In an interview, Arun Kumar Jain, Managing Director, Fluor Daniel India Pvt Ltd, with Chemical Today Magazine tells how this is the best time for EPC players to invest, innovate and reap the benefits of the burgeoning markets
Engineering, Procurement, Construction (EPC) market potential in Asia Pacific
With more than a trillion dollars invested in India, which includes investment in Chemicals, Petrochemicals and Refineries, the opportunities for EPC players are plentiful.
The Asia Pacific Region is also seeing a lot of pre-execution and execution activity. Several projects are on the anvil in Indonesia, Malaysia, Thailand, The Philippines, Bangladesh, Myanmar and Sri Lanka.
We believe that India and the Asia Pacific need radically more efficient and rigorous execution approaches towards project execution. Fluor can help implement and share such best practices based upon transparency, safety, execution excellence and sustainability.
Trends in EPC segment
The trends in the EPC segment in India and the Asia-Pacific vary in consonance with the investment source - privately funded vs publicly / government funded projects. The investments have tended to be weighted towards publicly funded projects.
Clients in government funded projects, as well as some privately funded projects, tend to select the least ‘quoted price’ option, rather than the least ‘life cycle’ cost option. Little credit is given to a bidders' track record of schedule and cost certainty, quality, and HSE. Publicly funded projects are bound by government procurement guidelines that often mandate purchasing preference for local and/or, government owned bidders.
In the recent past, large investments have begun to flow in from multiple players in the private sector as they set up multi-billion dollar projects. This has initiated a process of change in the bidding and selection paradigm. Owners have now begun giving evaluation credit for technical competence and execution capability and pedigree. Commercial terms and conditions are easing though still heavily weighted in the client’s favour in terms of risk allocation. Very few local contractors truly have the technical capability, the robustness of execution work processes, risk management skills and financial muscle to execute large and complex projects on their own. This is where global contractors like Fluor can step in to fill the voids.
Fluor is selective in deciding which projects to pursue, but once the decision is made to pursue a project, we go all out to win and execute the project to international standards.
Demands from chemical producers
Chemicals producing companies manufacture chemicals for a wide variety of industries including a significant share for the oil and gas and energy industries. Some producers have been hurt by falling product prices of their clients while others have stepped up production for other clients. A common feature of new investments though is the stark need for greater capital efficiency in plant set-up. This is leading producers to opt or ask for fit for purpose design and specifications and for EPC companies to exhibit innovation in construction techniques to realise the lower set up costs. In an effort to self-control project execution, some clients are opting for a hybrid execution model wherein client resources are also a part of the home office and field teams at the EPC contractor’s home offices and field and often leading them.
Market potential of EPC solutions in developed V/s emerging markets.
In recent years, a key client business objective has been to reach the market in the shortest possible time while its Engineering, Procurement and Construction (EPC) contractors are expected to continue to abide by established guidelines for cost, quality and safety. As a result, EPC contractors are devising new project execution strategies to meet this client objective.
Reducing work at the site is one such strategy. While modularization is not a new process, the quantum of offsite work achievable has significantly increased using advanced, or, what Fluor describes as 3rd generation modular execution. This execution model splits a project into process blocks that are designed as adjoining compact modules which in turn drives plot plan optimisation. Substantial advantages gained from using an advanced 3rd generation modular execution approach include:
- Reducing some bulk material quantities through a more compact plant layout realised by synergizing equipment and implementing a distributed controls philosophy
- Maximising transfer of labour hours from a low efficiency and high-cost field environment to higher efficiency and lower cost module fabrication yards
- Reducing the time required and risk associated with completing this work at site and
- Significantly reducing the footprint required for the facility thus reducing the bulk materials, civil works and related indirect costs and mitigating the environmental ?effects of project construction. This award winning execution approach of Fluor has been recognised for its concept, value, delivery and impact.
3D platforms in EPC projects
Commercially available 3D platforms are evolving in response to new and unique project requirements and EPC companies like Fluor continue to build automated add-ons that increase a speed of execution and also reduce manual discretion/data transfer related errors. 3D platforms are further being developed to help in the design of existing plants, or, revamp projects in conjunction with laser photogrammetry of the existing facilities. EPC companies are developing, or, improving commercially available software for plant design. Recent development across 3D platforms has seen seamless electronic plant design and data transfer to steel and pipe fabricators thus reducing deliverable life cycles and lowering the error rate and consequent recycle. Current 3D platforms allow simultaneous access to multiple stakeholders like engineers, fabricators and clients which improve both the quality and timeliness of the release of construction deliverables. Enhanced digitisation has also helped improve a resolution of project scope change control.
EPC business at Fluor
Fluor India’s growth has been significant. From less than 700 employees in 2009, today we have 3,400 employees and are poised to grow further in the near term as we respond to the international and regional market demands to lower cost of services.
