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Interview

with Brendan Petersen, Executive General Manager – John Holland Energy & Resources Businesses, John Holland

21.02.2011 / Energyboardroom

Several years ago marked the 60th anniversary of The John Holland Group. What do you believe have been the core factors behind the continued success of John Holland in Australia?

If you look at the history of the projects that John Holland has been involved in, they are without a doubt the most complex infrastructure projects in Australia’s history. There is not a major infrastructure development in Australia without John Holland’s name on it. Over the past five years we have seen enormous growth for the group because we have been able to find the right combination of specialty sector focuses while being strong in regional areas; that is the biggest differentiator amongst construction service providers.

Above all we are an Australian-based business delivering projects for Australians. We employ over 7,500 people and interact with the international labor community because the Australian market certainly has a higher demand than what is available. However, the fundamental reason why clients want to talk to us for projects is because we tell them – with certainty and a high probability – how long it takes to build a project, how to do it safely, and how to get it finished on those dates.

The trap for new players in this sector is huge. From afar it may look easy to build in Australia. But Australia has an array of regulatory and other environmental difficulties that makes knowing the time frames for project delivery highly difficult to predict. There are classic examples of massive resource project failures stemming from an inability to predict the local environment challenges.

Australia is not a country where you can deliver multiple plane loads of trade resources from far flung parts of the world to do a job. We have industrial regulation, very strong safety governance, and local environmental governance. If you are a business that does not understand these regulations and cannot predict what impact they have on project delivery, then you will struggle. By working in this space all the time, John Holland has always been able to provide the proper solutions.

The Tier One engineering, procurement, and construction (EPC) contractors pride themselves on their combination of strong local knowledge and a global reach to deliver projects. John Holland certainly has the local knowledge. How do you compensate for the diverse tried and tested experience that comes with a global reach?

Our strategy is to partner strongly with global engineering and technology businesses. Australia is not the centre of oil and gas technology and engineering excellence that you find in locations such as UK, United States and Japan. So at John Holland, we seek partnerships with these global engineering organisations to deliver project delivery solutions in Australia. We really value the partnerships with organisations such as Arup, Veolia, KBR, IHI & Siemens as they have what we are looking for in global engineering skills; conversely, they partner with us because we have the Australian delivery know-how.

What do you consider to be a unique type of innovation that is bred “down under” by companies working in Australia?

We call it, the “Australian Rules.” I have spoken to many American and European expats who, when coming to Australia, need in their business, people who know and can play by Australian rules. By that they are referring to having leaders know the keys to success of project delivery in Australia. We are more heavily regulated in some areas making it more complex to maneuver through state and federal governance. However, we have a high level of surety that a project will go ahead. Our sovereign risk is very low and Australia is a safe place to invest.

Discounting, of course, surprises to the system such as last year’s resources super profits tax…

But you can see how that gets amended, changed, and challenged by the business community. Whatever final taxation regime comes out of it will certainly have industry’s input. Whilst there might have been a slowdown of projects, they certainly do not go away.

Did John Holland notice any delays because of projects temporarily shelved while the tax was mooted?

Not just because of the proposed tax, but more so because of the global financial crisis. We saw a lack of confidence to invest because the money was not there in credit markets for clients to develop their projects. We saw some coal projects delayed in Queensland. But we did not see as much a slowdown in iron ore nor was there a slowdown at all in LNG export projects; coal seam gas (CSG) projects have come to final investment decision in roughly their scheduled time frames.

The rising tide of the oil and gas industry is indeed lifting all the activities of players in this sector. To what extent does John Holland’s recently formed Energy and Resources stream of businesses attest to its commitment to grow further in this sector?

At least 18 months ago we decided we had to make it clear to our clients that we were focused on this sector. Our regional building, civil and mechanical construction capabilities had grown and we had developed more skills. We therefore felt that it was a right time to give it a brand, which was stage one of the evolution of John Holland’s business. Stage two is the recent announcement of our new Energy & Resources stream of businesses which will broadly target projects in the resources sector. The Energy & Resources area of our business now comprises four business units: Energy; Water & Environment; Minerals & Industrial; and Mining. Energy will focus on oil & gas, petrochemical and power generation, transmission and distribution. Water & Enviro will focus on water treatment, desalination and distribution, waste treatment and emerging environmental technologies. Minerals & Industrial will focus on mine and port infrastructure, minerals processing and heavy industrial facilities while our Mining business will provide contract mining services to the coal and metalliferous sectors.

