growing pains: challenges faced by third world constructorsecforum/presentations/forum08/foru… ·...
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GROWING PAINS:GROWING PAINS:CHALLENGES FACED BY THIRD CHALLENGES FACED BY THIRD
WORLD CONSTRUCTORSWORLD CONSTRUCTORS
By
Shaikh Azhar AliShaikh Azhar AliManaging Director & C.E.O.Descon Engineering Limited
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A LITTLE BIT ABOUT DESCONEstablished in 1977, today we have the following credentials:
15 Million Man-hours of Plant Maintenance
350 Million Man-Hours of Project Construction
06 Million Man-hours of Engineering
200,000 Tons of Engineered Process Equipment Manufacturing
1600 Engineers & Professionals with current strength exceeding 26,000
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ACTIVITIES
Engineering
Construction
EPC
Maintenance
Manufacturing
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BUSINESS SECTORS
Water & Desalination
Chemical / Petrochemical
Power
Fertilizer
Infrastructure
Cement
Oil & Gas
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Saudi Arabia
UAE
DESCON ESTABLISHMENTS
Oman
QatarAfghanistan
Descon HeadquarterLahore
KarachiManufacturing
Lahore Manufacturing
Descon Qatar
Descon CorporationLahoreDescon
CorporationAfghanistan
Descon Information Systems Lahore
Tawoos Descon OmanDescon
UAE
Descon ChemicalsLahore
Hamriyah Manufacturing
DesconKarachi
Pakistan
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DESCON MANUFACTURING FACILITIES
Saudi Arabia
UAE
Pakistan
Lahore ManufacturingWorks, Pakistan
YanbuSaudi Arabia
Hamriyah ManufacturingWorks, FZE Sharjah, UAE Abu Dhabi
Manufacturing Works, UAE
JubailSaudi Arabia
KarachiManufacturingWorks, Pakistan
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MAJOR RESOURCES• Over 26,000 personnel including 1600 engineers
and professionals.
• 900,000 man-hours/year engineering capacity.
• 40 million man-hours/year construction capacity.
• 06 manufacturing shops in the region.
• Owned concrete production and haulage facilities.
• Owned heavy lift and rigging expertise – over 150 cranes.
• Customized project management system.
• Established QA/QC and HSE systems.
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MANUFACTURING RANGEPressure Vessels• Columns• Separators / Knock-out Drums• Slug Catchers
Heat Exchangers• Shell and Tube• Air Fin Coolers
Boilers• Heat Recovery Steam Generators
(HRSG)• Once Through Steam Generators
(OTSG)• Direct Fired• Process• Fossil or Non-Fossil Fuel Fired
Pre-engineered Skid Packages• Amine / TEG Units• Dew Point Control Units• Separator Packages
Field Erected Storage TanksFlare StacksSteel StructurePiping Spools
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Steam DrumColumn
Desalter Vessel
Stainless Steel Pressure Vessel
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Pipe pre-fabrication
Boilers
Steel Structure Slug Catcher
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IMPORTANCE OF E&C IN DEVELOPMENT
Sizeable portion of most countries’ GDP’s
Role in economic development
Facilities
Infrastructure
Stimulates activity in other sectors
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CONSEQUENCES OF INADEQUATE CONSTRUCTION
TECHNOLOGY
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DEVELOPMENT IN THEMIDDLE EAST AND ASIA
Emergence of China and India as economic powerhouses
Rising crude oil priceStagnant production levels
Voracious demand
Projects worth about USD260b in the GCCAll 3 industry sectors, upstream, midstream and downstream
GLUT OF PROJECTS
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GLOBAL TREND IN THEO&G INDUSTRY
View of industry as a commodity business
Long term investment flow into the M.E. and Asia
Profitability will remain strong
Technical personnel shortage
Mixed views on growth rate of global refining capacity
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CORRESPONDING TREND IN THE E&C INDUSTRY IN ASIA
Larger private sector participation;
Increasing vertical integration in the packaging of
projects;
Increasing foreign participation.
IMPORTED FOREIGN SERVICES GROW AT THE EXPENSE OF THE INDIGENOUS SERVICES
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CONCEPT OF EPC CONTRACTS
certainty of price,
single-point responsibility,
a greater transfer of risk to the contractor,
and a fast track to completion of a project.
Contractor takes greater proportion of risks.
RISKS AND CAPITAL INVESTMENT REQUIRED TOO
GREAT FOR MOST 3rd WORLD CONSTRUCTORS.
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MAJOR RISKS INEPC CONTRACTS
All risks normally associated with conventional
contracts,
Design risks,
Logistics and bureaucracy,
Fixed price vis-à-vis changes required by the Owner
and/or Supplier,
Owner involvement in the design process.
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WHAT WOULD A MAJOR EPC CONTRACTOR DO?
SUB-LET THE LOW TECHNOLOGY CONSTRUCTION
WORKS TO A 3rd WORLD CONSTRUCTOR
Makes the 3rd World Constructors bid against each other
to get the best prices;
Passes on construction and other risks to the sub-
contractor;
Passes on responsibility for capital investment to the
sub-contractor.
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STRATEGY ADOPTED BY EPC CONTRACTORS
Collaboration with oil companies in development of new
technology – cornering of market
Creating alliances with major equipment suppliers –
market monopoly
3RD WORLD CONSTRUCTORS CANNOT DEVELOP – OR
EVEN PRE-QUALIFY TO BID
ALWAYS REMAIN SUBSERVIENT TO MAJOR EPC
CONTRACTORS
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STRATEGIC ALLIANCING
Horizontal vs. Vertical
Sasol / Chevron-Texaco Joint Venture
Sasol / Nissho Iwai – IHI Alliance
Chevron-Texaco / Solar Turbines Alliance
EPC Companies Engineering Houses in Third World
Countries.
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COOPERATIVE BUSINESS ARRANGEMENTS
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CONCLUSIONProject Owners and EPC contractors must acknowledge
that 3rd World constructors as service providers.
Shift from vertical to horizontal orientation.
Project Owners should encourage EPC contractors and
3rd World constructors to go into strategic alliancing to
get the best from both worlds.
Construction and other risks should be distributed fairly.
Efficiency can only be achieved by cooperation.
Focus on long term joint ventures.