In conversation with Business Line Shivendra Kumar, President & CEO Energy – South Asia, Punj Lloyd, shares his thoughts on the issues concerning the sector and why the company feels at an advantage when working in developing countries.
What are the difference between cross country network and city gas distribution networks?
Cost of laying the pipeline in a city is three to four times more than a cross country network. More expensive because it requires lot of maneuvering, there are other networks also – water, electric cables, sewerage lines etc. Lot of issues involved with city dwellers due to space constraints, not being able to use mechanized pipe laying, and inconvenience to traffic and city dwellers during the construction period.
Suppose 100 km of cross country and city gas – in terms of installation cost – in normal terrain, it will cost you $5 an inch metre highway, in city it will cost $ 15-20 an inch metre.
You are involved with the now controversial gas Kochi-Bangalore-Mangalore Pipeline. What is your take on the issues being raised in Tamil Nadu?
We are not doing any stretch in Tamil Nadu, but we are doing in Kerala. The whole controversy is now about farmland versus highways.
What is to be remembered is that when a pipeline is being laid on farmland it is temporary acquisition of land never permanent. When we dig for laying the pipeline, we ensure that the earth is put back in such a way that the land can be cultivated once the pipeline is laid. Land is restored to them as it is. Soil is not affected at all. There is no danger whatsoever in having a pipeline through farmland.
The pipe is laid 1.2 metre below ground level and has a sophisticated SCADA system which monitors any potential problems. Optic fibre cable (OFC) is also laid along the pipeline for communication, so it is very safe.
Punj Lloyd is very conscious of preserving the top soil. Other aspects such as plants or trees which need to be cut is given more than adequate compensation by the client.
What is the global trend?
Commonly it is not along the highway because that will not be shortest route. There is a huge cost associated with the highway route - increased length of pipe, crossings etc.
Problem which we face in laying the network vis-à-vis US is that we are densely populated, they are not. There are stretches where there is no population at all in the US. West Asia, it is in the desert.
Punj Lloyd has laid network in Turkey and Georgia, where it has run through farmland. In our country population is spread all across.
If it is running parallel to the highways the length of pipeline will increase resulting in higher costs. Besides, today the farmers have come upto the road. Then there are networks across highways -- cables, sewage lines -- details or records not there. It is time consuming.
You are doing projects in countries where geopolitics is an issue. How do you deal with it? How do you hedge your risk?
It is all about risk and reward. If I take a project in Sudan I will not take a decision like I do in India, which is a matured economy. Risk hedging at a given time will limit our exposure. We manage our cash flow minutely. Like in Libya– we go as a contractor not as a project developer. More geo-politically difficult areas are better for us.
We are more successful in developing economy than in developed economy. In a developed economy we do not have any competitive advantage.
How challenging was setting up your second LPG terminal in the country?
LPG demands in South India were quite pressing. The terminal had to be able to store butane, propane and LPG. This terminal has an unique feature, it has facility for product interchange ability. In other words, any of our tanks can store anything. It is also fully automatic.
We were the EPC contractors for the terminal built by the joint venture of Indian Oil Corporation Limited and Malasyian Govt. Owned Petronas (IPPL), 600,000 tonnes per annum capacity LPG Import-Export terminal project worth Rs 546 crore.
As an EPC contractor what are the challenges you face? Is the selection process tough in India?
The selection process for an infrastructure contractor in India is the same as what is the global practice – through tenders. But, in order to increase competition in India, the companies offering the projects divide the project in number of sections, in case of a pipeline project.
In other words, if it is an 800 km pipeline network then the companies like GAIL divide it into 8 sections of 100 km each. The net result is there can be 8 contractors laying one project. When you divide projects into number of pieces you are giving opportunity to small players, which is good, but you are not confident of timely delivery. As the smaller players may not have the resources and wherewithal to do the project on time.
Like the Dabhol-Bangalore pipeline was divided into ten separate contracts.
But, a significant portion of Dabhol-Bangalore network was built by Punj Lloyd. What was your bidding strategy?
We bid in such a manner that we got seven spreads of the network. When a contract is awarded to a single contractor, it is easier to implement. For instance, suppose there are some disturbances – local interferences – the contractor can always start work on the next section and come back to the affected area later.
It is the client who has to get the right of way for us, which is a tedious process. There are disturbances and local interference.
Does it also affect the economies of scale for big players like you?
Small packages do not give economies of scale. It makes a project unattractive for players like us. If there is pipeline of 800 km pipeline, they have divided into 8 parts, so 8 contractors can do job. Size is small and players who can get qualified are also not big.
What are the risk elements for an EPC contractor?
The biggest risk is of idling because we are dependent on right of way, which is clients’ responsibility. There can be extensions which require extra time, terrain, areas can throw some challenges – in spite of surveys one doesn't know whether there is rock or soft soil.
The initial assumptions can go wrong.
Courtesy: The Hindu Businessline