PMFORUM Breaking News
Breaking News in the Project Management World
Thursday, January 31, 2008
India based Reliance Industries announces big plans for a global EPC business
Reported by Raju Rao in Chennai India .
The Grand plan
Reliance Industries Ltd chairman Mukesh Ambani is all set to revive his father’s plans of building an engineering, procurement and construction services (EPC) powerhouse, modelled on the same lines as one of L&T’s core businesses. The blueprint for a separate global EPC business — which will bid for a variety of infrastructure projects within India and overseas — has been on the drawing board for nearly three years.
But now, the building blocks are finally falling in place for a venture that may equal 75% of Larsen & Toubro - India’s premier engineering and infrastructure group $5-billion turnover. RIL plans to tie up with a global engineering major like Bechtel and bid for large-scale infrastructure projects either by directly bidding for it and managing it or subcontracting it to domestic engineering firms like Punj Lloyd.
In a small way, Reliance has already tested out the concept in the US through an initiative called Crest with US major Chevron. Across the western world and in the Middle East, almost all major petrochemical and refinery projects are running behind schedules, thereby leading to huge cost overruns. The reason: an alarming shortage of engineering talent. The idea behind the Chevron tie-up was to leverage Reliance’s engineering design skills to ensure that these projects can be completed on time.
Similar to L&T which signed up joint ventures for separate verticals with global majors like Chiyoda of Japan and the USbased Sargent and Lundy, Reliance too is eyeing JVs to bring in global best practices on engineering process automation. In 2006, Reliance had signed a 50:50 engineering JV with Bechtel, the $20.5-billion US-headquartered engineering, procurement and construction firm to form BecRel Engineering.
The new plan is predicated on the country’s strength as a high quality, low cost destination for global engineering, procurement and construction services. But building overseas projects using engineering talent is easier said than done. One, tighter local immigration rules -among other things-will make it more difficult to send large teams of Indian workers to build dams and airports. So, Reliance is actually examining the option of a unique onsite-offshoring model – by sending small teams of engineers for either the finishing touches or testing and interconnecting, but bring back much of the fabrication work to its own facilities in India and thereby modularise the construction at a relatively lower cost.
The Challenges
A big challenge for all these initiatives is to recruit and retain engineers as they get better monetary opportunities in the IT sector Even hiring engineers at the entry-level isn’t easy as most engineers take up jobs in the financial, consulting services and IT because they pay more than double that of any engineering firm.
So, how does Reliance hope to cope with the staffing challenge? There are three routes that Reliance will take to staff its EPC business. One, it hopes to initially get a pool of experienced people through its collaborator. Two, it plans to offer an option for many of its experienced mid-career engineers in its operations, maintenance and technical functions, who want to seek a change. Three, it plans to continue hiring 700-800 engineers every year from engineering colleges across the country. The pitch: the sheer variety and hands-on experience of directly working in some of the biggest projects in the world-from building a retail and logistics supply chain to complex deep water exploration projects - and of course, a chance to also travel to other parts of the world. These trainees first get trained for six months to a year working on Reliance’s own projects. And even though exact numbers are hard to get, billing rates are reckoned to be very hefty-making it far easier to pay a lot more to these engineers.
Summing Up
There are very sound reasons why Reliance chairman Mukesh Ambani is excited by the opportunity of building an engineering services business. At one level, this enables him to harness Reliance’s core competency of building large-scale projects at an aggressive pace and cost and institutionalise it for the future.
There’s another critical reason and it is linked to Reliance’s new-found accent on partnerships and inorganic growth. In the global M&A game, as Reliance sees it, having a robust EPC business is likely to be seen as a differentiator. Across the developed world, there is a huge shortage of engineering talent. So a partner who brings critical resources - the availability of low-cost, high quality engineering skills-to the table will gain the upperhand over, say, private equity firms.
