Holding the line

OMICRON’s Middle East business currently accounts for around 15% of its overall business and the company’s sales in the region have increased five-fold in the last few years.

“Projects are going ahead. New projects have slowed down a little bit but government and utilities are very committed to projects with utilities investing heavily in high voltage substation network infrastructure. Looking at the bigger picture, the lead time for power transformers can be 10 years so a small slowdown shouldn’t have too much impact. Overall, we are very optimistic,” says Andy Hedgecock, Middle East manager of OMICRON in Bahrain.

This view is echoed by Hesham Hammad, account manager of Phoenix Contact in Dubai. “Demand is huge, we are expanding fast and have just moved to a new office in Dubai Academic City and we have taken a new warehouse in the area. Around 10% of our business is in after sales and replacement products but the rest is completely new business,” says Hammad.

Hammad believes that even under a worse-case scenario, the sector will continue to shine. “Utilities in the region will continue to grow for the next 10 years. We might not see the kind of 10% growth that we have witnessed over the past three years but growth rates of between 3% and 6% are certainly possible,” he says.

“So far we have not seen the effect of the credit crunch, growth in the GCC has not stopped and projects such as the US $95 million Jumeirah Gardens were recently announced at CityScape. In total there are around 900 projects at the design stage within the GCC region, and with the GCC making US $300 billion in revenue from oil sales in 2007, that is unlikely to slow,” says Prakash Megchiani, marketing manager at Eaton Electric.

Regional strategy governs location choices But while the sector agrees that Saudi Arabia and the UAE are the current hotspots, opinion is sharply divided as to which location offers the best regional base.

Eaton’s Megchiani says Dubai gets his vote. “We entered the Middle East through acquisition and we decided to set up in Dubai because of the ease of attracting people and because most of our clients are headquartered in Dubai,” he says.

But other players have chosen to locate elsewhere in the region with Bahrain a particularly attractive location for its access to the growing Saudi Arabian market. Nick Parton, sales manager at Megger, says: “We have been trading in the Middle East for around 40 years, and the current distributor network has been established properly for about the last 15.  We have a three-strong team here with three more coming. Bahrain is a business friendly location, with convenient access to the various local markets. The Bahrainis are an industrious people, and Bahrain remains a very good place to recruit Arab nationals with strong technical qualifications. Local knowledge is invaluable and that means having local people. It is important to have people who understand each other culturally as well as technically,” he adds.

OMICRON’s Hedgecock also favours Bahrain over Dubai, the company opening a new Middle East office there in February 2008.

“Saudi is not perfect for international business but having a Bahrain base gives us easy access to Saudi, which is our biggest market. Quite a lot is happening in Qatar and private power projects are also springing up in Bahrain. But we are only concentrating on the Gulf although if we were also looking at access to East Asia then we might look at (relocating to) the UAE.”
 

Several companies are looking to strengthen their presence in Iran. “We do a reasonable amount of business there, it’s not a bad market for our British and Swedish product ranges. The restructuring that is going on there brings opportunities and some problems as well of course,” says Parton.

Germany’s SebaKMT specializes in cable testing and diagnostics. Its sales director for the Middle East,  Hartmud Scharfe is also upbeat. He believes that there is plenty of space for new entrants.

“There is no product line without competition but we are not afraid as we are market leaders and all our systems are tailor made to meet our client’s specifications. Of course, some basic levels and solutions are the same but nobody else has the same quality of equipment. It is also a question of how well you can use the equipment, how simple to operate it is and how quickly you can locate faults. These are benefits that we have and we are working strongly to maintain our position,” he says.

Scharfe believes that new markets in the region will develop. “Iraq is certainly a growth market and Iran could be too although that very much depends on circumstances that we are unable to influence,” he says.

Consolidation

There is a growing feeling that the sector will continue to undergo a period of consolidation. Megger recently bought Pax Diagnostics of Sweden in order to complement its range of testing instruments with Pax’s transformer testing and insulation diagnostics products and Megger’s Parton believes that further takeovers in the sector are on the cards.

