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The procurement process for infrastructure projects is flawed

The procurement process for infrastructure projects is flawed
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First Published: Thu, Aug 21 2008. 11 34 PM IST

My hands are full: Opportunities are bigger in India than overseas, says Ajit Gulabchand, chairman of Hindustan Construction Co. Photograph: Abhijit Bhatlekar / Mint
My hands are full: Opportunities are bigger in India than overseas, says Ajit Gulabchand, chairman of Hindustan Construction Co. Photograph: Abhijit Bhatlekar / Mint
Updated: Thu, Aug 21 2008. 11 34 PM IST
Mumbai: For the past 80 years, Hindustan Construction Co. Ltd (HCC) has been building hydroelectric and nuclear power plants, and laying roads in India.
My hands are full: Opportunities are bigger in India than overseas, says Ajit Gulabchand, chairman of Hindustan Construction Co. Photograph: Abhijit Bhatlekar / Mint
Yet, it has fallen behind rivals that include Larsen and Toubro Ltd (L&T), GMR Infrastructure Ltd and GVK Power and Infrastructure Ltd. Chairman Ajit Gulabchand, 60, agrees, but says HCC is now moving on to the fast lane.
HCC is now looking to venture into building airports and malls, and developing its land bank. It is building what it says is the country’s largest hill station at Lavasa, spread over 10,000 acres, near Mumbai.
But its much-hyped Bandra-Worli sea link project has hit huge potholes. The Maharashtra government had awarded the project to HCC in 1999 with a deadline to finish it in 2003. The link is still not complete and Gulabchand blames the government, saying its tendering process is flawed.
HCC’s share prices have dropped 58.33% since the beginning of 2008, while the benchmark Sensex has fallen 29.79% during the period. Edited excerpts:
What are the challenges still facing infrastructure projects?
The procurement process, before and after a contract has been awarded, is still flawed. That’s one of the main issues with our Bandra-Worli sea link project. They (the Maharashtra state government) started making changes after awarding the tender. We need to make the tender process fairer and speedier.
One of the primary concerns for infrastructure projects was shortage of money. That seems to have changed with many projects becoming bankable and investors keen to invest for assured returns. What is your view?
Earlier, infrastructure projects did not give much returns. But the returns have increased now, so more investments will come. But quick decisions are the need of the hour. The government doesn’t get contracts completed on time. It doesn’t provide land for infrastructure projects because land acquisition norms are not clear.
For the Bandra-Worli sea link, we wanted to install girders to complete the project by December 2007. But we will not be able to as the MSRDC (Maharashtra State Road Development Corp. Ltd) vice-chairman and managing director had gone on election duty to Bangalore.
What are your overseas plans?
There is so much to be built here. We would like to go abroad, but have manpower limitations. We cannot afford to send our people abroad. In the next two-five years, we will work abroad in some form or other. We may buy a company to get in touch with global practices. If infrastructure growth continues in India, we would prefer to work here.
New companies such as GMR and GVK have taken up the challenge of building international airports. With 80 years of experience, why has HCC never been involved in such projects?
We are basically in construction. We are going to be in the fully built-up space with both engineering and procurement contracts as well as turnkey jobs. We would look at the develop, build and operate model. We are already moving into real estate. We will build airports to own and operate. We will own and operate roads. We want to get into hydropower projects that will generate 20,000MW of power.
In real estate, we are building the first private hill station, Lavasa, with information technology parks and a financial centre. We are looking to build malls in Pune, Mumbai, Nashik and Nagpur. We are moving from being contractors in heavy building projects to becoming full-service contractors in many verticals.
L&T has become a significant player in West Asia, building refineries and power plants. Is it a conscious decision by HCC to stay away?
Some companies want revenues to double from overseas businesses. We believe opportunities are bigger here. We can scale up and grow 35%. Money is not an issue anymore.
L&T is a large engineering and construction company with a variety of business. They are right in what they are doing. Each company has a different model. Our focus was on infrastructure.
Land acquisitions in India have faced protests from farmers and landowners. How did you approach land acquisition in Lavasa?
Fortunately for us in Lavasa, most of it was non-agricultural land. Lots of farmers were rehabilitated earlier when the Wadasgaon dam was built. Only 500 farmers were still there. We bought their land after the state government declared Lavasa as an area to build a hill station. Now, everybody in the valley has been employed.
But your land bank has never been reflected in your share price, unlike other real estate players?
I think perhaps the valuations are not great because our business model is different. DLF Ltd and others have been in this business for 60 years. We are new to real estate.
HCC is 80 years old. It took eight years to split the businesses of the Walchand Hirachand group among its family members. Have you thought about a succession plan?
I don’t know if HCC can be called a family-owned business. I have only one daughter. As a family, we control almost 48% of the company, but the family’s interests are not just in reaping profits, but in growing the business. If we are not able to create value, we will appoint professionals to run the business. We are primarily a professional company.
I am the first family member at the helm. We have a tradition of professionals running the company. But a family member can be a professional too. And I do believe that family ownership has been good for the company. But as we become bigger, there will be more professionals in both management and on the board.
Which companies in your industry do you admire?
To be honest, I admire any company that innovates constantly. L&T definitely. Nothing is as sexy as an old company changing constantly. General Electric Co. is another company. There are many such leaders.
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First Published: Thu, Aug 21 2008. 11 34 PM IST