'Oil & Gas EPC industry to look forward to India in the years to come'

Vivek Venkatachalam,
Managing Director, IOT Infrastructure & Energy Services Limited (IOT).
Traditionally, Indian EPC companies had established a footprint in oil producing countries. However, given the plunging oil prices and India being a consumption market, the infrastructure spending is set to be within India, says Vivek Venkatachalam, Managing Director, IOT Infrastructure & Energy Services Limited (IOT). He shares his thought on the challenges & opportunities laying in the Indian Oil & Gas EPC industry and the future outlook of the industry in the backdrop of falling global crude price and major policy reforms by the government for the hydrocarbon industry, in an email interaction with Rakesh Roy.

Please share your view on Oil & Gas EPC sector outlook in India and the key drivers for the industry?
Traditionally, Indian EPC companies had established a footprint in oil producing countries. However, given the plunging oil prices and India being a consumption market, the infrastructure spending is set to be within India. For example, Oil marketing Companies (OMCs) will drive huge infrastructure investments in this sector over the next 5-7 years towards refinery upgradation and to meet the new BS norms. Given this belief, India is the best market to be in for an EPC company today.

What are the challenges EPC contractors facing in executing projects in Oil & Gas Upstream and Downstream in India?
EPC players in India face challenges mostly on contract terms and conditions. Unfavourable(non-FIDIC) contractual terms, long approval processes for change orders/claims and back-ended payments are some of the challenges.

These delays result in cost overruns and call for the need to educate Indian customers to contract fairly.

While the plunging oil price has affected the hydrocarbon industry in whole, what are the strategies IOT has been adopted in protecting its bottom line in such scenario?
At IOT, our differentiating factor has been to provide cost-effective execution of projects with world-class quality of construction. We are cautious about our project margins and have been very selective in bidding for new projects during this turbulent period.

Regarding our ongoing projects, we have projects in Middle East and Asia Pacific where we have been delivering well at good margins.

While the Indian GDP for FY 2015-16 is expected to remain in between 7-8%, according to you how will the Indian Oil & Gas EPC sector contribute to the Indian economy and the factors that will lead the way?
In the last few years, given the challenging environment, most EPC companies are undergoing turbulence with varied degrees of impact. But with the government's push towards GST and its Make in India campaign as well as the new Purchase Preference Policy will lead to a considerable contribution by EPC companies in building the nation.

The government has proposed many policy reforms for Indian Hydrocarbon sector with the announcement of auctioning margina fields. According to you, how will the policy reforms improve investors' sentiment towards Indian oil & gas sector?
The opportunities presented by the reforms announced by the government are yet to be explored. We also believe that a lot of it is driven by the uncertainty in oil prices and weak global operating environment. With such unstable and uncertain environment, it has become imperative to move ahead cautiously.

Also the slow pace of reforms since last few years has been one of the biggest bottlenecks so far that hinder the growth rate and investment opportunities of the industry. Add to that, the global market volatility has made international investors wary.

The proposed policy reforms by the government such as; Pricing and Marketing Freedom for Natural Gas produced from new exploration blocks; and Revenue Sharing Mechanism instead of conventional Profit Sharing Contract will give the much-needed boost to the growth process of the industry. Also Unified License to allow companies to explore oil & gas, shale reserves and coal bed methane; and Open Acreage Scheme where firms can carve out their own block at any time without waiting for government auction will be directed towards reviving investor confidence towards Indian oil & gas industry.

While taking in account the growing energy needs of the country and PNG, CNG, City Gas requirements, what is your forecast on Indian Oil & Gas EPC sector in providing infrastructure development in this regard?
The Distribution infrastructure planned by the Indian Government will drive investments. With over 15 crude oil and product pipelines planned along with tank farms near ports and in the hinterland, there is a lot for the Oil & Gas EPC industry to look forward to in India in the years to come.

What are the future plans of IOT Infrastructure & Energy Services for Indian market?
We will continue to expand our Energy storage business and strengthen EPC business. In the EPC business, we will continue to focus on areas of competency like Tank Terminals, refinery packages and offsites & utilities through selective bidding. Internally we are also digitizing the business, besides hiring key talent for leaner operations.