Construction and Architecture Magazine 11 may june 2011

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Featuring, profiling the leading players in the engineering and construction in India.

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Construction and Architecture Magazine 11 may june 2011

  1. 1. COVER STORY: TOP CONSTRUCTION COMPANIES The pioneers of the construction industry Larsen & Toubro Limited - an engineering and construction major - is among the largest and most reputed companies in India. L arsen & Toubro is a USD 9.8 billion technology, engineering and construction group, with global operations. A strong, customer-focused approach and the constant quest for topclass quality have enabled L&T to attain and sustain leadership in its major lines of business over seven decades. The construction division of Larsen & Toubro Limited - is India's largest construction organisation. Their contribution in the construction industry L&T bags new orders worth Rs 1,181crore To begin with on January 06, 2011, ( L & T ) B u i l d i n g s & Fa c t o r i e s Independent Company - part of its construction division secured new orders aggregating to Rs 1,181 crore during the third quarter for the construction of residential buildings, factories including a specialized support facility building. L&T has secured new orders aggregating to Rs`558 crore for the construction of residential buildings in major cities from leading developers. In yet other development, new orders worth Rs 298 crore has been secured for the construction of factories from esteemed clients. A turnkey project has been secured from a major client worth Rs 325 crore for the design and construction of a specialised support building facility. These orders further enhance the order book of the company it has already secured for major design and build contracts in 022 airports, IT parks, commercial and residential space. L&T bags Rs 1,164 crore orders from metallurgical and water sectors. Larsen & Toubro's (L&T) metallurgical, material handling and water operating company has secured orders aggregating Rs 1,164 crore from various customers. L&T's Minerals and Metals Business Unit has secured a major order worth Rs 523 crore from Tata Steel Limited for a 60,0000 TPY Continuous Annealing & Processing Line (CAPL). This project will be implemented through a JV of Tata Steel and a technology partner for producing high grade cold rolled steel sheet for automotive application, including skin panels and high tensile steel. Nippon Steel Engineering will provide the technology » May - June 2011 » Construction And Architecture Magazine and imported line equipment. L&T's scope encompasses technical and project management services, design and engineering, supply of plant and equipment, utilities, civil and structural works and complete erection of the plant. The project is scheduled to be completed in 30 months. Water Sector: L&T's Water & Effluent Treatment Business Unit has secured orders worth Rs 530.84 crore from Tamil Nadu Water Supply and Drainage Board for water supply schemes in Hogenakkal. The scope includes supply and laying of 83 km MS pipelines, 948 km DI pipelines and 3488 km HDPE pipelines. The project, funded by Japan International Cooperation Agency, has a contract execution period of 24 months. The scope also includes operation and maintenance of the scheme for 60 months. In another development, the company received orders worth Rs 110.60 crore from Punjab Water Supply & Sewerage Division for the development of a sewerage network and construction of
  2. 2. L&T bags new orders worth Rs 1030 crore in buildings and factories segment: On November 25, 2010: Larsen & Toubro's (L&T) buildings and factories operating Company - part of its Construction Division – has secured orders aggregating Rs 1,030 crore for the construction of commercial and residential buildings including metro depot facilities and add on orders from various ongoing projects. L&T has secured new orders worth Rs 385crore for the construction of residential 024 COVER STORY: TOP CONSTRUCTION COMPANIES COVER STORY: TOP CONSTRUCTION COMPANIES Sewage Treatment Plant in Hoshiarpur and Jalandhar. The scope includes supply and laying of 356 km of RCC, SW & DI pipes. The contract period is 12 months. L&T Infrastructure Operating Company, part of its Construction Division, has made a major breakthrough in the international infrastructure segment by bagging an AED 592 million (approx. `.716 crore) contract from the Department of Tr a n s p o r t , Ab u Dh a b i f o r t h e construction of “Sheikh Khalifa Interchange”. The site is located at a distance of 75 km from Abu Dhabi on the Sheikh Rashid road leading to Dubai and gains significance as it intersects with the Abu Dhabi – Dubai main road linking the two emirates. To be completed in 24 months, the project involves construction of 4 bridges with multi-spans and multicells (from 2 to 8 in-situ box girders); one 62m long, 20m wide tunnel with single cell voided slab and 12 km of 4 to 6 lane roads with connector / distributor networks including associated electrical, water and drainage networks as well as landscaping and irrigation. buildings from leading developers. It has further secured orders worth Rs 645 crore from esteemed clients for construction of commercial buildings including design and construction of metro depot facilities. These orders further enhance the order book o f t he company it has already secured for major design and build contracts in airports, IT parks, commercial and residential space. L&T led Consortium bags first overseas airport EPC Order in Oman: On November 15, 2010: Larsen & Toubro's (L&T) Buildings & Factories Operating Company - secured its largest overseas EPC order for the design and development of the New Salalah International Airport in the Sultanate of » May - June 2011 » Construction And Architecture Magazine Oman. The order has a total value of RO 294,109,999 (USD 764 Million). L&T's scope of works will be approx US$ 500 million (Apprx Rs 2,200 crore) to be completed in 30 months. L&T's scope of works involves complete design including airside and landside works and construction of the 6.6 lakh sq ft. Passenger Terminal Building, Air Traffic Control Tower, ancillary buildings including MEP Systems and airport wide system networks. L&T has a significant presence in Oman through L&T Oman LLC a JV company of L&T and Zubair Corporation. Upon completion the airport will have a capacity to handle 2 million passengers per annum. L&T is currently executing the brownfield d e ve l op me n t o f t h e Mumbai International Airport. Larsen & Toubro Limited - an engineering and construction major - is among the largest and most reputed companies in India's private sector. Impressive portfolio of infrastructure growth AFCONS started in the year 1959 is in its existence for over 50 years in the st Infrastructure construction. From 1 April 2000 it is a Shapoorji Pallonji Group company. The company has to its credit an impressive portfolio of infrastructure construction in India and abroad. AFCONS has completed (a) Over 171 marine works, (b) Over 117 bridges, (c) 2700 lane Km of roads, (d) 4 LNG Tanks, (e) 24 kilometers of elevated metro rail (f ) 9 tunnels and hydro works. Projects undertaken: Significantly, AFCONS is recognised for its commitment, quality with strong innovations in executions. It is a delivery focused company with