India’s US$10 billion engineering and construction giant Larsen & Toubro (L&T) recently opened its brand new 11,249 square metre purpose-built Systems Integration and Manufacturing facility in the vast Jebel Ali Free Zone area in Dubai.
Some 20% of the company’s activities are in the hydrocarbons sector with upstream contract work dominating its order books. Its major upstream customer in India is Oil and Natural Gas Corporation Ltd. (ONGC).
The new Jebel Ali facility which is considered to be L&T’s most significant control and automation facility outside of India, will be capable of providing the manufacturing and engineering resources of L&T which the visiting company bosses were keen to showcase.
Speaking on the occasion of the opening of the new facility, L&T president, Ramnath Mukhija outlined the reasons behind strengthening the Indian firm’s presence in the UAE in addition to its existing locations in the Middle East.
“We are one of the major suppliers of upstream equipment to the largest oil company in India which is ONGC, because of that experience we have also been trying to get into the upstream requirements in the GCC area, we have had small successes, hopefully we’ll have more in future,” he said.
The company has been involved in some significant turnkey work for the Gulf’s upstream sector in recent years, in 2007 Maersk Oil Qatar gave a $250 million contract to the company for its Block 5 development in Qatar’s Al Shaheen oil field, consisting of two new offshore platform top-sides, a flare platform and interconnecting bridge.
The new integration facility forms part of L&T’s increasing presence in the Gulf, its deepwater, all-weather Sohar fabrication facility in Oman manufactures heavy equipment for the oil and gas and power sectors. It also has an assembly factory for electrical switchgear and related electrical products in Dammam in Saudi Arabia.
Competition
Despite the considerable capabilities that these facilities afford L&T, competition in the Gulf’s various oil and gas and infrastructure projects is stiff and the company’s bosses are under no illusion that they have their work cut out for them.
Mukhija conceded that L&T may not have been as competitive in the region as it would have like to be, especially in the face of the intensifying interest in the Middle East from Korean firms. The reason for this, he said was that the company was focusing on fulfilling projects to meet India’s massive infrastructure requirements but stressed that L&T’s $1-1.5 billion revenue in the last year in the Gulf is second only to its performance in India itself.
“In terms of capability to compete, we have the skills but in terms of price level to compete that depends on lots of factors, one of course is the cost of operation and the other is the need for that business,” he said.
Local commitment
A major part of L&T’s business that this new integration facility will primarily serve is in the electrical and automation segment where it competes with the likes of Siemens, ABB and Schneider Electric. Mukhija stressed the importance of having an established local presence in the GCC in order to increase the company’s regional competitiveness in the region’s growing electrical and automation market.
“In the last 4-5 years we have been trying to do the electrical and automation business in the GCC as well and we felt that if we want to serve our customers better, we need to have our facilities next to the customer,” said Mukhija.
“Three years ago we started in this Jebel Ali area on a hired facility, then a year later we hired another place, then we asked ourselves ‘how long can we continue hiring?’ because our commitment to this place was total in spite of the economic activities going down a bit. We continued to grow and therefore we decided to build our own facility, it takes care of our future growth expansion,” he added.
Mukhija’s colleague and Head of L&T’s Electrical & Automation Operating Company (EAOC), Sharat Bhargava expanded on the company’s aspirations with the opening of this new facility saying that: “Our expansion plans and creation of centres of excellence are in line with the ongoing and anticipated growth in automation and systems integration business. This facility is yet another step in the progressive globalisation of L&T’s electrical business, and ensures that it has a wide footprint to service some of the fastest growing markets in the Gulf countries.”
“A lot of other companies would do very little value-added, maybe bring a lot of ready-made items from the rest of the world and do little value-added work, whereas we are doing everything here,” Mukhija said adding that everything from engineering and fabrication through to quality assurance involving the customer would be carried out at the site.
Bhargava said that with the Jebel Ali facility, L&T which works with oil and gas firms such as Petrofac and Takreer locally, aims to be able to provide integrated electro-mechanical support to its local client base and garnering further support in terms of approvals from potential customers.
“In terms of business growth, I am finding that now the business is coming back to growth, in fact our automation business we think will grow to 40% in this region, next year 35% and it will keep growing,” said Mukhija.
He added that the new facility’s employee base will likely more than double to 300 by 2015 from the current 72 to match the predicted overall growth pattern for the company in the region.
“Our growth is more in terms of people, capability enhancement, that is the focus and building their skills to match the requirements of the customer,” he said.
Strengthening trade bonds
The strengthening of L&T’s presence in the UAE is the latest in the trend of major Indian companies setting up shop in the region. The strong trade relationship between the UAE and India can be traced back many years with both countries currently mutually enjoying the status of being the number one trading partner at nearly US$45 billion in two-way trade. Present at the opening of L&T’s facility was Indian ambassador to the UAE, M. K. Lokesh who said that: “Energy cooperation is important in this region for India because the UAE is among the top five suppliers of crude oil to us so it would be very essential for energy security.
“There are a great deal of opportunities in the downstream sector also, both of us are quite competent in this area. Apart from that the collaboration with companies like L&T, Dodsal Group and Punj Lloyd Group, they are already involved in the oil and gas sector here. Only two months ago there was a big contract given by the Abu Dhabi Gas Company to build a pipeline under the Dolphin scheme where Punj Lloyd was also involved. This is a major sector here and this is where we have to focus if we want to increase our involvement in this area.”
With major Indian banks setting up in the UAE ready to capitalise on the funding needs of the growing Indian corporate presence in the region, the foundations are certainly being laid for Indian companies such as Larsen & Toubro to enhance trade relationships, particularly in the United Arab Emirates, and by extension the Gulf’s lucrative energy sector.
