Unlike India, Middle East is more confident of EPC approach

Ram Kishore Iruwanti
Managing Director, Technip KT India.
The perceived role of Engineering, Procurement and Construction (EPC) contractors in grass-root projects in the present times has seemingly expanded much more beyond the technical scope," says Ram Kishore Iruwanti, Managing Director, Technip KT India. He shares the ingredients to dish out perfect recipe for successful project execution and sees trust, wide vendor base, strong inspection and expediting teams and modern tools as the strong pillars to be successful in the business of this high risk business. He shares his views on the magnitude of opportunities available for the EPC players in the Indian market and company's road map for the coming years.

What is your view on the opportunity space for EPC companies in the area of the Oil and Gas value chain in the next five years?
The hydrocarbon sector plays a vital role in the economic growth of the country and will provide ample opportunities to the EPC players. We have still not implemented Euro V and Euro VI standards in India, which assures addition of units and revamp plans across the entire Hydrocarbon sector in the next 5 years. The refining capacity is expected to go up from the present 190 MMTPA to approx. 230 MMTPA in the next two years and this will definitely provide a lot of opportunities for various EPC contractors. Focus on LNG and Natural Gas usage is also providing opportunities as operators are revamping their plants for gas usage.
Exploration of untapped huge oil & gas reserves and CBM Blocks will give boostto up-stream business. Fertiliser sector is waiting for a favorable policy from the Government for their expansion plans. Petrochemicals are an area where large growth is foreseen due to increased demand for consumer durables. We are the second fastest growing economy in the world and all this expansion will definitely provide opportunities and challenges as well for EPC contractors.

What are the major risks you foresee that EPC service providers will have to manage in the next few years?
The EPC mode of project execution has resulted in the clients demanding reduction in the cycle times for project completion. For example, the cycle time of completion of a grass root refinery has reduced from 5 years to 3-3.5 years posing immense challenges in almost all aspects of project execution from Engineering, procurement and construction to commissioning. This is a major risk for EPC contractors, which needs to be addressed while formulating execution plan.
The perceived role of EPC contractors in grass-root projects in the present times has also seemingly expanded much more beyond the technical scope, encompassing locational issues, sustainability, etc. This becomes a potential risk if not factored in by the EPC players during the bidding stage.
Also with the blurring of international boundaries for talent sourcing, talent management and retention is another big challenge. The fluctuating market conditions coupled with the economic turbulence has made the raw material prices highly unpredictable. All this has put a huge pressure on the margins and protecting the bottom line will be nothing short of a tight rope walk.

How do you compare the contracting models in India vis--vis global ones?
Though the contracting models are client specific, but one can still observe a trend. The 80s and 90s saw more of a conventional approach as clients saw merit in controlling the procurement. But as the pressure mounted on project time lines, there was a shift to EPC approach, wherein the clients got a single point responsible party thus reducing the interfaces and complexities . This also allowed them to fix project costs at the beginning of the project thereby removing uncertainties. But recently the trend seems to be shifting to the EPC Management(EPCM) and Open Book Estimate (OBE) approach. Each mode has its own merits and demerits and one has to be careful to choose the right approach. Over-The-Fence (OTF) is also a new concept which while prevalent in the west needs serious consideration in India. But for some more time I feel that contracting models are going to be a mix of EPCM, OBE and EPC approach.

EPC industry in the Middle East has witnessed paradigm shift. May we have your comments?
The Middle East has been no exception to the change in the contracting structure worldwide. Presence of International EPC contractors since long has led to the maturing of the EPC contracting structure in the Middle East much before India. Consequently, owners in the Middle East are more confident of the EPC approach unlike India which until recently considered EPCM and Project Management Contractor (PMC) as the best approach. Also presence of Western oil majors as joint venture partners with National Oil Companies, lends to a more open approach towards inviting major Global EPC players to bid for large projects. This provides a sound ground for EPC companies to set up offices and to expand.

What are the services provided by your company for the parent company? What proportion of your engineering pool is dedicated for the international services?
Technip KT India (TPKTI) is a technology driven company. TPKTI is one of the very few companies in India which has been providing concept to commissioning services for the last 40 years to various clients in India and abroad. We have been supporting our group companies for various projects in almost all aspects of project execution - from studies to design, engineering, procurement services, construction, pre-commissioning and commissioning, etc. Depending on the specific requirements, appropriate numbers of persons are deployed for such services. The proportion of work for Technip Group varies from year to year depending upon the mix of own projects and group projects.

