Ahmed Hamdan – Founder and CEO, Onspec Tawakol, Egypt
Ahmed Hamdan, founder and CEO of Onspec Tawakol Engineering Company (OTEC), highlights the exciting journey behind OTEC’s successful operations today as a mid-sized engineering/EPC contractor for the oil and gas sector, the challenges a local company faces in Egypt, and his advice for aspiring engineers and entrepreneurs.
Ahmed, you founded OTEC in 2003. What gave you the inspiration to start your own company?
“OTEC has never left Egypt. We are an Egyptian company and we are very much here to stay, so our clients can trust in our dependency and commitment.”
I always had the passion to do something a little different and after I started my first job, I realized I wanted to build my own engineering company. My own background is in engineering so I was familiar with the industry. Fifteen years ago, the industry in Egypt was dominated by huge, state-owned EPC companies. While they were doing a great job, I observed that there was a market need for a smaller EPC player. For instance, the UK market has hundreds of smaller EPC contractors, while Egypt had none.
There are significant differences in needs when it comes to smaller projects. They have a smaller budget, require lower overheads and cheaper services, and often see changes in their scope of work, which requires flexibility. This was the niche I thought OTEC should move into.
We started where my core competence was, which was process engineering with computer-aided software engineering tools and so on. From there, we expanded steadily by adding new disciplines every year: piping, mechanical, instrumentation, electrical, structural, and so on. I was also careful to maintain a consistent positive cash flow. On a more personal note, in 2006 I also decided to expand my capabilities by undertaking an MBA from the American University in Cairo (AUC) so that I could better understand the business aspects of the industry.
Our very first project was actually outside of Egypt. At that time, it was quite difficult to break into the Egyptian market because we did not have a reference list and the local industry tended to be quite closed. To build our credibility, we had to venture outside, first in Syria with Syrian Petroleum Company, then in Libya, Abu Dhabi and Qatar, before we were able to return to Egypt and successfully enter the market here.
Fifteen years on, what is OTEC’s positioning in Egypt today?
We work in two main areas. Firstly, we provide engineering services for both upstream and downstream sectors: mainly FEED studies, detailed engineering, technical and economic studies, field development projects and brownfield modifications. 60 percent of our activities are for the upstream sector while 40 percent are in the downstream sector, specifically gas processing.
We were the first private company to enter this market in Egypt, looking specifically to mid-sized projects, not megaprojects, so we now have extremely good positioning. We compete head-to-head with other international mid-sized engineering service providers. Over the past few years, I have witnessed many of these companies entering and leaving Egypt in response to industry fluctuations. On the contrary, OTEC has never left Egypt. We are an Egyptian company and we are very much here to stay, so our clients can trust in our dependency and commitment.
Secondly, we also provide modelling, simulation and software development for the American company, AspenTech. We have created a center of technical support providing modelling and simulation services for the entire North African region. This has really been quite instrumental in helping OTEC combat the slowdown in the Middle East and North Africa (MENA) petroleum industry by acting as another source of revenue and diversifying our product offering and market positioning, while still drawing on our strengths in the region and industry.
Looking at the past few years, as you suggested, Egypt as well as the global oil and gas industry have seen some ups and downs, with some companies even leaving Egypt as a result. How has OTEC managed to weather the storm?
A few days after the January 2011 revolution, our parent group called a meeting to discuss how best to manage the crisis and continue to grow the business. I told our chairman that I was confident of our backlog for the year ahead, which meant that I could use the year and the cashflow to actually increase our engineering capacity. I did not lay off a single person and I did not reduce a single salary. Quite on the contrary, I expanded our team, which boosted company morale.
This was rewarded only half a year later, where we won what was then our largest project ever in Egypt, an extended FEED for then German E&P company RWE Dea. We competed head to head with both Egyptian and international EPC companies for this project, and we won it in large part due to the fact that we had the staff and additional capacity to begin work immediately. Subsequently, they were so impressed with our work that they awarded us the rest of the detailed engineering, construction supervision, commissioning and start-up. It ended up producing between 150 to 240 million cubic feet (mcf) of gas a day, so it was a pretty significant project.
While low oil prices have affected the project pipeline in Egypt as companies placed projects on hold or cancelled them, we have adapted by reducing costs, lowering our man hour rates and expanding into other countries like Algeria.
Overall, OTEC has proved to be extremely adaptable and I am very proud that we have consistently managed to achieve around 22 to 25 percent growth year-on-year since our founding in 2003 by managing market developments and seizing opportunities.
Can you shed some light on the technical challenges of a company like OTEC working in Egypt?
In the beginning, breaking into the market is difficult. People here tend to give new work to people they have already worked with before. The oil and gas sector here is highly regulated and largely owned by the government. Starting a company as a private investor without the support of a foreign partner or an NOC is quite challenging. We have worked very hard the past fifteen years to be registered with all the major stakeholders here and to participate in most of the tenders and contracts being awarded.
Strong financial capabilities are also important for the contracting industry. Getting financing from banks or other financial institutions in Egypt can be challenging here, which means that local companies like OTEC usually have to rely on our own resources. This limits both our growth rate as well as the maximum size we can achieve.
