By Khairul Khalid
Two years ago, AK Nathan decided to steer Eversendai into the oil and gas business. This would seem like a risky expansion for a company best known for steel structures in the construction industry, but the Eversendai founder does not think so.
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Many companies such as property developers and transport providers have made the unlikely leap into oil and gas (O&G), but AK Nathan, founder of Eversendai, insists that the company was not jumping on any bandwagon when it decided to diversify into the industry in 2013.
“In our case it is a natural progression. If we moved into something like plastic-based materials or structures, that would be completely against our core expertise. On the other hand, the O&G industry is actually interrelated with our core business. It is virtually an extension to what we are already doing in construction with steel and mechanical structures. We already have the expertise,” said Nathan.
“When I look at Eversendai’s capabilities, we can build any kind of structures. We have the mechanical capabilities to make equipment or pressure parts and non-pressure parts. So when I look at the platform of an O&G topside, what I see is steel and equipment like piping which we already do. The only thing is that in O&G, quality and safety requirement is more stringent than infrastructure development,” he added.
AK Nathan
Nevertheless, the once high-flying O&G industry is facing severe turbulence. In the last five years, O&G companies rode the wave of the oil boom, with crude oil price at above US$100 per barrel. In the last 12 months, oil price has crashed more than 50% to below US$50. Isn’t Eversendai’s move into O&G a high-risk move under the circumstances?
“Every business has its risks, ups and downs, turbulence; every industry is volatile in its own way. We have to rationalise our decisions by analysing the sector in depth. Otherwise, it’s all a matter of perception,” said Nathan.
The Eversendai chief is confident of the company’s prospects in O&G despite the gloomy outlook in the industry right now.
“Yes, many companies have gone into O&G and got burnt but I have every reason to be optimistic for Eversendai’s future in O&G. We have the expertise to succeed in O&G. We have built the tallest and the largest structures. Since 2000, we have been building coal-fired power plants in Malaysia,”said Nathan.
The founder of Eversendai explained that the company will be focusing on a few segments within the O&G industry that leverage on the company’s existing capabilities. The company is now bidding for over RM11 billion of O&G contracts in Malaysia and the Middle East.
“O&G is a huge industry. We will focus on a few things such as manufacturing liftboats, topsides and platforms. We will also be looking into modular construction.
“We will do anything that involves fabrication and installation of mechanical works. Whether we are constructing a power plant or a petrochemical plant, the basics are the same. The process technology and the quality and safety requirements might be different, but the capabilities and knowhow are almost the same,” said Nathan.
Despite its international leanings, Eversendai snagged its first O&G project on local shores. In September last year, the company won the mechanical and steel structure packages contract for Phase 2 of Petronas Carigali’s Terengganu Gas Terminal (TGAST) Project worth RM72 million.
Last June, the company announced a fabrication contract of skid shoes for Umm Lulu Gas Treatment Platform in Abu Dhabi. It also secured a package for the erection of structural steel works for the Pengerang co-generation plant contract at the refinery and petrochemical integrated development (RAPID) complex in Pengerang, Johor.
Despite its win at the RAPID project, Nathan laments that local O&G companies are not benefitting as much as they should from the mammoth US$16 billion (RM67 billion) project by Petronas. Nathan strongly feels that local O&G companies are being pushed out of jobs at RAPID by foreign companies undercutting on price.
“When a local company bids and let’s say a group from China comes in to bid too, there is no way a local company can compete on price. Companies from China are getting incentives, but we are not getting any incentives from our government, so it is not a fair playing field. Then they undercut on price. How can we compete?” said Nathan.
He said that it is alright for Petronas to award engineering, procurement, construction and commissioning (EPCC) jobs or main contracts to foreign companies due to technical capabilities or process technology, but the sub-contracts must go to true Malaysian companies.
“Jobs are not trickling down to the local companies. And I mean legitimate local companies, not just a namesake or foreign companies fronting locals. It’s not just Chinese companies. Others are coming in as well. Anybody can come and establish a Malaysian company. Just use a local name or partner a local and become a bumiputera company. Within a few hours you can establish a company. What is so difficult?
“I am very disappointed. It is not right. We have a lot of capable Malaysian companies but they are not benefitting from RAPID in a big way. Eversendai has lost out on some contracts on price,” said Nathan.
Nathan said that there are big question marks on many of these foreign sub-contractors that win jobs at RAPID purely on price.
“Do they win because of technical capabilities? The EPCC (the main contractor) company who undertakes the job, at the end of the day, wants to maximise their profits, so they go for the cheapest. They go and find all over the place for the cheapest sub-contractors, but whether the companies can perform or not is a question mark,” said Nathan.
The Eversendai founder said that although pricing has to be fair, there are other elements in a project that have to be taken into consideration.
“In Malaysia, the biggest problem is that the cheapest price wins. Mana boleh cari makan? The mindset of people is that they want to squeeze as low as possible. At the end of the day, contractors find it difficult to survive. Either they buy their luck and they survive or they kill themselves,” he said.
Nathan said that there is an important lesson that Malaysia needs to learn from the Middle Eastern business culture.
“The lesson is very simple – the pre-qualification process. They give jobs to capable companies with the expertise,” said Nathan.
He added that there is a fair price level in the steel industry. The pricing or cost of steel materials is known internationally, including other costs such as incidental materials, erection and fabrication charges.
“You cannot run too far away from the accepted pricing. How much profit margin can one keep? No one makes a big killing from one particular project,” said Nathan.
Perhaps due to these difficulties in the domestic market, Eversendai will be casting its net further outside the country to win O&G projects. According to Nathan, similar to Eversendai’s strategy in the construction business, it will also focus more on foreign projects in the O&G sector.
“We are still focused on jobs in the Middle East, in India and some in Malaysia hopefully. This does not mean that we won’t be going for local jobs. I am a patriot. I want to be successful in Malaysia. But we are an international player. The global business arena is our playing field. We are not dependent on one country,” said Nathan.
He insisted that Eversendai’s venture into the O&G sector is for the long run.
“It feel like I am completing a circle of my career. In two to three years’ time, we hope that O&G will contribute to about 30% of our target of RM2 billion total group revenue, or even more. I won’t be surprised if it hits more. Everything is cyclical. Whatever goes up, comes down. We are in O&G for the long run. In any business we cannot go for the short term,” said Nathan.
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