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Can't Afford to Ignore 'Financial Engineering'
With a possibility of huge investment in Indian chemical and petrochemical industry, Engineering, Procurement and Construction (EPC) companies will have brilliant opportunities to contribute to the industry. Samik Mukherjee, Country Head & Managing Director, Technip India, elucidates changing trends in the process industry, strategies, unavoidable competencies for EPC companies and more.

What are your views on the impact of current macroeconomic scenario on the users and the EPC service providers?
From an Indian perspective, while clients have ambitious plans for investment in different sectors of the economy, all of them are keeping their investment plans on hold until they have a clear idea regarding Government policies on feedstocks such as Natural gas and end-products such as Fertilizers. This hold back of investment by clients has a direct impact on the local market of EPC service providers. A number of proposals have been kept on hold.
On the International scene, while the major economies are growing slowly, we witness a general trend of oil majors to discover oil and gas from deep offshore and the Arctic region. These investments drive the EPC service provider to the cutting edge of technologies as the service conditions are very severe in terms of temperature, pressure and metallurgy.

How do you evaluate on impact of changing trends in the process industry on the service providers?
The main change agent that is generating a tremendous interest is the process industry in the discovery of shale gas in North America and its potential reserves in different parts of the world waiting to be exploited. With the price outlook of shale gas being much less than that of natural gas, and its abundance, has many clients exploring its use as a substitute to feed stock for new investments.
With effluent standards becoming stringent day by day and environmental aspects to be respected to lower the carbon foot-print and preserve the environment, service providers need to look to new technology to be able to meet the clientĘs specifications with regards to effluents discharge and carbon dioxide emission.
In addition to the above, safety consideration is one of the major concerns of the clients and in this regard, service providers are taking major steps to change the mindset of their employees to create the right climate for them to work without causing any injury to their personnel or damage to the plant, machinery and environment.

What are the various strategies that the contractors are adopting to mitigate the risks in the current business environment. How they cope up with changing customer demands? As a services provider how does your organisation respond to these challenges?
Risks could arise due to clientĘs mega projects on a LSTK mode with a short schedule, setting up in countries having a high political risk, in countries with strong labour unions, or new technologies being tried for the first time. Contractors look at the risk ahead and de-risk them by either joining hands with other contractors to share the risk or move into projects at an early phase where they do the FEED initially and after assessing and having a good plan to handle such risks roll over the FEED definition to a LSTK contract.

ln your view, which are the competencies that the EPC service providers need to develop or further strengthen to meet the ever increasing customersĘ expectations?
Customers want to set up the plants in the shortest possible time, at the lowest cost of ownership. With these conditions prevailing, contractors apart from sharpening their risk management competencies, need to invest in system and procedures using new technologies to reduce their engineering effort, development of new vendors who could supply items at lower than prevalent prices, adopt new construction technologies like modularization and be in a position to offer end to end solution to their clients which takes their projects from the design stage well beyond the plant acceptance to enter into the area of operating and maintaining the investment for a couple of years.
Apart from technical competence these days, contractors need to strengthen their competence in financial engineering so as to enable their clients work with respective financial lending institutions to offer the best possible financial terms to the client. Increasing safety standards, is an absolute must to stay in business.

May we have your comments on project funding?
Technip does assist the client in Project financing and helps to tie up with a suitable Export Credit Agencies (ECA). As Technip, has world wide operations, we have a good knowledge of operating with different ECAs worldwide. Today we see clients depending to a large extent on ECAs and institution funding. Projects with such funding requirements take a fairly long time to reach a financial closure. Hence EPC contractors need to possess adequate skills in project financing to be active in this market.

The EPC sector is also faced with shortage of manpower and machinery. Your comments?
Manpower is manageable for the Engineering and Procurement sections of the Business if we can attract and retain the talent port with focused approach on Human Capital Management. Construction is however posing a big risk as shortage of skilled labour is being experienced worldwide.
A lot of effort is being undertaken to develop such resources and companies are investing a good amount of money and time to train fresh personnel in different aspects of the EPC business. Shortage of material happens where there is a glut of projects being executed simultaneously. Developing long term relationships with key vendors is a must.
How the policy level and regulatory gaps can be addressed to boost the growth of lndian EPC industry since it is still counted as a part of capital goods industries and comes under three ministries viz. Ministry of Heavy lndustries; Ministry of Petroleum & Natural Gas and Ministry of Chemicals & Fertilizers?
Government has to play a decisive role in this regard and create a climate favorable for investors to invest.
The Government of India has today started moving in this direction. Such steps taken could be a major incentive to the Indian capital market as we see investments in the Oil & gas, LNG and Fertilizer sectors.
How do you see the business climate in lndia for future investments? What steps need to be taken to accelerate the pace of project execution?
In addition to above, further steps in reducing the time for an investor to get all the statutory clearances necessary to start the project will also help.
Tell us about your companyĘs on-going projects and future projects in the kitty in the chemicals and petrochemicals industry?
Technip is in the Energy business and as usual all our major thrusts are in the area of oil and gas both upstream and downstream. We are active in areas like Refining, Petrochemicals. LNG and Fertilizers. New areas of growth are Life Sciences, Renewables, Nuclear and Metals and Mining.
With our recent acquisition of Stone & Webster we are able to provide wide spectrum of Process Technologies in Refining, Ethylene and downstream Petrochemicals. Major on-going projects are FLNG project which is a LNG plant being set up on a floating facility. FLNG brings integration of technologies from all TechnipsĘ core activities; LNG process, Offshore facilities and Subsea infrastructure. Refinery Off Gas Cracker, one of the largest Ethylene Cracker in the world utilizing Refinery Off gases as itĘs feedstock.
We are also involved in the FEED phase for the world class integrated Refinery & Petrochemical Complex. In addition the Technip Group is involved in Ethylene Cracker projects for multiple customers. In addition, we are also involved worldwide in many Subsea installation projects.

Please comment on overall future of the EPC industry in India.
With energy being a major driver for the Indian economy to grow, we see a huge potential in investments taking place in the exploration of oil and gas and coal. Investments in Refining, LNG receiving terminals, Petrochemicals, Fertilizers, Coal to liquids, Power and Nuclear are expected.
The global outlook though appears uncertain for the EPC industry at present, but the domestic market looks promising in the medium term.
We could witness consolidation of resources to take place in EPC companies and their drive to be equipped with the right technologies, execution skills and people competencies to offer cost effective solutions from concept till delivery to customers in both the domestic and the international market.