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Interview

with Russell Waugh, Managing Director, Leighton Welspun Contractors Pvt Ltd.

15.06.2011 / Energyboardroom

Paradoxically, with only 13 years of operations in India, Leighton Welspun is today the oldest international contractor in this market. Why in your opinion this market has traditionally been out of the scope of the large scale international contractors?

The Indian market needs a lot of patience, persistence and perseverance. Leighton wanted to be here and was willing to put in the effort. Relationships matter in India and it takes time to develop trust and demonstrate performance. Indian business likes to have its partners close by and accessible. Whereas many companies were not willing to invest the time or the money to be here on the ground and actually integrate in the Indian business community, Leighton did so, and that has been a key reason for the company’s success.

You have spent the last seven years leading the Indian operations. What in your view has been the tipping point for Leighton Welspun in India?

We have had several key milestone contracts, one of which was certainly the pipeline replacement project for Oil and Natural Gas Corporation (ONGC). It was a US$750M contract that was mutually significant for both parties – the largest contract that ONGC had ever awarded and the largest contract that Leighton Welspun had ever received. The project, recently finished on May 15, 2011, has been extremely successful.

It seems you have managed to work two or three times with the same partners. How would you like to further capitalize on these collaborations?

We have repeat business with Indian Oil Corporation Limited (IOCL), Bharat Petroleum Corporation Limited (BPCL), and ONGC. All of these companies and the contracts associated with them have been important to us.

We certainly want to develop our scope of activities and, indeed, Leighton Welspun is currently trying to expand its capabilities and offerings in the Indian market. The company aims to become a full services provider in the industry, able to grasp opportunities in any project that our clients are carrying out, both onshore and offshore, in the oil and gas sector.

Three weeks ago Leighton Holding Ltd sold a 35% stake of its India business to the local conglomerate Welspun Group for US$104M. What was the rationale behind the deal and how do you see the synergies in India unfolding between Leighton and Welspun?

Welspun is a very well established Indian company that is looking to develop a strong presence in India’s infrastructure sector.. The group has core businesses in pipe manufacture and textiles, and became more and more interested in the infrastructure sector in line with the governments development plans, including the 12th five year plan which forecasts one trillion dollars of expenditures.

Leighton’s focus is in construction and the company was looking for a partner willing to bring investment in infrastructure projects, giving access to that element of the market. It is this synergy and the mutual desire for profitable growth that has driven this strategic partnership.

Your group president David Stewart mentioned recently that although Leighton Holdings Ltd has streamlined the reporting of the International and Australian based operations, it seems that Leighton Welspun will remain a stand-alone unit. Could you please comment?

Leighton Welspun has two shareholders. We now operate with our own board of directors that along with both shareholders, steer and guide the company. We operate this way for two main reasons: the uniqueness of the India market and the fact that India is perceived to be a large market with substantial growth opportunities.

Leighton Welspun is carrying on different types of projects from civil engineering such as the Chenani-Nashri tunnel, to strategic energy projects such as the Pipeline Replacement II Project. What is the importance of oil and gas for the Indian affiliate? How important do you consider the O&G business for your activities?

The oil and gas sector has always been a core part of our business ever since we started. This sector is extremely important to us and will continue to drive our growth. We also want to leverage on it to support growth in other parts of our business. Indeed, we want to be able to build a wider and more balanced portfolio across India and ultimately service all construction sectors. Our goal is to be one of the largest construction companies in the country, so we strive to operate across the full breadth of the market.

Where do you see more stability in the order book: in civil engineering or in the energy sector?

The Indian oil and gas market has a higher degree of predictability when it comes to individual projects and timing. There is a good level of certainty of available funds in this market and the government has a clear policy of reducing dependence on non indigenous oil and gas sources. . Both public and private sector companies have shown firm commitment to investment in the oil and gas sector.

Civil infrastructure projects of recent times have typically had higher degrees of variability in timing, albeit the market is large. Individual projects are much more dependent on processes such as land clearances and environmental permits, and social and political imperatives.

What specific business opportunities do you personally identify for Leighton Welspun with the IXth round of the New Exploration Licensing Policy (NELP)?

Although we see the Public Sector Undertaking (PSUs) as particularly strong providers for our upcoming work, we would also like to see other companies taking a stake in the NELP round by going forward with the exploration and development of blocks.

Reliance has demonstrated that it is possible to develop a US$1 billion project and make it work. Their success is a reference point for many other companies interested in entering the market.

What strategies have you adopted to work in such a highly state dominated sector?

We spent time with the people in the industry and within the various companies so we understand their needs, projects and operations. We built trust, and when we won projects, we delivered.

