with Neil Iyer, President & CEO, Chemtex Global Engineers Private Ltd
Although Chemtex is known worldwide for its engineering services, in India you are yet to make a mark and our readers might be less familiar with the Indian affiliate. Could you start by introducing Chemtex’s business model here in India?
Chemtex traditionally started with the polyester business. Chemtex built polyester plants based on the DuPont technology, which was new at the time when Chemtex promoted this technology – about 35 or 40 years ago. As a result, 60% to 70% percent of the polyester plants worldwide have been built by Chemtex.
The company’s main office was first located in Manhattan, New York and then moved to Wilmington, North Carolina. The Indian office initially started as an engineering office. Therefore, whereas the basic packages were delivered in collaboration with DuPont and the worldwide projects were sold out of the US, the detailed engineering was done out of India. The Indian office will celebrate its 49th anniversary in Mumbai in August this year.
For plants being built in China, Brazil, Mexico, and the US – in fact wherever the project was worldwide – the engineering was done in India. In India, we have two offices, one in Mumbai and one in Bangalore, and both offices can do all kinds of projects – polyester and non-polyester. Now, over a period of time the polyester market became a little mature. As there was not a steady business coming out of polyester, Chemtex decided that they had to diversify.
It was about at that time that I joined Chemtex, coming to India because of my background of having executed projects in India for nearly twenty years as well as in Europe and Middle East for another 20 years – having been with L&T, Uhde etc. in India and AkerKvaerner in Europe where I executed a number of petro-chemicals, refinery and , fertiliser projects with most of them on turnkey basis. I joined Chemtex to bring this expertise to their Indian operations. Unfortunately soon after my arrival we had the Lehman Brothers crisis and the world economic downturn. Although the Indian market was growing, investments went down as in Europe and the US.
But still, we have grown today to 700 people between Mumbai, and Bangalore. And in two years time we target to grow to at least 1,000. The contribution of India in terms of Chemtex global revenue is around 10- 15%.
Do you think your first years have been the most challenging ones?
Yes, because I had to create awareness in the market that Chemtex is capable of doing all kinds of projects in the petrochemical, refinery and fertiliser sectors. This involved a lot of travel within the country meeting various clients including public sector industries. Also in parallel I had to restructure and strengthen the setup in India. At the same time we had a number of ongoing projects that kept the Indian operation busy. One of them was the Cellulose Acetate project where the product is used for making cigarette filter tips, and also as a chemical for computer screens and spectacle frames. This big project for China was fully engineered from India, based on parent company technology starting with basic engineering. The project was completed and successfully commissioned in record time .
The pre-qualification criteria for participating in bids are very stringent in India, especially in the public sector. You need to have a past track record of building similar plants that are commercially in operation. We experienced our first successful project with HPCL. Through a joint venture with a partner who is stronger in construction, we secured a Sulphur Recovery Unit of 300 tons per day on a LSTK basis; it is a plus $85 million project.
This partnership; through it, we would also share the risks on the project. This project is now nearing completion. – forecasted for the early part of 2012. –the technology was also arranged by us from a US licensor, known as Worley Parsons. The execution of this project has been a good experience for us in terms of working with PMC organisations as well as the public sector client.
We have of course many clients based out of the US and based out of Italy, who regularly share engineering work with us for their international projects. Among them, there is the US company Burns & McDonnell, a 3,500 employee engineering firm based out of Kansas City and one of FORTUNES 100 best companies to work for, whose projects are mainly within the US – for their need of value-added engineering work, they partner with us. And at any time there will be two or three specialists from their office sitting here in India and we are proud to be associated with them as well as meeting their stringent quality requirements
Another esteemed client of Chemtex is ABB Italy, and again we have a long term relationship with them. We have just finished a project for them which is being built in Algeria. It has 60 well heads and field gathering stations, with a criss-cross connection of piping from each well to take it to the central processing unit. The engineering was done out of India, the procurement and construction l management out of ABB Italy. We also did one project for them in Pakistan which was a gas compression station; we did one in Thailand; we did one in Chile which was a fertiliser unit wherein we had to learn and understand the Chilean codes and its requirements for the higher earthquake zones.
We have a specialised team of engineers who are well-versed with all kinds of codes, whether it is Chinese, Italian, Chilean, American, or Indian, of course.
You mentioned that the group started diversifying in 2008 when you came back. Why do you think it diversified so late into the oil and gas, considering the boom of the sector was much before that?
When Chemtex was founded, the first focus of the company – polyester – was generating enough revenues, so there was no need to diversify. Later, on we were acquired by the Japanese conglomerate Mitsubishi whose core interest was not engineering and projects. Therefore they did not have a strategy to grow Chemtex out of the polyester business. Executives did not believe that there could be a strong contribution coming from engineering, O&G, or the Energy sector to the organization.
In 2004, the Italian family Ghisolfi of M&G Group took over Chemtex. it is a $3 billion company that is one of the largest manufacturers of PET They were putting up a lot of their own projects and Chemtex would engineer and manage these for them .
When they took over they hired a global CEO from a reputed international E&C organisation who developed a strategy for growth. Mission was to grow Chemtex from $300 million to $1 billion turnover in a period of five years. A proper reorganisation was necessary, which I was a part of.
What assessment do you make of your leadership so far? What are the areas of priority today for Chemtex?
