Osama Bishai – CEO, Orascom Construction, Egypt
Osama Bishai, CEO of Orascom Construction, highlights the positive performance of the company in the past few years in spite of external volatility; the confidence the company has in its balanced portfolio of activities across the Middle East region and the US; his perspective on what it means for Egypt to be a regional energy hub; and Orascom Construction’s work on developing critical projects that improve the everyday lives of Egyptians.
Mr. Osama, Orascom Construction has undergone some changes in the past few years, including the demerger of the fertilizer business, as well as global economic volatility. How has the business fared in the past few years?
“In the shorter term, within the next 12 to 18 months, the challenge is to obtain and mobilize the right resources to deliver our project backlog.”
Restructuring was essential to allow both industrial and construction business segments to grow independently, based on available opportunities, without being hampered by the other entity. This independence will also create many opportunities and provide the freedom for each entity to pursue its own course of growth.
Speaking of the global construction industry more generally, the Middle East in particular was significantly affected by the oil prices as countries like Saudi Arabia and to a lesser extent, the rest of the Gulf, have seen projects suffer from the shrinkage in cash flow due to the decrease in oil prices. Our business there saw a corresponding fall that reflected the realities of the economic situation. That said, our Middle East business was still able to deliver the results that we expected.
Meanwhile, the market in Egypt has remained extremely positive and robust due to the fact that the government has been focusing on stimulus projects, particularly in the infrastructure sector, where we are well-positioned to take a decent share of the market. Overall, the company saw growth in spite of the Middle East slump.
Given that Orascom Construction works in a variety of sectors, how significant is the oil and gas, and energy, business to the company?
Looking at energy in the bigger sense, it was a big part of our Middle East operations, particularly power generation. We have been a key player in the power generation story of Egypt. As you know, Egypt was facing a domestic electricity shortage in 2014 and we were a key player that worked to bridge this gap in 2015 and 2016. As part of this endeavor, we still have a backlog of work to be executed until the summer of 2018, most probably.
Another significant energy project that deserves mention is the construction of the SUMED LNG receiving terminal being built in Ain Soukhna. This is critical because it represents a key infrastructure facility that needs to be built in order to support the growing gas consumption need from the power sector. Until the new gas discoveries in Egypt are fully developed to meet Egypt’s domestic need, the country will continue to import natural gas to fuel its power generation sector, and this facility is an important piece of that puzzle.
– Beni Suef
– Major achievements – international projects
What challenges do you see for the company at the moment?
In the shorter term, within the next 12 to 18 months, the challenge is to obtain and mobilize the right resources to deliver our project backlog. We have a significant backlog right now and we need to have the right capabilities to implement it.
The continuing challenge is how to develop and maintain a sustainable business under what remains rather difficult circumstances. In Egypt, financial markets remain fairly volatile, which has a direct impact on inflation and the cost of goods. Managing this is sensitive because it affects not just our bottom line but our general performance, if we are unable to deliver the right returns to our shareholders. More recently, we also faced the problem of a shortage of foreign currency within Egypt but I believe this situation is improving steadily. The real impact of that has been on our subsuppliers and vendors.
Our business is balanced across the North African market (specifically Egypt currently), the Middle East as predominantly the Gulf region, and the US. The Gulf region has been affected by the fall in oil prices, as I mentioned, but the most important projects have continued to be executed. As the oil price continues to slump, I believe these countries will return to exploring alternative commercial models like public-private partnerships (PPPs) and concessions, which had been disregarded at the height of oil prices.
Egypt, on the other hand, has not really been affected by the drop in oil prices as it is not an oil exporter. Rather, growth has been driven by infrastructure needs, which are more related to the availability of funds. When you look at the size and youth of Egypt – 92 million people with more than 50 percent under the age of 25 years – the infrastructure needs here are immense. As a country, we are still behind in providing the right level of services and infrastructure for the population, so there is huge potential for new investments and growth.
Looking at the rest of the region, there are countries that have been affected by conflict and war, which means they will need development in the future. Iraq, Libya and Syria come to mind. We have already worked in Iraq so we are a known operator there, and we will also pursue opportunities in Syria and Libya when the time is right.
Overall, I believe this part of the world will see positive growth in the near future and as a company that have worked across the region, from Algeria to the UAE and Saudi Arabia, we are in a very good position.
Orascom Construction’s success has been supported in part by a track record of well-managed finances. How has this been achieved?
The first aspect is having a strong financial team that manages our affairs in a very professional manner. It also goes without saying that we also have a profitable business, which is important.
The second is project selection. We are extremely careful of the type and nature of projects we pursue, in order to avoid unnecessary risks. We are not in the business to expose our company and our shareholders to uncalculated risks. This means choosing projects where we can bring value to the table, be it in terms of financing and investment or project development. We also participate in projects with technical players that we have worked with before. In this way, it is repeat business, they are known quantities, and we know what expertise we can bring to the table. This applies to the power, cement, fertilizers and infrastructure sectors. We also always ensure that all projects are well-funded. We do not like to pursue projects where funding is uncertain.
