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Arun Kumar Jain, Managing Director, Fluor Daniel IndiaFluor India is one of the world’s leading publicly traded engineering, procurement, construction, maintenance and project management companies. Operating in India since 1995, it is spearheading the concept of sustainable engineering. Arun Kumar Jain, Managing Director, Fluor Daniel India, shares his views with CW on the company’s business operations and challenges.Tell us about Fluor’s Industrial and Infrastructure (I&I) capabilities and the services it offers in this segment. Who are your main clients?Fluor Corporation has many business divisions and Industrial and Infrastructure (I&I) is an important and strategic one. It offers programme management, engineering, procurement, fabrication and construction expertise that address the challenges of industrial and infrastructure clients. Whether it is construction of new manufacturing facilities or refurbishment of ageing infrastructure, Fluor I&I offers solutions that meet the client cost and schedule requirements. Typical examples of I&I projects include PPP or government-owned highways and rail transportation projects; complex mining projects in remote locations; integrated pharmaceutical and biotechnology projects; telecommunication systems; and manufacturing facilities along with commercial and institutional projects that include mixed-use developments, healthcare facilities, research and development laboratories, etc. Our I&I clients comprise Rio Tinto, iron ore expansion projects in Pilbara, Australia; Cytec; MeadWest Vaco; etc.Tell us about some of your completed projects and the challenges involved in implementing them.Fluor’s presence was heavily weighted towards the international marketplace until a few years ago. This was largely owing to the paucity of projects that would apply a merit and cost scorecard-based contractor selection process. Spending for most large projects in the public sector did not accord value to lifecycle costs vs. lowest quoted bid price; little credit was assigned during evaluation to a bidder's track record of safety, quality, schedule compliance and cost certainty. In addition, the procurement guidelines allowed for price preference to government-owned business entities for several projects.With multiple players in the private sector now setting up multi-billion dollar projects, the business scenario is changing. Clients have started to assign credit for a bidder's technical competence. The terms and conditions are more evenly balanced between the client and the contractor, though most are still heavily weighted in the client’s favour. Very few local competitors have the technical capability and financial ability to execute such large and complicated projects on their own, considering the high level of risks involved.It is always a challenge to win and execute projects in India because of various reasons. These include pre-execution delays like land acquisition; schedule delays triggered by indecision; poor implementation of change management system; a client’s inability to arrange finances; volatility in money markets and foreign exchange rates; taxation issues; labour scarcity compounded by poor productivity, high turnover and unrest; harsh lump-sum execution stipulations even for long gestation infrastructure projects; and political and civil society activism.Fluor India has been supporting worldwide projects in both normal and niche industry segments. We have been supporting execution of several projects in the conceptual, definition and execution phases. We have been major contributors in Fluor’s foray into niche technology segments such as coal, petroleum coke and municipal solid waste gasification, super critical 800-mw unit rating power units, ultra pure polysilicon manufacturing and large modular (road transportable modules to 1,650-tonne module sizes) projects.In the past three years, while we continue to work on global projects, we have also focused our attention on the local market and have been successfully executing projects.What is Fluor’s total investment in its various ongoing projects?Fluor traditionally does not develop projects though there have been a few instances where we have taken a minority equity stake to help a project achieve financial closure. We would rather evaluate Fluor's investment in terms of the expertise and services we offer to clients and manufacturers that eventually help in capacity building in the country.We have helped Indian multinational corporations to build successful projects overseas. Some of them comprise ONGC Videsh for an onshore upstream gas plant in the Siberian desert, and Videocon for a liquefied natural gas (LNG) terminal in Mozambique, Africa. Closer home, we are assisting Indian companies to plan and execute mega investment projects like Jindal for their ambitious coal to liquids programme in Odisha. We have also assisted Indian clients in securing international financing, for instance EXIM financing, for a large petrochemical project. We are enabling small Indian manufacturers to secure business in international markets by lending them access via a structured global supplier pre-qualification programme.In 2012, Fluor was selected by Reliance for the project management of refinery and petrochemicals expansion in Jamnagar. Tell us what you have brought to the project.Fluor has been chosen for engineering of the prestigious pet coke gasification project, development of engineering practices and work processes for the client and to manage its flagship multi-billion dollar Jamnagar expansion programme. Fluor believes that infrastructure projects of such large magnitude require the experience and rigour that can only be provided by experienced global contractors with mega project execution management skills. We also believe that India needs radically more efficient execution approaches towards infrastructure development. This means embracing newer methods, adopting best practices, building relationships based upon transparency and trust among stakeholders, developing an exhaustive permitting plan, effective cost control and employing sustainable construction.As an international firm what were the challenges you faced in the Indian environment? What is your assessment of the market and prospects for firms such as yours?With over more than $ 1 trillion investment planned in the 12th Indian Five-Year Plan, the opportunities for EPC players in the Indian infrastructure industry are plentiful. However, one has to contend with the risks of doing business in every country. In India, the major risks include: â€� Pre-execution delays like land acquisition, right of way and permits, e.g., environmentalâ€� Schedule delays triggered by indecision, or frequent and late changesâ€� Scarce finance, weakening financial strength of both owners and subcontractorsâ€� Volatility in money marketsâ€� Volatility in foreign exchange ratesâ€� Labour scarcity, poor productivity, high turnover and unrestâ€� Material price increases driven by global price movementsâ€� Unrealistic bids by new EPC entrants creating unreasonable expectations in the minds of owners regarding both price and scheduleâ€� Government policy flux regarding import duties, indirect taxation, and availability of feed such as natural gas, coal or powerâ€� Post-execution delays like permits—a plant may require up to 50 permits to commence operationâ€� Harsh lump-sum execution stipulations even for long gestation infrastructure projects.â€� Impractical industrial policies, e.g., the new land acquisition regulation will make it both a long drawn out process and an expensive proposition. Some analysts project that, while globally land costs are ~5 per cent of a project cost, in India they could now touch 40 per cent!â€� Political and civil society activism.The recent turmoil in the financial sector, including the rupee depreciation, has tended to increase the level of uncertainty in project execution. With meticulous planning, however, there are ways and means to mitigate risks. Exchange rate risk can be sought to be managed by a combination of currency hedging, multi-currency contracts and timely ordering of long lead items based upon a market and shop capacity analysis.An Indian Government intervention through announcement of long-stalled big ticket infrastructure projects could very well perk up sentiment and bolster the Indian manufacturing and EPC sector.FACT SHEET:Year of Establishment: 1995 (Fluor India)No. Of Employees: 2,000 plus and growingCentre(s) of operation: New Delhi and projects site in IndiaOngoing projects: About 20 major projects in a number of specialised industriesUpcoming Projects: Reliance, MeadWest Vaco, BASF, Cytec, Rio Tinto, Jindal, Exxon Mobil, Shell, Qatar Petroleum, Santos, Sasol, etc.Suggestions on contractors to be convered? Write to at [email protected]