On the back of the government’s renewed focus on infrastructure development, contractors are expected to witness significant future construction opportunities. The government is expected to pump more funds into infrastructure, which is likely to attract private investment as well. Roads, railways, power, ports and airports could be key growth drivers of construction.
Indian Infrastructure looks at the construction opportunities across various sectors…
Roads and bridges
The government has put an increasing thrust on road development. The launch of big-ticket initiatives such as the hybrid annuity model coupled with the approval of conducive policies to debottleneck the sector will provide an impetus to construction activity. Besides this, the launch of an online market place for cement procurement (INAM PRO) will give a further push to construction activity by placing the focus on the construction of concrete roads.
As per India Infrastructure Research, the road sector will offer a construction opportunity of over Rs 4 trillion till 2020. According to research, 432 projects spanning a length of over 44,000 km are in the pipeline. The total investment expected stands at about Rs 6.5 trillion. This is likely to be mobilised by 2020. These projects are spread across the national highway and state highway segments.
Contractors will have both indirect and direct opportunities since the government has stated intentions to award projects irrespective of the award mode. Hence, apart from engineering, procurement and construction (EPC) projects, the public-private partnership (PPP) model may slowly make a comeback. An opportunity worth Rs 2.2 trillion is expected to be created in the national highway segment and the balance awards will be in the state highway segment.
At the national level, a comprehensive list of projects in the pipeline under the National Highways Development Programme (NHDP) is not available. However, India Infrastructure Research has compiled an indicative list of upcoming projects. Overall, about 249 projects are in the pipeline and valued at over Rs 3.5 trillion. By 2020, over 10,000 km of roads have been identified to be developed in the northeastern region with an investment of close to Rs 1.3 trillion. These involve the construction of 2,000 bridges and tunnels spanning 100 km. National Highways Infrastructure Development Corporation Limited (NHIDCL) has come out with an action plan for the next three fiscal years. During 2015-16, NHIDCL plans to award 27 projects covering 1,386 km at a cost of about Rs 170 billion. During 2016-17, 54 projects spanning 4,270 km worth Rs 405 billion will be targeted for award.
At the state level, the EPC opportunity looks promising with Uttar Pradesh, Maharashtra and Bihar remodelling big-ticket projects on EPC basis instead of PPP. New opportunities have also been showcased by states such as Telangana, Chhattisgarh, West Bengal and Odisha. The Telangana government has unveiled plans to spend Rs 120 billion on the development of road infrastructure and the connecting of all district headquarters to the state capital. It has also announced plans to construct 20 flyovers.
According to India Infrastructure Research, there are 382 projects worth over Rs 26 trillion in the power sector (hydro and thermal based), which will provide opportunities for construction. Upon completion, these would add a generation capacity of 387,591 MW. The majority of these projects are located in states like Arunachal Pradesh, Odisha, Tamil Nadu, Himachal Pradesh, Uttarakhand, etc.
Typically, construction works account for 65-70 per cent of the total project cost of a given hydropower project. The construction component in thermal power projects accounts for about 40 per cent of the total project cost. In contrast, renewable energy projects offer relatively meagre construction opportunities.
According to the pipeline of projects considered, construction opportunities to the tune of Rs 12,328.92 billion will be on offer in the power sector. Of this, opportunities worth Rs 8,598.31 billion will be in the thermal segment while the remaining Rs 3,730.61 billion will be offered in hydro-based generation projects.
With regard to the type of projects, greenfield projects offer the maximum share of construction opportunities. These projects, worth Rs 24,205.61 billion (coal and hydro segments), offer Rs 11,273.58 billion worth of construction opportunities. This accounts for over 91 per cent of construction opportunities. Brownfield projects worth Rs 2,619.61 billion would offer Rs 1,055.34 billion worth of opportunities for construction players.
Construction accounts for 50-60 per cent of the total project cost (rough estimates), while the remaining comprises electrical and mechanical costs. The actual cost, however, will depend on several factors, including the type of cargo facility (brownfield or greenfield), project scope, location, etc.
According to India Infrastructure Research, projects worth Rs 105 billion related to construction of berths and container terminals are on the anvil at existing major ports. Of these, projects worth Rs 81 billion are at the bidding stage.
