Monday, March 12, 2007

Turkish Energy: Brave New World 2007

Dear Colleagues,

In the 1990s, we received an important contract to build a new power plant for leading Erdemir Iron & Steel Mills on the western Black Sea coast.

Client specs required an expatriate engineer who would be available full time at the site. We looked for such a competent person. No such person was available.

We did find a young expatriate engineer, a recent overseas university ME graduate who happened to be in Turkey as a tourist, but anyhow prolonged his stay due to a love affair with a young lady in Ankara. He was looking for a part-time job. So we hired this young expatriate gentleman full time on site for one year. We paid him a high-end four-digit US dollar monthly salary, plus paid all his taxes and reimbursed his living and traveling expenses such as hotel accommodation, rental car, PC and cellular phone.

He had no experience, nor any capability to lead the project. Moreover he had a stiff southern accent not so easy to understand. Anyhow we also put one local senior engineer at the site to handle everything for a fraction of the expenses for an expatriate. That was the “cost of business” that we had to pay. Similarly we hired another expatriate civil engineer, quite a senior figure, for the Kemerkoy thermal power plant FGD project (EUAS), and another for textile-based energy companies Bursa (Bisas) and Yalova (AkEn) for their combined cycle power plant construction.

For a big local private company in their Bursa combined cycle power plant extension project, our foreign partner sent a senior German engineer to our site who was completely illiterate in computer skills, even unable to type on a keyboard. His monthly payment was similar to what was mentioned above. So we employed a competent Turkish engineer to handle the necessary project management at the site.

Their professional incompetence aside, most of the time they even humiliated our local engineers as in the case of utility size power plant constructions. These once-proud foreign companies were later bankrupt, and there is now practically no one responsible for their disastrous leftover projects.

This was all because our senior decision makers had no confidence in the capabilities of our young Turkish engineering graduates. Times are different now. It is not too much that they should understand that work is the same everywhere, with the same hardware and software used in every design and project management office, not only in the US, Europe or Japan, but also in China, India, Korea and also in Turkey.

In the past, our local private enterprise companies worked as subcontractors for leading international companies in thermal power plant and industrial plant constructions with an available qualified and semi-qualified local workforce. They had enough experience for project management for simple “civil works and site installation” facilities, first in the local market, then they had enough confidence to work abroad, in the Middle East then in North Africa, Central Asia and even in Western Europe.

We sent thousands of young workers to these countries, we gave them three meals per day, a reasonable and comfortable bed to sleep in, a reasonable hourly wage slightly higher than prevailing local market rates, and then we asked them to work 12 hours per day, seven days per week. We received many orders and earned a substantial amount of money. But these good old days are over. International US, European and Japanese companies placed these manual job subcontract orders with other cheap vendors, namely to Indian, Korean and Chinese companies.

These companies started to worked first as subcontractors and then increased their scope and started to receive orders as lead companies with full basic design, overall design, plus international guarantees. They received orders as lead companies and distributed the subcontracting work to their own nationals. We went to Europe, while European workers were receiving a minimum seven euros per hour and working a maximum 39 hours per week, and we hired our own manpower at three euros per hour and let them work 12 hours per day, seven days per week.

Initially, governments were pleased since they were spending less, but labor unions and parties were displeased. They applied to courts and regulators and stopped our work. Now with their rules we cannot receive any more jobs in Europe for subcontracting work. Furthermore some of our local subcontractors have entered into legal disputes with those international lead companies, at such a displeasing level that they can no longer work together.

Nowadays we have another very interesting development in the local market. Chinese companies are constructing three CFB-based thermal power plants.  They bring over 500 qualified workers to the each site for civil works and site installation activities. Our laws and regulations don’t prohibit such large scale labour inflows. Other than that, our local investors don’t care about quality, performance and efficiency. All they care about is the cheapest price. The cheapest price is the virtue of Chinese companies. When you declare the expected cheapest price in any tender, the Chinese always have a better price. There are explanations that these new foreign workers are either soldiers or young prisoners with good manners. They work hard, 12 hours per day, seven days per week, in a civilised environment, with a clean bed to sleep in and with three good meals a day.

Chinese companies are getting all the turn-key orders, complete with design, fabrication, procurement, leaving almost nil to the local partner. They are much cheaper than Western companies, although they are rather inexperienced or shy in their early designs. Sometimes they can’t meet the guaranteed figures or expected performances. It is a common saying that “Chinese companies have no backbones, they have very flexible ethics,” which means certain red-flag warnings in the application of anti-corruption measures.

Earlier we hoped that the service business -- civil works and site installation would be ours at all times, by all means. Not any more. Now that it is time to create our own technologies as lead companies, there is no more subcontracting. We need to focus on high value, high technology items; not only traditional construction. Many of our companies are focused on working as “contractors” with only interest in the “C” (construction) of “EPC” contracts. Engineering is usually a small part of a project but procurement is a big ticket where a lot of the profit is. Taking economics into account, companies need to focus on turn-key projects to build the expertise we are talking about.

When I explain these thoughts, local decision makers for big private local contracting companies start to stare at me with empty faces. But the times have changed and so should they accordingly, otherwise they will face the consequences, since this is the world of the fittest. Recently, we have been very pleased to learn that the Turkish Ministry of Energy and Natural Resources together with Turkish Electricity Generation Public Company (EUAS) have released a new tender for design activities to obtain design drawings for a minimum 170 MWe power plant which will fire local coal with pulverised or CFB firing methods. The contract is purely for steam boiler design activities to obtain drawings for three different local coal samples. We understand that the local interested engineering parties would be in need of necessary design software and hardware and young local engineering talent to finalise the design work within 270 calendar days.

Priced proposals will be collected on March 22, 2007. The contract's budget is estimated not to exceed a figure of $20 million. For such a big mega project, one company cannot handle all the work so consortiums will be formed. A location in a university technopark would be a preferable place to work in order to utilize the hardware, software backbone as well as the available engineering and academic workforce. That is an extraordinary development in the local market, a great opportunity for our engineering companies to sail overseas. We are very happy to learn that the Turkish Ministry of Energy and Natural Resources has at last shown confidence in young local engineering talent.

"Beautiful days beckon us, lads, sunny days beckon," says Nazım Hikmet.


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