What determines excellence in procurement in an EPC company? What are the issues related with procurement in India and how do you compare the challenges with other markets?
Procurement is central to EPC. Procurement is what determines the bottom line in a big way. Trust, wide vendor base and a strong techno-commercial team is the perfect recipe for profitable procurement. However, a strong Inspection and Expediting team is also inherently important to ensure that quality and timely delivery is achieved. Access to large vendor base is equally important to ensure competitive offers. Use of modern tools like e -procurement, etc provides effectiveness to the procurement function.
Being a worldwide group, Technip is able to source from all parts of the globe giving it a competitive edge over its competitors. Lack of platforms for vendor meets and interaction is one of the biggest problems faced by the procurement sector in India while transparency is the other issue. Also timely delivery is another big challenge for the procurement group. Lack of critical size and lack of adherence to commitments is a big issue in India. Unlike the west, we have serious limitations when it comes to Over Dimensional Consignments (ODC). This in turn limits procurement options and results in increased costs as well.
In countries like Korea and China the capacities built-up are very large, thereby, allowing them to optimise on cots and cycle times. This is lacking in India with the exception of few vendors.

What are the risk factors that you consider before deciding on go -nogo bid preparation for the project?
At Technip, we have a robust system of qualitative and quantitative analysis of each enquiry whereby not only the project aspects but also the locational aspects are also analysed. Technology, short and long term strategies of the group are also considered while doing risk analysis. A detailed evaluation of the available resources and future prospects is also done before deciding to bid on any project. All the risk factors are analysed and quantitative risk analysis done by us before deciding on 'go/no-go' and before formalising the project execution philosophy.

May we have your opinion on talent availability across areas of sales, project management, engineering, procurement and construction ?
The blurring of boundaries for hiring has resulted in talent management and retention becoming the biggest challenge for EPC Companies. In our opinion, the biggest challenge would be in hiring and retaining good talent in Project Management and Construction. At Technip, we have a highly skilled workforce in every discipline of the work involved. A robust quality control and group vide consistent practices and work culture ensures that talent is nurtured, recognised and appropriately rewarded. People are rotated within the group to provide them exposure to international work culture and practices to increase their skills and broaden their horizon. At Technip, we believe that a satisfied employee mirrors a satisfied client.

What are the projects Technip India is pursuing currently and the ones that are in the pipeline?
Currently, we are executing some of the large projects which include, 2.2 MMTPA DHDT Project for HPCL, Vizag, 36,000 TPA HGU Unit for HPCL, Vizag, Algiers Refinery Project, Butene 1 Project for OpAL, Dahej and CO2 Removal System project for JSPL, Angul. Apart from these, there are several other large projects in the pipeline in both public and private sectors.
In view of the expansion plans for various refineries, we are expecting various Isomerisation, Hydrotreaters, Sulphur and Delayed Coker plants to come up, not to mention the ongoing Fertiliser prospects which are waiting for the Governmental policies. Many projects in the Petrochemicals, LNG and Oil & Gas are also expected to materialise in this year and as technology driven EPC contractors we shall be targeting the Process plants, Heaters, Regasification LNG terminals to name a few.

What is your strategy for growth in the medium to long term in terms of industry segments, business models and diversification?
As I have already said, various process plants are expected to come up given the expansion plans for various refineries; we are targeting the refining/ petrochemicals, LNG and offshore projects. Petrochemical industry is growing at the annual rate of 12 per cent with various projects in the pipeline. The LNG industry too is opening up with IOCL, GSPC, Petronet, and HPCL planning to set up LNG terminals. ONGC has plans for various offshore projects and we shall be targeting them as well. As a group, we are major players in offshore and sub-sea segment. In the long term our vision is to be a key player in this segment in India as well.
For all this execution methodology and procurement and engineering efforts need to be rigorously reviewed to ensure competitive pricing. Our Brand Tag line, 'Take it Further' defines the underlying aspiration of all our business models. We shall try to work out strategic partnerships with various companies to get pole positions for their Indian as well as foreign projects. We are seriously looking at tying up with good companies for our various EPC projects. Considering the niche position we have created for ourselves in the Modular fabrication segment, we intend to use it to our advantage as the clients today want to squeeze their expansion plans into the existing spaces. In essence, our business model for success would be to maximise each partner's specific strengths to achieve the overall objective .
We are trying to diversify into offshore, mining & metals, nuclear, solar, and wind sectors. We are participating in some tenders in these fields. Solar sector is also expected to see infusion of EUR 50 billion in the next 10 years. The steel industry is also gearing up for expansion with capacity additions upto 276 MTPA and over USD 225 billion investment.