Oil & Gas Middle East Exclusive: Interview with Gunther Pergher, General Manager of Samsung Engineering’s regional office, Abu Dhabi
South Korean companies have made a huge impression in the UAE’s EPC market in the last few years, going beyond a competitiveness model based on price to win business on the basis of rigid adherence to project deadlines and a reputation for quality.
Samsung Engineering is the leading example, scooping major contracts from Saudi Aramco and working on the mammoth Shah gas deal for ADNOC. Gunther Pergher, managing director of Samsung Engineering’s Middle East operations, spoke to Oil & Gas Middle East from the company’s office in Abu Dhabi.
Pergher says there has been a market slowdown following the financial crisis, but there is enough to keep Korean companies as well as western counterparts in the market.
The crisis also forced companies to reappraise their specialist approaches and look to diversify. “In order to maintain sustainable growth they have to look into other market segments,” explains Pergher “and look where their procurement strengths can be used to bridge new markets, such as utilities, power and other industry projects.”
About 80% of Samsung’s activity in the region is in oil and gas, with around 20% in power generation and metallurgy. Samsung is now used to working on the multi-billion dollar projects that have increased in the region in recent years.
“We completed on projects on time and on budget, sometimes ahead of schedule,” Pergher says.
“We have been able to gain notice from NOCs and project developers that it’s not just about pricing, it’s also the execution side. Overall it’s the execution side that has made potential clients consider Samsung.”
In the boom years between 2005-2008 Samsung was very active in Saudi Arabia, on average completing projects 30 days ahead of schedule. Pergher says regulating and integrating contractual and physical chains is key to delivery. “It’s a bit of both,” he says.
“Looking at the contractual side, there are obviously going to be incentives there to provide an attractive price for the client, with checks and balances which pressure the EPC contractor on time and on budget.”
“On the physical side of the business, the project execution and integration of the various packages in a project is key to maintaining proper scheduling.” Pergher cites the massive Qatalum smelter project in Qatar as one that could have been delivered much more easily if a single EPC contractor were appointed instead of several separate packages.
“Unfortunately the project was delayed and the cost doubled,” Pergher says. “It’s a different market segment but there are some similarities, in how the single EPC lump-sum turnkey contract can work for a client instead of a system of several packages run by different contractors without an interface offered by one engineering out managing the entire project.” Says this is something offers.
“It’s something we take pride in. We have taken projects of very large scale to completion, some above $2 billion, all on budget and on schedule.”
An example of Pergher’s approach is Saudi Aramco’s Shaybah natural gas liquids program, for which Samsung scooped all four EPC packages on offer, a total capital value of $2.76 billion.
In addition to upstream, activities Samsung will be upgrading the local power plant to 1GW capacity in addition to inlet facilities, NGL recovery trains, dehydration, residue gas compression, acid gas compression, NGL storage and shipping, the upgrade of the gas handling capacity for the four existing Shaybah gas oil separation plants and other associated facilities.
“Our model is very similar to the other major players like Petrofac and Saipem, but ultimately we can see the interface of a project at ground level, not just at a contractual level,” he says. “That’s what makes a difference.”
The escalation of raw material costs is “a real challenge,” but Pergher is keen to emphasise that these change from country to country, and companies need to take this into account.
While Saudi Arabia remains a key focus for Samsung, Pergher says the UAE is gaining in importance, “especially with some of the potential upcoming offshore projects.” Samsung also has eyes on Oman and Qatar, where facility expansions and a new smelter in Oman are coming up. “There are also other markets that are very attractive but which have have more risk to be taken into account”.
Pergher says Samsung “absolutely” has EPC projects in Iraq in mind with the fourth round of production sharing agreement auctions taking place in January 2012. “We have to be mindful that this market has become that much more competitive. There are fewer projects but the number of EPC firms has stayed the same or is even slightly increasing.” Iraq is very attractive,” he says.
“There are some companies that are in much better shape financially to be able to assume those risks, and I’m happy to say that Samsung is one of those companies.”
Pergher points out that the EPC market is ultimately a level playing field. “This is a topic that has been discussed quite a bit in conferences,” he says.
“Companies like SNC-Lavalin and Technip have agreed that it’s not an issue of unfairness. We all have access to the same suppliers. It’s a question of how they are being managed and how well contracts are managed for long-term relationships.”
“There’s a lot to be said for Samsung in terms of our capabilities in procurement,” explains Pergher. “We have developed a very robust department which continually takes the pulse of the market, whether in steel or concrete, or internal or external markets.
Our ability to negotiate with suppliers and promote their businesses as they grow alongside maintaining our healthy margins.”
Pergher, who joined Samsung in 2007, taking two years in Seoul before moving to Abu Dhabi, says working at Samsung is different to working at comparable western companies.
He cites the level of effort, the pride in the global $20 billion brand that suffuses every project, and the level of research that the firm does into markets which the company “dissects to the micro aspects.” From there the company can understand what the entire value chain will be before a particular project.
“That’s something that has been missed by some western counterparts, especially some American companies.”
“My colleagues really do their due diligence when it comes to each individual project and client.”