strong execution culture and almost all the projects have been completed on or ahead of schedule. AFCONS has won several awards for quality and safety. AFCONS is the only construction company in India to have won World quality commitment award from BID, Business Initiative Directions, Paris, 2009. The completion of Grade 026 Separator at Mukarba Chowk, Delhi had won the best constructed flyover in the year 2009-10 amongst all the PWD jobs in India. Recently, AFCONS has completed 5 million man-hours of safe working without any `lost time accident' in Kochi for Two LNG storage tanks projects for IHI Japan and Petronet India and won a special commendation trophy. There have been several commendation letters for good quality, timely execution, modern use of equipment and construction practices from organizations like Shell; RTA, Dubai; SNC Lavalin INC, Canada; DMRC (Delhi Metro Rail Corporation); KRCL (Konkan Railway Corporation Ltd India), World Bank etc. Business: AFCONS closed at US $ 515 million turnover in 2009-10 and the current year it is expected to cross US $ 600 million turnover. In terms of its technology and innovative strength, it is considered amongst the top five construction companies in India. In 2009-10 AFCONS achieved 25% of its turnover from overseas markets especially in Middle East and Africa and this trend has been growing consistently in past years. The portfolio of completed projects is in the countries like Mauritius, Madagascar, Dubai, Oman, Yemen, Abu Dhabi, Qatar etc. Currently » May - June 2011 » Construction And Architecture Magazine AFCONS is working in Oman, Liberia & Jordan and some of the prestigious projects currently in execution are:Projects: 1. Rohtang Pass – 8.8 Km highway tunnel at 13,300 sq.ft above sea level in the Himalaya Region in joint venture with Strabag, Austria – Value US $ 350 million. 2. Offshore Process platform of ONGC Bombay High in joint venture with Gunanusa of Indonesia – Value US $ 366 million. 3. Bulk Jetty for Sohar, Oman in joint venture with Saipem, France – Value US $ 200 million. 4. First Underwater Metro Tunnel in India for Kolkata Metro, Kolkata – Value US $ 210 million. 5. Marine Transport Terminal facility at Aquaba, Jordan – Value US $ 240 million. 6. Two packages of underground Metro Line EPC Civil Construction at Chennai (India) - Value US $ 600 million 7. Four laning of NH 1 Highway at Jammu – Udhampur, India – Value US $ 350 million 8. Stand-by Jetty at Dahej, India for Petronet - Value US $ 150 million 9. Marine facility for Liberia for Arcelor Mittal – Value US $ 55 million
  3. 3. 028 Client : Royal Court Affairs Consultant : Consulting Engineering Services LLC Year of Completion: Ongoing Location: Muscat, Oman Project Brief: Construction of West Break water 1234m and East Break Water 960m long with crust width varying between 3.2m to 7.51m Construction of Quay walls 86m and 139m long Construction of Boat ramp & boat repair area Design & construction of Floating pontoon & Gangway Vallarpadam Bridge Client : Rail Vikas Nigam Ltd - Delhi, India Year of Completion : 2009 Location: Vallarpadam, Kerala, India Project Brief Construction of Longest Bridge on Indian Railways – 4.62 kms. Rail Connectivity: Idapalli to ICTT Vallarpadam Length of Project - 8 Km Length of Elevated Structure - 4.62 Km No. of Major / Minor Bridges - 5 Nos Cruise Berth Facility, Mauritius Client : Mauritius Ports Authority Consultant: Royal Haskoning.UK Year of Completion : 2009 Location: Mauritius Project Brief: Construction of Piled Jetty and two access bridges. Construction of » May - June 2011 » Construction And Architecture Magazine four land based mooring points. Design and construction of Fender System. Afcons Infrastructure Limited plays pivotal role in Marine infrastructure development in Mauritius. As the principal gateway of the country, the port plays a vital role in the national economy by handling about 99% of the total volume of the country's external trade. Over the past two decades, the port has been transformed into an economic nerve centre, with modern port facilities, a dynamic Freeport and, port-based facilities. Afcons takes pride in the fact that it was the chosen one by the Mauritius Port Authority to do both the Oil Jetty and Cruise Berth. The Port Authority has hugely appreciated Afcons' contribution in developing the critical infrastructure. COVER STORY: TOP CONSTRUCTION COMPANIES COVER STORY: TOP CONSTRUCTION COMPANIES Brief on the Projects Bulk Jetty At Port Of Sohar – Oman Client : Sohar International Development Company LLC Consultant : Royal Haskoning Year of Completion : Ongoing Location: Sohar, Oman Project Brief: Design and construction of bulk jetty Design and construction of approach Design and construction of trestle mooring dolphin structures The joint venture of Italy-based international engineering contractor Saipem and leading Indian infrastructure firm AFCONS, has been awarded a contract to design and construct a deepwater bulk jetty at the Port of Sohar. The total investment in the project, which also includes a dredging component to be undertaken by Van Oord of The Netherlands, amounts to RO 95 million. Maqbool bin Ali Sultan, Minister of Commerce and Industry and Chairman of the Port of Sohar, signed the agreements together with Jan Meijer, CEO of Sohar Industrial Port Company (SIPC). The investment will help create a major deepwater jetty at the Port of Sohar to support the bulk shipping needs of Brazilian mining conglomerate Vale, which is currently building a huge iron ore pelletising and distribution centre at the industrial port. With the addition of this 1,380 metre long and 25 metre deep jetty, the Port of Sohar will join a select handful of ports in the world with the capability to receive Very Large Ore Carriers of 400,000 DWT. Van Oord, which has many major dredging projects to its credit including previous work done at the Port of Sohar, will increase the depth of the existing approach channel from 18.5 metres to a depth of 23 metres. A new harbour basin will also be created with a berthing pocket of 25 metres in front of the jetty. For their part, Saipem and AFCONS have set up a 50:50 joint venture to execute the construction of the jetty. Saipem will focus on the design and management of the project. The facility is set to come on stream in the first quarter of 2011 at around the same time that Vale's 1.4 billion iron ore pelletising and distribution plant will be operational. Maritime facilities for guarding the restricted area Bait Al Barakah Creating the world of tomorrow R eliance Infrastructure Limited is India's leading utility company having presence in across the value chain of power business i.e. generation, transmission, distribution, EPC and trading and the largest infrastructure company by developing projects in all high growth areas in infrastructure sector i.e. roads, highways, metro rails, airports and specialty real estate. The company's presence spans across three verticals: Engineering, procurement and construction, energy and Infrastructure. Engineering, Procurement and Construction EPC offers a single point solution to the execution of power plants including project engineering, procurement, construction and commissioning for its clients. Along with full service project advisory capabilities, it manages power plants on a turnkey basis and provides industry specialist services such as fuel management advice and