Oct 13, 2016

IR has $65Bn of pending projects due to execution delays: PhillipCapital India Report

Half of Indian Railways’ pending projects are under construction for more than six years, leading to cost overruns, says a PhillipCapital India Pvt. Ltd report.

Mumbai: Indian Railways has as much as $65 billion worth of pending projects with almost half of them being under construction for more than six years, leading to cost-escalations and making many of them un-bankable, PhillipCapital India Pvt. Ltd wrote in a 7 October report.
Of these 83% are construction related—new lines, doubling and gauge conversion—while the rest are related to road safety, signalling and telecom, and investments in production workshops and metro projects. About 61% of the total construction related projects are becoming un-bankable, the PhillipCapital report said.

“If IR were to execute its $65 billion of pending projects, it would have to take away four years of its budget (on FY17 base of Rs.1,200 billion), leaving no room for new projects. However, due to its prioritisation, we believe it can now award Rs.2,500 billion ($37 billion) of new projects over FY17-20, which otherwise would not have been possible,” the report said.

Execution delays, so far, have largely been on account of new line projects due to the challenge of land acquisition. This has made Indian Railways focus on prioritising execution of network decongestion projects and road safety works, “as these projects are more bankable and do not face issues such as land acquisition”, the report said.

Indian Railways, world’s fourth largest railroad, is looking to invest in high-speed trains and laying new tracks. It is working to get speedy approvals for its projects and turning execution faster. It is also in the process of adopting new train technology that can run up to a speed of 500 km per hour.

Several global companies like Hyperloop Technologies Inc., Spain’s Talgo SA, Germany’s Siemens AG and Knorr Bremse AG, are trying to woo Indian policymakers with their technologies for Indian Railways.

Indian Railways would need about Rs.3,894 billion or $53 billion to execute pending projects and network decongestion orders over FY17-20, according to PhillipCapital. Of this, 30% of the funds are expected to be met through budgetary support (GBS), 38% through loan funds (Life Insurance Corp. of India), 20% from internal resources (depreciation, safety and development funds), and the balance through Indian Railway Finance Corp (IRFC).

Ordering activity from Indian Railways is expected to rise this year. This will be a positive for companies, including Larsen and Toubro Ltd (L&T), Bharat Heavy Electricals Ltd (BHEL), KEC International Ltd, Crompton Greaves Ltd, Siemens India, Timken India, Kalpataru Power Transmission Ltd, Titagarh Wagons Ltd, Texmaco Rail and Engineering Ltd and others.

 

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