Thore Lohmann – CEO / Managing Director, ThyssenKrupp Industrial Solutions, Egypt
CEO and Managing Director of ThyssenKrupp Industrial Solutions in Egypt, Thore Lohmann, tells us about ThyssenKrupp’s enviable track record, the commitment and expertise they demonstrated in delivering major projects in the challenging environment of the past few years, and the huge potential he sees in Egypt’s refinery and petrochemicals sector moving forward.
Thore, given the difficult price environment in the past few years, how has ThyssenKrupp in Egypt fared?
“ThyssenKrupp is an international business and we always work in collaboration with our international offices but at the end of the day, it helps that we have Egyptians on board in a local office to facilitate dialogue and cultural understanding.”
We have undoubtedly had a slowdown, especially in 2011 to 2013, but we feel that it is picking up again. The major challenge in the past few years has mainly been the non-availability of gas and other feedstock, which is critical to the downstream sector where we operate. The overall political environment has not helped us either.
The positive news is that there is now light at the end of tunnel when it comes to feedstock and gas availability, with the Zohr field expected to start production by 2018 and BP’s North Alexandria field on the verge of connecting to the grid. These are developments that returns confidence to investors.
The recent economic reforms like the flotation of the Egyptian pound have also had an impact. The major difficulty now is the currency exchange risk, which is higher than it was three years ago. The side effect of this is inflation, which makes our business difficult because we tend to work on a fixed price basis with three- to four-year contracts. This means we have to try and predict the inflation rate for the next few years and factor that into our prices. This uncertainty applies to most players in the industry.
Our business is all about risk management. If you are executing a project of EUR 1 billion, risk mitigation is extremely important. As soon as you have additional risk, all stakeholders, from the financial institutions to the customers to contractors and subcontractors, grow a little nervous, very understandably.
What has kept ThyssenKrupp in Egypt during these difficult times?
Essentially, the past few years have been about more or less finalizing all the projects begun before the revolution, so we have been extremely busy executing ‘older’ contracts. For instance, we have executed the extension project for Misr Fertilizer Production Company (MOPCO) through Egyptian Nitrogen Products Company (ENPC), which was the largest fertilizer plant we built here in the country at around USD 1 billion. This was finalized in December 2016.
Last year, we also finalized Egyptian Hydrocarbon Company’s (EHC) ammonia nitrate plant in Ain Sokhna. We are in the last stages of executing our large-scale petrochemical plant in Port Said.
All these projects were operational during the difficult past few years and while these have not been easy, our successful execution of these projects demonstrates not just our commitment to Egypt but our competency and experience in operating in Egypt’s environment.
Exactly how did ThyssenKrupp manage the execution of all these projects through such challenging times?
Ultimately, it boils down to our intimate knowledge of the country. We knew how to judge where the risks are, where not to bring the people and how to protect them. At certain points, there was so much instability that personnel security was a major issue. We had local security contacts that we could engage very quickly.
In particular, in the past two years, we have concentrated on building our relationships with our customers through the execution of smaller projects as well as service projects, to complement all the large-scale projects we were already executing. In the past, the affiliate here has mainly supported the execution of larger projects but we are now also running projects up to EUR 50 million as well as various service lines such as the delivery of spare parts, maintenance and the revamp business.
Overall in Egypt, we are concentrating now on projects between EUR 500 million to EUR 1 billion, where the risk profile is better.
Notably, we have also ramped up our presence on the ground from around 120 employees a few years ago to 190 employees now, under ThyssenKrupp Industrial Solutions. This was facilitated by the fact that Egypt has a very strong workforce with many qualified engineers, which is rather unique to the Arab region. We have therefore been using the Egyptian office as a hub for our region in terms of supplying engineers, manpower and expertise to other countries and projects in the region.
On that note, what advantages do you think having an established Egyptian affiliate brings to ThyssenKrupp?
ThyssenKrupp is an international business and we always work in collaboration with our international offices but at the end of the day, it helps that we have Egyptians on board in a local office to facilitate dialogue and cultural understanding. This contributes to much better communication than if we were flying foreign staff in and out of the country.
On a political level, this domestic commitment is always appreciated. On a more tangible business level, this does not necessarily translate into preferential treatment when it comes to purchasing decisions. When we compete in tenders, we do not get a plus because we are an Egypt-established company! Our clients are simply looking for the best prices. The goodwill is there but it does not necessarily manifest everywhere as at the end of the day, it is not the government or top-level executives making decisions at the purchasing level of the company. This simply means that we are always committed to delivering not only the best prices we can offer but also the best value.
In terms of best value, what service offerings is ThyssenKrupp Industrial Solutions bringing to the Egyptian downstream sector?
It is a very long list. We are bringing both expertise and technology. In terms of Industrial Solutions, we are internally divided into fertilizers, electrolysis and polymers, cement, as well as mining and materials handling. Within each sector, we have certain flagships as well.
Within the fertilizers segment, we are by far market leaders in ammonia urea here – we have built the large majority of the Egyptian fertilizer industry. The fertilizer industry here is rather unique for the region because it is a huge sector with many different actors involved, as compared to Saudi Arabia, for instance, where you have one major player, Saudi Arabian Fertilizer Company (SAFCO). Here, you have mid-sized players like MOPCO, Abu Qir Fertilizers Company (AFC) and Alexandria Fertilizers Company (AlexFert), to name only a few. We work for and provide services and technology to all of them. Furthermore, many of these players are now looking to diversify their product range so we are seeing many more small-scale projects for ammonia sulfate, ammonia nitrate and calcium ammonia nitrate, etc. This means more business opportunities for us as we can provide all the technology to these sectors.