Source :CO TO BUILD RIVAL TO L&T - RELIANCE SET TO ENGINEER ANOTHER GIANT Economic Times Dated Jan 28 - by Indrajit Gupta & Piyush Pandey
The Grand plan
Reliance Industries Ltd chairman Mukesh Ambani is all set to revive his father’s plans of building an engineering, procurement and construction services (EPC) powerhouse, modelled on the same lines as one of L&T’s core businesses. The blueprint for a separate global EPC business — which will bid for a variety of infrastructure projects within India and overseas — has been on the drawing board for nearly three years.
But now, the building blocks are finally falling in place for a venture that may equal 75% of Larsen & Toubro - India’s premier engineering and infrastructure group $5-billion turnover. RIL plans to tie up with a global engineering major like Bechtel and bid for large-scale infrastructure projects either by directly bidding for it and managing it or subcontracting it to domestic engineering firms like Punj Lloyd.
In a small way, Reliance has already tested out the concept in the US through an initiative called Crest with US major Chevron. Across the western world and in the Middle East, almost all major petrochemical and refinery projects are running behind schedules, thereby leading to huge cost overruns. The reason: an alarming shortage of engineering talent. The idea behind the Chevron tie-up was to leverage Reliance’s engineering design skills to ensure that these projects can be completed on time.
Similar to L&T which signed up joint ventures for separate verticals with global majors like Chiyoda of Japan and the USbased Sargent and Lundy, Reliance too is eyeing JVs to bring in global best practices on engineering process automation. In 2006, Reliance had signed a 50:50 engineering JV with Bechtel, the $20.5-billion US-headquartered engineering, procurement and construction firm to form BecRel Engineering.
The new plan is predicated on the country’s strength as a high quality, low cost destination for global engineering, procurement and construction services. But building overseas projects using engineering talent is easier said than done. One, tighter local immigration rules -among other things-will make it more difficult to send large teams of Indian workers to build dams and airports. So, Reliance is actually examining the option of a unique onsite-offshoring model – by sending small teams of engineers for either the finishing touches or testing and interconnecting, but bring back much of the fabrication work to its own facilities in India and thereby modularise the construction at a relatively lower cost.
The Challenges
A big challenge for all these initiatives is to recruit and retain engineers as they get better monetary opportunities in the IT sector Even hiring engineers at the entry-level isn’t easy as most engineers take up jobs in the financial, consulting services and IT because they pay more than double that of any engineering firm.
So, how does Reliance hope to cope with the staffing challenge? There are three routes that Reliance will take to staff its EPC business. One, it hopes to initially get a pool of experienced people through its collaborator. Two, it plans to offer an option for many of its experienced mid-career engineers in its operations, maintenance and technical functions, who want to seek a change. Three, it plans to continue hiring 700-800 engineers every year from engineering colleges across the country. The pitch: the sheer variety and hands-on experience of directly working in some of the biggest projects in the world-from building a retail and logistics supply chain to complex deep water exploration projects - and of course, a chance to also travel to other parts of the world. These trainees first get trained for six months to a year working on Reliance’s own projects. And even though exact numbers are hard to get, billing rates are reckoned to be very hefty-making it far easier to pay a lot more to these engineers.
Summing Up
There are very sound reasons why Reliance chairman Mukesh Ambani is excited by the opportunity of building an engineering services business. At one level, this enables him to harness Reliance’s core competency of building large-scale projects at an aggressive pace and cost and institutionalise it for the future.
There’s another critical reason and it is linked to Reliance’s new-found accent on partnerships and inorganic growth. In the global M&A game, as Reliance sees it, having a robust EPC business is likely to be seen as a differentiator. Across the developed world, there is a huge shortage of engineering talent. So a partner who brings critical resources - the availability of low-cost, high quality engineering skills-to the table will gain the upperhand over, say, private equity firms.
Source :CO TO BUILD RIVAL TO L&T - RELIANCE SET TO ENGINEER ANOTHER GIANT Economic Times Dated Jan 28 - by Indrajit Gupta & Piyush Pandey
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