominate the global market , apart from Emerging Markets where it is an entrenched.

 

Recent overseas projects won by Indian companies

Company

Client

Project Details

Value

Country

Larsen & Toubro
(T& D Division)

Kahramaa, Qatar General Electricity and Water Corporation

Construction of 30 new gas insulated sub-stations of varying voltage levels of 220 kv, 132 kv, 66 kv underground cables for approximately 560 km

Rs.5,250 cr

Qatar

Larsen & Toubro
(Hydrocarbon Engineering)

Multiple Clients

Transport infrastructure, heavy civil infrastructure,

Rs.5,725 cr.

Middle East,
Africa, regions

L&T Construction

Oman Electricity Transmission Company SAOC

400/132 kV Qabel Grid Station and associated works. Secured two more EPC orders of  five 132 kV substations in UAE

Rs.1,169 cr

Oman

 Larsen & Toubro
(Electrical & Automation Unit)

L&T Electrical & Automation FZE (LTEAFZE)

Phase 1 Doha Metro – supply, installation, testing, integration, commissioning and maintenance for five years for 37 stations.

Rs.500 cr

Doha

NBCC (INDIA)

Mauritius Government

Construction of new Supreme Court building on a PMC basis

Rs.250 cr

Mauritius

Engineers India Ltd. (EIL)

Sonatrach SPA

PMC Services for Rehabilitation of Ethylene Unit at Skikda Petrochemical Complex

Rs.50 cr

Algeria

Larsen & Toubro

Kuwait Oil Company

E PC  for new 48" Crude Transit Line (TL-5) from North Kuwait to Ahmadi

Rs.1,700 cr

Kuwait

KEC International

Mulitple Clients

Transmission & Distribution, EHV Cabling

Rs.1,024 cr

Bangladesh, Americas

Punj Lloyd

YASREF

LSTK, Clean Fuels Interfacing Facilities Project

Rs.312 cr

Yanbu, Saudi Arabia

Punj Llyod-Varaha Infra Ltd, JV

NHAI

Yagyi- Kalewa road section, 120 km, 3 major, 2 minor bridges.

Rs.1,177 cr

Myanmar




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