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EPC-LSTK Mode is Gaining Momentum
Alwyn Bowden, CEO, Essar Projects Ltd In other parts of the World the EPC model for Project delivery (where a large competent Contractor or JV takes single point responsibility for the delivery of a project on lump sum basis) is becoming the norm. In Abu Dhabi, for example, around 80 projects were awarded and the average size of award was around USD 800 m. These are mega projects requiring huge capability from the contracting community and the projects have largely been awarded to household name International Contractors (many from Korea). Over time it has been concluded that in such markets this form of project delivery delivers the best value for money in terms of cost, time, quality and safety.

In India we have gone the other way we divide our projects into small components and engage with suppliers at rates which almost ensure that quality and safety will not be foremost in their minds, in the belief that this will deliver the lowest cost. It is the almost pathological pursuit of lowest input cost that drives our every action and then this is backed by contract terms that are designed to severely limit any ability to seek redress, cumbersome dispute resolution processes that can take years to reach conclusion, and ever pervasive vigilance processes that make it far preferable to deny any culpability that to take a reasoned approach to settlement. There is the added problem that there is little or no single point responsibility, and when delays or other issues occur the natural course of action is to blame rather than resolve. At the end of all this we act surprised that our projects are delayed, and quality and safety lags somewhat behind World standards, and we wonder why our construction industry is so fragmented.

This may be an extreme view on life but it appears to be a fact that because we continue to insist on breaking up Engineering, Procurement, and Construction, and then breaking what is left into small packages, the environment does not exist in India to establish a contracting community to match that which exists in the International markets, and when our markets move towards lump sum EPC in line with the rest of the World, as they surely will, it will be the International Contractors that will step into the breach, because we will not have the ability to do so.

This is a crying shame because capability does exist in India, and even the success of most EPC contractors in the Middle East and other markets is built on extensive use of Indian Management and Indian labour. It is we ourselves who are holding our development back.

Essar Project (EPL) is fortunate that it had the opportunity to gain an Internationally credible track record, because it is executing at this scale for its sister companies, by any other means such experience is very difficult to achieve in India, and as a result EPL is almost unique in having the experience and expertise to deliver such mega projects on EPC basis. EPL also has the added competitive edge of being able to present a Group capability that include key elements of the steel supply chain. But even for EPL the Indian market holds many challenges, not least of which is that qualification criteria are set to dismiss the relevance of work executed for sister companies.

How can such artificial barriers continue to exist in modern India, where we need all the capability that we can get to deliver a huge programme of infrastructure dev-elopment. The most demanding customers of all are your sister companies and their lenders. Qualification should be based on competence and capability, and on financial credibility, not on artificial barriers set to protect vested interests.

At the Chemtech Conference in Mumbai on 24th February, EPL presented the erection of a series of massive coke drum structures for the 20MTPA refinery at Vadinar. These structures were designed, fabricated, and erected in house, at a scale previously unseen in the World how can anyone argue that such skills cannot be utilized because the work was executed for a sister company, and more importantly how have we managed to get ourselves in to a situation where we ourselves do not believe that such capability exists in India.

There needs to be a step change rethink, prequalification rules need to be changed to favour capability and financial strength, and projects need to be parceled to secure the best out-turn rather than the cheapest input cost. The environment needs to be created where India will develop its own Mega EPC Contractors, and we need to act now or we will live to regret it.