Russell Waugh, Managing Director, Leighton Contractors (India) Pvt Ltd
Leighton International - Australia's largest, and the world's 25th largest, construction company - shares a long association with India; Leighton Contractors (India) Pvt Ltd has been in the field since 1998. Leighton also shares an association with CW, having been featured in our magazine less than a year ago. Late April, Leighton India announced parting with 35 per cent of its equity to Welspun Infra Projects Pvt Ltd. We met once again with Managing Director Russell Waugh to know more about the partnership and the company's many plans and projects鈥�.
The partnership: The vision behind this partnership is really to build on the growth in the Indian economy. Leighton has been successful in growing a strong construction business here. Welspun wants to grow its infrastructure business as a developer. The partnership combines two construction strengths and capabilities against nearly half-a-trillion dollars worth of infrastructure that is being put out there through public-private participation (PPP). Welspun is willing and wanting to put equity into these projects, and as a construction company, we want to build things, get access to that PPP market. Also, Welspun has a strong, solid business here, with lots of contacts, access to projects, and interests in roads, power and water, sectors we too are interested in. Hopefully, Welspun's pipe business will help our construction business, where we do EPC contracting and want to lay pipes. If you consider our Rs 3,500 crore ongoing contract with ONGC, the pipe component is itself around Rs 200-250 crore.
Management sharing: Under the Leighton-Welspun partnership, Welspun will get two of the six seats on the board of the company, and will operate as a shareholder within the company. The day-to-day management will be run as it is currently. I'll run the company as managing director, and we will continue to operate under Leighton processes and procedures.
Projects underway: Leighton is just starting work on the 9 km Chenani-Nashri tunnel, billed to be the longest road tunnel in the country. The project, worth nearly $560 million (Rs 2,700 crore), will take around four-and-a-half years to construct. It will comprise twin tunnels; one major tunnel for traffic and the other for emergency access. We also have two port projects; Visakhapatnam Port is expected to be completed in a year's time whereas Paradip Port is awaiting environmental clearance, expected any time now. Additionally, we've bid for other port projects such as JNPT and Marmagoa. Then again, in Chennai, we are working on the Ramanujan IT Park project, in conjunction with Tata Realty. This one is an open alliance where every decision is shared between both parties, so are the risks as much as the rewards. The project, worth nearly Rs 1,100 crore, involves around 750,000 sq m of mixed-use real estate development, of which 75 per cent comprises IT infrastructure for clients like Hewlett Packard and Infosys. In a similar vein, we are starting work on Life One in Noida, which is another mixed-use development for the Uttar Pradesh-based Chedda Group. Phase I of the project will cost around Rs 700 crore. Other projects in our kitty include one for Indian Oil, one for ONGC at the G1 GS 15 fields on the east coast, installing of storm water systems at Paradip Refinery, a $140 million project in Mumbai High where ONGC is upgrading their water injection platform and installing of telecommunications equipment for Indian Railways, among others. And we are very keen on the dedicated rail freight corridor project, which is a fantastic initiative from the government. We would really like to participate in it in a strong and meaningful way.
Business and finance: As a construction company, we don't carry significant quantities of long-term debt; our business runs on strong cash flows. Perhaps that is why changes in interest rates [like the current rise] don't affect us as much as they do companies with a stronger focus on long-term fixed assets. Our objective is to finance our projects through cash flows and we try to structure them in such a way that the funding is really from our clients. While we do need working capital, we try and develop all that through our cash flows.
Tools and technology: In the last interview, I had said Leighton was planning to buy Rs 250 crore worth of equipment, and we have certainly bought equipment worth that amount or very close to it. We will be using a lot of that equipment on the Chenani-Nashri tunnel project. With regard to the use of the latest technology, we've always endeavoured to do so in all our projects. Although in India in some projects, it looks cheaper to use a lot of labour and less technology, our perspective is that unless you take on board the latest technologies and train people to use them, you will not advance.