Finally, the Egyptian market has tended not to be the first implementer when it comes to new technology. That said, once they begin to implement new technology, because of the concentration of talent here, it is usually possible to build up expertise and cost-effectiveness fairly quickly. This is something we have tried to promote in Egypt too. For instance, through our connection with AspenTech, we have introduced dynamic simulation and dynamic modelling techniques for process parts and pipelines other EPC contractors. This not only means providing them with the software but also training their engineers and even building the first few projects with them together. We are also providing technology like advanced process controls, optimization techniques and algorithms to some of the petrochemical projects in Egypt. The recent increase in activity in Egypt has increased the pace of technology adoption as there are now many more projects that can test these new technology.
What more do you think can be done to promote local enterprise?
First and foremost, the industry needs to trust them to be able to deliver. The problem in Egypt is that local companies are sometimes overlooked. The government offer incentives and preferential treatment to both state-owned companies as well as foreign investors, but not the local private sector.
Secondly, the financial sector should make it easier and more attractive for small and medium-sized enterprises (SMEs) to obtain funding, for instance, by lowering interest rates. Banks need to see working together with the domestic private sector as a partnership instead of a transaction.
We also need to better educate Egyptian engineers and expose them to advanced technology and international experience. Egyptian engineers are really talented, they simply need the opportunity and the chance to show their real capabilities. I believe the Egyptians are very adaptable, and once they are placed in the right system, they will do their best to deliver. But you cannot judge his true capabilities if you do not provide him with the right environment.
Despite these various challenges, the fact that I am still doing business – successfully – here demonstrates the opportunities available in Egypt. Egypt is truly a land of opportunity: there is a huge market here and that market is growing very quickly. What is a pity is that we are not making the most of this. If we put the right infrastructure and regulations in place, if we can support the Egyptians that want to develop their country and if we can reform the environment, we will be able to fully realize the huge potential that Egypt possesses. After all, we are Egyptians, we love our country and we want it to succeed. There are plenty of companies like OTEC with the technical and commercial expertise, across all sectors. We just need more opportunities to grow and succeed.
How do you differentiate OTEC from the other EPC contractors present here?
Our role is really not to try and compete with the state-owned giants like Enppi or Petrojet. In fact, we try to support them whenever possible and we only target projects where we believe we can deliver the most value and be the most competitive.
Having a diversified oil and gas sector is actually very healthy for Egypt. If we have enough companies like OTEC working on small to mid-sized projects in Egypt, it frees up the larger companies to focus more on international markets, where they are better positioned to win larger projects. This will also bring in more foreign currency for the country. Moving forward, I think this should be their strategy. In the Gulf region, for instance, Egyptian EPC companies should have a strong competitive edge over international companies because of the shared language, common culture and the high engineering standards we hold. On the other hand, smaller companies like OTEC are more economical for smaller projects in Egypt, so it is really quite complementary.
What is your strategy for continuing to grow OTEC?
Firstly, I would like to continue our organic development by adding more engineering disciplines and further diversifying. For instance, we are exploring opportunities to expand into the solar energy sector in the near future.
I also see great potential in our Algerian office. We entered Algeria three years ago and now the office there represents around 30 to 40 percent of our total revenues. The devaluation of the Egyptian pound will actually benefit our internationalization significantly because our man hour cost now in the oil and gas sector should be lower than India and even China. Any service industry should be able to flourish in Egypt now – as long as the legal and regulatory framework in place support them. Under the current economic climate and the currency valuation, we expect to be able to grow our business three to four times in the next few years.
Our flexibility have really been key to our continued success. We see opportunity in crises and we try to anticipate the future. Sometimes larger companies tend to be a little slower to react and adjust. For instance, OTEC used to have large projects in Libya and Syria. When the situation started turning sour, we decided to refocus on Algeria. This is possible because we remain a very agile company.
As a successful local entrepreneur, what advice do you have for aspiring young engineers and entrepreneurs?
They should have a very clear direction when it comes to what they want to do in the future. Then I recommend that they try to obtain some real world working experience before starting their own business, so they can pick up some experience and industry knowledge. They need to learn both the technical and managerial aspects of the business; today, an appreciation of finance, marketing and sales is probably as important as technical knowledge itself. Without this dual knowledge, they will have a rather shallow understanding of the industry. Working in a smaller company will probably provide more exposure to the various aspects of the industry than working in a large corporation. I also recommend that people develop an understanding of the market. For instance, it does not make sense for someone that has worked his entire life in Abu Dhabi to then come to Egypt to start a company as the environments are completely different.
What would you like people to associate with the OTEC brand?
Firstly: excellent technical knowledge. We are here to support the industry in a way that suits their organization and requirements. In many cases, we will sit with our client to write his scope of work together. When circumstances change, we are very happy to change the scope of work accordingly. We are very flexible in providing our services and solutions.
We also have an excellent, fast-acting and knowledgeable team on the ground with a diversity of staff and engineers. We offer competitive rates without sacrificing our quality.
We see ourselves more as a consultant than a company looking simply to sell more man hours.
Looking forward, where would you like to see OTEC in 2020?
Firstly, I would like to have internationalized OTEC successfully so that 80 percent of our business is outside of Egypt, split between Algeria and the Gulf. I would also like to see OTEC as one of the main EPC contractors working in the solar energy sector.