Corporate giants build on EPC rule change

Shift from hybrid annuity scheme for infra projects to a low-debt, performance-linked model is encouraging govt and private majors to pivot to the business in a bigger way

- SUBHOMOY BHATTACHARJEE

The year-end announcement by Reliance Industries Ltd stating that it would merge its engineering, procurement and construction (EPC) subsidiary Reliance Projects and Property Management Services with itself offers a strong signal of a significant shift in the nature of government infrastructure contracts that is shrinking the space for smaller infra companies in favour of larger ones.

Apart from Larsen & Toubro, which has been in the EPC business for years, the coming year is likely to see big groups such as Adani, Tata Projects and RIL as well as government-owned Rail Vikas Nigam Ltd pivot towards government EPC contracts in a major way. NBCC, which has a large project management consultancy sion, also expects expand its EPC business.

This shift is primarily on account of several initiatives by government agencies in 2022, most prominently the National Highways Authority of India (NHAI) and the Railways. As a result, new entrants will operate on a low-debt model to build greenfield assets, with the government responsible for selling the completed (brownfield) projects.

The trigger for the shift was a series of decisions taken in the summer of 2022. Government agencies are now handing out infrastructure contracts stating that bidders have to separate the project financing plans from the post-construction phase. This change was mainly the result of NHAI's