Market booming for project exports
By Harish Rao
If at all the rising oil price has done some good to the world economy it is through booming project exports. For example, Angola, a small African country that depends mainly on oil exports, is earning nearly $45 million per day, thanks to rising oil prices. Similarly, UAE spent nearly $10 billion last year on construction.
T.C. Venkat Subramanian, Chairman and Managing Director, EXIM Bank of India, says, "The project export business is booming and this is likely to prevail for the next five years at least." According to him, 35 Indian companies are currently doing 140 contracts worth $4 billion in 38 countries. Remember, in the 1970s there were as many as 100 companies involved in project exports, especially to the Middle East. But the Gulf war and Iran-Iraq war forced most of these companies to pull out of the region.
But things are changing. Today, KEC International Ltd is the world's largest project exporter in power transmission contracts in terms of contracts and execution. The company's order book position is swelling with orders worth Rs 3,000 crore. Nearly 80 per cent of the company's turnover comes from project exports. The success of KEC had a spill over effect on other companies like Jyoti Structures, which has also become a leading exporter of transmission lines.
Another important aspect in project exports, according to Subramanian, is the entry of new players into the field like IVRCL, Progressive Constructions and Seenaiah & Company. Incidentally, most of the new entrants are from Andhra Pradesh.
The Indian government is also taking active interest in project exports. Subramanian observes, "Earlier most of the government's aid to foreign nations was in the form of food credit. Now the scenario has changed. Recently, the government sanctioned a credit line of $63 million to Myanmar for building a road and ICT networks. Further, $53 million was given to a build railway network in the country." All these projects will be given to Indian companies as part of the agreement. A similar line of credit was given to Angola and Mozambique for railway network projects. For Guyana $19 million was given for constructing a cricket stadium which will hold the World Cup Cricket 2007.
Project exports through counter trade are another possibility that is being explored. Subramanian says, "Project exports to countries like Malaysia and Indonesia through counter trade mechanism is possible." The import of palm oil from these countries against project exports is planned.
EXIM Bank is encouraging Indian exporters to take up projects funded by multilateral agencies like the World Bank and ADB. The track record of Indian companies in this case is not too encouraging. However, Subramanian says, "The success rate of Indian companies bagging such projects is 20-30 per cent which is not a bad ratio. However, we participate only in 10 per cent of the projects funded by such agencies. That is the reason why Indian companies' participation in such projects is poor." The Task Force on Project Exports constituted by the previous NDA government had recommended equity participation of EXIM Bank in multilateral agencies. Accordingly, EXIM Bank gave $10 million credit and $1 million towards equity of the West African Development Bank (WADB). In fact, EXIM Bank is the first non-African and non-European bank to participate in WADB's equity.
Also, EXIM Bank is encouraging Indian project exporters to take up projects in developed countries like USA, Japan, Korea and Europe. "So far Indian companies have taken up only sub-contracting jobs in these countries. In fact, USA is the biggest market for project exports. But to bag contracts in USA, presence in USA is essential," says Subramanian. However, exports to erstwhile Soviet nations are not encouraging. According to Subramanian, "It is because most of the projects there are funded by EBRD and those contracts go to European companies."
According Subramanian, operational maintenance consultancy contracts, with a huge potential, is one area which is yet to be tapped by Indian companies. ACC, for example, has been maintaining a cement plant in the Gulf region for the past 25 years. Similarly, BHEL has bagged the maintenance contract of power plant in Saudi Arabia. But such instances are rare.
Promoting project exports in a big way
|Exim Bank has been closely associated with the growth of project exports from India by way of providing finance, information and business advisory services. The bank supports Indian companies at all stages of the project cycle from advance tender information, guidance in preparation of competitive bids to providing financial facilities, including loans and guarantees.
The bank extends funded and non-funded facilities for overseas industrial turnkey projects, civil construction contracts, as well as technical and consultancy service contracts. Exim Bank has in place a specialised cell to provide advance information to Indian companies on projects being funded by multilateral funding agencies in various countries.
The recent Lines of Credit (LoCs) signed by Exim Bank with a number of countries provide for financing specific projects instead of project exports. Examples include railway line project in Angola, Mozambique and Myanmar; cricket stadium in Guyana, road network in Myanmar, electrification projects in Sudan and Ghana; cement plant in Djibouti; electrification project in Suriname and Azerbaijan. This will facilitate export of projects to a number of new countries.
During the half year ended April-Sep. 2004 (for which Exim Bank has accorded post-award approval and/or has committed funded and/or non-funded facilities) 232 contracts valued at Rs 3,995 crore were secured in 49 countries by 128 exporters, as against 74 contracts valued at Rs 4,948 crore secured during April-September 2003 by 56 exporters in 31 countries.
(November 16-30, 2004)