Post on 03-Apr-2018
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Giancarlo Cotone
Regional Sales Director Middle East and Indian S/C
Contracting strategiesin the Middle East
International Refinery ForumDubai 6 & 7 December 2005
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Contracting strategies in the Middle East
Highlights
Market place
Past and future opportunities
Traditional contracting strategies
Alternative EPC schemes and trends
Project management schemesand trends
Question marks
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Contracting strategies in the Middle East
Market place past and future opportunities
Study the past and plan for the future
The following two graphs refer to Abu Dhabi, and are based on:- past awards, beginning 2004 to mid 2005- future awards, up to end 2006
Areas considered: multi discipline EPC projects for oil & gas,gas processing, refining, petrochemical
Source of information: commercial databases
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Contracting strategies in the Middle East
Market place past and future opportunities
-
500
1,000
1,500
2,000
Value(M
MU
SD)
1 2 3 4 5 6 7 8 9 10 11 12 13 14
Number of Projects
Projects awarded beginning 2004 to mid 2005
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Contracting strategies in the Middle East
Market place past and future opportunities
Specific for Abu Dhabi only .
What does the first graph tell us?
Up to 100 MM$, only local contractors
Only one contract in the range above 100 and below
1,200, but it is a pipeline
Above 1,200, three projects, two major internationalcontractors only
No intermediate range, no chances for internationalmedium size contractors
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Contracting strategies in the Middle East
Market place past and future opportunities
Projects to be awarded (mid 2005 to end 2006)
-
200
400
600
8001,000
1,200
1,400
1,600
1,8002,000
Projectvalue
(MMU
S$)
1 3 5 7 9 11 13 15 17 19 21 23 25 27
Number of Project
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Contracting strategies in the Middle East
Current and future opportunities
Specific to Abu Dhabi .
What does the second graph tell us?
More projects in the intermediate range
More chances for medium size international contractors
Good news for both customers and contractors
But what are the key points for the whole region?
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EPC contracting schemes
Project management strategy
Contracting strategies in the Middle East
Tradit ional contracting strategy in the Middle East
Regional differences, lets use Abu Dhabi as a referenceto analyse:
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Contracting strategies in the Middle East
Tradit ional contracting strategy in the Middle East
Large availability of contracting and construction resources
Stability of prices- for steel and equipment
Many EPC contractors willing to follow the scheme
Unbalanced risk, high LS contingencies
EPC contracting dominated by LSTK in the past years
In the past there has been no incentive for owners todeviate from traditional strategy
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Contracting strategies in the Middle East
Tradit ional contracting strategy in the Middle East
A. FEED contractor
B. PMC contractor for the FEED phase, different from A
C. PMC contractor for the EPC phase (often not the same as B)
D. EPC contractor, different from B & C, could be the same as A
Typical project management scheme in Abu Dhabi up to four different parties:
Disadvantages:
Poor utilization of PMCs technical skills Loss of continuity between FEED and EPC phase
Different from neighbouring countries.
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Contracting strategies in the Middle East
Alternative EPC strategies
What are the key drivers for change?
Number and size of projects
Number of simultaneous projects
Uncertainty of material prices
Availability of resources
We see a lot of change in KSA and other Middle East countries
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Contracting strategies in the Middle East
Alternative EPC strategies
Started in Nov 04, when alternative schemes were studiedand implemented for Khursaniyah (KSA) project
Snowball effect on public and private sector
Massive use of alternative schemes by several State ownedand private companies
Two families of schemes:
- LSTK through Open Book conversion- Reimbursable with incentive scheme
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Contracting strategies in the Middle East
Alternative EPC strategies
Early Work Agreement (EWA) up to conversion to cover (FEED),
early detailed engineering, Open Book cost estimate
J oint owner / EPC effort
Early procurement by EPC, orders formally issued by owner,to be novated to EPC
Conditions for conversion to be pre-agreed, i.e. cost estimatemultiplying factor(s), Ts&Cs
Agreed estimating methodology
Multiplying factor(s) include contingency, risk and profit, based on Ts&Cs After conversion it becomes conventional LSTK
LSTK through Open Book conversion
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Contracting strategies in the Middle East
Alternative EPC strategies
Owner retains the conversion option
Combines LSTK advantages for owner (financing, budgetsolidity) with better risk / contingency management,thus minimization
Short bidding period, as cost estimate does not need to beaccurate. Overall schedule cut by at least six months
Transparency / mutual agreement on contingencies,risk and profit
LSTK through Open Book conversion (contd)
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Contracting strategies in the Middle East
Alternative EPC strategies
Rationale: to optimise risk management
Sharing risk, while mitigating budget risk for the owner A number of possible schemes
Basic elements:
- establish EPC target price- share over-run and under-run
Variable elements are:- services on LS or reimbursable basis
- dead bands for over-run and over-run TIC- details of incentive / penalties scheme
Reimbursable with incentive scheme
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Contracting strategies in the Middle East
Alternative EPC strategies
The scheme establishes a win-win relationship
Smooth contract management, both owners andcontractors PMT are focused on the same goal
Contractors responsibility as high as required, through
incentive / penalty scheme
Need to evaluate target price accurately. Bidding process,estimate accuracy almost like LSTK
Reimbursable with incentive scheme (contd)
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Contracting strategies in the Middle East
Project Management schemes and trends
Capitalize on experience acquired
Easier transition, handover to the EPC phase
Avoid disruption in project management in thecritical onset phase
Keep historical memory of the project
Could soon be applied in some cases in Abu Dhabi
This scheme is currently used in other Middle East countries
First possible improvement: combine PMC for both phases
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Contracting strategies in the Middle East
Project Management schemes and trends
Take better advantage of expertise of companies likeFoster Wheeler, who can add strong technical value to PMC
Easier management of the EPC, as PMC involved inselection of EPC
Better interface management, especially for complex projects
Common areas like utilities and offsites, automation andcontrol, etc., successfully EPCd by PMC (high instances in
other countries)
This scheme is currently used in other Middle East countries
Second possible improvement: combine PMC with FEED
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Contracting strategies in the Middle East
Question marks
Will there be a Snowball effect in Abu Dhabi, like in KSA?
Is it likely to happen?
What are the factors preventing the change?
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Giancarlo Cotone
Regional Sales Director Middle East and Indian S/C
Email: giancarlo_cotone@fwuk.fwc.com
www.fwc.com
Thank you