The scorching pace of India?s infrastructure and real estate growth has triggered a sudden spurt in project costs, forcing many developers to rework their contracts. This could slow the pace of mega-construction projects.
Just sample this. In the past one year, equipment costs have escalated by 25%-30%. Similarly, the cost of material has also risen, with cement prices going up by 35%-40% and steel prices by 10%-15%.
Since most projects are contracted on a fixed-value basis, the increase in input charges cannot be passed on by contractors.
The equipment constitutes 22% of a road project?s cost. It rises to 29% for an overbridge. For constructing a tunnel, the cost of equipment is over 35%. The material cost for road and bridge projects constitutes 40%. Prices of equipment like graders, bulldozers,vibratory rollers and telescopic cranes have increased by 25% to 30% over the past year.
The prices have risen for equipment, even rentals-wise. ?The purchase price of equipment has gone up in the past year and so has the demand for machinery. With supply not meeting demand, construction companies are forced to take equipment on rent. This has led to an increase in the rentals,? said V Chandrashekar, general manager, Soma Enterprise Ltd.
?The price of a 100-tonne crane has increased by 25% over the past two years. Other costs, too, had not been factored. Sometimes, with unforeseen occurrences, like hitting a soft patch during a road construction project, one may have to use some equipment that are not expected to be used. As a result, the rise in cost affects the margins,? Amitabh Mundhra, director, Simplex Infrastructures.