Write a short note on EPC (engineering, procurement and construction) model of investment and its merits over PPP model. (150 Words)
Under an EPC contract, the contractor:
- designs the installation,
- procures the material and
- constructs the project and is paid for it by the government.
In some cases, the contractor carries the risk for the schedule as well as the budget, in return for a fixed price under what is called a lump sum contract, or a lump sum turnkey contract. PPP is a venture funded and operated through a partnership of government and one or more private sector companies. It involves a sharing of financial, technical and operational risk. EPC is being preferred over PPP today because there are no takers for the PPP model projects among the private sector companies. The reason for this is as follows:
- The economic slowdown has resulted in reduction of the payback capacity of a project. The financial risk has become too high for the private contractor to consider it feasible.
- Land acquisitions and governmental clearances take way too long. In a PPP, obtaining clearance is in the scope of the private party whereas in the EPC, it is in government scope
- In EPC, Project can be completed at a predetermined cost and schedule. Hence the price and date of delivery is guaranteed before start of project. This will do away with the kind of delays we face today.
- The level of performance expected is specified and guaranteed for in the start of the project itself.
- The contractor would get a higher level of flexibility in his working