EPC sector facing major challenges

Mumbai: The engineering, procurement and construction (EPC) sector is facing major challenges, including inordinate delays in land acquisition, regulatory bottlenecks and difficulty in getting working capital funds, accounting and consulting firm Ernst & Young said in a report.

"Land acquisition delays, regulatory bottlenecks and working capital management glitches can lead to time and cost overruns and have an adverse impact on perceived project margins," Ernst & Young India Partner, Infrastructure Practice, Sushi Shyamal said while releasing a report on `EPC: Driving growth efficiently`.

As of February 2011, of the 559 ongoing infrastructure projects in the country, as many as 293 are behind schedule. Of these projects, 69 are delayed by six months to one year, 67 by 13-24 months, 107 by 25-60 months and 37 projects are delayed by over 60 months.

The EPC sector is also faced with an acute shortage of manpower, machinery and material. This is most visible in the construction sector, where the shortage of skilled workers is as high as 40 per cent, the report said.

On the rising incidence of cost over-runs, the report noted that fluctuating input prices like that of steel and cement are the major contributors, apart from project delays.

Fund-raising is another key challenge, the report maintained. "One of the key challenges for the EPC sector in the backdrop of market turmoil and fears of a slowdown is the ability to raise adequate financing required to fund the execution of existing large order books."

A major reason for the funding issues is the rising interest rates, it said, adding the increasing interest rate burden does not boost the finances of companies.