Green practices: As far as possible, we build green parameters into projects we are designing. All our current building projects are LEED rated; they get a LEED Gold Star rating awarded by the government through improved FSI index. To give you an example, for the project in Chennai, a bio-processing unit degrades all the construction waste and converts it into fertiliser, which we put back into the top soil. In our offshore projects, our biggest concern is the environmental impact of our diesel consumption, possible oil spills and so on. Hence, we take strong measures to guard against spills and minimise fuel consumption costs through use of wind energy, solar energy and others.
Human resources: Currently, our India operations have an 800-odd staff, of which nearly 50 per cent are engineers. Our oil and gas business in India is stronger than in other parts, so we actually feed expertise from here back to the rest of the group.
By contrast, in sectors like rail where we need special expertise, we bring it in from other parts of the group. We have an engineering graduate training programme and, at present, around 25 graduates have been put through the paces. We also have a trade training school in Delhi, where we train workers and try and bring them up to speed with the latest skills. Close to 1,800 people have been put through this training and most of them are working on our projects. While these people are not bound to us, in 90 per cent of cases we find that they not only come and join us but also haven't left or have no desire to leave. The fact that our objective has been to pay within the top 25 per cent of companies in our class could be one of the reasons for this.
Roadblocks aplenty: For a country with a billion people, Indian infrastructure is suffering not so much from shortage of labour as much as shortage of skilled labour. The problem is becoming more and more acute, manifesting itself in project delays, poor quality of projects and so on - issues that are all proving very costly for the industry. My take is that people in India are more than capable of using new equipment and technology as efficiently as anybody else. But it all boils down to training and background. First, there is no national framework for trade training and accreditation to achieve some sort of standardisation. What is required is a vision at the national level, with strong backing from the industry, the government, and society at large. If the Indian Institutes of Technology can produce world-class engineers, why can't there be institutes arming the workforce with the required skills? Secondly, there are very few, or no companies, training workers, possibly owing to a lack of recognition that an absence of skill contributes to escalating costs and delays among other things.
Another critical concern is that while the government is spending so much on infrastructure, this is not actually materialising into projects. For instance, in the roads sector, not enough projects are being released in a manner that allows constructive bidding to take place. There is no benefit in one contractor getting 20 projects, or conversely, 20 contractors fighting over two projects but that's precisely the kind of blood bath happening at the moment. Besides, what's the point in having 20 contractors chasing two projects when the country needs 50 projects; what's the value in that for India? We may get very cheap costs for the two projects but all that the country gets is two roads that don't start, and that does not work. The point is that there is no shortage of appetite where developers, construction companies or financiers are concerned but the government probably needs to back up some of its infrastructure programmes with mechanisms capable of actually getting work out to the fraternity. There isn't enough work flowing to the field; possibly, projects are announced at a very high level but from that stage to actual execution, there is many a slip between the cup and the lip. Maybe the rules can be changed around a bit so that projects are batched out to several smaller groups; after all, no one wants a scenario where competition is stifled but nor do they want unbrid-led competition that can also be destructive.
Way to go: While we have parted with 35 per cent of the company, from a Leighton perspective, this is absolutely not about selling down; rather, it's about growth. We've sold this portion in order to get a strategic advantage to grow our business in India. We have high aspirations for the Indian market, and we want to increase our turnover multi-fold. We see India as one of our biggest growing markets, and the group is very focused on building its presence here. Indeed, our business here gets very strong attention from the holding company in Australia. Meanwhile, our top line is around 2 per cent of our global turnover, and our global turnover around Rs 2,000 crore. This year, we're looking to increase by 50 per cent and are very focused on that growth to happen over the year. Our strategy has always been to be a diverse construction company, with interests in mining, power, water, oil and gas, building, road and rail, the works. And though we might be stronger in certain areas compared to others, we've always tried to maintain a broad balance across our areas of interest.
Fact sheet:
Year of establishment: 1998
Centres of operation: Offices in Mumbai and Delhi. Operations all over India.
