Steve Edwards - Chairman and CEO, Black & Veatch, shares his perspective on the Indian infrastructure market, his company´s offerings, and the shortcomings in the current EPC contract mechanism in the country.
How is the Indian infrastructure market shaping up, from the perspective of a foreign vendor?
India is important to Black & Veatch´s growth. Last year the business celebrated its centenary; for 50 of those years the company has been executing projects here in India. We deliver critical human infrastructure: energy, telecommunications and water; so our work is aligned closely with government investment in initiatives such as the Smart Cities Mission, Digital India, #Gas4India, and Namami Ganga. As a result, we believe we can make a valuable contribution to India´s infrastructure development.
What upsides and downsides do you see in current infrastructure EPC contracts in India? What can the regulators do to mitigate the risks?
Many Indian infrastructure EPC projects are affected by time overruns, placing project viability at risk. Delays in land acquisition and site handover are key reasons for schedule overruns during the pre-execution phase. Government guidelines to speed up the process plus the online clearance application system are helping address these challenges. EPC contracts need to be balanced with a reasonable and equitable distribution of risk. There is potential to adopt global best practices in construction execution and safety practices.
With regards to project funding, government projects are expected to progress faster than private sector projects in the near term. Lack of sufficient domestic financing options remains a concern. Overseas investors are demonstrating interest in certain sectors such as power and telecommunications. Adoption of the PPP model for public projects has yielded mixed results thus far due to project delays, but optimism exists for certain infrastructure sectors.
How do you view the infra market here in India as an EPC contractor? How would you realign as a developer or an investor? What are the top three hurdles for FDI to come into this sector?
Hurdles to FDI include delayed return on investments as projects get delayed; collections - especially directly from the public such as road toll tax - are below projections; and demand fluctuates - for example, coal plants are operating much below planned plant load factors.
What specific inputs can large contractors/developers from developed countries bring to the table in India? What can potentially be the unique contributions from Black and Veatch, for example?
We have identified four key areas which we believe make a difference in delivering a successful project.
1)Look for a strong safety culture. World class safety programs and project results correlate to successful outcomes on schedule, cost and quality. The EPC provider´s safety processes, how they use observation and behavioural-based safety, near-miss reporting and first aid trends to avoid injuries are essential in improving project outcomes.
2)Black & Veatch can bring global project management expertise that delivers seamless, predictable results. The ability to bring together the engineering, procurement, construction and commissioning activities together in a seamless manner without gaps is critical. This starts with keeping the end in mind and pulling together all aspects of the project including engineering, global supply chains that also take advantage of local suppliers, knowledge of local construction methodologies combined with the ability to take advantage of global best practices, and having a dedicated start-up and commissioning team that is integrated into the project at an early stage.
3)Look for an EPC company that encourages ownership engagement. Owners should be involved as much as possible. We believe a best practice is to put processes in place that align the ownership team and the EPC provider, mutually working to overcome challenges and deliver a successful project. At the end of a project, the client management team and EPC contractor should both feel they have been successful as a team.
4)Seek a company with strong risk-management practices. The ability of the EPC contractor to continually evaluate risk and opportunities on the project is a key ingredient to a successful project. Every project experiences challenges. Most successful projects constantly look to take advantage of opportunities in addition to continuously evaluating and looking for developing risks and taking actions to mitigate them before they result in a bigger problem.
Which subsectors of our infra market are of interest to you, and why? What are your plans to strengthen your presence in these subsectors in the coming days?
All of our work, here and around the globe, is in the development of power, oil & gas, telecommunications and water infrastructure. In addition, newer emerging areas of interest to us include Smart Cities, data centres, micro-grids, waste-to-energy, energy storage, electric charging networks for cars, and asset management. We are continually strengthening our offering in India by seeing which elements of global best practices are most appropriate to India´s needs, then delivering them using local talent.
How do you define your current presence in India - in terms of revenue or headcount or order book? What are your growth plans in the next five years, along the same dimensions?
Between 2015 and 2016, Black & Veatch India´s revenue more than doubled. In the last three years, our number of Indian professionals has doubled.
We are aiming for overall company revenues to exceed $7 billion by 2020. This includes revenues approaching $3 billion from growth regions including India and other countries in Asia. We envisage employing circa 1,500 Indian professionals by 2020 up from our current strength of about 700.
Can you tell our readers, in brief, about the technological advantages that your solutions offer to India, in your chosen sub-sectors, which would help propel your level of growth in our country?
The list is long, but here are a few highlights:
Enhancing the environment through air quality control (AQC)
Coal will continue to be significant for base-load generation in the short to medium term. As a result, the government has issued stringent norms for coal-fired power station emissions. Compliance will be achieved by adopting best practice when specifying air quality control (AQC) equipment for both new and retrofit applications. We have a strong track record of executing AQC projects for almost 50,000 MW of power plants to control emissions of sulphur oxides, nitrogen oxides, particulate matter and mercury. AQC projects are often complex considering the retrofit nature of the projects, installing new equipment within an existing operating facility.
Meeting India´s water challenges through wastewater reuse
With the right treatment technology, wastewater streams can be turned into a water resource. Treated wastewater can be used for potable or non-potable applications, relieving pressures on stressed surface and groundwater resources. We recently won a contract with the Municipal Corporation of Greater Mumbai for feasibility study and conceptual design and engineering for India´s largest wastewater treatment plant. We expect significant opportunities in water reuse, wastewater treatment and waste to energy segments.
Supporting the Smart Cities Mission
Smart integration of critical human infrastructure has a central role in delivering many of the Smart Cities´ core attributes: adequate water supply, assured electricity supply, sanitation, robust IT connectivity and sustainable environment.
