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Interview

with Axel Kuhr, Chief Executive Officer, ABB Australia

29.03.2011 / Energyboardroom

When first starting as country manager in June 2010 was there any piece of advice that you received from your predecessor, Mr. John Gaskell, which sticks out in particular?

It was a fairly pragmatic handover, but one resonating piece of advice he gave was that Australia is a great market with huge potential; go after it!

You join Australia from ABB’s headquarters in Switzerland. Having that home office experience with a macro view of global operations, what would you assess is the role that Australia has come to play in ABB’s vast global network?

I worked for roughly three years at ABB headquarters in Zurich on our strategic group accounts and before that in various roles in Germany. Overall, I have been with the company for approximately 20 years.

From a figures perspective, Australia accounts for 3% of global revenues. This market has huge potential. The key industries for us here are utilities, , mining, and oil and gas, both in terms of electrification and automation. If you look at the challenges this country is facing, then ABB has exactly the right portfolio for it. While the importance of Australia is small on a relative scale for ABB’s global business, it is big in terms of absolute money; we have definite plans to build up our presence here. We currently turn over nearly $1 billion per annum which will significantly increase over the next few years.

In a post-global financial crisis landscape that sees both mining and oil and gas surging, you perhaps could not have landed in this country at a better time. How do you plan to capitalize on the current and long-projected resources boom?

Like several peer companies in this industry, we were also affected by the crisis because projects here came to a halt. We faced a slight downturn and only resumed growth last year. We see projects taking off in oil and gas in Queensland as well as in the Pilbara. Mining, of course, is in a huge surge and we are presently in an active bidding process trying to capitalize on these projects.

We engage local and international resources for our project delivery here, which is quite a big advantage because of the shortage of skilled labor in Australia. We utilize our international engineering centers or draw resources from our global centers of excellence. In oil and gas we have quite strong know-how in Norway and the UK, so for Queensland-based projects we can engage our UK engineers given the combination of their expertise and the strength of the market here. In that sense, we truly leverage the global size of ABB.

What has ABB brought to the market in the field of process automation which has contributed to the development of the industry?

We have indeed been a player in the process automation industry for decades. When looking at what exists in Australia, we have quite a large installed base for one of the major global oil and gas players; we automated all of their platforms with one of our existing systems. Going forward, ABB has a System 800xA extended automation solution – one of the most advanced control systems in the world – and we are about to sign an agreement with a player in Queensland to utilize our automation scheme for their large project. We are pushing quite an advanced system that has the ability to integrate all of the electrical equipment and thereby deliver operational, data recording, and preventative maintenance advantages. Through that channel we will play a significant role in developing Queensland’s gas and additional export income for Australia ,well into the future.

On the oil and gas side, Pluto LNG, when it comes online, will be the fastest developed LNG project from discovery to first gas. As an automation supplier to Pluto what were the fast-track targets met on ABB’s end?

We have successfully delivered and commissioned about $60 million of equipment packages for Pluto which was not particularly challenging for us because it drew on our core expertise. . We are now preparing for the second phase of Pluto as the operator thinks about extending for additional trains.

To what degree has ABB transitioned beyond a traditional equipment provider to being a partner to the industry in an integrated sense?

We really try to understand the industry’s needs and cultivate our knowledge in our global centers of excellence -Houston in particular, but also Oslo, St. Neots, UK and Italy. We capitalize on our global knowledge and come from the angle that we understand both the processes and the needto work with customers to optimize their systems. We can draw from our many experiences in the past. If you want to be a solutions provider, then you have to come from an industrial base of knowledge which is something that we offer across several sectors.

Having said that, our intention is to market our products as well. Working on the automation systems we also try to link the electrical portfolio to the DCS systems and be a comprehensive supplier to oil and gas customers.

Partnering with large multinational customers is a comfortable and seamless way to move into new markets. How have you been able to transfer from serving your existing customers abroad to working with domestic customers?

Looking at the local landscape, many of the oil and gas plants in Australia are operated by Woodside, to whom we have been a core service provider for over 25 years. Several of Woodside’s shareholders, in turn, are the large multinationals. By working for these multinational companies we always find a bridge into the local projects since all of the major projects have both an international and domestic link. We have local resources in Perth, Melbourne and in Brisbane to support this strategy.

Australia carries a significant weight for ABB from an absolute, bottom line sense. What role does Australia play for ABB in terms of driving new innovation given the country’s unique regulations, standards, and requirements for resource projects?

Globally, we operate through focus factories or centers of excellence. What we provide locally is more or less an adaption to the local standards. Our productivity is driven by drawing main components from our feeder factories, bringing them to Australia, and localizing the content based on market conditions.