Top management: Russell Waugh, Managing Director
Number of employees: 850 Staff; 1,800 work force
Group turnover: US $420 million
Give us your feedback on this interview at [email protected]
Russell Waugh, Managing Director, Leighton Contractors (India) Pvt Ltd
Leighton International - Australia's largest, and the world's 25th largest, construction company - shares a long association with India; Leighton Contractors (India) Pvt Ltd has been in the field since 1998. Leighton also shares an association with CW, having been featured in our magazine less than a year ago. Late April, Leighton India announced parting with 35 per cent of its equity to Welspun Infra Projects Pvt Ltd. We met once again with Managing Director Russell Waugh to know more about the partnership and the company's many plans and projects鈥�.
The partnership: The vision behind this partnership is really to build on the growth in the Indian economy. Leighton has been successful in growing a strong construction business here. Welspun wants to grow its infrastructure business as a developer. The partnership combines two construction strengths and capabilities against nearly half-a-trillion dollars worth of infrastructure that is being put out there through public-private participation (PPP). Welspun is willing and wanting to put equity into these projects, and as a construction company, we want to build things, get access to that PPP market. Also, Welspun has a strong, solid business here, with lots of contacts, access to projects, and interests in roads, power and water, sectors we too are interested in. Hopefully, Welspun's pipe business will help our construction business, where we do EPC contracting and want to lay pipes. If you consider our Rs 3,500 crore ongoing contract with ONGC, the pipe component is itself around Rs 200-250 crore.
Management sharing: Under the Leighton-Welspun partnership, Welspun will get two of the six seats on the board of the company, and will operate as a shareholder within the company. The day-to-day management will be run as it is currently. I'll run the company as managing director, and we will continue to operate under Leighton processes and procedures.
Projects underway: Leighton is just starting work on the 9 km Chenani-Nashri tunnel, billed to be the longest road tunnel in the country. The project, worth nearly $560 million (Rs 2,700 crore), will take around four-and-a-half years to construct. It will comprise twin tunnels; one major tunnel for traffic and the other for emergency access. We also have two port projects; Visakhapatnam Port is expected to be completed in a year's time whereas Paradip Port is awaiting environmental clearance, expected any time now. Additionally, we've bid for other port projects such as JNPT and Marmagoa. Then again, in Chennai, we are working on the Ramanujan IT Park project, in conjunction with Tata Realty. This one is an open alliance where every decision is shared between both parties, so are the risks as much as the rewards. The project, worth nearly Rs 1,100 crore, involves around 750,000 sq m of mixed-use real estate development, of which 75 per cent comprises IT infrastructure for clients like Hewlett Packard and Infosys. In a similar vein, we are starting work on Life One in Noida, which is another mixed-use development for the Uttar Pradesh-based Chedda Group. Phase I of the project will cost around Rs 700 crore. Other projects in our kitty include one for Indian Oil, one for ONGC at the G1 GS 15 fields on the east coast, installing of storm water systems at Paradip Refinery, a $140 million project in Mumbai High where ONGC is upgrading their water injection platform and installing of telecommunications equipment for Indian Railways, among others. And we are very keen on the dedicated rail freight corridor project, which is a fantastic initiative from the government. We would really like to participate in it in a strong and meaningful way.
Business and finance: As a construction company, we don't carry significant quantities of long-term debt; our business runs on strong cash flows. Perhaps that is why changes in interest rates [like the current rise] don't affect us as much as they do companies with a stronger focus on long-term fixed assets. Our objective is to finance our projects through cash flows and we try to structure them in such a way that the funding is really from our clients. While we do need working capital, we try and develop all that through our cash flows.
Tools and technology: In the last interview, I had said Leighton was planning to buy Rs 250 crore worth of equipment, and we have certainly bought equipment worth that amount or very close to it. We will be using a lot of that equipment on the Chenani-Nashri tunnel project. With regard to the use of the latest technology, we've always endeavoured to do so in all our projects. Although in India in some projects, it looks cheaper to use a lot of labour and less technology, our perspective is that unless you take on board the latest technologies and train people to use them, you will not advance.
