Chemical & Processing
Oil & Gas
Pharma Biotech
Infrastructure & Design

"EPC Business - Future is good but patience required"
Mr. P D Samudra, CEO & Managing Director, thyssenkrupp Industrial Solutions (India) & the CEO, Regional Cluster India, tkIS AG Group At present, the Indian EPC sector has been going through tough times due to fall in global oil prices, which impacted pricing of petroleum products, ultimately affecting the financials of the Petrochemical & Allied Chemical Industry restraining them from making new investments. Mr. P D Samudra, CEO & Managing Director, thyssenkrupp Industrial Solutions (India) & the CEO, Regional Cluster India, tkIS AG Group shares his views on current market crisis, Indian EPC market, Goods & Service Tax Bill and the Governments Make In India initiative in a conversation with Mittravinda Ranjan.

How do you draw a parallel between the current market turbulence with the market crash of 2008, when the oil prices witnessed sudden spike?
The crisis in 2008, which resulted from financial crisis in banks, had a wide implication across the world and was experienced in almost all segments. The present crisis however has affected certain industrial sectors of markets that are mainly related to the oil and gas, energy and mainly associate industries. The sudden crash of the oil price was the tipping point to this crisis. The signs were visible earlier as shale gas was made available at cheaper prices. The complete energy business across the world was undergoing massive changes and that resulted in oil price dropping to less than $50, which is almost half of the earlier price. This crisis had an adverse effect on sectors related to energy, oil and gas, petroleum, chemicals etc. Right now, there are better business prospects in India in certain sectors like IT, infrastructure, food, packaging, defense equipment, retailing, automobile etc; and some countries like USA are still doing relatively better in chemical sector, since they have abundant shale gas available at lower prices. So, we cannot say that this crisis is across all the segments of business. I. In case of Steel, however, due to excessive Steel Production capacities built up in China and lack of demand due to delays and cancellation of the new (promised) projects for Infrastructure and Process Industries, the Steel prices had also crashed, in the meantime.

What are the industries that have been indirectly affected due to low oil price?
The crisis has had an adverse effect for example on the EPC & Construction industry especially the Chemical Process sector. Most of the EPC companies, engineering service providers, and the equipment and component suppliers for building Chemical Process plants, are affected today. A Large number of projects are delayed; some of them are cancelled. Investments for new projects are not forthcoming in Chemical Sectors, because the cost of raw materials and products are in a dynamic situation. As the oil price has come down, all the derivatives of oil have taken a hit. Due to this situation, the private sector especially in India is not ready to take risks and is refraining from new investment announcements. When this situation gets stabilized, I am sure there will be an impetus for the growth of our industry. In the meantime, strong measures have been taken by some of the EPC players e.g. adjustments in number of employees, closing down or selling of some of the non-profit business units, considering diversifications etc. There is an ongoing process of consolidation at all levels of organizations.

Another factor which has affected large Petrochemicals, Polymer and Refining sectors is the big capacities built up in China and in the MENA regions, Consequently, under the present situation, the number of projects in the MENA and China regions have now been postponed or cancelled.

Please share insights into the on-going projects of tkIS in India and globally?
Currently, we are active on number of projects in the field of clean fuels in the Refining Sector, i.e. for conversion of the throughput to Euro IV, Euro V standards. We are also implementing DAP projects in India. We are involved in petrochemical projects for manufacture of Phenol and Cumene. We are serving our other important clients for a number of caustic soda/chlorine projects in India. Apart from these we are acting as PMC for projects for Polypropylene & Refinery Projects etc... Internationally, we are implementing projects for Petrochemicals in Saudi Arabia, DAP/NPK in Vietnam etc.

A 60 MMTPA mega refinery project has been planned by IOCL, BPCL & HPCL with EIL. How do you see this as an opportunity for tkIS to collaborate as consultants?
The refinery project, announced by Indian Oil, BPCL, HPCL and EIL is a very good move. Presently India is a net exporter of petroleum products. Since consumptions for Petroleum products are increasing rapidly in India, as a consequence of rising standard of living (due to higher GDP), we would require huge quantities of petroleum products. If we do not expand our plants now, or if we do not set up new Refineries, the situation may arise in the years 2025- 2030, that we have to resort again to the import of petroleum products! Therefore, it is very important that India should act immediately and set up more refineries, to meet the demands of the petroleum products by the end of the next decade. Therefore this project is very crucial for our country. The EPC/Engineering companies, Equipment/Components manufacturers are keenly observing the progress on this Mega Complex including downstream units, for business opportunities in future.