I would like to think, given the circumstances we have done quite well in the last years with forays into the fertiliser and the refinery fields in India and at the same time we have delivered quality work to our international clients. The priority at the moment for Chemtex is to further streamline our work processes to further increase efficiencies in the competitive environment, implement measures for increased employee satisfaction and retention. The polyester sector is booming again so our challenge will be to serve this sector and keep repeat clients continuously satisfied at the same time keep the pipeline flowing with projects in the other sectors that we have successfully entered.
The Indian refineries sector is showing rampant growth with many going in for capacity expansions and modifications to their existing facilities. India is definitely becoming a refining hub with plans to double its capacity by 2012. What role will Chemtex play there and what is your action plan to be part of this growth?
The Refinery projects are normally lump sum turnkey these days other than the PMC roles. Once we have completed the current LSTK project and have it up and running, we will qualify to bid for these larger projects that will come our way. So this first project will be a stepping stone for us to expand further into the refinery EPC sector. As far as engineering is concerned we are continually working on refinery upgrades in the US. We have also engineered an intermediate storage tank farm for a large grassroots refinery here with tank diameters as large as 78 metres. We will further build up on this.
You mentioned you have operations in the Middle East and that Indian expertise and capabilities are well-received abroad. You do not see any difference between International standards and Indian standards?
Today India has progressed so much in terms of engineering requirements that there is very little difference between what we do here for our projects and the international projects. Of course certain specific regulations local to each country also need to be adhered to. Our project reporting and project control methods are also in line with International norms.
However, India still lags behind in terms of capabilities of project management and construction of large-scale projects, which still rely on experts from abroad.
Chemtex India also has to learn in this area considering we have not done a billion dollar project out of India. We would need training and the people who have the capability to do that.
Recently, Chemtex announced plans to provide EPC services for the construction of two LNG facilities in China. What is in your opinion of the potential of the Indian LNG market for such projects, and can we see similar projects happen in this country from Chemtex?
There are two types of LNG projects. The first one involves large terminals, where you bring big tankers and you set up a facility to unload, store and then maybe gasify it and send it to the ultimate users. Now we are not involved in those major projects.
The second type is what we are doing in China. LNG becomes the main fuel for general purpose that you need to distribute to rural areas and to lay a pipeline one kilometre long for LNG costs about a million dollars. What we do in China – from a big gas pipeline in a central place – gas is compressed, refrigerated and stored as LNG in small tanks. From there it is loaded on to road tankers; the road tanker, during the day, delivers it to the nearest villages and comes back for fresh filling.
This concept has not yet picked up in India. There was one tender from Oil India that came up, where they have a lot of flare gas which they want to liquefy, store and distribute as LNG. We were not awarded the contract.
I see LNG as an alternative to oil, but not in the immediate future – maybe in three to five years.
So what are the next projects that will drive the group forward?
For India it will be mostly polyester, as we see many opportunities in Polyester. PTA – the raw material to make polyester is also in short supply so a number of projects are being setup. Our first PTA project will be kicked off in China in August. These will be $400 million investment projects. Our parent company has also announced a PTA- PET project which will come up in Corpus Christ, Texas in the USA. This project is likely to start in January 2012 after necessary approvals are received.
In O&G we are actually involved in a bid for a very large project in Iraq. It is a $6 billion project – onshore O&G fields which need gas treatment and separation. We are targeting one or two of those, along with our partner in Italy. That should bring us a lot of work next year.
On the strength of that what are your personal ambitions for the company to grow within the next five years?
For Chemtex India, in terms of number of employees, we could be 1,500-2,000 in five years. But when you reach that number you need to be careful and sure that you have enough and continuing workload.
There is a debate in India whether there is a skills shortage or not. What is your opinion concerning the availability of human resources? And what is your strategy to attract the best human resources and retain them within the company?
That is a very difficult question. Resources are a big concern to me in the sense that the demand exceeds the supply. And there is no such thing as loyalty. In Japan, it used to be said that if you join a company you know you will retire from that company. In India it is not so, especially after the IT sector boom, there is a high rate of attrition and retention of resources is one of the biggest challenges facing organisations like ours.
Also the market for Indian MBAs and Engineers abroad has grown drastically. MNCs have no qualms in coming to India and recruiting Indian resources – Deutsch Bank is here, Citi Bank is here, McKinsey, the Boston Consulting Group, everybody. So there is a big shortage of experienced people, who can straightaway add value to the organisation. So every time you get somebody and spend some money and time in training them, in two years time someone else is paying them more and they leave. It is constant replenishment and training.
What we now tend to do is retaining people on retirement as consultants, in order to use them to mentor and train young engineers. A lot of them continue to work this way after 60 and they work full-time. On the other hand we also recruit a lot of fresh engineers and train them so that they are effective in a short span of time.
Do you have a final message for our readers?
Our parent company has spent more than $100 million in research into second generation renewable bio-fuels, and we think we are ahead of the rest of the world by at least two years in this area.
Our focus right now is to market this technology in the US and elsewhere in the world. The US, according to the projected requirements, will need 16 billion gallons of Ethanol in the coming years. Also there is a lot of demand from the DOE in the US for renewable bio-fuels. So our parent company, after successfully building and operating a pilot plant, is now investing money to build a commercial scale plant in Italy. Once the plant is commissioned – early next year – it will soon be commercially successful, as we are already talking to a lot of big players, like BP, Pepsi and Chevron, because all of them are very keen on second generation bio fuels and their downstream products
Our Owners think this is the future for Chemtex. Next year, when this plant is up and running, we expect to have a lot of orders – because from the 16 billion gallons, even if we have a small share, will be sufficient to keep us busy.