This is the next stage of making sure that John Holland is well positioned to capitalize on this rising tide.

The oil and gas landscape is very diversified in Australia: offshore gas in Western Australia, CSG in the east, and conventional petroleum plays in the central basins. What is the oil and gas-specific strategy for John Holland?

There is enough work out there for any well-planned, well-structured, and good delivery business. John Holland will be a major player in this sector but cannot do everything.

The risk for the sector is if ill-prepared businesses without a depth of talent or financial capability enter. If you are not ready for it, then you will play and suffer. This is a sector that requires depth of talent, a big balance sheet, redundancy, and risk cover. Not everyone is going to be successful. Those who are successful will continue to compete which keeps good competitive pricing in the market.

Export LNG projects for John Holland is the key strategy for Western Australia. It is a mature sector and Western Australia has a proud history of being able to build plenty of liquefaction plants. We are very well positioned on all the upcoming LNG projects such as Browse, Pluto and Wheatstone. In the east, we have been following CSG for well over three years. We have stayed close to these Clients and their engineering providers and have regularly had engineering and commercial teams visiting Houston working on delivery solutions. We are very confident that we can secure significant projects in this sector and look forward to working with Clients such as BG/QGC and Santos.

The Northern Territory has opportunities as well. We are expecting the INPEX project to be successfully concluded by the middle of next year and we are actively supporting this project as it goes through it’s FEED stage.

What are your expectations for encountering, and overcoming, the tyrannies of distance inherent in working in the northwest of Australia?

While we often talk about a two speed economy in Australia, we can certainly talk about a two speed market for labor. A certain percentage of the labor market works regularly in the remote northwest region and a portion of labor prefers to work in CBD locations. There are significant extra challenges to resourcing projects in the northwest. The average staff turnover in the north-west is in excess of 45%, which is understandable. The sector is quite hard and you need a real powerful machine behind you to bring people on, move them into projects, and then deal carefully with them when they want to leave the project and move elsewhere. What we are able to do as John Holland is accept the fact that it does not work with some people and repatriate them around the country. Without a national footprint as large as ours you struggle to repatriate workers, which other companies have to deal with.

With the skills and labor shortages occurring in this country, resource and energy industry contractors are caught in the middle of an ever increasing cycle of wage inflation. How does one properly budget and plan for this destabilizing trend?

No one really knows where it will end. Supply and demand naturally work against each other and in the case of the resources sector the demand is huge. To enable the supply you have to attract it. Without a doubt there is huge inflationary pressures on salaries for tradespersons and engineers for construction companies like us. But it does not stop there. Our clients and engineering houses are struggling as well to attract key skills and populate their project teams. It is ubiquitous in this sector.

The first thing you have to do is accept this as a reality as there is no use burying your head in the sand about it. Second, you have to work on a whole range of fronts with respect to attraction and retention strategies. Salaries are one key element of an employment arrangement but we also know that what keeps people on board is leadership and being part of a safe business. If you can build projects safely, lead projects properly, and treat people well then you will attract and retain talent. Without a doubt we focus on our attraction and retention strategies every day in John Holland. We develop our upcoming project managers and construction leaders through our Emerging Leaders Program. We want them to develop the extra skills they need as leaders in their jobs which is good for us but then they realize that by staying with John Holland they will develop these tangible, transferrable qualifications which is great for them. Our extensive Graduate Programme is hugely popular and we integrate this programme with universities through initiatives such as our Engineers for the Future programme – a program we offer in partnership with the Central Queensland University. Our staff love to go to 2nd and 3rd year students in the universities to talk to them about what it’s like in business and promote working for John Holland and reminisce with the students their time at university.

On the trades front, apprenticeship development is something that we as a country have allowed to drop over the last 10 years. However, John Holland has a large apprenticeship program with boiler making, fitting, and building trades enabling us to develop tomorrow’s tradesmen and supervisors.

Bundling it all together, our training and development programs are a big investment by us as one of our strategies to address the inflationary salary pressures. We also have to provide financial arrangements that are relevent to market rates and you then hope that the whole package gives you a group of people who will want to stay with you as a business and deliver projects.