This means, in addition to fundamentals like new power and water/wastewater plants, application of our expertise in:
Do you wish to go alone in your journey in India, or are you into a partnership with a local entity? Can you explain your choice?
We do not have a one-size-fits-all strategy to partnerships. We have successfully self-performed EPC contracts across the globe; similarly, we have successfully partnered to deliver major projects. At Ennore, we are leading a consortium with a construction partner to deliver the EPC contract for Indian Oil Corporation Limited´s 5 million tonnes send-out capacity LNG receiving terminal. The decision as to whether to partner is taken on a case-by-case basis - driven by the best way to meet the client´s business needs. We are exploring partnerships with Indian contractors and equipment manufacturers to support our growing business in India.
How has the IOC Ennore Regasification Terminal project fared in terms of milestones of completion from the time of bidding for the work? What are the important takeaways for your company in terms of execution of infrastructure projects in India? What cost efficiencies does the Ennore project bring for IOC in addition to capacity building?
The Ennore project is in advanced stages of engineering and procurement with construction activity picking up at site. Equipment is being largely procured from India to support the government´s ´Make in India´ initiative with some specialised equipment being procured from Europe and the US. The project is being delivered by our project management and technical teams from our Mumbai office with support from our US offices for key issues - execution of this project has enhanced our capability to deliver world-class solutions locally. We also have developed a much better appreciation for construction methodologies and challenges in India which will serve us well as we seek to execute more infrastructure projects in India. LNG import terminals such as Ennore shall provide much needed natural gas as feedstock to India´s refineries, power plants and fertiliser plants.
Kindly share with us the milestones and water treatment volume dynamics in setting up the largest wastewater treatment facility in India for the BMC at Malad in Mumbai city. Also, provide the setting up cost valuations considering that the culture for wastewater reuse is a difficult one to imbibe in India, since the current alternative (using groundwater reserves) has a zero cost.
We are undertaking an assignment to develop a feasibility study, conceptual design and tender documents for an 847 million litres per day wastewater treatment facility (WWTF) for Mumbai´s Malad Zone. The scope of the final solution may change, however, because part of the study is to assess the possibility of using space at five satellite pumping stations as an alternative to creating a single, large WWTF at Malad. We are evaluating advanced but proven process technologies as part of this assignment.
The economics of water reuse are not as straightforward as the question implies. Groundwater has to be treated before going into supply, so there is a certain cost involved. For wastewater to be reused, a tertiary treatment plant will have to be put into place. The water can be reused to inject into groundwater or for non-potable applications. This cost has to be evaluated against the treatment cost to ensure compliance to new discharge standards from the Central Pollution Control Board. A socioeconomic assessment is important considering finite groundwater supplies and potential of water reuse versus water discharge. In many respects, treated wastewater streams represent a renewable water source which can bring many indirect economic and social benefits, especially during years of drought.
How are you leveraging drone technology and other innovating technology solutions for the telecom and power sectors in India? Kindly elaborate on the resultant cost efficiencies, production enhancements and timeline management for projects in India.
The potential of unmanned aerial vehicles, drones, in the development and maintenance of critical human infrastructure is beginning to be realised. As a platform for camera and surveying technology, drones have a role at both the process plant and network level: internal boiler inspection, transmission infrastructure inspection, and routing surveys. For telecom tower companies, the potential health and safety benefits from reduced working at heights is significant. It was in this field that Black & Veatch earned a place on the InformationWeek Elite 100 list of innovative users of business technology. Further development in the use of drones is heavily reliant on the development of a robust regulatory mechanism by the Directorate General of Civil Aviation.
Inform our readers about the potential to reduce thermal power gencos´ emissions that could be harnessed through your expertise in India.
As noted earlier, a reduction in emissions from coal-fired power stations will be achieved by adopting best practices when specifying air quality control equipment for both new and retro-fit applications to reduce sulphur oxides, nitrogen oxides, mercury and particulate matter.
Adopting natural gas as a base-load feedstock for power plants will also reduce emissions from thermal power stations. Compared to the average emissions from coal-fired generation, natural gas produces half as much carbon dioxide, less than a third as much nitrogen oxides, and 1 per cent as much sulphur oxides. Once gas supplies increase in India and prices are economical, focussing on combined cycle power plants will drive towards a gas-based economy which will reduce emissions. Such gas-based plants may replace some of the aging and inefficient coal power plants towards the end of their life.
Promoting alternative and cleaner energy sources is being emphasised by the Government of India. What could be a reasonable timeline of change that needs to be incorporated by India to keep pace with international standards on emissions? The government is pursuing a raft of measures which will reduce emissions. This includes new emission norms for coal-fired power stations and the drive to use more natural gas. There are also major investments in renewable energy such as a planned 100 GW of solar in the next five years, and the drive to better utilise India´s significant potential for hydropower. Reducing transmission and distribution losses will indirectly cut emissions, as less energy will need to be generated to make up for the losses.
The timeline of change with respect to emissions is dictated in some parts by how the utilities and IPPs shall fund these projects, and any potential impact on tariff as a result of implementing these projects. The emission control projects themselves take anywhere between two-four years of execution time depending on technology, complexity and location.
What has been your engagement with India so far on the ´Smart Cities´ project? Kindly elaborate on the solutions you offer in respect of micro-grids, smart analytics with 360-degree asset evaluations and infrastructure for utilities?
I have earlier touched upon how we see the technologies you list contributing to the Smart Cities Mission. Here are some examples of how we have deployed these technologies. While most of the examples today are in the United States, we believe this experience has strong application for India and this global expertise can be delivered by our local teams in India.
Black & Veatch designed more than 24 MW of behind-the-meter stationary capacity at more than 20 commercial and industrial facilities in support of Tesla´s energy storage initiative.
The company provided balance-of-system conceptual design for multiple battery energy storage systems totalling more than 100 MW.
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