On the downstream side we have been largely involved in offshore work helping companies to achieve their goals. For onshore projects we have sought opportunities with engineering, procurement, and construction so that we have the opportunity to add the most value possible to the project.

Mr Bansal, Chairman of Indian Oil Corporation Ltd., told us that internationalization is one of their target focuses to increase long-term growth. This is of course a common strategy for other large players such as ONGC and Reliance. To what extent can Leighton Welspun accompany them in foreign markets?

India is not only expanding internally as you know, but out into the world as well. Over the last 15 years, changes in market regulation have increasingly allowed Indian companies to expand abroad. The opportunities that we offer to customers come from our established operations in Asia, Australia, and the Middle East. Whilst our Indian business is focussed in India, we have group companies operating throughout the region and are able to provide our customers with support through our associates to assist their global expansion.

We understand that some of your closest competitors also have an established presence in India. What is Leighton Welspun’s competitive edge? What can be Leighton India competitive edge?

We work hard to achieve results. When we commit to doing something we pull out all stops to make sure that it happens. Our discipline and commitment distinguishes us from others in the market, particularly here in India. We are able to attract our clients based on our performance, and the strong financial backing of our company does indeed make a difference. As a result of wise investments we have some very good offshore equipment available to us. The company has not overinvested and our equipment is suited to this market. Additionally, Leighton Welspun has a reputable track record for on time performance. All of these attributes give us comparative advantage in this market.

Something you have not mentioned is the human resources perspective. How much of a challenge is there to recruit the right people?

Despite its large population India has a skills shortage of engineers and technical workers.

To address the shortfalls in skilled workers, , we have established a training school in Delhi through which we have positioned more than 2,000 people to date.

On the engineering side, Leighton India has associations with some of the main universities in the country and in Australia that are assisting us in providing construction-specific training to graduates. We have significantly grown the number of graduates in our organisation to build a skill set base that we can grow and develop here.

While procuring human resources has historically been a challenge, today we are better able to attract people from other parts of the world. The interesting dynamic in India at the moment is that its economic growth makes it an attractive place to live and work, and many people are very happy to come back to India. There is a fast growing new lifestyle that they can all participate in.

Do you believe that any form of industrial nationalism exists in India? That is, do you see apprehension for Indian people to work with foreign constructors?

I think they see business as an asset more than a necessity. That perspective may have changed over the last 15 or 20 years, but certainly the relationships with the people we work with is very open.

People appreciate that we are here on the ground and working, using a mix of local knowledge and international experience. We have tried to set up a team of local staff that runs much of the business but which is balanced by key technical and management expertise from abroad

You came here seven years ago; obviously there was a large road map from the headquarters for you in India. Do you have the feeling that you have matched the expectations?

We have in fact far exceeded expectations. There was perhaps a strong recognition that India was a huge market with a great potential for future growth. But there was also a lot less certainty about what lies within and how to manage it. Therefore internally there was both optimism and caution. We have built a well balanced business on the strength of our values and performance.

Countries such as India and China look nice from the outside, but once you go down to margins and markets, conditions may not be financially appealing, and there is too little reward for the effort required. Without going into too many financial details, what would you say about this?

Leighton has applied its own “PPP” model to India: Patience, Persistence and Perseverance. India is certainly a challenging market. You can sit on a helicopter and look at this absolutely wonderful market. But once you get dropped down on the ground, it’s a lot harder to see the woods for the trees.

You have to work through a process and be logical and focused in what you do. India is an engaging and open country, full of excitement and opportunity.. People are looking to the future and willing to work to find solutions. Time does run against you in some cases, but you can never stop trying.

It is more important to have a business mind or an engineering mind?

I would say the right answer is a mixture of both. If you come to India without knowing anything technical about your sector of activities and plan to sell a good story, you last one round. People here generally like to deal with people who understand the work.

Obviously a good business mind helps you to find a way through things and enables you to think about 10 different solutions to solve one particular problem, and of course business is about making returns for the shareholders, so you have to be focused on delivering value for your own company as well as your clients.

India is booming, as is its oil and gas sector. What would be your advice be to the exponentially growing expatriate community that is moving to Delhi or Mumbai?

Take your time to truly open your eyes to what is here. It is very easy to come to India and be immediately distracted by the first impressions; but first impressions are not all there is to India.

I have spent five years living in Bandra. My wife and I walk down the street to restaurants and even after five years we find new shops and places tucked in the back of a street that we had not seen yet we walked past every day.

Show a lot of interest and passion in the community and the places around you. India is a wonderful place. The environment is challenging but the country also offers opportunities that are unrivalled anywhere else in the world. It is simply a very exciting time to be here.

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