Infrastructure projects will account for substantial portion of the proposed investments, making EPC sector one of the biggest beneficiaries of the infrastructure boom in India, says AK Purwaha, Chairman and Managing Director, Engineers India Ltd, in an interview with Sudheer Vathiyath.
How far did the slowdown affect the performance of EIL in the fiscal 2012-13? How do you foresee the coming fiscal year to be?
Economic downturn has impacted investments and stalled new projects across the major sectors of India economy. Service sector that EIL is in cannot remain unaffected and the delayed or deferred investments in our area of operations do affect the financial performance. Nevertheless, we are seizing this as an opportunity to realign EIL's business portfolio and diversify into sectors like Power, Waste and Water Management, Infrastructure and Fertiliser which have long term potential for future growth.
Leveraging its vast technical and project management experience in executing landmark projects across the hydrocarbon value chain, EIL is diversifying its operations in other high growth sectors of the economy. In power sector, we have provided services for recently commissioned 5 MW solar PV plant for GAIL and currently working on 125 MW thermal-solar power plant in Pokharan. Taking this initiative forward, EIL participated in Phase-1 of Jawaharlal Nehru National Solar Mission (JLNNSM) and will be bidding during the next phase also. Initiation of process of revival of Ramagundam fertiliser plant has also marked EILs re-entry in fertiliser sector.
These are some of the sectors, along with infrastructure and city gas distribution, which will be critical for the future economic growth of the country.
Another key area which will be catalyst for our future growth both in terms of project and revenue stream is internationalisation of our operations. We have a project engineering office at Abu Dhabi, which acts as an engineering hub for the Middle East region, procurement support offices in London, Milan and Shanghai and a marketing office in Caracas, Venezuela.
According to you, which industry sector has potential in terms of investment and growth in the coming years?
The 12th Five Year Plan with average target growth of 8.5-9 per cent will provide necessary thrust to future investments in high growth sectors like Energy, Infrastructure, Power and Energy, the mainstay of EILs current and future business portfolio. Infrastructure sector, with proposed investment of $1 trillion during the coming years, is poised to be a key growth driver for the Indian economy along with power generation with enhanced focus on nuclear and renewable energy front with investments of around $16 billion in solar power alone.
Oil and Gas will continue to play a pre-eminent role in meeting Indias energy requirements. The gas contribution to energy mix of country is about 10 per cent, which according to IEA, is expected to grow at a rate of 4 pre cent per year on an average till 2030. This projected increase in gas contribution in countrys energy basket will entail huge investments in LNG re-gasification terminals and development of gas infrastructure in India in the future, because today natural gas is only available in small pockets of the country, and in the future we fully expect it to reach across the whole of India. In order to achieve this, there is a vast need for more cross-country pipelines, connecting different comm¡¡unities across the country and bringing gas to the end-users. City gas distribution is another aspect of gas infrastructure that is currently only happening in a few places around the country, but in the years to come will play a much more important role in the Indian energy basket.
Could you elaborate on the project execution methodologies across the industry sectors? How competent is EIL's skill and technical know-how in successfully implementing these projects?
EIL over the years has developed number of different solutions for every possible situation. Engineering, Procurement and Construction Management (EPCM) has long been the traditional mode of project execution in hydrocarbon sector under which EIL has provided its services across the entire hydrocarbon value chain.
Those clients without initial infrastructure or an existing resource pool will inevitably prefer a project with a single point responsibility, leading them to LSTK projects. However, others with reasonable resource pools and their own project management capabilities will look to control costs and source their engineering and construction work from a variety of different offerings.
Today, EIL has the capability of executing projects in all modes of implementation. In order to explore more effective ways of establishing equilibrium between the time and cost variant, EIL has introduced one such innovative project execution solution through Open Book Estimate (OBE) mode. This mode of project execution brings together the advantages of both conventional and EPC mode resulting in a win-win situation for the owners and contractors.
This mode of project execution offers a healthy mix of LSTK schedule commitments with cost advantage of conventional mode. OBE mode of execution, while offering single point responsibility akin to LSTK mode, also provides significant schedule advantages to owners in terms of savings towards early start, concurrent engineering and early procurement of Long Lead Items. On cost matrix, OBE mode optimises cost through market driven plant and machinery prices obtained through competitive bidding while maintaining transparency.
What are your major investment plans in the 12th Five Year Plan? What are the opportunities arising from the investments?
A major contributor to the nation's growth will be the development of infrastructure sector in which the country is targeting investment to the tune of $1 trillion during the 12th Plan (2012-17). One of the key stakeholders in the development of projects in these areas is the EPC sector. Projects in these sectors will account for substantial portion of the proposed investments, making EPC sector one of the biggest beneficiaries of the infrastructure boom in India. This poses immense challenges for the industry to augment desired skill sets, resources and technology in order to migrate to higher level of project execution capabilities.
Could you describe on your overseas projects? Do you have plans to diversify into new areas of operation? If yes, which areas do you find interesting?
In the era of globalisation, our performance cannot solely rely on domestic business and will be largely dependent on our overseas performance. Our efforts on widening our global reach have started yielding encouraging results as we have entered into territories where we have little or no existing presence. Prominent mile¡stones in our global market strategy include breakthrough jobs in Venezuela and Kenya, establishment of JabalEILIOT our joint venture with IOTL and Jabal Dhahran for tapping business opportunities in Saudi Arabia, initiating steps for opening a new branch office in Venezuela to explore business opportunities in South America among many other initiatives.
With 48 years of experience, EIL will be leveraging its huge pool of in-house knowledge and database developed by providing services for 10 grass root refineries, seven grass root petrochemical projects, all the gas processing projects and 60 per cent of the country's oil and gas pipelines in India to expand its overseas operations.
How do you look at the competition in your field of operations? What is the strategy that has been adopted by you in order to stay in the competition?
The business environment in which we are operating today is dynamic and highly competitive. Quest for higher market share and increased margins have propelled competitors to introduce new and innovative business models resulting in business environment where the core competencies are becoming imitable and competitive advantages are short lived.
These innovations will play an extremely important role in sustaining quality and improving productivity across the operational matrix of EPC companies and therefore organisations must lay a lot of stress on innovation. While we strive to provide the best technology, engineering and project management solutions to our clients it's our continuous endeavour to identify the latent needs of our clients and offers solutions that are more effective, efficient and economical.
In addition to our research & development efforts, we visualise the complete project value chain and continuously identify the solutions that add value to the systems and processes.