In addition, the central government plans to issue tenders for three major port projects in Vadhavan, Maharashtra; Sagar, West Bengal; and Colachel, Tamil Nadu, by March 2016. The Sagar port project involves developing a deep-sea port with an investment of Rs 119 billion. The project is likely to be developed on a PPP model, and will have a cargo capacity of 127.8 million tonnes per annum (mtpa). Vadhavan port will have a capacity of 100 mtpa. The project will be developed by a joint venture of the Maharashtra Maritime Board and the Jawaharlal Nehru Port Trust (JNPT). The Colachel port project involves investment of Rs 206.28 billion, which will be funded by the central government. It will have the capacity to handle around 2 mtpa of cargo initially, which would gradually be enhanced to 8 mtpa. The works on these three projects are expected to commence by May 2016.
In addition, new non-major port projects worth at least Rs 320 billion are coming up at the state level, as of December 2015. These are targeted to add over 374 million tonnes of capacity upon completion. Of the total projects in the pipeline, awarded projects account for the maximum share in investment at 83 per cent. However, construction work is yet to commence on most of these projects, which are progressing slowly due to delays in obtaining land and other approvals, retendering of contracts and financing issues.
Indian Railways (IR) has envisaged an investment of about Rs 2 trillion on decongesting its network and an equivalent amount on network expansion. A major part will be raised through extra-budgetary resources, including the implementation of projects on PPP basis. IR has prepared a prioritisation plan where the focus is on longer loops, doubling projects and electrification. This will help IR generate sufficient revenues to meet debt obligations. Such projects (doubling) on higher density routes are likely to get priority. The easing of foreign direct investment (FDI) norms permitting overseas investments in high speed rail (HSR) development is a good signal for the sector.
Further to this, the Expert Group on Railways has recommended the modernisation of 19,000 km of existing track (Groups A, B and D, special routes), strengthening of 11,250 bridges to sustain higher axle loads at higher speeds and elimination of all level crossings. Over 30,000 km would be converted to double/multiple lines (compared to around 18,000 km of such lines today); 33,000 km would be electrified; and 25,000 km of new lines would be added by 2019-20. These will create a huge construction opportunity for contractors.
A large portion of investment will be made towards Dedicated Freight Corridor (DFC) projects. Moreover, investments are expected in four additional DFCs. In addition, connectivity to coal mines is also planned and MoUs with the Odisha and Jharkhand governments were signed in April 2015 and May 2015 respectively. Meanwhile, IR has formed a special purpose vehicle – Indian Port Rail Corporation Limited – to undertake port connectivity projects. A total of seven projects worth Rs 4.7 billion have been shortlisted and the project management consultant contract would be awarded first. All these projects will be implemented by Rites Limited. Besides these, there are 21 projects for which detailed project reports are to be prepared. These will be implemented by Rites Limited and Rail Vikas Nigam Limited.
Another focus area for IR is HSR. The proposed length of 4,215 km of eight HSR corridors translates into a financing requirement of over Rs 421 billion. Additional expenditure will be incurred towards increasing speed on select existing routes. The Mumbai-Ahmedabad section will be the first HSR in India, involving an investment of Rs 980 billion. Meanwhile, IR has identified the need for 970 rail overbridges/underbridges and other safety-related works to eliminate 3,438 level crossings at an expense of Rs 65.81 billion (sanctioned under 2015-16 budget).
Besides this, IR’s station redevelopment and modernisation plan is likely to throw up huge construction opportunities. In July 2015, the central government approved IR’s proposal to offer “A-1” and “A” category stations (407 stations) for redevelopment.
Japan has evinced interest in funding station redevelopment projects. On December 12, 2015, India and Japan signed an agreement on technological cooperation, including information sharing for station redevelopment and capturing land value. Key station redevelopment projects currently at initial stages of implementation include Habibganj, Shivaji Nagar, Anand Vihar, Bijwasan, Chandigarh, Surat and Gandhinagar.
Construction opportunity also exists in some key national projects. Key strategically important projects, which are at initial stages of implementation, include the Rs 42.95 billion Rishikesh-Karnprayag section in Uttarakhand, Rs 5.5 billion Murkongselek-Pasighat section in Assam and Arunachal Pradesh, and the Firozepur-Patti section in Punjab.