We are working in a variety of sectors in the Asia Pacific and Indian markets, especially chemicals, petrochemicals, gasification, power and the industrial sectors. We continually assess the numerous new projects coming up by applying objective criteria of selectivity.
The Asia Pacific Region is also seeing a lot of pre-execution and execution activity. Fluor is pursuing some of these and has recently won a couple of pre-execution studies in India and Indonesia, and is currently pursuing execution projects in Malaysia, Thailand, Vietnam and Sri Lanka.
We are bullish on the growth in the Indian and regional markets and hope to contribute to economic growth of the region.
With a trillion dollars and more of infrastructure investment planned in the next few years, we lay great store by the business opportunities in India, especially in the business segments of chemicals, clean fuels, refineries and LNG.
Fluor India has been supporting worldwide projects in both conventional and niche industry segments. We have been supporting execution of multiple projects in the conceptual, definition and execution phases. We have been major contributors in Fluor’s foray into niche technology segments such as gasification of coal, petroleum coke and municipal solid waste; supercritical 800 MW unit rating power units; ultra-pure polysilicon manufacturing; and large modular (road transportable modules to 4,000-tonne weight) projects.
In the past several years, while we continue to work on global projects, we have also focused our attention on the local market and have been successfully executing projects for clients in the manufacturing, steel, chemicals, refining, mining, petrochemicals and industrial segments, among others.
Again, we believe that India needs radically more efficient and rigorous execution approaches towards project execution. Fluor can help implement and share such best practices based upon transparency, safety, execution excellence and sustainability.
Focus on R&D and innovation
Being an EPC company, we naturally pursue innovation in execution. A few examples are:
- Refining modularization to the next level in our 3rd generation modularization programme to enable our clients to have the option to substantially reduce field work, improve quality, increase safety and shorten execution schedule, particularly in remote locations.
- Key enhancements in the 3D execution platforms to increase engineering execution efficiency.
Fluor is a global leader in carbon dioxide (CO2) capture and we have long-term commercial operating experience in CO2 recovery from flue gas with very high oxygen concentration. To help clients reduce greenhouse gas emissions, Fluor has developed patented CO2 recovery technologies. Fluor's recovery process technologies include:
- Fluor's SolventSM Process uses a dry propylene solvent to remove H2S and CO2 from gas streams
- EconamineSM uses diglycolamine as the aqueous solvent for H2S and CO2 removal from gas streams
- Econamine FG Plus uses an amine to capture and produce food grade CO2 from post- combustion sources. Econamine FG Plus is also used for carbon capture and sequestration projects
- Econamine FG Plus provides clients with energy-efficient and cost-effective process for the removal of CO2 from low-pressure, oxygen-containing flue gas streams
For more than 20 years, Econamine FG Plus is the preferred CO2 solution as evidenced by more than 23 licensed plants worldwide. We are committed to extending the benefit of these execution innovations to the Indian market.
Supporting start-up firms in the energy & chemical sector
Our commercial strategies team is involved in the evaluation of all projects. Fluor pursues and executes projects across the globe and in doing so differing commercial strategies best suited for a project. Where mutually beneficial, Fluor could enable Indian start-up companies to fetch business in international bidding by lending them access via our structured global pre- qualification programme.
Challenges faced in the EPC industry?
Not very many local EPC projects that apply a merit and cost scorecard based contractor selection process. Most large project spending in the public sector here does not accord value to life cycle costs vs lowest quoted bid price; little credit is given to a bidder's track record of safety, quality, schedule compliance and cost certainty. In addition, for several projects, the procurement guidelines allow for price preference to government owned business entities.
With multiple players in the private sector now setting up multi-billion dollar projects, the business scenario is changing. Clients have started to assign credit for a bidder's technical competence. The terms and conditions are now more evenly balanced between the client and the contractor, though most are still heavily weighted in the client’s favour. Very few local competitors have the technical capability and financial ability to execute large and complicated projects on their own, considering the high level of risks involved. This provides an opportunity for global contractors like Fluor to compete in the local large project marketplace.
There are several challenges, though not insurmountable, for global EPC players in winning and executing projects in India. These include pre-execution delays like land acquisition; schedule delays triggered by client indecision; poor implementation of scope change management system; inability to arrange timely finances; volatility in money markets and foreign exchange rates; taxation ambiguity; labour scarcity compounded with poor productivity, high turnover and unrest; harsh lump sum execution stipulations even for long gestation infrastructure projects; and political and civil society activism.
Supply chain network models of Fluor to carry out EPC projects.
Fluor has often modified the traditional Engineer, Procure, Construct (EPC) model to incorporate early integration of strategic suppliers whereby significant savings in time and cost can be realised for a project whilst still ensuring that long-term total life cycle cost targets of an owner are met. We have observed that if we use a sequential process and procurement doesn’t get involved until late in the capital cycle, we have precious little ability to influence the capital cost of a project.
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