This is also the strategy behind our development of a concessions portfolio. Concessions reflect two things: firstly, the ability to bring funding to the table to generate a construction opportunity, which Orascom possesses; secondly, the opportunity to generate recurring revenues from the concessions. Unfortunately, while concessions are very well developed in Europe, it has not quite gained the same level of awareness in the Middle East, which is a pity, because it allows the government to undertake more projects without taking on too much risk and exposure on their own balance sheets.
How does Orascom Construction differentiate itself from other EPC players when it comes to providing value to projects, particularly when construction is seen as a rather commoditized industry?
As a well-established regional company, our brand is quite recognized, which sometimes gives us a premium. On the other hand, we recognize the need to remain competitive in order to win business, especially with clients that are price-conscious and governments with their own processes that we have to respect.
In terms of innovation, we have to acknowledge that construction as an industry is probably one of the least innovative industries in the world! We obviously like to use technology and stay ahead of the curve. In construction, this is chiefly on the level of management tools and planning.
In the past two years, we have also established many internal capabilities to compete head to head with international contractors, such as tunneling work, EPC in the power sector and ability to do complex petrochemical projects as turnkey projects. We continue to expand our capabilities according to market needs. Another area where we provide value is our ability to self-perform. We like to self-perform certain projects because it means we can control our destiny. We do not like to be subject to the performance and expectations of subcontractors that are not necessarily aligned with our strategic objectives.
As the country now seeks to develop itself as a regional energy hub, with your expertise and international perspective, what more work do you think needs to be done?
First and foremost, Egypt needs to think – just like any contractor – what the value that they can bring is, compared to the rest of the region. We need to define what it means to be an energy hub – and the government needs to be clear when it comes to communicating their strategy. For instance, does it mean a logistics hub, an export-import hub, a gas hub, a petrochemical hub, or something else entirely? Depending on this, different steps would need to be taken.
Egypt has many strengths. We are very low-cost compared to the rest of the region, and after the devaluation, we are even cheaper. We have access to Europe, Africa, the Middle East and Middle Asia. We definitely have a significant edge when it comes to logistics and storage capabilities. The logistics, the location, the land. For instance, today if a company wants to build a facility in Europe, the project itself may take only three years but obtaining the regulatory approval and paperwork might take up to four years. This is how developed markets work. We could provide an alternative market for Europe to build many facilities – power generation, petrochemicals, etc. – here instead. We could sell power not just to Saudi Arabia or Libya but also Europe, which is looking for more diversity and security in their power supply.
There are many angles Egypt can play on but there needs to be a strong campaign and message to the rest of the world, and we have to address our regulations and procedures to make it easier for people to invest here.
As a company, Orascom will be happy to support any national plan and contribute our expertise. With our abilities and contacts, we can bring in investors and financial institutions to develop projects.
Orascom also has operations in the US. What does this bring to your overall portfolio?
We consider the Middle East to be a high-returns, high-risk, volatile and cyclical market. On the contrary, the US is low-returns and very low-risk, which means it can generate a sustainable and recurring business for us. This balance is desirable.
On the EPC side, we do not compete with the American giants directly, we only build fertilizer plants for our partner, OCI N.V.. While these has been some delays, we are still very proud of our achievements in building such complex facilities in a developed market like the US.
We do compete – quite successfully – with other companies in the normal construction market. The US market is large enough to accommodate that and we believe our US business will continue to grow in the next few years.
Given the number of projects Orascom has developed successfully, which projects stand out for you or are dearest to your heart?
It is difficult to choose because we have a project like that every period! What is more important than a particular project is the fact that as a company, we really feel that we are touching the lives of all Egyptians. The projects in which we are involved – LNG terminals, power generation, roads, hospitals, water desalination – contribute to improving the lives of Egyptians in very tangible, daily ways.
The fast-track power plant that we built with Siemens was also very historic for everyone. The Siemens CEO even came with German Chancellor Angela Merkel to Egypt a few weeks ago to inaugurate it. These are projects that are not built anywhere else in the world so we are delivering record performance not achieved anywhere else. It is a great success story that showcases the capabilities and expertise that Orascom Construction can export anywhere else in the world.
One non-energy project I do want to highlight is the Egyptian Museum. The current building was constructed some 120 years ago, so this one will last for another century or more. You do not build the Egyptian Museum every day! What is more is that it is the only iconic building with a purpose: to showcase and house artifacts and a legacy of over 5000 years. That is very special.
Looking forward to 2020, what are your main priorities?
Firstly, we want to continue to execute our existing backlog and improve our bottomline and shareholder returns. We would also like to see more success in developing our concessions portfolio, perhaps with a focus on the US should the right opportunities come along. We would also like our US business to reflect the current flexibility and strengths we have in the Middle East. Lastly, we would also want to continue our existing strong position as one of the key players in the Middle East region.
Overall, by 2020, I would like to have a more balanced portfolio for our business with steady revenues from concessions or other projects, and some balance between our Middle East and US segments. This will create more consistent expectations for our shareholders and for the market.