{"id":221877,"date":"2023-01-10T20:18:27","date_gmt":"2023-01-10T14:48:27","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=221877"},"modified":"2023-01-10T20:18:27","modified_gmt":"2023-01-10T14:48:27","slug":"from-ril-to-lt-and-adani-corporate-giants-build-on-epc-rule-change","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/from-ril-to-lt-and-adani-corporate-giants-build-on-epc-rule-change\/","title":{"rendered":"From RIL to L&T and Adani, corporate giants build on EPC rule change"},"content":{"rendered":"\n

Source<\/strong>– The post is based on the article \u201cFrom RIL to L&T and Adani, corporate giants build on EPC rule change\u201d <\/strong>published in the Business Standard <\/strong>on 10th January 2023<\/strong>.<\/p>\n

Syllabus: <\/strong>GS3- Investment models<\/p>\n

Relevance<\/strong>– Issues related to infrastructure development<\/p>\n

News<\/strong>– The article explains the increasing preference of big infrastructure firms for EPC contracts.<\/p>\n

Reliance Industries Ltd has decided that it would merge its engineering, procurement and construction (EPC) subsidiary Reliance Projects and Property Management.<\/p>\n

Many big infrastructure companies are pivoting towards government EPC contracts in a major way.<\/p>\n

What is the reason for major infrastructure companies preferring EPC contracts?<\/strong><\/h5>\n

This shift is primarily on account of several initiatives by government agencies in 2022. Most prominent of them are the National Highways Authority of India and the Railways. As a result, new entrants will operate on a low-debt model to build greenfield assets<\/strong>. The government will be responsible for selling the completed projects.<\/p>\n

Government agencies are now handing out infrastructure contracts stating that bidders have to separate the project financing plans from the post-construction phase<\/strong>.<\/p>\n

The new paradigm<\/strong> for infrastructure projects suits companies like L&T, RVNL, Adani or RIL. They have large reserves<\/strong> of cash for implementing the project.<\/p>\n

An EPC project begins life with a 20% upfront payment contract offered by the bidding agency. Subsequent payments are linked to achieving project milestones that can be monitored by technology. Bidders need to hardly raise any debt.<\/p>\n

What was the reason behind these decisions? <\/strong><\/h5>\n

This change was mainly the result of NHAI\u2019s Rs 3.3-trillion debt burden.<\/p>\n

The finance ministry discovered that most of the debt was due to hybrid annuity model-based projects<\/strong> for roads. Under this model, the bidders were offered to build the roads or bridges on a tight budget and timeline<\/strong>. They were allowed to compensate<\/strong> themselves from the returns when the projects became operational by charging tolls.<\/p>\n

Many contractors were suspicious about collecting tolls or levying user charges, NHAI offered assured returns of up to 40% <\/strong>of the total project expenditure, payable usually over 10 years. The contractor had to arrange the rest.<\/p>\n

Due to assured return, contractors inflated projections<\/strong>. Projects often came up late even as the government\u2019s bill mounted.<\/p>\n

As a result of this, NHAI not only now asks the contractors to show project construction cost<\/strong>. It has also begun to use drones and satellites to monitor the pace of the progress.<\/p>\n

In June 2022, the finance ministry said the past experience of the contractors has to be checked before issuing tenders.<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

Source– The post is based on the article \u201cFrom RIL to L&T and Adani, corporate giants build on EPC rule change\u201d published in the Business Standard on 10th January 2023. Syllabus: GS3- Investment models Relevance– Issues related to infrastructure development News– The article explains the increasing preference of big infrastructure firms for EPC contracts. Reliance… Continue reading From RIL to L&T and Adani, corporate giants build on EPC rule change<\/span><\/a><\/p>\n","protected":false},"author":10320,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,9],"tags":[10503,216],"class_list":["post-221877","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-public","tag-business-standard","tag-gs-paper-3","entry"],"jetpack_featured_media_url":"","views":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/221877","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10320"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=221877"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/221877\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=221877"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=221877"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=221877"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}