Developers lose interest in infra-projects: A brief study

As per the Deloitte’s report, taking the PPP (Public-Private Partnership) route is likely to give India a shot in the arm to implement the infrastructure projects more rapidly and lead to price discovery that will be of much benefit to the consumers of the state. However, the present scenario has a different story to tell. By and large, developers and builders have turned down large infrastructure and road projects on PPP basis, owing to liquidity constraints, lingering slowdown and delay in approvals. Hence, the government agencies are left with no choice other than to award cash-contracts.

Off-late, the government has given special significance to the growth and promotion of infra-projects on cash-contracts basis, to cut down its onus and promote private sector partnership. Due to a hard up economic condition, the developer’s sentiments have been dwindling to take on board the risks associated with PPP projects. In a move to give a lift to the growth and promotion of infrastructure projects (that encompasses a number of spheres such as-railways, roads, railways, airports and ports), the government introduced the EPC model (engineering, procurement and construction) , also known as cash contracts.

Cash contracts

Cash contracts came into the scene primarily because of the ho-hum and laid-back response of the developers towards PPP model projects of the NHAI (National Highways Authority of India). Dwindling developer’s interest in the PPP model has fuelled the need for cash contracts or EPC model in the country. As per developers, the EPC model is a sigh in relief, since the burden of funding, acquiring approvals etc. depend on the government.

In comparison to projects awarded on BOT (Build-operate-transfer), developers prefer to risk their stake on the EPC projects since the risk involved is much less. Furthermore, the concept of financing includes a slew of risks such as approvals, high interest rates, traffic performance during road projects etc. are some of the points to ponder for the developers. In the EPC model, the risks of financing infrastructure projects is bestowed on the government.

EPC changing the game

EPC model has created a wave in the country among the developers. Huge infrastructure projects such as the Rs 23,000 crore Colaba-Seepz underground metro line, Rs 9,630-crore Mumbai Trans-Harbour Link and Rs 750-crore passenger water transport along the West Coast and the Rs 1,300-crore water transport along the east coast are some of the projects in the country that were implemented on the EPC basis.

Since the PPP model failed to get the desired response, the EPC model has come to the foray. As per the proponents of the EPC model, getting cash contracts is likely to boost the moral of the developers in the nation. It will aid the realtors to focus on the core business and perk up their liquidity. This, as a result, could step up the sluggish infrastructure companies, which have been keeping off from the PPP model based projects.