A shift to downstream and chemicalsAugust 12, 2020
Oğuz Kirkgӧz, executive vice-president of ENKA, talks to The Energy Year about how the company’s projects in Iraq have been affected by the Covid-19 pandemic and its international expansion plans. ENKA is Turkey’s largest construction company, with USD 1.9 billion in turnover in 2019, and undertakes works in engineering and construction, trade, power generation and real estate.
How has the crisis affected your business?
The ongoing impact of Covid-19 coupled with the oil price shock has impacted oil-producing countries, including emerging and developing markets. It has had an effect also on our targets in construction.
Our main activities in the oil and gas industry were concentrated on Iraq, Kazakhstan and Russia. The upstream side of business has especially been affected. Some of the tenders have been cancelled or postponed; previously awarded projects are facing delays and budget cuts. This is related to the sharp decline in the oil prices, which has hit the revenues of oil companies. Of course, Covid-19 has contributed by causing travel and health restrictions, but its impact has come more from initiating the decline in oil prices.
Yet during the pandemic we have continued our efforts in an uninterrupted manner. We have been bidding on various tenders in Iraq for oil, power and water projects for the Ministry of Oil, Ministry of Electricity and IOCs. The awarding of these projects may be delayed a bit, but I believe they will be realised in 2021.
How much have the downstream and power sectors been affected?
I think the execution of some large-scale downstream projects in Russia, e.g. the Arctic LNG 2 project and Amur Gas-Chemicals Complex, has been severely affected by Covid-19. However investment plans in the downstream have not been affected that much, as far as we can see from our heavy tendering workload. We continue looking at projects in Iraq, Russia and Turkey and we have started looking at Europe as well. Recently we won a tender for the construction of an ammonia-urea plant in Turkey. Nowadays we are working on various tenders in Russia and Western and Northern Europe.
On the power side, our business is doing well. We have five ongoing projects, and are at final stages in two of them: the Dhi Qar and Samawa power plants with GE. Seven out of eight turbines (125 MW each) were successfully commissioned ahead of schedule during Covid-19. This was quite a challenging task, but with support from the Iraqi Ministry of Electricity and our dedicated efforts we have successfully accomplished this important task.
Now these turbines are generating power very much needed in the hot summer season. The last turbine will be commissioned soon and we are awaiting the notice to proceed from the Ministry of Electricity to proceed with the second, combined-cycle phase of these projects.
Recently, we were awarded a new EPC power plant contract in Tatarstan, which will be the third power project undertaken by ENKA there.
What practices have you put in place to mitigate the risks of the disruptions in the supply chain?
We have not always been successful in finding solutions for the disruptions in the supply chain, mainly because they are not under our direct control. For example, in Italy, you cannot really push people to deliver if they are in survival mode. Usually these kinds of situations fall under force majeure and you get a relief (time extension) from your client. In our case, a few projects were affected by these logistics constraints but this was understood by the client and we collectively undertook all the efforts we could to mitigate the delays.
We did not have a very high workload in the construction phase when the pandemic began. Luckily, the majority of our projects were either in the design engineering phase or in the completion/commissioning phase and we were not hit with too many people mobilised at remote construction sites. Therefore, the impact of Covid-19 in our case was not huge.
We have taken additional measures to protect the health of our employees at worksites and in order to continue work. With some clients we agreed on revised time schedules. The main challenges we face are related to the movement of personnel. These kinds of issues will probably continue. I am not sure how far they will go. I can only guess that in the fall we will have a second round of this.
What opportunities may emerge for ENKA in the power sector in the post-Covid-19 environment?
There will be opportunities. In Iraq, there are various power projects which we have been following and negotiating with the Iraqi Ministry of Electricity based on the same scheme as we did in Dhi Qar and Samawa. Together with the Iraqi government we are overcoming challenges associated with Covid-19 and also realising those projects in a timely way. We had projects in Libya, but could not proceed with them because of the security situation. Libya needs power, but I am not sure if the security situation and the political and financial environment will enable the resumption of these projects in the near term.
What is your current focus for enhancing operational efficiency?
We have decided to look more closely in the oil and gas downstream and chemicals sectors considering that the countries dependent on oil revenue have been suffering in the past few years and we have seen how fragile the investment outlook in the upstream is.
We decided to also look into some other geographies, e.g. Europe, as they have a relatively good economy and need to invest in upgrading their infrastructure. During Covid-19 we participated in some tenders in the European chemicals and downstream sector and received good feedback.
There are not that many companies like ENKA in Europe. There are smaller companies specialised in one discipline or another. This creates an advantage for us. In addition, I guess there will be a lot of opportunities for construction companies in the health sector worldwide. Countries have realised that they are not ready to deal with pandemics. We have seen this in industrialised, wealthy countries like Italy, the UK and the US.
From the operational point of view, travel restrictions imposed due to Covid-19 will probably push the construction sector to reduce the numbers of its imported workforce and maximise utilisation of local resources. This may not be as cost efficient in some countries and may not be possible in some others due to unavailability of local resources, but it will probably be the new reality we will need to cope with for some time.