Green practices: As far as possible, we build green parameters into projects we are designing. All our current building projects are LEED rated; they get a LEED Gold Star rating awarded by the government through improved FSI index. To give you an example, for the project in Chennai, a bio-processing unit degrades all the construction waste and converts it into fertiliser, which we put back into the top soil. In our offshore projects, our biggest concern is the environmental impact of our diesel consumption, possible oil spills and so on. Hence, we take strong measures to guard against spills and minimise fuel consumption costs through use of wind energy, solar energy and others.
Human resources: Currently, our India operations have an 800-odd staff, of which nearly 50 per cent are engineers. Our oil and gas business in India is stronger than in other parts, so we actually feed expertise from here back to the rest of the group. By contrast, in sectors like rail where we need special expertise, we bring it in from other parts of the group. We have an engineering graduate training programme and, at present, around 25 graduates have been put through the paces. We also have a trade training school in Delhi, where we train workers and try and bring them up to speed with the latest skills. Close to 1,800 people have been put through this training and most of them are working on our projects. While these people are not bound to us, in 90 per cent of cases we find that they not only come and join us but also haven't left or have no desire to leave. The fact that our objective has been to pay within the top 25 per cent of companies in our class could be one of the reasons for this.
Roadblocks aplenty: For a country with a billion people, Indian infrastructure is suffering not so much from shortage of labour as much as shortage of skilled labour. The problem is becoming more and more acute, manifesting itself in project delays, poor quality of projects and so on - issues that are all proving very costly for the industry. My take is that people in India are more than capable of using new equipment and technology as efficiently as anybody else. But it all boils down to training and background. First, there is no national framework for trade training and accreditation to achieve some sort of standardisation. What is required is a vision at the national level, with strong backing from the industry, the government, and society at large. If the Indian Institutes of Technology can produce world-class engineers, why can't there be institutes arming the workforce with the required skills? Secondly, there are very few, or no companies, training workers, possibly owing to a lack of recognition that an absence of skill contributes to escalating costs and delays among other things.
Another critical concern is that while the government is spending so much on infrastructure, this is not actually materialising into projects. For instance, in the roads sector, not enough projects are being released in a manner that allows constructive bidding to take place. There is no benefit in one contractor getting 20 projects, or conversely, 20 contractors fighting over two projects but that's precisely the kind of blood bath happening at the moment. Besides, what's the point in having 20 contractors chasing two projects when the country needs 50 projects; what's the value in that for India? We may get very cheap costs for the two projects but all that the country gets is two roads that don't start, and that does not work. The point is that there is no shortage of appetite where developers, construction companies or financiers are concerned but the government probably needs to back up some of its infrastructure programmes with mechanisms capable of actually getting work out to the fraternity. There isn't enough work flowing to the field; possibly, projects are announced at a very high level but from that stage to actual execution, there is many a slip between the cup and the lip. Maybe the rules can be changed around a bit so that projects are batched out to several smaller groups; after all, no one wants a scenario where competition is stifled but nor do they want unbrid-led competition that can also be destructive.
Way to go: While we have parted with 35 per cent of the company, from a Leighton perspective, this is absolutely not about selling down; rather, it's about growth. We've sold this portion in order to get a strategic advantage to grow our business in India. We have high aspirations for the Indian market, and we want to increase our turnover multi-fold. We see India as one of our biggest growing markets, and the group is very focused on building its presence here. Indeed, our business here gets very strong attention from the holding company in Australia. Meanwhile, our top line is around 2 per cent of our global turnover, and our global turnover around Rs 2,000 crore. This year, we're looking to increase by 50 per cent and are very focused on that growth to happen over the year. Our strategy has always been to be a diverse construction company, with interests in mining, power, water, oil and gas, building, road and rail, the works. And though we might be stronger in certain areas compared to others, we've always tried to maintain a broad balance across our areas of interest.
Fact sheet:
Year of establishment: 1998Centres of operation: Offices in Mumbai and Delhi. Operations all over India.Top management: Russell Waugh, Managing DirectorNumber of employees: 850 Staff; 1,800 work forceGroup turnover: US $420 million
Give us your feedback on this interview at [email protected]
