Lack of in-house engineering capabilities is one of the major constraints for Indian EPC players, says Dr Reinhart Vogel, Managing Director, Linde Engineering India Pvt. Ltd.
In an e-interview with Harshal Y Desai
, he futher highlights how the industry has grown over the years in the country.
How do you evaluate EPC business in process industry in India?
Despite the slow-down in Indian economy during last few years, EPC business in the Chemical Process Industry (CPI) has taken significant lead forward, especially through participation in mega projects in the refinery as well as petrochemical sector such as Paradip, Gujarat, Mangalore, Panipat, GGSR Bhatinda Refineries and OPaL Petrochemical Complex. In this period, several companies like Toyo Engineering India, Tecnimont, Technip, Linde Engineering India, etc have strengthened their foot prints in addition to the home grown companies like L&T, Punj Llyod, Essar Projects, Kazstroy Service Infrastructure India Private, Fernas Construction India Pvt Ltd., etc. This was a remarkable achievement against all odds.
During the decade 1995-2005 we had very few companies from India and Korea who took the lead to participate in EPC business; however, the present scenario as depicted above shows a host of companies from Europe, Japan, Korea and even from America trying to prove their EPC ambitions in India especially through their technology driven portfolio. Having said this is to recognise that still many projects in particular in the public sector are executed in the conventional' mode, i.e. without involvement of traditional EPC service providers.
What differentiates foreign EPC from their Indian counterparts? What are the real challenges for Indian companies?
Foreign EPC companies bring to the table mainly technology driven portfolio which provides end-to-end solution to clients compared to local companies who are not having technological capabilities to meet in the industry’s needs. Secondly, foreign EPC companies bring their rich experience of proven systems and procedures which improves productivity and performance of delivered projects. With regard to current challenges for the EPC industry in India we will like to bring one common factor which is applicable to both to Indian and foreign companies, mainly lack of availability of reliable local construction resources and quality vendors for delivering fabricated and bulk items in time.
Another visible constraint for some of the Indian EPC players is not having in-house engineering capabilities thus proving a big bottle-neck in delivery of the projects in time and as per quality and specifications. Lastly more than 15 per cent manpower turnover ratio in certain EPC companies is also harming sustainable capability building. In view of the above, the real challenges for EPC companies in India today are:
What are the factors that need to be addressed?
- Developing and retaining skilled manpower on a sustainable basis to meet the industry demand.
- Another crucial challenge can be found in nature of contract structure in India which often is very un balanced between customer and contractor. These conditions and their implementation are not favourable for maintaining neutral cash flow, resulting in poor response from client for change management and exposing EPC contractors to unprecedented long time for closure of projects and thus delays in releasing of final payments. Due to above mentioned reasons several EPC companies have started thinking to move to South East Asia, China and Middle East to develop their business and cutting down in Indian projects.
Capable EPC providers are enablers for the growth of the CPI in India. In order to grow this industry further, and as evident from the challenges illustrated above, the following factors needs to be addressed to tap the full potential in this segment:
- Review of contracting structures specially GCC & SCC by public sector organisations who command almost 70-75 per cent investment in process industry. GCC/ SCC & contract structure has to be a fair play document with a balanced risk structure.
- Technology driven portfolio to be given priority so that single point solution responsibility with respect to CAPEX & OPEX are delivered and project viabilities are not violated due to inordinate delays and mismatch in deliveries of all plant facilities to meet and schedule.