What we do produce here, however, are distribution transformers for the local market. We also have low and medium voltage equipment which comes from China and is tailore made to Australian standards at one of our factories close to Sydney. As an international company we truly utilize our global network.

While the bulk of our innovation is driven globally, there are some special projects that are developed out of Australia such as metal enclosed capacitor banks – equipment needed to stabilize grids or loads on a grid. These capacitor banks have actually been developed in Australia and exported to other countries.

Conversely, we pilot technologies here that are developed globally. For example, we have switchgear for wind turbines– placed at the foot of a wind turbine – which was developed in Denmark, but first applied on a project in Australia. Again, it is a testament to our global cooperation and our ability to leverage international R&D.

Given that environmental efficiency drives ABB’s products and services, how do you view the Australian market: a “glass half-full” market with abundant potential for grid infrastructure upgrades and clean tech innovations; or “half-empty” considering the continuous delay in binding emissions cap legislation?

I tend to look at the picture as “half-full” and see the potential for our business. There is a lot of discussion around a carbon tax. What we try to do is influence the political opinion by working with organizations such as AIG (Australian Industry Group) and BCA (Business Council of Australia) to formulate opinions and probe what is right. We also try to voice our own opinion directly.

At ABB we believe in the need to act to mitigate global warming. We are committed to sustainability and energy savings in our own production and sites. Right now we drive energy efficiency from cross-savings since whatever you do with energy savings has the advantage of saving money. Even though a carbon tax is not in place now, we try to drive environmental efficiency from the economic benefit side. For example, if you take an oil and gas plant or a large mine, by installing variable speed drives to typical process applications like pumps replacing mechanical process controls, we have reduced energy consumption significantly and the energy savings have paid back the investment in six to twelve months.

I am also personally convinced that we will have carbon tax legislation in place in Australia within one year or sooner. Until then, we shape the framework with our strengths and what we can deliver today. On the other hand, what I also see as a trend – and perhaps Australia is not yet fully there – is the shift by many countries to renewable energy sources. A further shift in this direction will continue to drive our business since it will lead to different power generation, different grid utilization, additional grid investments, and ultimately more business for ABB. We indeed have several drivers for growing our business beyond oil and gas.

What differentiates ABB from its core competitors in Australia?

We have all the core products for our principal heavy energy consuming industries of utilities, mining, and oil and gas which allows us to offer a comprehensive solution. Even beyond optimized products, we have the process knowledge to help customers work on actual concepts. Furthermore, we also have both electrical and automation components which complement each other.

What are ABB’s main strategies for addressing and overcoming the skilled labor shortage that is consuming the resource industry and engineering companies in particular?

We address this challenge by utilizing our international centers. Whatever basic engineering we have, we try to do in our centers in India and China. Reason being, even if you want to, you cannot find the resources here.

Another challenge that we face is staff retention which I find surprisingly low in Australia compared to Europe. In both Europe and India you will normally find average staff retention with a company at close to 22 years. In Australia there are common problems with high employee turnover.

We have two positives to counter this trend. First, we find people abroad who can do the detailed design work. Second, these people will typically have strong company loyalty allowing us to utilize their experience for an extended period of time.

Having said that, we want to build our resources here but face much bigger challenges than in other countries. Being able to draw on our global human resources proves a tremendous advantage. Meanwhile, the government is moving in the right direction to make visa applications easier which is key for us since we need highly qualified engineers. It is an interesting challenge and we are managing it.

As a German national, engineering and innovation from your home country undoubtedly carries a favorable reputation around the world. Do you think “engineered in Australia” can ever have that same effect?

While I am still too new in the country to fully judge that, from what I have seen in the last nine months there is no reason why “made in Australia” cannot compete with other countries.

From a company perspective, what we market is “made in ABB.” What our customers buy from ABB have the same quality standards globally. Much of the technology that we custom tailor for Australia comes from our China facilities. We could not do that if we were not convinced that “made in ABB” from whatever country is of the same standard.

How do you foresee ABB contributing to the development of the hydrocarbons industry over the next 5-7 years as final investment decisions are reached and large-scale projects enter production?

We have a strategic target to grow our service business globally and in Australia. We want to significantly increase our service supplies to the industries and this will be one of our core drivers over the next few years. As these LNG trains go onto production we want to be their main provider. Our intention is to enter long-term service agreements for the projects which we have already commissioned and delivered equipment for.

We are now looking at building stronger service centers in Queensland and the Pilbara since service is something you have to deliver locally. While it is a challenge given the tyrannies of distance in Australia, we are committed to building up our services base in those regions.

Do you have any final message to convey to our readers about ABB in Australia?

My final message is: Australia offers a great opportunity for ABB. We are excited about the landscape of projects and what is happening here. We see a good future for Australia in general and for our company in particular.

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