Raul Llamazares – President & CEO, Intecsa Industrial, Spain
Raul Llamazares, president & CEO of Intecsa Industrial, a Spanish engineering company with more than 50 years of experience in the design and execution of turnkey projects for industrial installations and supply of technological packages, both nationally and internationally, provides a fascinating insight into the current state of investment in the engineering sector and the development of the tendering process when bidding for new projects.
Intecsa Industrial is a considerably large contractor for the EPC global hydrocarbon industry and also the processing industry. Last year, your parent company ACS Group decided that Intecsa Industrial should merge with Initec Energia. Could you please explain the reasons and implications of this merger?
“Our group is like a formula one team, in the sense that each daughter company competes against one another. The idea is that we are free to team up or to compete all over the world with both our natural competitors and our sister companies.”
The purpose of the merger is to create a company that can approach a variety of projects with greater financial muscle and larger technical and project management capabilities at its disposal. We wanted to share our capabilities to reduce overheads and to maintain a strong presence not only in the oil and gas industry but in the power generation sector too. Currently, we are focusing on both oil and gas and fertilizer projects in the Middle East whilst undertaking the construction of a new power generation plant in Saudi Arabia. We believe the merger will increase our capacities which in turn will allow us to become increasingly more competitive. Whilst there are some engineering methodology differences between the two companies, broadly speaking our activities are very similar. If you compare investment in the oil and gas and power generation sectors, the merger should also help to balance strategic investments cycles.
How does this merged entity fit into the ACS Group and in regard to sister companies like Cobra, also part of the Group?
Our group is like a formula one team, in the sense that each daughter company competes against one another. The idea is that we are free to team up or to compete all over the world with both our natural competitors and our sister companies.
We are not looking to avoid competition with sister companies. Given we are always trying to be more competitive, additional competition has little impact on our mentality. We have been very successful in the past and we do not expect that to change with this merger. Sometimes our clients do not believe that we are competing with our sister organisations but obviously it is true.
Every sister company try to enhance its strengths to attract customers and complete the projects to everyone’s satisfaction. In Intecsa, apart from our experience and lots of references, we have the added value of a remarkable engineering capability.
Can you detail the distribution of your business revenues?
With the fall in oil price, the fertiliser unit has become a bigger part of our business (approximately one third of our turnover). Another third of our turnover is refining and petrochemical services with the final third coming from power generation. In terms of regions, 60 percent of our business is coming from the Middle East, North Africa is responsible for a further 30 percent but mainly consists of operations in Egypt and Morocco, and finally, we also conduct business in Mexico and Costa Rica.
How has your client base been changing with IOCs reducing investment and supporting government backed organisations?
A long time ago, we wanted a greater international presence and sought to follow Spanish companies Cepsa and Repsol into Algeria and South American markets. Since 2009 things has changed and we are working primarily for NOCs, and today, 96 percent of our business is with national oil companies. This has implied that we needed to change our company’s culture amongst other things but we are confident in our new direction..
Looking back on that decision to focus primarily on NOCs, it really was the only option available to us at that time because the majority of our clients that were operating and investing in Spain froze their investments. Up to that moment we worked on various simultaneous projects with Cepsa, Repsol, and BP across multiple locations in Spain but cuts to Spanish investments in 2008 and 2009 heavily influenced our decision to change strategy. We decided to go to the Middle East rather than South America because we feel it is very difficult for new EPC contractors to be both present and prosperous in a new region without prior engagements. In the Middle East, we had experiences and references we could utilise to our advantage.
Despite the competition in the region, the Middle East had a lot of projects and opportunities. We spent a year and a half getting all the relevant qualifications to fully embrace the market. We also needed to understand the market as we were consistently coming second or third in various bids. In 2013, we received a billion euro contract so we have clearly made progress and developed a strong understanding of the Middle East. In oil & gas sector, we have been working for Sabic and Saudi Aramco as well as working on a joint venture project between the Saudi Arabian oil company and a national oil company based in Kuwait. Our presence in the region has therefore much improved (particularly in Abu Dhabi) and we have managed to achieve this transformation without losing our international identity in other regions like Latin America. We were bidding for contracts in Bolivia, Peru as well as working on another project in Costa Rica. However, the number of projects brought to tender in the Middle East is far greater than that of South America.
Culturally, the Middle East is different to Spain but not as much as onlookers may at first think. For instance, their sense of humour and how to manage difficult situations in meetings is very similar. We have good communication practices and we do not need a lot of time to understand Arabic clients and vice versa.
How is Intecsa positioned on price compared to its competitors when bidding for various tenders in Abu Dhabi?