fiscal advice. The turnover of the division was Rs 557 crore (US$ 120 million) and order book position of over Rs 18,530 crore (US$ 4 billion) as on June 30, 2010. Reliance Infrastructure Ltd, a part of Reliance Group, is India's largest infrastructure company developing projects in all high growth areas in infrastructure sector i.e. roads, highways, metro rails, airports and specialty. Excerpts of the interview with Lalit Jalan, CEO & Whole Time Director Reliance Infrastructure. Infrastructure RInfra has a significant presence in the construction of roads, metros, airports and real estate. Infrastructure is decidedly the most visible and important form of development in a nation. We signify this with our 11 road projects of 970 kms worth about Rs 12,000 crore (US$ 2.6 billion). We are currently implementing 3 metro rail projects in Mumbai and Delhi worth around Rs 16,000 crore (US$ 3.4 billion).In the real estate space, we are in various stages of bidding/negotiation/planning with over 400 million sq. feet of mixed use built up potential. Highlights for company profile: One of the largest Indian business conglomerates. Leading private utility firm in transmission. Significant presence in EPC, Energy and Infrastructure. Projects undertaken: Construction of Oil jetty at Port Louis, Mauritius Afcons partnered with Mauritius Port Authority to construct a dedicated petroleum/oil jetty at Mer Rouge. The project's impor tance is underlined by the fact that this jetty is the only source of oil receipt to the country. The oil jetty is now capable of accommodating tankers of up to 55,000 DWT compared to 40,000 DWT earlier. The company also constructed two Berthing Dolphins in around 14-15 mtrs of water depth with adequate fendering system. Corrosion protection to steel piles at Port Louis and Port Mathurin Afcons implementing protection measures to the corroded steel tubular piles at Quay 1m2,3,4 and at Latainer Bridge Sheet piles at Quay B, Quay E and the Quay at Port Mathurin The project aims at extending the serviceable life of the steel piles. 030 »May - June 2011 » Construction And Architecture Magazine Infrastructure in India is always perceived as the major short comings of the country. Investment in Infrastructure is the new mantra to achieve India's economic growth. As per the 12th five year plan there has been a jump from 5.5 to 10% in GDP which is invested in the infrastructure sector. India has an extensive road network of 3.3 million km. The lack of dispute resolution mechanism, archaic land acquisition norms, a not so transparent bidding process and state level intervention among other things are slowing the pace of change. These are some of the key challenges faced in developing roads. How and when do you see this being over come? India has demonstrated its progressive approach with huge investments earmarked for infrastructure. With a renewed focus, the govt has made policy reforms, land acquisition norms, bidding processes; single window clearance in
  4. 4. 032 »May - June 2011 » Construction And Architecture Magazine have participated by forging strategic alliances and JV's with key Infrastructure majors. These alliances will aid flow of engineering expertise, technological advancement, designing, energy and environmental process and human capital for faster execution of infrastructure projects. Is Government funding adequate at the moment for the development of roads and highways? The government has adopted a road development policy setting out the guidelines for investment in highways. Infrastructure development is basically funded through bank loans and equity. A good bond market helps to solve the long term finance in this sector. Also, NHAI has formed Special Purpose Vehicle (SPV) for funding projects. It involves very less cash support from NHAI in the form of equity, so it gives an opportunity to Foreign Investors, Financial Intuitions / Infrastructure companies to invest. In order to meet the huge investment requirements in road sector, 100% tax exemption is available for those who are engaged in development of roads and highways. Such tax holiday can be availed for any consecutive period of 10 years within a block of 20 years starting from the year when the developer starts developing the roads/highways. Additionally, in technology front, government permits duty free import of high capacity equipment required for highway construction. However one major critical factor that has bearing on infrastructure projects is availability of long term money. The fund flow to the infrastructure sector which was 1% of banking assets at the beginning of the century now has gone up to 10%. Since, banks do not have long term money; they may not be able to sustain the pace. Why are foreign investors wary of investing in the sector? Some of the key aspects why foreign investors are wary would be political stability, governance issues, land acquisitions, compensation policies, political inter vention and poor coordination within ministries to name a few. However one must note that the investment through Foreign Investors in India will boost the economy growth contributing to the present GDP. Foreign Direct Investment is being specially encouraged. In order to achieve time and cost bound infrastructure projects, various challenges are faced by the Government. Despite the various issues arising pertaining to this sector, a considerable interest of Foreign Investors has been encountered with countries like Canada, Singapore and Australia. There is an interest amongst foreign investors in the road sector in India, especially given the opportunity available in the sector and the returns expected from such investment. The high quality management, speedy construction, upgraded technology are the various aspects coupled to build mega highway projects in India. There are, however, certain measures and policies that the government need to rope in. Huge investments are needed for the sector from international and national long-term investors. Also, do you see foreign investment increase in the sector? The foreign investment depends upon the long term consistent policy which will secure their investment and returns. However, Government's ambitious program to construct 35,000 kms of roads by 2014 will call for the foreign investment to meet the financial requirement. Infrastructure investment is to be doubled in the 12th Five –Year Plan to 1$trillion from $500 billion in the Eleventh Five Year Plan ending 2011-12, which signifies the growth and momentum gained in the road sector. COVER STORY: TOP CONSTRUCTION COMPANIES COVER STORY: TOP CONSTRUCTION COMPANIES the road sector has attracted interest and investments from global players. Another interesting observation has been that the infrastructure spending has increased to 8 percent of India's GDP in 2009 which can be largely attributed to participation from private sector. In the roads space NHAI has awarded many projects on Build Operate Transfer (BOT) and annuity basis, with participation from private players. Interestingly 65% of the NHAI projects are awarded under PPP model demonstrating the success of this model and it's still growing. As per the recent amendments to FDI legislation in India, 100% equity ownership by foreign firms was allowed. As a result the most common mode of foreign investment is through joint ventures (JV). The government has recently allowed FIIs to invest additional $5 billion in bonds issued by companies engaged in infrastructure sector. So, we can confidently make the observation that India is still an attractive destination for foreign investment. Has the private sector participation increased in the roads sector and how many road projects have been executed by you? The active involvement of the private sector in developing infrastructure has been astoundingly high compared to any other country in the world. Of the 8percent of GDP that we are spending on infrastructure, 50 percent is being held by the private sector. This is as part of the 12th year plan. Huge opportunities are unfolding in Indian Road Sector. We see increased interest and active participation of the private players in PPP project for road sector. The total projected investment size of $70 billion (Rs 3.09 lakh crore), the likely investments from private sector including FDI (foreign direct investment) will be about $41 billion (Rs 1.81 lakh crore). Rinfra, has emerged as the largest concessionaire of NHAI with 11 road projects of 1,000 kms worth Rs12, 000 crore ($2.6 billion) and deploying 6,500 people. Is the private sector enthusiastic enough to invest in this sector and are there any foreign partnerships that you have forged? Yes, there is active interest from global institutions and infrastr ucture corporations in engineering and technology space. With an increased thrust of the government, global players “One is that it needs to make sure the investment in infrastructure happen and it should be their key result are and focus. Projects that they have decided to roll out they indeed roll-out and other important issues says,” Vinayak Deshpande, President, HCC in his candid conversation with Remona Divekar. Infrastructure issues needs to be addressed seriously Having estimated approx Rs 34, 385 billion (~US$860 billion) worth of construction opportunity in India for the next five years underlines the impressive growth inflection in the industry? What is the company's projection for this year? Right now the company is suffering from huge shortfall in infrastructure investment. For example last year we expected several things to move ahead. We did not see many road projects coming through because NHAI had also had some problems. We also had several hydro projects getting stagnated because of the environmental clearances. We also had metal projects like POSCO, Alumina again coming to standstill because of some such situations. Although there is a large deficit which is being converted into the investment required there reality on the ground and hardly anything being rolled out which is quite disappointing. Everyone in the industry is going to suffer because of the last year's lack of activity and that's the background we have. There is now increased awareness within the government, the policy makers and several other people to do something urgently and quickly about this. Also NHAI activities are picking up again; we would see some action start to happen in the next 2-3 quarters and this is again a cautious optimism. Several times one has seen cautious optimism as one has seen activity where something else is come into the way and there is slowdown. I hope the will to p ro m o t e i n f r a s t r u c t u re p ro j e c t strengthens and several things happen. 034 » May- June 2011 » Construction And Architecture Magazine But the background has been very tight over the last three quarters of what it has happened so our turnover has mediocre to nil kind of growth. Our margins are going to be under lot of pressure because of lack of growth. It has been the tough year for the industry and for us. How the company expects growth to remain robust as opportunity increases. What would be the key drivers in terms of large investments planned in India's infrastructure in the current year and following years? We remain optimistic and hopeful as the whole infrastructure investment starts and we expect that the NHAI project will kick start soon enough. We also wish the water projects starts rolling. Water is the state level subject and last year 5-6 states have gone through election process and therefore there has been slowdown on those one. But they will come to election process for one or two months. Once that happens water projects also will see happening. Thermal power there is already a deficit of 10 percent. NTPC will be a big driver in driving the thermal power project. With all these there is an optimistic hope that we need to see some thing on the ground that is really going to happen. This is the situation as far as the industry goes. When it comes to us as a company or organization we have a large order backlog. To that extent we stand protected. Our order backlog is approx between Rs 18,000-Rs 19,000 crore which is about 4-5 times the current turnover size. So that gives us enough fields going forward and much of these is through which are active and 1-2 projects which are at the back foot. We also believe that we can contribute, perform in terms of turnover expectations from our backlog. We have to focus on operational excellence going forward. We need to focus on working capital because the input costs have gone up. Input cost for cement, steel, sand, restriction on sand mining manpower cost, rural labor availability and unavailability of all these resource costs factor has gone up. Also because of the inflation interest rates have gone up. So if you look at all the resources cost have gone up and to some extent we are protected through our contracts but it is going to create pressure on the bottom-line. So while we have a good backlog for doing the turnover and we will do the required turnover but the
  5. 5. margins will be under pressure. Do you think that the demand for quality infrastructure companies is on rise due to increased complexities and stretched timelines of projects? The trend in infrastructure is to create large projects and people are looking at more and more mega projects like mega airports, mega power stations. With the year situation is unprecedented. In hydropower we saw not many investment happening and lot of environmental and forest related issue cropping up. All sectors are hit from all sides and I think only government and policy makers can do something about it in proactive manner to make this sectors perform. So otherwise in 4-5 infrastructure sector one thing helps the other. What are the challenges in implementing infrastructure projects in India and outlines several steps that government, nodal agencies and infrastructure providers can take to accelerate the delivery of world-class infrastructure? At three levels government needs to work. One is that it needs to make sure the investment in infrastructure happen and it should be their key result are and focus. Projects that they have decided to roll out they indeed roll-out. The type of different KRA for different ministries needs to be enforced at the planning and the implementation level. The y need to 036 » May - June 2011 » Construction And Architecture Magazine In PP system there are two type of risk. Risk that you may have at the construction of the project and the second one you may have at the operation of the facility, operation of the concession, and nature of the project so if you look at the road projects, I think the construction risk is very minimum but the concession risk could be considerable depending on how the assessment is done. At