with Pieter Kroon, Managing Director, Belmet
When Focus Reports interviewed you back in 2006, you were of the opinion that South Africa was not ready to be classified as a service hub to the region. Experience, technological advancement and international role players were lacking. Five years down the line, how do you see the situation today?
Exactly the same! We still do not have an international role player that can seriously attract business and we still do not have the proper infrastructure. At the drydock that we have, nothing has really changed. The only thing that has theoretically changed is A-Berth. Although this location was initially earmarked for 3 companies back in 2005, there is now a single player operating. In my view, there is still no real infrastructure and in 5 years we have lost ground against other possible countries like Angola, Nigeria, Ghana, Namibia and other countries along the East Coast.
We have indeed seen competition from ports such as Walvis Bay. Is this is a serious threat?
Any vessel that goes to Walvis Bay is a lost vessel for South Africa. To get that vessel back here, you need to be very competitive. I would love to know the government’s answer on the new plans to turn the nation into a ship repair hub. Places such as Namibia and Ghana all have clear plans in place. If that plan exists for South Africa, it will probably look the same as 5, 10 or 15 years ago.
The reality is that our ports belong to Transnet, which does not consider ship repair as a priority. They are a logistics company that owns all the properties. They look at the bottom line, which is moving containers. If the way this parastatal is seen does not change, no investments in new infrastructure will take place.
What arguments can you bring to the table to justify such investments?
Theoretically, the government’s focus lies in creating employment, stimulating the economy etc. This is not in line with the profit-seeking strategy of Transnet. The real comparison that needs to be made is the number of jobs that have been created from the container business compared to the number of jobs that can be created through ship repair. A 60-day conversion will have at least 400 to 600 people on board, excluding the pre-fabrication work, supplies, import-export, hotels, restaurants, etc. Are we looking at the greater economy or at the bottom line and profitability of one company?
Looking at the economy of ship repair in South Africa, this includes fabrication, transport, hotels, air freight, import-export, suppliers, and so on. Logistics, however, can simply rely on only one crane operator. If the government forces Transnet and TNPA to base its KPIs on job creation rather than bottom line, things will change. The current situation is not good for South Africa.
Many have pointed to red tape at a political level that has been causing delays in infrastructure. Do you feel that the government does not recognize the potential of turning the nation into a hub?
Theoretically, I think they do recognize it considering that the oil and gas industry has been identified as a high potential sector with significant potential for job creation. Yet, in order to do so, you first need to invest in infrastructure. Either land in the port needs to be given to the private sector which then develops it, or the government takes the role to develop the port and subsequently offers it as a common user principle to the industry. In South Africa, no such developments have taken place.
How does this reflect on Belmet’s growth path in recent years?
In terms of footprint, we have grown with new machines, better representation, better technology, etc. The reason for the expansion of the facility here, as well as our new offices in Namibia and Ghana, is to have a better foot in the door to attract more clients. Rigs were stopping in Walvis Bay that were no longer coming to Cape Town.
The strategy behind the Namibian office was threefold:
1. To have a presence for fabrication for the offshore oil & gas, marine and fishing industry,
2. To gain better access to opportunities in the mining sector,
3. To gain better access to Angola.
We have already received purchase orders for our factory in Namibia from Angola and Namibia itself, while these orders additionally created extra subcontracting opportunities to our Cape Town facilities.
At the same time, a considerable people challenge persists in Namibia. While the Namibian government favors employment for the nation’s own people, it remains a large country with only around 2.1 million inhabitants. As a result, there is a massive skill shortage. While we are not so much in the ship repair business but rather want to fabricate for the offshore oil and gas sector, the situation is even worse for us. There are very few people with expertise in the fabrication business. It is a completely different mindset and the skills required are different than ship repair. From a senior management point of view, this is a big problem and there is no easy way out to fill these positions.
Can the Namibian logic be applied to the Ghanaian office to capture Nigerian orders?
I would certainly hope so, but setting up an office in Ghana takes a long time. It is a fairly new market with huge growth opportunities wherein we wanted to be present as early as possible. If the growth path and the business case justify setting up a factory, then we will definitely consider doing so. But growing too fast is not good either, so we need to be careful at the same time too.
If the international footprint served as a way to diversify risk and taking into account the current E&P discoveries and developments taking place on the Sub-Sahara East Coast, will this create new opportunities for Belmet?
Anywhere new oil and gas finds and new drilling rigs can be found, we will benefit. Opening an office may help, but the timing remains crucial. You cannot simply open an office in every country on the continent. But it is a fact that where there is more activity, more supply vessels will come in so I would like to think that we can benefit.
To come back to the technology which is already quite advanced in the facilities here, to what extent is it challenging to keep up with the latest developments?
The biggest challenge is that while you can easily source the equipment, the back-up services may not always be there. The servicing of equipment and breakdowns is very difficult to manage. I often have to fly in maintenance engineers from Europe which obviously creates major problems in case of a breakdown.
We now upgraded our CNC plate-cutting machinery in Cape Town and bought a new machine for Namibia, while we are keeping spare parts in stock. We have 2 plasma units for every machine in case of failure for example.
Personnel-, the constant training of Employees and finding experience personnel are also main concerns.
Belmet has established a strong track record over the years, working with big names such as Pride and Subsea 7. What is your take on the current order book?
The last 3 years have been challenging, but we have been very busy in the last 6 months, in particular for Pacific Drilling. Our current confirmed order book also looks very promising for 2012.
You have also established a partnership with 3C Metal SA. How successful is this collaboration?
We do not have any official joint-venture partnerships with any company, but 3C Metal SA is a good partner with whom we have a very good relationship. Our businesses complement one another and I have personally known the original owner for roughly 15 years now.
The initial collaboration was facilitated by Pride, while our real first project together took place in 2004 for Subsea7 and PetroSA, where a high amount of high pressure piping work was required.
Ever since, our collaboration has been going very well and both companies benefit from this relationship. The client also benefits, as he only has one entity to deal with.
In 2008, you considerably expanded the facilities in Cape Town. What additional capabilities did this bring?
Between 2005 and 2008, we received orders for huge projects. We managed to complete these successfully but realized that we needed better facilities. Due to lacking facilities, we spent a fortune on mobile cranes, handling costs, etc. Overall, the limited facilities created many inefficiencies. As a private company, we reinvested our returns from those peak years into expansion in 2008. The timing was very unfortunate however, as many of the tenders were suddenly cancelled due to the global financial crisis.
What we do see today is that we can do much bigger projects quicker and more efficient than before. It is also more comforting for clients to see such handling capacity. Market-wise, there are not many companies with this type of facilities.
Where do you see Belmet in 5 years?
Hopefully, in 5 years from now, we would have a more continuous or regular workflow, even though that is very tough in our industry. Our biggest concern, especially in Namibia, remains qualified people and a more steady