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Breaking Boundaries, Leaping Beyond

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From its humble beginnings as a construction company in 1969 to the large conglomerate that it is today, Essar has not just been ‘successful’ in its journey but has also proved its caliber in the international markets. Under the ingenious leadership of its CEO, Alwyn Bowden, Essar Projects Ltd (EPL) has broken boundaries and expanded their footprint across the globe. The company has been ranked among the most admired companies in the country for the third year in succession.

August 04, 2014 | cewindia.com Bookmark and Share  
To achieve excellence, an EPC company has to face many obstacles in the overseas markets, Bowden starts the conversation. “Many onerous criteria have to be fulfilled. It is necessary to have the right qualification as the customers have a lot of experience of working with contractors and will always be seeking to not only expand but also to enhance the gene pool available to them. The complex registration process itself can take up to two years, depending on the market that it enters into. The contractor has to prove this mettle to work in the new country. And there are two ways they can enter into a new market; first, companies work as sub-contractor to another large contractor or second they may take up small projects to build up the portfolio. To achieve success on large projects immediately requires very strong customer focus and differentiated offerings, and is the exception rather than the norm.

According to Bowden, Essar has chosen the latter with 3-4 small projects and has already succeeded in Abu Dhabi; and is now eyeing to replicate the model in another country, Saudi Arabia. This is the scenario in the Middle East (ME) market and it is a much regimented one. While commenting on entering new or more difficult territories Alwyn Bowden says, “You have a chance to demonstrate that you can do things that anybody else can do, and perhaps do them better, as there are few players who have any expertise in those countries.” Based on Essar’s track record in India, the company has just entered the Mauritanian market with a very large project, where the contract has come directly to the company.

Global Market
When asked about the other markets like South East Asia, Africa and US as compared to ME, Bowden says, “In South East Asia, some countries are regimented while others are not; there is a lot of competition as there are a number of strong Korean and Chinese companies with well-developed local contracting capabilities. The situation in Africa is different as it is not so well-organised. The lack of indigenous companies there makes it is easier for new players to enter the market. But finance remains a challenge everywhere.”

He adds, “USA is traditionally a stronghold of American contractors and it is a very difficult territory. There are a lot of labour issues in USA and unions have to be dealt with. Historically, it is not an EPC market and tends more towards EPCM models. Only in the last few years, the EPC model is being considered in the States, after the likes of Samsung entered the market.”

In 2011, EPL was identified as the 2nd fastest growing company and has grown in terms of the external business. Although the order books remain relatively flat, it has transformed considerably from 5 per cent revenue from external clients to around 50 per cent revenue from external clients now and from almost negligible revenue from overseas market to now around 40 per cent revenue from there. In terms of the global footprint, EPL is present in Papua New Guinea, Indonesia, Singapore, Myanmar, Middle East, UK, North America, South America and now, in Mauritania and Venezuela as well; thus the footprint has expanded greatly.

But if an EPC company aims at numbers, then Middle East is the obvious target. On the other hand if the company envisions a different perspective then it is good to have a strategic plan in place. EPL’s strategy has been looking for key customers and following them into the territories they want to enter. Many customers have set their sight on Africa for the future.

Funding for Projects
When asked about EPL’s strategy to get the funding for the international projects he replies that EPL’s international projects are all EPC-based contracts thus the funding is taken care of by the customers themselves. But there has been a trend in recent times where contractors have to bring in the funding to secure the projects. He adds, “Having more support is nice but limited availability of funds is also a reality. Receiving support from India Exim Bank or through FDI is always welcomed but most of the times there is a limit to the investment at around USD 200-250 million. And this makes it difficult to secure major investments. It takes up to 18 months to secure the funds for a project from Exim Bank.” However, EPL has been very successful in garnering support from the financial institutions for its overseas ventures and is well placed to support projects in all of its target territories.

Working Style of EPL
EPL prefers to do a mix and does not undertake all the construction activities by itself. Based on the circumstances, the decision is taken, but in the past its work model has succeeded. The company carries out the key activities that drive the project itself. Bowden states that this model of work was adopted for the Jurong Aromatics Complex. He says, “EPL took their workforce from India for the tank work as it was the most critical activity and the other activities like civil work, etc were given to local subcontractors.” EPL’s talent is mostly home grown; the company’s strong international teams too have developed through the projects here in India.

Risk Factors before Taking the Decision
The biggest risk factor is of course the ability to pay; it is important to see that the customer has the provision to pay when an EPC company undertakes a project. Local factors are the other things to be considered as they can get complicated for every country with each passing year. Issues which might seem trivial like CSR, nurturing the local community and training for local employment are just a few examples which can truly upset the necessary clearances for the project, reveals Bowden. Unionisation or its equivalents are also a major concern in some territories.

Most Challenging Projects
Every project presents a different set of challenges, however according to Bowden, the remote projects are the most challenging ones. “If location is considered a challenge then Madagascar was a huge one with its 100 km of cross country pipeline through virgin hilly terrain as well as the difficult law and order situation at the time. EPL faced a similar challenge in Papua New Guinea,” he adds.

He quips, “For a company stepping out of India, the biggest challenge is going into a developed market like Abu Dhabi because you have to get used to a completely new regime of control and working. There is a vast amount of paperwork compliance to be done and details to be worked on. It is a league ahead of what is being traditionally practiced in India.”

Pursuit of Major Projects in India
There are a number of underlying issues even with the change in the government. Aside from the obvious legislative, environmental and right of way issues that the new government will surely tackle, Bowden observes, “State owned entities are pushing more and more of the cash flow responsibilities into the contract and the EPC contractors have had to become increasingly reliant on facilities from their banks. Simultaneously, an ever growing number of guarantees are required for the project.”

The other issue contractors face is that any advance payment from state owned institutions tend to be offered at very high interest rates and at the same time the industry faces many constraints put in place by the banks themselves. So, the companies have to ensure the bank’s support or else the EPC contractor is caught between a rock and a hard place. This is the reality today for the construction industry in India and it is an artificial situation generated by the industry itself.

EPL is currently executing a series of projects in India and overseas. Presently, EPL is completing a USD 400 million project with Jurong Aromatics for their petrochemical plant in Singapore. Another project EPL is working on is a USD 600 million beneficiation plant for Glencore Xtrata in Mauritania in Africa.
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