the same time if you look at the marine port kind of a situation, the construction risk may be high and the concession risk may be moderate so it really depends on type of the facility the infrastructure will create. How w o u l d yo u l o o k a t t h e development of infrastructure projects beyond 2011 when some situation arises like the Japan crisis? How India is equipped to handle such kind of crises? Whatever happened in Japan is an accident. The infrastructure which we created now is modern infrastructure so the risk to a reactor which is constructed before 1980 is much higher than a reactor which is constructed now. So today's reactor is generation 3+ and much more safety and disaster management systems are incorporated in the design itself so the more modern systems the more modern infrastructure facilities as they have better appreciation and safe guard against risk. In a way if they have skipped some infrastructure in the last two or three decades. It is good because now we will create more modern and more sustainable and will be more safe than having a legacy of something which is not so safe. At the same time because of the lack of infrastructure lot of us are at risk every day. Our problem is lack of infrastructure and that is seriously needs to be taken care of. But when if we implement new infrastructure we will be far better because our infrastructure will be modern, much more safe and robust. COVER STORY: TOP CONSTRUCTION COMPANIES COVER STORY: TOP CONSTRUCTION COMPANIES create good framework for the financing of these projects so long term debt finance so the money available to developers, contractors creating a investment friendly financing atmosphere. There are reforms in project evaluation process such as the tendering norms, master concession agreement in the area of the roads, ports and other infrastructure the PPP framework should become more reformed and more mature. The financing should be made more robust. With respect to infrastructure debt ratings, what is the propensity for construction risk, is it over-dependence on project sponsors for risk mitigation and financing constraints? Does it have risks implications for the development of infrastructure finance in India beyond 2011? An innovative infrastructure solutions provider In the recent times, India has stepped up its development agenda. Do you view that it is one explicit indicator of this is the aggressive pace of construction activity in the country? Any country which is poised towards growth or which is ramping up towards global competitiveness cannot neglect or avoid a priority development agenda. Hence, if development of a nation is hinged on its infrastructure then it is very obvious positive indicators for construction activities. Whether the pace is aggressive or progressive, fast track approvals and supportive policies can definitely expect heightened levels of opportunities. With the investment activities shaping up in this sector, this sector could go up to 93.36 billion by FY2010. How is the company focused with such developments happening? In what ways is the company focused in its prospects for infrastructure developments? Synefra is an end to end solution provider in the E & C sector and offers a suite of services related to project management, EPC and facility management. With its varied service profile, Synefra is completely geared to take all opportunities that this sector has to offer. The niche services provided by Synefra in terms of sustainability and business excellence values are unique and the company is focused to make a difference by providing Sanjeev Nakhasi, Corporate Vice President – Operations at Synefra E&C says if development of a nation is hinged on its infrastructure then it is very obvious positive indicators for construction activities. sustainable and green infrastructure in true sense and not just for aesthetic values. In its existence for over a decade now, what significant developments Synefra as a company have done from a fledging service provider to Suzlon group to a company today with in house capability of providing hi tech infrastructure solution? Synefra Engineering & Construction Ltd formerly known as Suzlon Infrastructure Ltd (a Tanti group co) was established in 1998 with a focus to conceptualize, invest, 038 » May - June 2011 » Construction And Architecture Magazine develop and maintain industrial infrastructure globally. With more than a decade of execution expertise Synefra has evolved to be an innovative infrastructure solutions provider to different industrial business segments. With experienced professionals and SMEs, Synefra now offers a wide array of specialized services in efficient project management (e-PM), Engineering, Procurement and Construction (EPC) and Integrated Facility Management (iFM) services. The e-PM business vertical provides concept to commissioning services and the intensive involvement of the team provides in-depth value driven management approach with cost effectiveness and time compliance factors. The EPC services of Synefra ensure a single point responsibility for optimal application of resources, focused project execution practices, stringent quality parameters and effective risk management plan. While efficient planning and execution is only part of a good facility, it is post commissioning operative costs that deliver the value of investment for the client. Hence, e-PM and EPC services ensures cost effective design and execution, Synefra I-FM assists in meeting client's specific requirements through strategic and efficient engineering solutions for asset management. Synefra with distinctive edge in developing cutting edge industrial parks which are at par with leading global developments, share with us the insights and best practices gathered by virtue of being a leading industrial occupier provided irrespective of the locations? Synefra has today evolved as the only alternative for anyone seeking an integrated infrastructure solution for different industrial segments. Synefra's core business philosophy is represented by the company for all its practices and services. Synefra is conscious of its role as a developer and is sensitive towards impacts
  6. 6. additional focus area as it is embedded into every process and approach of the business model. The company with its flagship project of having conceived managed and executed Suzlon One Earth, the global HQ of Suzlon Group which is world's greenest corporate campus, has set an example for Corporate India to emulate. The day is not far when end user will demand effective and nature oriented services and hence it is time that designers, builders and investors start thinking green. The community is now realizing the need to adopt more sustainable practices as the demand from conscious users' gains momentum. Market is now asking for specifics and wants to know what is good for their health and information on ill effects of their surrounding and the quality of air that they breathe. Sustainable construction and materials is the need of the hour and the sector inevitably has to change their outlook towards all existing practices. The sector has tremendous opportunity for development in green infrastructure as it is a fairly untapped and unexplored but now a very fast growing sector. In terms of material, lighting, HVAC, architecture, landscape and interiors, various prospects can be implemented and explored. Synefra will