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"Gearing Up for the Trillion Dollar Market"
Commodore P C B Nair, Managing Director and CEO, Essar Offshore Subsea Ltd (EOSSL) shares his views on risks and opportunities in project execution in the cost intensive offshore industry. He discusses EOSSL’s focus on Indian and Indonesian markets and plans to establish them in fast developing trillion -dollar deep sea market.

The Indian Government has earmarked significant amount of funds for development of hydrocarbon sector, what are your views on the risks and opportunities from the perspective of an EPC player?
We estimate about 30 per cent of the planned outlay would be for EPCIC field development works. From an EPC player’s view, this is a big opportunity, though not without the share of risks intrinsic to any EPC project offshore. The risk is comparatively higher in offshore projects where time cost is high, and client’s readiness, access to site, finalising design specs etc. play a pivotal role in delivery of the project.
For large corporates, such projects do not pose a challenge from funding perspective, but in case of overrun for any reason, cash flow can get stifled. This is an area, where contract conditions of public sector companies could be more equitable, and help create a level playing field for client and contractor. Having said that, one has to admit that this market is among a few where payment security is very high, in comparison to markets in other parts of the world. At the same time it needs to be stated that at the national level no incentive or protection is offered to the Indian EPC bidders other than the ‘10 per cent price preference’ which is froth with qualification conditionalities. On the other hand, other Asian and Latam countries have laid down protective measures for their indigenous bidders, to develop them, to take over ultimately from their foreign counterparts.

Which areas in the industry are likely to offer maximum opportunity; and which areas will Essar Oil & Sub Sea Ltd (EOSSL) play a major role?
The maximum opportunity lies in deep water development, but this hitech market is accessible to a handful players as on today. We should for the time being be focussing on EPCIC jobs in water depths under 150 mtrs, encompassing platform structures, pipelines, PLEM, flexibles etc. We have plans to the deep water space, once we’ve established ourselves in shallow water market.

With the drop in indigenous gas supplies and increase in reliance on LNG, what kind of investments is this particular sector likely to see?
With depleting oil reserves globally, the focus has shifted to gas. With technology now offering solution to liquefy the gas at offshore itself, economics of gas transportation will assume significance.
LNG has already established itself as a viable form of energy transportable by land and sea; first movers have reaped huge benefits on their count. For instance, Indonesia had invested heavily in LNG facilities, and is already the world’s largest exporter of the gas. In India, LNG import terminals would be in demand soon. As we grow, the country’s energy needs would get insatiable; LNG would be the most economical way to meet this demand as alternate energy sources are not developing fast enough. Of course, this is associated with investment in cross country pipelines to distribute the gas in the hinterlands.

What is the company's targeted revenue from hydrocarbon industry segment and which markets are going to contribute the major share of the revenue pie?
We estimate project wins of about USD 2 billion, of which 1 billion would be from India and 500 million each from the Middle East and Indonesia, during the time horizon 2012-2014.

May we have your opinion on the paradigm shift in EPC in the ME and what are the lessons to be learnt?
Project owners in the Middle East are shifting to least cost options (the L1 basis of award) resulting in Korean companies sweeping projects there. The lesson for us is to improve our cost competitiveness and enter the market using the intrinsic man-machine strength Essar Group has.

May we have your comments on challenges in Middle East vis-à-vis Indian market?
The Middle East is a more organised market, though the entrée barrier for EPC players is high. The Indian market, on the contrary, is easily accessible to new players and thus is more price sensitive than Middle East. The Indian market has seen South East Asian players with lower credentials undercutting the market and taking jobs during the last few years resorting to price dumping. There have been cases of serious underperformance and project overruns as a result. Middle East owners have a very stringent pre-qualification process, and only companies with financial standing and performance record are allowed to pass through, and compete in their tenders. Entry barrier and filtration process in combination! The Korean companies have mastered the answer to address it and excelled in this market of late.

Tell us about EOSSL's future plans.
EOSSL would be focussed on India as its bread and butter market. Our secondary market is Middle East, followed by Indonesia. Of course we would not hesitate in pursuing any chance win that can take place outside there. We would also take initial steps needed to enter the fast unfolding trillion- dollar deep water market.