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Interview

with Jason Saavedra Paredes, Executive Director, Servicios Industriales de la Marina (SIMA) Peru

17.05.2011 / Energyboardroom

How do you assess the impressive economic growth of Peru in the last decade and how has SIMA been growing in parallel to that?

The growth that we have seen in Peru in the past decade is mostly due to the export of commodities and raw materials. This situation has been improving in the last few years, but still has a long way to go. Peru’s development can only become sustainable if growth comes from activities that add value to the country’s productive capacity, through industry, technology and education. It is in this context that I see SIMA as a strategic company that adds value to the national economy by generating employment and creating demand for a variety of local service providers from numerous industries. As a company dedicated to heavy industry we believe that the long term growth of Peru can only come through further industrialization and we are committed to that goal.

What strategy will the company be employing to ensure continued growth?

Our idea is to position SIMA on a regional level because being competitive only nationally is no longer viable in a globalized world in which you compete with companies from every part of the globe. Ideally we would like to become leading shipbuilder and metal-mechanic company in the South American region. This would then allow us to go beyond our immediate region and compete on a truly global basis. Some recent bids that we have won, such as providing the tugboats for the Panama Canal, are proof that we are moving forward with this process of internationalization. This contract truly makes us proud because we were competing with companies from all over the world, including the US, China, Brazil, Spain, Canada and Australia. The first two bids for that project were awarded to us and we are looking to be the winners of the third bid for 14 more tugboats under an estimated contract of US$200 million. Aside from the prestige that we would obtain from winning this contract, this would also guarantee a steady workload for the company for the next 3.5 years.
Furthermore, during the economic crisis there was a drastic contraction of the shipbuilding market around the world. SIMA was quick to perceive this and decided to focus on the industries that were growing despite the crisis and this lead us to start producing ships that are part of the logistics of the oil & gas industry. This includes tugboats, barges, and supplier ships that we have built for companies such as Petrolera Transoceanica and Savia. It was clear to us that this industry was growing and would continue to do so in the future. Due to the fact that we reacted so quickly during the crisis we actually had our highest sales ever recorded in the company’s history.
It is also for this reason that we have established a strategic partnership with Dynamic Industries in the US, who are specialists in offshore rigs. The idea is for us to serve as their industrial partner here in Peru and for them to impart the know-how and technology required to build rigs because we currently do not have those capabilities. They have a design for a floating rig that can be used both offshore and onshore and currently does not exist here in Peru. The idea is to bring this technology here because it would be a huge asset to the local oil & gas industry as it is very environmentally friendly and versatile in its function.

So you will be focusing on your shipbuilding activities rather than on metal-mechanic projects?

Not necessarily. Despite the fact that we are a private-interest company at the end of the day we are still owned by the State. This means that we also have priorities that are determined by the navy and the Ministry of Defense, and these are more political than they are profitable. The priorities of the State also have a socioeconomic dimension to them by developing essential infrastructure for the country, and this falls under our metal-mechanic business. Similarly, companies that are currently constructing major infrastructure projects often ask us to work with them as partners for metal-mechanic portions of their projects. This was the case with Odebrecht that is currently building the South Interoceanic Highway for whom we have built all of the bridges along that highway. Beyond the revenue that we obtain from these kinds of projects, it is also gratifying for us to be a part of them because they are key to the development of Peru.

How difficult is it for you to manage the priorities of the State with the commercial side of the company that aims for profitability and efficiency?

Until now it has not been too much of problem because our production capacity is immense. SIMA is essentially comprised of three shipbuilders: the location you see here in Callao, the one in Chimbote in the north, and another in the Amazon in Iquitos and this gives us some flexibility in terms of our production. Perhaps the biggest challenge in bringing together both interests is the need to have a very healthy financial standing in order to be able to satisfy the needs of the State that are not the most profitable. Nonetheless we have managed to do this quite well until now, because our main role for the State is to provide technical support to the navy and this only takes up about… of our production capacity. As I mentioned before, we also take on some infrastructural projects throughout the country, such as pipelines and floodgates for hydroelectric projects and bridges. Lately we have also been exporting these products to other countries such as Chile and Brazil, and this is part of the regional integration of commercial and energy interests.

One of the most important projects that SIMA has participated in was the construction of the Melchorita marine terminal. What were the main challenges experienced by the company in completing this project?

Even before completing the project, I think the biggest challenge for SIMA was to be contracted for it. The Melchorita project truly tested our operational and production standards because the project required the highest global norms. We ended up providing close to 40% of the metal-mechanic work that was done for the marine terminal. The way this was done is that we would produce the parts here and then transport them to the location and put them all together like a puzzle. This required the utmost precision and technical skill because there was no room for error. Ultimately the client was very satisfied with our performance, so much so that they recently asked us to quote a floating dock for Melchorita in order to expand the one the is already installed.

In your need to increase your standards of operations and expand your capacity for the completion of Melchorita, what has this project brought to SIMA in terms of the experience added to the company and the opening of new opportunities?

The main lesson learned was on a strategic level because it became clear to us that we had to modernize and obtain certifications for our operations that we didn’t think of in the past. In order to be a partner for global oil & gas companies and compete against companies from all over the world for new contracts, we had to upgrade our offering and be at the cutting-edge of what others are doing. Beyond become more competitive, we also wanted to communicate our commitment to the environment and the development of Peru. Ultimately the lessons learned were more on managerial level, because the project opened our eyes to the opportunities ahead and what we had to do in order to be a part of them.

Considering the rapid expansion of Peru’s energy sector and the many changes that are occurring in the energy industry of Peru, how is SIMA positioning be a part of this growth?

As I mentioned earlier, we are now focusing our efforts on serving the hydrocarbon industry and already have a number of projects lined up. In the Amazon region for example, Perenco launched a bid for the construction of double-hull transportation barges and we expect to be awarded the contract very soon. Part of our strategy to serve the oil & gas industry and operate according to the stringent norms of this sector we have been modifying process in order to enhance our operations. We recently obtained ISO 14000 certification for our environmental standards and OHSAS 18001 certification for health and safety, additional to our ISO 9000 which we’ve had for several years. Furthermore, SIMA is now implementing a modern ERP program that aims to make us a more streamlined and efficient company. The last ERP implemented here was 15 years ago, so it was about time for us to modernize our processes, especially in light of our orientation to satisfying the needs of the oil & gas industry. Currently we are at the stage of implementing the IT tools for the program and expect to have the new ERP implemented by the end of the year. Ultimately the ERP will complement our certifications and make it easier to operate under such standards.

What expectations do you have for SIMA and Peru in the future and where would you like to see the company in the next 5 years?

This will be my last year at the company. Nevertheless, I expect SIMA to be amongst the top shipyards in South America with a strong presence in the region and with global ambitions. Peru’s economic growth has awakened an international interest in our country and there are many companies that are now looking to invest here. It is important for them to know that there are Peruvian companies like SIMA that have the capacity to serve their needs and can be strategic partners for their ambitions in Peru. Such partnerships are beneficial both for them and for, because we prefer to develop our industry locally rather than simply having those companies bring their own technology and products from abroad. The idea is to add value in the country, and we need to believe that the country’s growth will continue far into the future as long as we all believe and bet on it. Some people are nervous because of the results of the recent presidential elections, but I believe that Peru is like the Barcelona soccer team; regardless of whom the coach is, the team will always win.

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