continue to surpass its own benchmarks and establish trend setting projects one after another with a continual improvement focus. According to you whom segment in infrastructure are likely to throw huge investment opportunities? What opportunities will this sector unlock the 040 » May - June 2011 » Construction And Architecture Magazine potential and also meet increasing demand levels? Buildings constructed on sustainable principles will be in demand. New technologies are constantly being developed to complement current practices in creating greener structures; however the common objective is that green buildings are designed to reduce the overall impact of the built environment on human health and the natural environment by: Efficiently using energy, water, and other resources. Protecting occupant health and improving employee productivity. Reducing waste, pollution and environmental degradation. The end consumer is becoming well read and knowledgeable about the sustainable / green products used in the construction. They are ready to pay a little more than the regular cost for facilities like natural daylight, use of non toxic paints, efficient lighting systems, etc because ultimately the operations costs come down and it works in their favour. In the current fiscal year what should be the focus of the Governments on improving the infrastructure activities to bring significant investments opportunities? While growth oriented policies and programs should be the focus of Government but what is essential is to focus on growth at what cost to the environment question. There is an urgent need to implement integrated policies so that sustainability and green do not remain seminar themes and round table discussion topics but get woven into existing practices and permissions. COVER STORY: TOP CONSTRUCTION COMPANIES COVER STORY: TOP CONSTRUCTION COMPANIES on environment and ecology associated with infrastructure. It focuses towards incorporation of basic sustainability principles which is not offered as a premium or add-on services but it integral and woven into the regular process and systems. The integrated management approach, the cost effective and methodical plan of execution and engineering focus in facility management are the best practices that Synefra deploys which provides the company its distinctive edge. What does the company further aims to nurture, an environment that facilitates the development of technology, innovation, material science and its application to infrastructure? Innovation and efficient use of technology in all its business verticals is imbibed in the vision of the company. As a progressive organization and a pioneer in sustainable development, Synefra has set various precedents in project management by achieving projects in record time and lowest comparative costs. It has various first to its credit in terms of providing innovative solutions using renewable energy, low cost material, intensive use of regional material and minimal impact on existing ecology. Is the company more focused on the green infrastructure? What does it vision to do in near future in this sector? Tell us about the opportunities does it see in this sector? Will it continue to come to the fore thus moving upwards? At Synefra green has never been an A diversified construction company Over the years, SEW Constructions Ltd has diversified into construction of lined irrigation canals, hydel, thermal and gas based power, industrial, dams and barrages. I n the year 1959,Sri. Vallurupalli Nageswara Rao, founded 'Southern Engineering Works' (SEW) in Vijaywada, A.P. India, with late Sri. Y. Purnachandra Rao and Sri. Y.M.G. Nageswara Rao as co-founders to pursue civil engineering construction activities. The first project SEW worked on, was the prestigious Nagarjuna Sagar Dam in Andhra Pradesh. During the period of expansion, other partners joined the company and contributed to the growth of the organization to its present status.With the experience gained at the Nagarjuna Sagar Dam, the company participated in the building of other major dams of Tawa, Bargi, Bansagar, Hasdeo Bango, in Madhya Pradesh and Srisailam and Priyadarshini Jurala in Andhra pradesh. SEW attained specialization in the constr In the year 1983, the company was converted to a Private Limited Company with the name SEW Constructions Ltd.Over the years, SEW Constructions Ltd., has diversified into construction of: Lined Irrigation Canals. Hydel.Thermal and gas based power. Industrial. Commercial and Residential Buildings. Dams & Barrages. Lift irrigation Schemes. Canal structures.Roads and Bridges. Fabrication and erection of G a t e s , . Wa t e r Su p p l y Pr o j e c t s . Transmission Lines. In the year 2008, the company was renamed as SEW Infrastructure Ltd. to highlight our commitment to infrastructure project works. The company continues to aim towards being a leader in the construction industry with strong client relationships, dedicated and satisfied 042 » May - June 2011 » Construction And Architecture Magazine workforce with an impeccable reputation to be the top quality provider without cost and time overruns. Business Units:Tunnels Tu n n e l s w i t h t h e i n c r e a s e i n development work of hydroelectric projects in India, the quantum of tunneling work has increased manifold. Besides to achieve time bound programmes of construction of mega projects in a period of four to five years, modern methods of tunnel driving are being considered as only solution to achieve a high rate of progress. In 1980s a progress of 75m per face per month was considered as a high rate of progress whereas nowadays even 150m per face per month is not considered as a good progress. The only solution to achieve a time bound programme of tunnel excavation in long reaches is use of Tunnel Boring Machine (TBMs).SEW has extensive experience in tunneling and underground structures in every kind of ground condition, from the hardest rock to softest soils. Jorethanh Tunnel Project SEW Infrastructure Ltd completes the four lane Highway Project in Madhya Pradesh. The project was awarded by National Highways Authority of India. The project includes 82.882 Km of highway development and 768m length of major bridge across the river Narmada. The project is completed within the estimated cost of Rs.790 crores. This prestigious highway project was awarded by NHAI to SEW Navayuga Barwani Tollways Private Limited, a joint venture between SEW Infrastructure Ltd & Navayuga Engineering Company Limited on BOT basis. The project includes 82.882 Km of highway development and 768m long major bridge across the river Narmada. Specialising in the development of sustainable infrastructure, SEW diversified into allied strategic business areas, which are wide ranging and impressive by any standards. Dams and barrages: India has been declared to be the third in the world in Dam building after US and China. Since Independence, more than 3,700 Dams were built to enrich the flood control system, irrigation, hydro electric Power and transport sectors.Nagarjuna Sagar Dam is one of the earliest hydro-electric projects of India and a symbol of modern India's architectural and technological triumphs over nature. SEW is continuing to evaluate over the evolution of modern technology and has gained its phenomenal method of executing the massive Dams and thus playing the lead role in construction of major and minor dams in India.