We are confident in our position in the United Arab Emirates as we have been operating there since 2011 and we are clearly a known entity. Whilst that shows the success of our Abu Dhabi operations, many competitors are in the same situation. We have just bid for a USD500 million project and another of USD two billion where we are fighting with huge contractors such as Samsung, Petrofac, Saipem, etc. Negotiations will begin with the frontrunners and we will learn the outcome of the bidding process shortly.
We can say, based on our experience, that we are well positioned on price compared with our competitors in Abu Dhabi. Five years ago, it was almost impossible to compete with Korean firms. At present, we are competing with them due to the fact they probably lost money bidding for various projects with really low projected budgets. These past experiences in the Middle East has changed their way to bid and now they are approaching the tendering process with a similar mentality to Intecsa and others.
What has made Intecsa successful when bidding for tenders alongside such huge names in the EPC world?
There are no secrets in this business as the companies are very familiar with each other. Our main competitive advantage is our medium size. This allows us to be flexible and execute projects from EUR 30 million to EUR one billion. With an effective partnership, we could also undertake projects that exceed EUR one billion. We are open to the idea of working with any of the EPC international contractors as we would prefer to present three projects with partnerships than one project solely completed by Intecsa. Partnerships are an effective way of spreading risk. This is particularly relevant in the modern era where the element of risk in the sector is increasing and profit margins are not increasing.
Risks are actually increasing faster in the power generation industry than in the oil and gas sector.
The risks are very high in the EPC business. For instance, you could start a project and find contamination underground. Most EPC contractors accept these risky conditions in an almost guilty manner.
Financially, there are also huge risks because you can lose all the profit you have made from many successful projects in a single unsuccessful project. The fact we are present in various markets (upstream, petrochemicals, downstream refinery and power generation) is also very helpful. We would like to develop a stronger presence in different regions to reduce some elements of risk.
Which regions is Intecsa targeting for future development?
Now we are very focused on Asia. For power generation, we believe Indonesia is a big market for the future. For refining and fertilising, countries like the Philippines and India are also very appealing. Latin America appears to be a frozen market so we are looking east. We already have employees in Baku, Kuala Lumpur and Jakarta, and are effectively starting the same process that we used so successfully in the Middle East 10 years ago. We need to know precisely who we perceive our clients to be and who our main competitors are in the region. We will see what impact we have on the region but we have already received interest from Petronas, Pertamina just to name two.
Other figures in the industry have told us about a movement away from projects in a variety of different locations and a desire to really develop strong relationships allowing companies to fully enhance their cross-sector portfolios in specific markets. Are you experiencing this trend?
It depends on the country or market in question. For example, in Egypt we are bidding for projects that require a range of services: petrochemical, power generation, fertilisers and refining. In Middle East, we are working in all of these sectors. We are quite interested in keeping our presence in the different sectors when we are stablished from long time ago but we do not dismiss any opportunity in any other locations.
Currently we are facing the problem we must have the financial strength or to offer a financial support to our clients to initiate the project. The Spanish export agency is supporting us not only financially but also in building open dialogue with the banks. In the future, I think successful bids for projects like these will contain appropriate engineering capabilities, strong references and financial support.
I recently met with the Egyptian Minister of Petroleum and Mining Resources, H.E. Tarek El Molla, about a specific project in our hands. However, as ever, having the financial strength to proceed with the project is the most important issue. If you can merge all capabilities and have a strong financial platform, you are in a very good position to take advantage of modern opportunities. This is precisely the position Chinese and Korean firms in particular are currently utilising to great effect.
What makes Spain such an impressive country for engineering services?
I do not think Spanish engineers are much better than Italian or French engineers for instance but what Spanish companies have done quite successfully is to expand and not focus solely on the local market. The experience gained from increasingly working in different countries has enhanced our capabilities.
Certainly, the educational aspect of engineering used to be very strong in Spain. It took six years to achieve my diploma so without doubt it was not an easy part of my career. Education is a must but it has to be supplemented by experience. Going abroad and managing very different clients is a great experience and one that has really improved the Spanish engineering sector. Working in different markets has highlighted differences in scheduling, project control, and reporting. These aspects were not so natural for Spanish companies who were focussed primarily on technical capabilities. Now, there are a lot more decisions that need to be taken in areas like procurement, sub-contraction opportunities and supervision. The only way to learn these aspects fully is to suffer for a short period of time and work abroad.
When we return in five years, what would you like to have achieved?
In five years, we need to have become bigger in size, and move from our current EUR one billion revenue to around the EUR 1.5 billion mark. I would also like to increase our global presence so we are not only strong in the Middle East and North African markets. Let’s see what happens in the United States because currently it looks very difficult to take on construction projects there. Spreading market risk is obviously crucial for companies operating in our defined sectors.