Though the government has cleared the GST bill, there is no clarity on its implementation on the petrochemicals sector. In your opinion, what are the lacunae that still need to be addressed to create a level playing field for Indian EPC companies in the domestic market; and building globally competitive industry?
There are lot of issues presently with respect to taxation structure in the EPC business, since majority of EPC contractors do not manufacture all the equipment, and/or components of the Plant themselves, thereby creating lot of work for proper tax assessment, clarifications and the paper work, apart from the complexity in the tax computations and eventually resulting into the delays and cost over-runs in projects I am sure with the GST bill in place, these matters will be simplified. It will be good for the EPC Sector, since the risks on taxes can be minimised and the total cost will eventually reduce.

However there should be a proper level-playing field for both the foreign contractors, and the Indian contractors, by maintaining proper "balance" in import duties and local GST, respectively.

The "Make In India" initiative, which has shown promising prospects for the Indian Chemical sector & EPC sector, has being promoted extensively at varied industry forums. How beneficial would it prove for the sector?
"Make in India" is an excellent initiative. For Chemical Process Plants this can be applied selectively as the sizes of Chemical Plants are rather big (international size), warranting a very high investment. Additionally, majority of Chemical Plants require either "backward" or "forward" integration with production of raw materials or production of downstream products, to be more cost-effective and thus effectively compete with international manufacturers. This increases the capital costs for the project. Therefore, no big investment seems to have taken place in Chemical Projects of large size, under the "Make in India" scheme; but the Small Scale Industry has certainly witnessed investments! On the other hand, the Equipment Fabrication/ Manufacturing Sectors have very good prospects under "Make In India" Scheme e.g. entrepreneurs can now aim to manufacture some of the critical equipment/package systems required in Chemical Industry, which are presently being imported. This would require scouting for competent and experienced equipment/package system manufacturers, who are prepared to collaborate and market the products, together, not only for Indian market, but also for the overseas market, in view of being more competitive.

How does having indigenous technology benefit EPC companies in the competitive business environment?
tkIS is known internationally to be Technology Driven EPC Company, which includes Uhde processes in Chemical Industry.

tkIS have their own well proven and experienced technologies and have also access to well-known technologies from the Licensors of international repute; in the fields of Fertilizers, Petrochemicals, Refining, Industrial Chemicals etc.

With respect t o your specific question, I may mention that there are a number of well-proven and commerciallyattractive technologies available in the international market, for a majority of chemicals. It is challenging to develop competitive technology from scratch, indigenously. However, efforts to develop such technologies must continue, provided they are envisaged to be commerciallyattractive and also can compete effectively on technology merits.

The modern trend in the EPC business is that the Customers prefer to opt for L (Licence) + EPC contracts, so that the Customer gets "single point responsibility" in the true sense, especially with respect to the Plant Process Performance Guarantees. If this trend continues, then having one's own technology, either from the Parent Company in case of Multinational EPC Companies, or in case of Indian EPC Companies, tying up with the Indian source of technology will be beneficial, in the long range.

However, I must say that at present there are a very few Licensors from India who can offer Licence for well proven and commercially attractive technologies in Chemical Fields.

In your opinion, what are the opportunities and challenges in India across the hydrocarbon value chain and downstream chemical processing industries?
There has been dramatic shift in the business of manufacture of Petrochemicals as well as in the Oil and Gas Industry. The size of Projects have become so large that only very few large Private Sector Chemical Companies or Public Sector Undertakings (PSUs) are able to invest such high capital; and sustain the international "ups and downs" in the Feed and Products prices. The discovery of Shale Gas and the drastic reduction in Oil prices have changed the complexion of the Industry in Hydrocarbon Sector, substantially. Therefore, it makes very good sense in setting up Projects in the Regions where Gas/Oil are available at cheap prices. However, India has a great potential to act as a "processing hub" due to the low conversion cost based on imported feed stocks eg. Refining Field Combined with this, the Government's plan to bring in LNG Gas at a cheaper price will lead to spurt in investments in the field of Fertilizers and Petrochemicals, in the long run.

As also stated above, the growth in the Refining Industry is a must! The wide gap in the per capita consumption in India for Petrochemicals, Plastics & Fertilizers (Urea, DAP) etc., combined with the high rate of growth in GDP will surely imply that there will be substantial growth in the Hydrocarbon processing and downstream industries, in the next decade.

I therefore believe that after the stabilization of the prices of Oil and Gas, Indian EPC Sector has huge potential for Hydrocarbon based downstream projects - Petrochemicals, Polymers, Fertilizers plants, including the Oil Refining Sector.