Air traffic is back on the growth path and the draft new civil aviation policy has been launched. India is projected to become the third largest aviation market by 2020, behind China and the US. Although most metro airports do not have current expansion plans, there is abundant opportunity in greenfield and existing Airports Authority of India airports.
As per India Infrastructure Research, 70 construction-based airport projects are in the pipeline (excluding projects under construction), including greenfield projects, brownfield projects, as well as planned expansions at existing metro airports. The maximum investment will flow into the development of 18 greenfield airport projects (Rs 397 billion), followed by investments in existing PPP and metro airports, and other brownfield airports.
By 2020, six greenfield projects (Navi Mumbai, Mopa, Dholera, Kushinagar, Bellary and Ongole), together entailing an investment of around Rs 202.9 billion, will be under construction. However, the majority of greenfield projects continue to be delayed due to land, environment, and rehabilitation and resettlement issues, while eight projects are stalled.
Among PPP and metro airports, Chennai, Kolkata and Bengaluru airports have expansion plans, entailing an investment of around Rs 175.7 billion, by 2020. Chennai has investment plans of around Rs 23 billion for its Modernisation Project Phase II; Bengaluru will invest around Rs 148.7 billion for construction of a new terminal and second runway; while Kolkata will invest Rs 4 billion for terminal works and a new air traffic control (ATC) tower.
Apart from these, 41 brownfield projects are in the pipeline, together entailing investments of around Rs 75.8 billion. Among these, 13 are related to construction of aprons, runways, taxiways and allied works, together entailing investments of Rs 12.07 billion; and 10 are related to construction of new ATC towers-cum-technical blocks, together entailing investments of Rs 7.23 billion.
On an average, the construction share of the total cost in an airport project pertaining to terminal expansion and construction is about 66 per cent; the construction share in works like aprons, runways, taxiways and allied works is 90 per cent; and in new ATC towers it is 45 per cent.
Given assumptions on these lines, the current greenfield airport projects in the pipeline represent a construction opportunity of Rs 262 billion; PPP and metro projects represent a construction opportunity of Rs 115.1 billion; and brownfield projects represent a construction opportunity of Rs 66.6 billion. Thus, overall, the civil aviation construction opportunity stands at Rs 443.7 billion.
Civil construction has a huge share in the total cost of urban transport projects, especially metro and monorail projects. As cities increasingly come up with decongestion plans, the urban transport sector will continue to offer a lot of opportunity.
As per India Infrastructure Research, based on investments entailed in upcoming projects (which are yet to be awarded), between 2017 and 2021, investments worth Rs 2.7 trillion are in the pipeline for this segment. Some 40 metro/light/mono rail projects are also currently in the pipeline. These include greenfield projects as well as extensions to currently operational networks and cover a length of about 2,500 km in total. Of these, the maximum investment will be in the development of 26 metro rail projects. The majority of the investment in these projects is likely to be mobilised by 2020-21.
Water supply and irrigation
The water supply sector continues to receive significant central support in the form of appropriate policies, budgetary support and new programmes and schemes. At the central level, big-ticket projects such as the Atal Mission for Rejuvenation and Urban Transformation, Swachh Bharat Abhiyan and Smart Cities Mission have been approved. Besides, state governments and local bodies are undertaking a number of water supply and sewerage projects to improve service delivery. These projects are expected to give a push to construction activities in the sector.
As of August 2015, on the basis of projects tracked by India Infrastructure Research, an investment of over Rs 845 billion is expected in 92 water supply and sewerage projects. Overall, projects in the pipeline are expected to create more than 5,680 million litres per day (mld) of additional treatment capacity. In addition, projects in the planning stage are expected to create about 182 mld of treatment capacity. In terms of network expansion, about 128,695 km of pipeline will be laid under these upcoming projects. With regard to irrigation, projects involving an investment of more than Rs 105 billion have been announced to be taken up in the next four to five years.
As per India Infrastructure Research, the water supply and irrigation segments together will offer a construction opportunity of over
Rs 580 billion by 2020. Opportunities of Rs 500 billion are expected to arise in the water supply and sanitation segment and the remaining in the irrigation segment.
In the next few years, prospects appear to be good for developers, contractors and technology providers. However, many issues that restrict private participation and delay project implementation need to be addressed to maintain the growth momentum.