We aim for projects worth USD 1 bn

Amit Gupta
CEO, EPL - Hydrocarbon SBU
Two years back, EPL split the company into six SBUs with the clear cut objective to unlock the value and true business potential across the boundaries. EPL's Hydrocarbon SBU's current order book stands at around USD 4.1 billion. Amit Gupta, CEO, EPL - Hydrocarbon SBU has set the target to reach USD 1 billion during the current fiscal with USD 500 million coming in from the Indian market. He talks about the EPL’s overseas growth strategy which has catapulted EPL's growth and more in an exclusive interview with Mittravinda Ranjan. Excerpts...

What was the rationale behind carving out Hydrocarbon business as a Special Business Unit?
In 2011, EPL split the company into six SBUs with a clearcut objective to start working independently as stand-alone businesses. The company is now structured in a way that makes it possible for us to independently bid for projects in these segments. The creation of Hydrocarbon SBU was to lead greater focus, empowerment, transparency, stronger leadership and increased competitiveness thus unlocking the value and true potential of the hydrocarbon business.

EPL's current order book is around USD 4.1 billion and Hydrocarbon SBU is out to target an order book around USD 1 billion.

EPL is gaining strong foothold in the Middle East. How important is this market in your inorganic growth strategy?
Middle East has always been our radar especially in the hydrocarbon space despite facing the stiff competition from the South Koreans, existing local contractors & well-established Indian players in the region.

Today the total order book of all our contracts put together in Abu Dhabi is around USD 170 million, which is perfectly in line with our Middle East entry plan and a testimony to our business development efforts aptly backed by aggressive pricing model approach of our estimation team.

We are also in process to tap the markets in Sultanate of Oman and Kingdom of Saudi Arabia as well. With some big contracts still to be awarded, we do feel that there is scope for the firm to go on to even greater success but the key to our strategic presence in the region lies in successful and timely execution of these projects.

How do you compare Middle-East market with South-East Asia or African market in hydrocarbon space?
Middle-East is a mature market as well as the clients are well spell down of their requirements. The project duration and the timeline in Middle-East are much more realistic vis-à-vis African market. Although African market is now open to international players coming in, there is scepticism among the policy makers who are more keen on utilising resources within their countries for development rather than taken away to other markets.

Their policy and the procedures are still at a nascent stage and require some time to attain maturity. EPL is now concentrating more in the African market, because Middle East is also getting saturated and we are confident that this move will certainly help us to increase our international footprint.

How do you compare the qualification criteria & bidding processes of Engineering, Procurement and Construction (EPC) model internationally with the Indian market?
Presence in the local market is one of the key qualification criteria to qualify for bidding for projects in the Middle East market but the fact remains that most of the national oil & gas companies in the Middle East and North Africa (MENA) region are conservative by nature, gaining their trust takes time.

We have set up local offices in Abu Dabhi, Sultanate of Oman, Kingdom of Saudi Arabia , Kuwait and Qatar with the aim to provide a base for new business development teams in the respective regions to register ourselves within the countries to explore new opportunities.

But the Indian market is still not very open to the EPC mode of project execution and most of the projects are still executed in the conventional mode, where engineering is separated from procurement & construction.

What are the challenges that you foresee during the execution of international projects and how are you gearing up for the same?
Initial manpower and equipment mobilisation are the most critical challenges we envisage for timely project execution. We have been facing initial teething problems on getting the work visas, work permits and the right mix of site personnel for successful execution of these projects.

During the execution phase, it is essential to deploy personnel with overseas experience, be precise in crucial decisions and move forward to actualise the plans rather than spend excessive time in exploring alternatives or going into Research and Development (R & D)since the EPC projects have predefined boundaries of time, cost quality and critical parameters regarding the plant performance.

However, with careful planning through all phases of the projects, we are confident about executing the projects within the stipulated time frame and budget.

How is EPL consolidating its presence in the Indian market?
Initially, we were more focused on developing internal projects but we strengthened our competencies aimed at bringing paradigm shift from catering in-house projects to external clients in India and gaining significant overseas presence. We won the contract for the Engineering, Procurement & Construction (EPC) of the Reactor Regenerator package of 2.2 MMPTA Fluid Catalytic Cracking Unit (FCCU) at the Kochi refinery, which is set to expand to 15.5 MMPTA. We also won the largest single EPC package of the Coke Drum Structural package (CDSP) for the Kochi Refinery again. Last year, we bagged the EPC package for process units of Indian Oil Corporation Limited's (IOCL) Paradip refinery project - 15 MMPTA grass root refinery project. Yes, we do hope that these awards will certainly consolidate our position in the Indian hydrocarbons sector and position EPL as a leading EPC contractor in near future in the field of hydrocarbons in Indian and international markets .

What are the other projects in EPL's USD 4.1 billion kitty presently and what is the size of order book for the oil & gas projects?
Our international projects include USD 400 million Outside Battery Limit (OSBL) works at Jurong Aromatics Complex in Singapore for Jurong Aromatics Corporation (JAC) and 9 process units on a LSTK basis for the 15 MMTPA refinery at Paradeep in Odisha for IOCL. Besides, we are also executing an EPC contract for Matix Fertilizers and Chemicals involving a 2,200 MT/day Ammonia plant (0.73 MMPTA) and 3,850 MT/day single-stream Urea plant (1.3 MTPA) along with associated utilities and offshore facilities.

We are executing contracts worth USD 170 million in Abu Dhabi for our overseas clients. We have recently been awarded subcontracts worth USD 50 million to us - one by Samsung Engineering, Korea, which involves civil works for the Carbon Black & Delayed Coker (CBDC) project for the Ruwais refinery and the other by G S Engineering.