The newly formed energy and resources group is described to have expanded John Holland’s capabilities to encompass the full range of “EPC” activities. Yet there is a strong reliance on partnerships as you referenced earlier. Which particular technical areas does John Holland still look to and rely on for synergies?

We believe in partnerships in which 1+1 = 3. Engineering and technology providers are key partners who we look for. When we develop relationships with them we make sure that they are long-standing rather than a quick one off-project deal. They key areas we rely on are process and design engineering. We fit in well with partners because we bring the construction planning, engineering, and local delivery knowhow.

KBR is an important partner in the LNG space, Arup is our partner in the LNG export infrastructure sector, and Veolia has been a fantastic technology partner for us in the water desalination sector.

Is there any particular dream project, either currently under works or yet to be drawn up, that you would want to manage for John Holland?

The common saying in construction is that the job you are on at the moment is your worst job, the one you just finished has been your best so far, but your next one will be the best ever!

We see ourselves delivering large complex LNG projects. This is where we are headed in our relationships on projects like Browse, Wheatstone and our current penetration into Qld’s CSG projects. We will be delivering to Clients end to end solutions, looking after multi-disciplined work packages that are complex and critical to their overall project. Clients know that they can come to a one-stop shop like John Holland, entrust us with critical parts of their projects and work closely with us to deliver safely and on time.

Was there a particularly steep learning curve for you personally having to spearhead the new energy and resources division from your previous managerial role?

Absolutely. One of the first things that we did when forming this business stream was to recruit specialists in this field – chemical and mechanical engineers who worked in this space. The first step in the rebranding and diversification strategy was populating my team with those specialists. It was a fantastic learning experience to learn just how much I did not know. So when we sat with clients there was an instant recognition that we understood their business.

One of the beauties of John Holland is that with our specialty divisions, energy and resources being one of them, if we meet with an oil and gas client we can put a highly valued and competent expert in front of them for their various parts of their project; whether it is a HV electrical specialist, a tunneling engineer, a building design engineer or a water treatment specialist. We have found that model to work well for us.

As an Australian company that is born and bred in this country’s resources and heavy industry sectors, do you think it is feasible for Australia to become a top-two LNG exporter? And what will John Holland’s role be in the process?

I absolutely think that Australia will do it. The government is learning that its role is to facilitate industry as much as it can and it sees the benefits of allowing people to invest in Australia. We will get the global investment because we have minimal sovereign risk. Government knows that if it facilitates that, then we will get the projects.

John Holland will continue to be involved in the major projects. My goal is that we will continue to be relied upon to safely deliver projects which clients undoubtedly need. We are about to enter at least 10 years of an expanded resources boom. We have spoken about LNG but the price of coal and iron ore has gone through the roof as well and mining companies also have aggressive growth plans. Our goal is to be active in all those sectors.

We will be doing the things we are good at and not bite off more than we can chew. We will look for EPC delivery for major packages. We particularly want to combine our multiple skills and execute diverse and complex projects where we are one stop shop, which is our real skill set. The work we are undertaking at Apache’s Devil’s Creek Project is an great example of what we can offer. Apache has entrusted us with every bit of construction from the first stage of earth works to the final testing and commissioning of electrical instrumentation. The value that they get from that is a one-stop shop to solve all the interface problems that arise through a plant like this. Apache has set a very aggressive timetable for their project and I believe we have taken months off their schedule by being the sole contractor for them to deal with. They also have been extremely helpful in working closely and co-operatively with us to deliver a quality gas plant. That is the model that we believe we will be doing for LNG projects going forward.

What would be your final message to our readers about John Holland and the Australian energy market?

The message which I share with clients is that this sector is a trap for young players. We saw the resources boom through 2007-2008 with many small to mid-tier businesses wanting to get involved in coal and iron ore. It introduced massive risks to the industry. People came into these projects who did not understand safe construction, detailed interface management planning, healthy industrial management, and good employee care. The risk of this boom is unpreparedness. We have gotten John Holland to a point where we are prepared and ready to go. We are not a young player. We know the traps and forewarned is forearmed. My message is that there is a great boom and great opportunity. But the old adage is “fail to plan, plan to fail.” Beware the young players. We are extremely well positioned and the opportunities are there for us.

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