We are also unique within this segment because we are not just an EPC contractor, we are also a licensor. This means our clients do not need to negotiate with a licensor and then find an EPC contractor – we can deliver everything directly.
In the electrolysis segment, we have 100 percent market share in Egypt. It is a small but important industry for Egypt as chlorine is needed to treat the domestic water supply. This chlorine is produced in factories built by us. We are also building some plants for PVC production.
In terms of new technology we are bringing to the Egyptian market, we have the new propane dehydrogenation (PDH) technology. We build the first plant of this kind in Port Said. This is something quite interesting for the Egyptian industry because it enables the downstream polymer business without the need to invest in a large EUR 3 to 4 billion steam-cracker plant, which is much more cost-effective. For a country where you have a structure of smaller companies, this technology is far more relevant.
As you have mentioned, ThyssenKrupp is responsible for building some of the largest fertilizer plants in Egypt. What is your strategy for delivering megaprojects – on time?
The most decisive point is good preparation. It starts with the quality of the engineers and engineering work, which need to be on the high side to avoid problems and mistakes later. The procurement part is also very important because you need to make sure the equipment arrives on time in the country! It is not just the country’s operating environment that causes delays, it is also how the project has been started and the overall execution. On the ground, construction execution is also extremely important. Our strategy in Egypt is complementing our work with the large construction giants like Orascom Construction and PETROJET with smaller companies.
In addition, we have a strong local team that is able to manage them! This is an important factor as we cannot hire the staff and import the equipment and hope that that will bring success in Egypt. We have our own set of KPIs and local management, that not only speak the same Arabic language but understand the mentality of the workers here. This is key to bridging the cultural barriers. At the end of the day, we cannot come as Germans to work as Germans in Egypt.
Our strength comes from the fact that we adapt German accuracy and standards to the Egyptian way of dealing with things: German technology combined with local expertise! This is clearly demonstrated in our track record: we have been present in Egypt since the 1980s more or less, with one major project executed per year, continuously. This means that we have a huge team of knowledgeable people on board here that knows Egypt inside out. This is necessary to be successful in the country.
As a global organization, we also share our experiences and knowledge of past projects on a group level. The way we work in Industrial Solutions is organized around a planet, set in a big network – and at the middle sits our customers. Everything we do revolves around our clients. The whole idea is that we are always executing our projects within this network and we have different local entities that we can leverage to contribute to the success of all the projects we do, mega or otherwise.
Speaking about bridging the cultural barrier, given that you are bringing German technology and expertise here, are you also bringing German prices to Egypt?
We would not be competitive if we did that. We use a combination of local engineering expertise, engineering expertise from our hub in India and German project management and expertise from HQ, which allows us to provide competitive prices in Egypt.
Our clients also has to consider not just the capex but the opex. Our technology are more energy-efficient and cost-efficient, so at the end of the day, we provide savings on the lifetime cost of the facility or project. Clients allow us the premium in capex because they know that they will save later on opex throughout the life cycle of the facility. This does need to be communicated during the EPC phase and the role of our business development teams is to explain that our prices are most cost-effective at the end of the day.
The understanding of this advantage here in Egypt is not quite as mature as in European markets but it is definitely improving. It also helps that companies here tend to be quite mature and there is a lot of stability in their management, perhaps because they are typically run by Egyptians. As these managers have run projects for a long time, they have seen evidence of the value we can bring, having operated in the country for so many decades. Just as an example, our first fertilizer plant, built in 1958, is still running today! Furthermore, German and European brands are valued highly in Egypt. We often read in ‘Invitations to Bid’ (ITBs) that clients only want to see European products in their components. There is strong quality awareness in the country.
Looking forward, where do you see opportunities in Egypt for ThyssenKrupp?
There are huge opportunities in the downstream sector. With the Zohr field coming up and Egypt looking set to meet local needs, we see more refinery and petrochemical projects down the road. Egypt is rather unique in this aspect as well because it combines natural resources availability with the readiness of local demand. In comparison to Saudi Arabia, for instance, Saudi Arabia may have lower feedstock prices but it is a mainly export market. Egypt has a huge local market for petroleum products. When you add the regional markets that Egypt’s geostrategic location allows it access to, this is hugely significant. Egypt can access a lot of the Mediterranean markets.
As I mentioned, the local refinery and petrochemical companies are already diversifying their production, acting as crystallization points for the further development of the downstream industry here.
As Egypt looks to become more of an energy hub, I hope that they will not simply sell their gas directly but look to fulfil local needs as well as move further up the value chain to fully exploit its petrochemical industry and take advantage of the regional markets.
The Egypt office is very strategic for ThyssenKrupp Industrial Solutions because of the diversity of our activity here; we work on large-scale, small-scale and service projects, so we act as a sort of laboratory for our global business. The size of the business is also significant and our company recognizes the value of the longstanding customer relationships we have built here. We are not the only players in Egypt so we will definitely not be complacent in continuously demonstrating the value that we can deliver.
In five years’ time, where do you hope to see ThyssenKrupp Industrial Solutions in Egypt?
I want to see a much stronger local organization with a much stronger footprint. I also hope to see stronger brand recognition of ThyssenKrupp Industrial Solutions, because we used to operate as three companies in Egypt.
There is no need for huge growth – the focus is more on a sustainable level of growth and the maintenance of our stellar track record in this country.