  7. 7. 044 » May - June 2011 » Construction And Architecture Magazine COVER STORY: TOP CONSTRUCTION COMPANIES COVER STORY: TOP CONSTRUCTION COMPANIES Strengths: Specialising in the development of sustainable infrastructure, SEW diversified into allied strategic business areas, which are wide ranging and impressive by any standards. A total commitment to quality and time has earned SEW the reputation of a highly dependable company. Strong Technical and Management team to identify, develop and execute all types of infrastructure projects. Experienced and well equipped state of the art in house Design facility to execute EPC projects. Meeting and exceeding customer expectations of project completion dates and quality. Proven qualification credentials to take up big size projects. Capability in bringing together Joint Venture Partners to take up mega projects of high value. Vision: "To be a leader in the construction industry setting standards in technology, quality and deliverables while ensuring growth of employees and creating value to share holders.” Core Values: The company actively demonstrate our core values at all times because we are a customer and employee oriented organization delivering maximum value to our stakeholders. We always do what we say. It does the best to excel in everything. It respects and collaborates with each other to succeed. The company continually believes change and innovate to improve. It strives to enrich its stakeholders and community. Business Units: Tunnels Pipelines Hydel Power Dams & Barrages Canals & Aqueducts Power Transmission Thermal Power Lift Irrigation Metro Rail Buildings Highways Few of their Signature Projects: NAGPUR CITY WATER SUPPLY Development of Water Supply system through Pench Dam to Nagpur city Geographical centre of India. NATIONAL HIGHWAY FROM SHADNAGAR TO JADCHERLA : AP-3(B) Strengthening and Widening of existing 2 -lane road to 4 -lane divided carriageway from Km 51.263 to Km 80.000 section NH-7 from GMR Projects Private Ltd Location: Hyderabad, Andhra Pradesh MAHESHWAR DAM: Construction of non-overflow, overflow and Power Dam sections. NAGARJUNA SAGAR DAM: Construction of masonry dam at a height of 124m, across Krishna river in Nagarjuna Sagar. The tallest and earliest Irrigation and Hydroelectric project in India. SRISAILAM DAM Construction of 512m long dam across river Krishna in Srisailam. One of the twelve largest hydroelectric projects. Client: Irrigation & CAD Department, Government of Andhra Pradesh Location: Srisailam, Andhra Pradesh SULWADE BARRAGE Construction of 40m high, 400m long Sulwade barrage across river Tapi. Client: Tapi Irrigation Development Corporation, Govt. of Maharashtra Location: Dhule, Maharashtra Business Unit: DAMS & BARRAGES GMR AIR CARGO BUILDING Construction of Air Cargo Complex at Rajiv Gandhi International Airport The first of its kind in India Client: GMR hyderabad international airport Ltd Location: Hyderabad Business Unit: BUILDINGS Awards Gold Medal received for completing the Veligallu Spillway work in record time. Gold Medal for completing the Sulwade Barrage in record time. Chief Minister's Certificate of Appreciation for work done at Telugu Ganga Project. Momento for constr uction excellence at Tembhu Barrage. Gold Medal and Bonus for completing the Bridges & Flyovers, NHAI package AP5 in record time. Indian Infrastructure Outlook 2011 Key Project Risks to Watch in 2011: With respect to infrastructure debt ratings, these are execution capacity, the propensity for construction risk, over dependence on project sponsors for risk mitigation and financing constraints. These risks have implications for the development of infrastructure finance in India beyond 2011. Toll Road Problems: Many of India's toll road projects are still under construction and face lingering right of way problems. In some cases, Fitch expects sponsors to continue extending support through ad hoc equity injections, in order to maintain credit quality. Other toll roads which are in the early stages of traffic and revenue ramp up could face financial stress, given the broad industry trend of underperformance vis-à-vis original traffic projections. The debt for some fully operational toll road projects could be upgraded, although such action will be limited by aggressive loan amortization profiles and interest reset provisions. Construction Progress: Power projects which have the necessary physical and financial requirements in place should be able to register construction progress and retain stable credit profiles, especially where their sponsors have broad experience within the sector; a few may see upward rating migration as they become operational. Never theless, the unprecedented pace of new thermal power plant construction in India is placing stress on construction schedules and also on the value chain for skilled manpower, equipment and fuel supplies. What Could Change the Outlook? Individual project debt Outlooks could change. For projects under construction, unexpected delays in completion — or positive surprises in terms of achieving early completion — could trigger a change in Outlook or a rating action. In respect of operating projects, marked deviation in a c t u a l re ve n u e p e r f o r m a n c e ( i n comparison with initial forecasts) may result in an Outlook change. Continued hardening of interest rates, leading to pressure on coverage matrices, delayed loan disbursements or difficulties in raising residual sponsor equity commitments, could contribute negatively to a project debt Outlook. 046 »May - June 2011 » Construction And Architecture Magazine Fitch Ratings has a stable outlook for Indian infrastructure debt ratings in 2011. This expectation covers the spectrum of rated projects across the energy (thermal and biomass), transportation (roads, rail and airport) and urban infrastructure (solid waste management, desalination) sectors. Global infrastructure and project finance 2010 in Review Outlooks were generally stable to positive during 2010, with 39% of ratings affirmed (see Chart 1) and 44% upgraded. The upgrades for the debt of these stand alone special purpose vehicles (SPVs) were entirely due to better than expected operating performance and significant reductions in construction and completion risk (often for very large projects). Downgrades in 2010 (16% of total rating actions) occurred in the transportation and municipal solid waste space, primarily due to a broad range of project specific factors, including construction delays, revenue under performance and counter party payment delays. Key Issues for 2011 The majority of current rating Outlooks is Stable. Some transactions remain on outlook Negative or even Rating Watch Negative (RWN) as a result of project specific factors, but in general, these characteristics are not typical of the body of debt ratings. The key inter related credit concerns to watch in 2011, with respect to infrastructure debt ratings, are execution capacity, construction risk, sponsor dependence and financing constraints. Execution Capacity The agency's belief that this dearth of execution capacity represents a key credit risk has been influenced by three factors in particular: the growth in new project construction activity, particularly in the last four to five years; the increasing scale and complexity of projects (the road sector will soon have its own mega projects just like the power sector); and the small base of qualified developers available to accomplish these tasks. Greenfield projects — particularly those implemented by sponsors with no previous experience in the sector (a growing issue for power projects) — tend to underestimate the shortage of skilled manpower and the pressure placed on e q u i p m e n t v e n d o r s ' c a p a c i t y. Consequently, such projects will remain vulnerable to disruption in terms of schedules and costs, leading to pressure on credit quality. India is now one of the largest and most dynamic infrastructure and project finance markets in the world (the total number of project based SPVs is around 800). According to India's Ministry of Finance public private partnership (PPP) database (pppinindia.com), this includes roughly 500 concession based project SPVs (mostly in the transportation sectors); besides, there are several privately owned and financed independent power projects. India's vast project pipeline (see Table 1, which excludes privately owned and financed independent power projects) includes projects in various stages of expression of interest (EoI), bidding, construction and operation (although projects under construction form the largest grouping); it spans almost all sectors, including energy, ports, roads, rail, airports, education and hospitals. While India's achievements in this area are impressive, capacity constraints are now becoming a serious issue.