We have three key EPC projects in Abu Dabhi, which are at different stages of execution currently. First one is USD 30 million project by TAKREER involving EPC works, commissioning and start-up for the Spent Caustic Treatment Plant; second project is worth USD 35 million from Abu Dabhi Polymers Company Ltd (Borouge), which includes EPC of process equipment , associated pipelines and control systems for PE Color Grade Compounding (CGC) plant. The third project is the largest worth USD 55 million from Abu Dhabi Gas Industries Ltd (GASCO) involves Engineering, Procurement, Construction & Commissioning (EPCC) of condensate pipeline from Habshan to Ruwais - in Abu Dhabi. EPL has bagged these awards on direct basis thus marking our real presence in the Middle East market. We are targeting another USD 500 million contracts in India in the current fiscal year.

What kind of opportunities do you foresee in the hydrocarbon sector in this scanty situation?
The growing energy demand in the domestic market creates immense opportunities for EPC players in the country, but the country is not able to capitalize on that on account of regulatory and bureaucratic hurdles. India's LNG regasification capacity is currently being expanded and new LNG projects are expected in the near future thus enhancing investment opportunities in the country.

Petronet LNG is coming up with a new terminal in Gangavaram, Andhra Pradesh and also planning to expand its existing terminal in Dahej, Gujarat. Indian Oil Corporation Limited (IOCL) is planning a new terminal in Ennore, Tamil Nadu while GAIL (India) is looking to expand its existing terminal in Dabhol , Maharashtra. Oil and natural gas major ONGC has finalised a surface facility revamp programme for its three onshore assets Ankleshwar, Ahemedabad and Mehsana.

Gujarat State Petronet Limited (GSPL) has planned out a huge network of pipeline almost 5000 km. in consortium along with state-owned IOCL, BPCL and HPCL has received a nod from Petroleum and Natural Gas Regulatory Board (PNGRB) to lay down three cross-country gas pipelines namely Mallavaram -Bhilwara (1611 km), Mehsana-Bhatinda (1688 km) and Bhatinda-Jammu (512 km) pipeline having initial capacity to carry around 95 mmscfd of gas.

These developments would facilitate the development of pipeline networks leading to the evolution of the much awaited National Gas Grid, which is critical for the country's energy Security. Although there is a huge potential already available in the Indian market, but the only problem is all the projects are gas or power driven for which the entire infrastructure is not available within the country. Most of the planned LNG projects, gas pipelines and refinery projects are getting delayed due to same clearances issues and bureaucratic hurdles and as a part of EPL's growth strategy,

The Petroleum Minister has recently announced that India has 65 percent unlocked oil & gas reserves potential. What potential do you foresee for EPC providers in the years to come & the concurrent challenges?
As many oil & gas majors are venturing into Greenfield and Brownfield expansion projects, expansions of refineries and their integration with downstream petrochemicals, LNG regasification terminals and petcoke gasification are leading the investments which is a positive sign for the EPC industry.

However, EPC players continue facing the challenge in the Indian market, which is an open truth and the industrial scenario is not very much in favour for larger EPC services providers due to various reasons, foremost being availability of limited number of projects. The actual number of projects available in India is not sufficient enough to fully utilise the established capacities of all the EPC providers.

Further, delay in clearances, weak economic indicators, policy uncertainties and high cost of financing lead to the delay of the projects implementation add to the woes of the EPC contractors.

However, it is expected that the government will initiate further changes to policies and subsidy schemes in attracting the future investments in critical industrial areas.

Off-late, it is noticed that due to the entry of several EPC players, the bidding process of the projects has become very aggressive and the projects are awarded at very low cost, sometimes even way below the clients’ budget. These unworkable costs areas lead to severe constraints for resource mobilisation and ultimately impact the project schedules and quality. The present scenario calls for the need of fair contractors and an in-depth analysis of how the stakeholders viz. project owners (clients), the PMCs and the EPC contractors respond and what are the possible strategies to deal with prevailing risks during project development and execution.

Also most of the EPC contracts are tilted more in favour of the project owners, which is a major drawback. There is a need to have fair contracts which could give a breather to the EPC contractors as well.

What changes would you like to see in Govt's policy on Hydrocarbon sector? What measures do you suggest for the same?
Govt needs to focus on oil security through intensification of exploration efforts and achievement of 100 per cent coverage of unexplored basins in a time-bound manner to enhance domestic availability of oil & gas.

We need to secure acreages in identified countries having high attractiveness for ensuring sustainable long-term supplies. We need to pursue projects to meet the deficit in demand and supply of natural gas, and facilitate availability of LNG.

Additional creation of infrastructure for distribution and marketing of oil & gas is the need of the hour. Also there is a need to open up the hydrocarbon market so that there is free and fair competition between public sector enterprises, private companies and other international players.

Having a rational tariff and pricing policy would ensure the consumer getting the petroleum products at the most reasonable prices and requisite quality, eliminating adulteration.

Unconventional hydrocarbons can play a big role in securing India's energy security. These are new areas and therefore have to be carefully nurtured. Shale gas can become a major source of energy, provided these assets are developed to their full potential.

However, for these to be tapped and used, pipelines should be developed. Shale gas production peaks initially and therefore before any major development of shale resources, pipelines should be planned and put in place in advance of production.

The unconventional hydrocarbon resource CBM (Coal Bed Methane) can play a complimentary role in meeting energy needs of India. CBM availability is marginal as of now, compared with the total energy demand in the country.

The hydrocarbon sector plays vital role in the economic growth of the country, contributes to the country's gross domestic product (GDP). Hence it is necessary to have a long-term policy for the hydrocarbons sector , which would facilitate meeting the future needs of the country.