“The recent acquisition of PAX Diagnostics gives us market leading accuracy and measurement range in sweep frequency response analysis and frequency domain spectroscopy. This will be a major area of development, not just in terms of the diagnostics tools offering from Megger, but for the industry as a whole. These latest state-of-the-art diagnostic techniques can be used to predict potential faults before they become a problem with high value assets such as power transformers, allowing more efficient preventative maintenance to be conducted,” says Parton.

“From the high tech end to the hand held end of the market the bigger companies could start looking to take over some of the little ones. A lot of manufacturers, particularly in the hand held side are not out here yet but the area has had a trading cultural for a long time and you could get in fast if you wanted to. But we are not complacent and we are aware that there are people out there who could come in,” he adds.

Eaton is also on the acquisitions trail, having purchased electrical components manufacturer The Moeller Group and uninterruptible power supply systems producer Phoenixtec at the end of last year. “We acquired Moeller because it complements our product range and regional presence and our strategy has always been both organic growth and through acquisition. To say we are not looking at acquisitions would be false,” says Megchiani.

Supply security

In terms of sales, the feeling is that it is the high-end segment of the market that stands to benefit the most. “In the mid 1980s price was the most important thing but now there is a realization that you get what you pay for. We probably lose some customers because of price but we gain a lot of larger international companies such as Siemens and ABB. More and more we are suppliers of choice because of our technical performance, new testing technology and our level of support and service,” says OMICRON’s Hedgecock.

Hedgecock says OMICRON has always had a large customer base for secondary protection (relay) testing equipment but in recent years it has brought out new products for primary sub-station testing, particularly for transformers and cables.

“This primary application area, coupled with the expansion of the transmission network and the construction of many new HV substations in all countries throughout the region, now provides OMICRON with a comprehensive range of products to support the power utilities and their contractors,” says Hedgecock.
 

Others share this view. “Because DEWA and ADWEA have such high standards, when it comes to a choice between quality and price people are going for quality especially for utilities water treatment and government contracts,” says Phoenix Contact’s Hammad.

Hammad says he has noticed an influx of new entrants to the sector, particularly at the low-cost end. “It’s a bit scary. There are a lot of Chinese products and Indian products coming on to the market and probably at the moment they have 30% market share in some sectors. They are not really servicing key contracts and government contracts but the worry is that this could change because even government projects look closely at cost when it comes to replacement,” he says.

Security of supply concerns will continue to drive the sector and could increase demand for the highest quality  products. The recent blackouts in Riyadh and Dammam were caused by malfunctioning of the 380 KV transmission line that links the Eastern Province with Riyadh. The power industry is keen to avoid similar outages occurring due to pressure on transmission lines, high demand and shortage of supply.

“A testing system may cost 40,000 euro but if a transformer goes it’s potentially US $10 million, plus there’s a two-year waiting list for new transformers,” says Hedgecock, noting that insurance companies can offer reduced premiums if a regular maintenance programme is in place.

Scharfe says that interest in transformer testing and diagnostics is growing overall but agrees that there is increasing demand for diagnosis. “Non-destructive diagnosis is increasingly important particularly in the UAE, Saudi Arabia and Qatar, although not yet in Abu Dhabi. It is not understood everywhere at the moment but we are already doing it because we realise that it saves time and money and it makes networks a lot more reliable,” he adds.

Adding value

While there is general agreement that growth in the sector will continue, companies are aware that they are selling a comprehensive service rather than just a product line.

With this in mind, training and after sales service will become increasingly vital for companies seeking to add value.

“There is a constant demand for training programs to keep technicians new and old up to date with the latest developments and best practices. As a leader in electrical safety and maintenance training through the renowned AVO Institute, we are well placed to support these requirements and are expanding the Institute’s activities into the Gulf region.  In the coming year engineers and technicians throughout the Gulf region will be able to enjoy local access to a wide range of practical training courses in electrical safety and maintenance,” says Megger’s Parton.

Hedgecock concurs. “Having our Bahrain team gives us greater flexibility in terms of offering support to our customers through initiatives such as explaining testing and holding pre-sales seminars and start-up training,” he says.

Phoenix Contact also believes that maintaining and improving after sales and customer support is vital in order to maintain market share. “We do seminars all the time and we will continue to do so as it is important that customers and technicians are up-to-date about our products and about new developments,” says Hammad.