  8. 8. COVER STORY: TOP CONSTRUCTION COMPANIES following instances (among others): the sponsor company has a strong presence and experience within the infrastructure sector; the project is integrally tied to the core business interests of its sponsor; and there are no contractual provisions for project support other than the initial injections of project equity. Construction Risk Chart 2 shows actual data for cost overruns (as a percent of original construction budget) and time overruns (in months) collected for projects rated by Fitch, which were under construction at the time of the initial rating (typically rated in the 'BBB (ind)' category). Many of these projects are now operational. This data is mostly for toll road projects, although not exclusively so. Nevertheless, the data justifies initial concerns about the high construction risk profile of these projects and validates the findings of a previous government study about project construction risks (see “Indian Infrastructure Outlook 2010: the Accommodation of Project Risk,” published March 2010). Fitch's views on these construction risks and their low levels of mitigation has evolved as the pool of project debt has increased. In its 2008 and 2009 India Infrastructure Outlook reports, Fitch stated that it expected a fair amount of loan restructuring to take place over the next few years. In addition, the agency stated that the relatively low project debt ratings reflected both the propensity for multiple project risks to occur, as well as the economic capacity (within the project cash flows) for project debt restructuring. Finally, in its 2010 India Infrastructure Outlook report, Fitch formally recognized 'jugaad' — the Hindi word for a process of accommodation between parties, in this case between project counterparties — as an important rating factor. In the absence of rigorous adherence to contractual provisions, project companies and sponsors have been forced to take on additional costs, either through the drawdown of available cash, the raising of equity, or the issuance of debt. Governmental concession granting authorities have also appeared willing to extend the schedule for project delivery. This process for rated projects (again, most of the data relates to toll roads), demonstrating commercial operating date (COD) extensions of six months or more and additional sponsor equity injections of 046 »May - June 2011 » Construction And Architecture Magazine between 5% and 15% of total project costs (more in extreme cases). Recognising these systemic constraints and responding to the requests of project companies and concession granting authorities, banks have occasionally been willing to reschedule project loans, chiefly by postponing the commencement of principal amortisation. Some project bank loan agreements allow for principal amortization to commence within six months of COD. However, the process of jugaad within the power sector could produce an outcome that is somewhat different; this is because off-take agreements create even more counterparties to negotiate with (eg, multiple state utility boards, power traders) and coal rights are intertwined with delicate considerations for the environment, wildlife and tribal rights. For these reasons, coupled with the expected scaling up of sponsor and commercial bank commitments for new projects over the next few years, Fitch recognises that the capacity for jugaad is limited, at least until the portfolios of operating and profitable projects increase, or until new capital market tools develop to offset some of these risks. Sponsor Dependence Construction risk mitigants — including contingency budgets and funded reserves for capitalised interest and debt service — are almost always inadequate. This leads to situations where a portion of the credit quality is determined by an evaluation of the sponsors' willingness and ability to lend additional debt and equity support to their project SPVs. Fitch's project debt ratings take contractual provisions for credit enhancement into account by notching up from the underlying project credit profile, as long as the sponsor's credit profile exceeds that of the project. Where support meets the required tests of credit substitution (an unconditional and irrevocable sponsor guarantee of project debt), Fitch rates the project debt equal to the rating of its corporate sponsor. Fitch also notches up project debt in the Financing Constraints Except for a brief period at the height of the financial crisis in 2008, infrastructure projects have been able to secure funding at costs that are reasonable, relative to the equity and commercial bank financing available in India. The commercial banking system has shown sufficient depth to accommodate the debt needs of most projects. Buoyant equity markets and foreign interest in the India growth story has meant that sponsors have been able to adequately manage equity commitments. However, this scenario could change. While significant levels of infrastructure project financing are likely to continue, the hoped for “scaling up” of financing activity — called for in government plans and anticipated by project developers — may not be so dramatic. Funding requirements are increasing, along with the size and number of projects which require financing. Volatility of capital flows and subdued equity markets could limit future equity raising exercises. With lending levels approaching the maximum permissible levels stipulated by regulatory exposure guidelines, commercial banks may find their ability to expand credit stressed. Tight liquidity conditions could further choke debt availability. Rising interest rates — as monetary authorities try to quell persistent inflationary pressures — could begin to impinge on project economics, although current rating levels anticipate higher borrowing costs. While the biggest effect of this could be to slow the time required for new projects to achieve financial closure, the credit quality of debt for existing projects could also be affected by delays in the drawdown of loan proceeds, or by contractual interest reset provisions. So far, the latter has not resulted in any ratings downgrades, but projects with marginal debt service coverage or weak revenue ramp-up are vulnerable to such interest reset clauses.

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