Primed for partnership

Egypt

Jamal Bahlawan, area managing director for Africa at Consolidated Contractors Company (CCC), talks to TOGY about the level of competition in the Egyptian market for international contractors and the importance of forming partnerships and complementing the local market. CCC specialises in the construction of mega-projects worldwide.

How competitive is the Egyptian market for international contractors?
It’s not easy for any international contractor working as a general contractor to compete strongly in the Egyptian market, where you have active local companies of a big size such as Orascom, Arab Contractors and Hassan Allam.
We are able to compete for three main reasons: At the top of the list are our in-house systems. We have very strong in-house solutions for the full cost cycle, from estimating to budgeting to cost control. Such solutions are quite interesting in Egypt because they give us a competitive edge
The second point is localisation. It’s not easy to work with a large number of expats in a market like Egypt; you wouldn’t be able to compete by any means. I’m talking not only about the labour – we were already employing Egyptians outside of Egypt on many projects – but about the supervision teams. We transferred knowledge from our expats, our project managers, to Egyptians, some of whom are now our project managers and in senior positions
The third point was establishing a small estimating and bidding unit here in Cairo, reporting to our head office’s estimating department. That was key in establishing relations with suppliers and subcontractors. Seeing the Egyptian mindset, we realised that as a foreign name, making contact through emails and phone calls did not work. You need to interact, to talk and maybe negotiate numbers. Depending only on some documents sent to you by email to place your bid is not the best way. You need to get the feeling of the market.
The continuous dialogue with our supply chain in Egypt is always a great added value. Suppliers and subcontractors are part of our assets. Honouring our contractual commitments, supporting them made us a favoured main contractor for many of them.
We started working as such, securing projects. We delivered some of the country’s landmarks and higher-quality projects.
In 2007, we had a mega-deal with a leading regional developer, Qatari Diar, with whom we signed five projects under the same agreement in five countries: Egypt, Sudan, Morocco, Yemen and Syria. We had many more projects with them under this framework agreement, and we started serving these projects with another arm that we established as well in Egypt, called CCC Build. We established a majority-Egyptian team to support the design-and-build projects around the region.
We were continuously bidding on other projects too. Our hit rate wasn’t 100%; we definitely participated in many tenders that we didn’t get awards for, or in projects where we were first bidder but we didn’t secure the contract – but we are always a main player.
Our strategy in the local market was having local partnerships. We proved that we could work alone and make money, but it’s good to complement the local market rather than compete with it.
After 2014, we saw a big change in the government’s approach: Huge infrastructure spending with hundreds of projects were brought on the table. The size of business is beyond the contracting market’s capacity. We had to step in and share risks with our local partners in national projects. We were geared towards making this huge difference, and we are proud of our achievements on the ground in New Alamein City.
We fully understand that the Egyptian government and President Sisi are committed to upgrading the country’s infrastructure together with the local construction companies’ capabilities.
It’s impressive to see the Egyptian companies taking the lead in many mega-projects that they never did before. It is quite interesting to see how the market is upgrading.
Being originally an Arab company with a long-term presence in Egypt, we are open and extending a hand as much as we can for regional partnerships.

Being engaged in the upstream, midstream and downstream, how is CCC taking advantage of the boom in Egyptian oil and gas projects?
We are purely contractors. We have EPC references in some specific areas, but we are C-contractors, meaning we do all the construction. We have experience in some specific EPC projects, but we are positioned as a C-player with huge capacity when it comes to oil and gas. We have been engaged in delivering LNG facilities around the world. We have worked with everyone – Bechtel, ExxonMobil, Chiyoda, JGC, Saipem and the like.
When it comes to Egypt, we have seen a kind of protective approach and preferential treatment given to the government-owned companies, but we are quite confident of our ability to compete in the rightly sized project.
Competition is always good and it raises standards. We have excellent relationships and are open to crafting successful partnerships.

What is needed to be able to achieve these partnerships?
Two things. Locals want business outside of Egypt, and we would like to expand business inside of Egypt. We need to identify specific projects outside of Egypt. That could be a good start, to identify new projects for which we can bid together. We need to keep all the communication channels open. We believe that large companies should always stay in continuous discussions, even about the market conditions.

What about private-sector or PPP projects?
We were trying to penetrate the oil and gas sector more and more, to the extent that we were approached by Carbon Holdings for the Tahrir Petrochemical Complex. We witnessed Qalaa Holdings’ achievement in the ERC project. When Qalaa Holdings was shaping this transaction, they were driven by a deep understanding of the energy crisis in Egypt.
It is a PPP model as per the typical definition, even though it’s not under the PPP legal framework in Egypt. It’s an excellent model. The private sector came on board with the proper solutions, the proper ideas, and was able to reach financial closure for a project that stands at USD 4.5 billion with non-recourse project finance. It is the same for the Tahrir Petrochemical Complex: We are talking about investment value exceeding USD 10 billion, and a much bigger scope. It’s not an easy ride but we are confident in the capabilities of Carbon Holdings.

What is CCC’s approach as a co-investor?
CCC has, on many occasions in specific countries and specific sectors, considered equity participation. In a few cases, we act as lead developer. In many infrastructure projects in which the construction works would be appealing for us as well, we come on board as equity partners to complement the model of developers and other financial investors. Examples are the Samra Wastewater Treatment Plant in Jordan or the Gaza Power Plant – these are concessions owned by CCC.
In Tahrir we have a minority stake. Let’s call it a kind of special interest to be there. We support the project and we support Basil El Baz (Carbon Holdings’ chairman); he has a successful record of closing projects of the same complexity. He knows how to make things happen and selected the best people. When dealing with international financial institutions and lenders around the world, you need to be prepared.

What is the project model that CCC is pursuing?
If there is a plan to deploy a procurement structure that would depend on spreading the contract over 25-30 contracts, there is no place for CCC. We cannot come on board to do small footings or foundations, or some erection here and there. We come as C-contractors. For example, in Tahrir we have the ethylene and polyethylene packages in full. It’s a complete package, and a package where we carry the liability, and we work together with the EPC contractor.
From another perspective, we enjoy working with Bechtel; we have quite a long-term, successful relationship with them all over the world. But when it comes to the West Nile Delta, they deployed the same methodology: small-sized contract packages, not convenient for us.
We are a project-based organisation. For every single project, we deploy a full team dedicated to the project. We do procurement from the project site. We make sure everything is controlled for the project itself, even finance. A typical project in CCC is an independent business unit with its own P&L.
All of our projects are financially independent. We don’t cross-finance between projects; we don’t use the advance payment from one project to finance another project’s cashflow. Every single project has its own financing facilities, from the head office and the corporate facilities, or maybe from local banks’ facilities.
Basil El Baz wouldn’t have us on board unless he knew very well that he’d tested our prices. We have been able to compete, and it’s not only about commercial aspects. It’s also about how bankable your contractor is, how your contractor would be able to finance the project. Is it possible to give a USD 1.5 billion-2 billion contract to a contractor who doesn’t have the ability to finance the operations? It wouldn’t be feasible. This ability gives us comfort whenever we deal with international developers.
International financial institutions deploy the same strategy as well. They do the proper due diligence regarding the contractors, and they understand. They advise the developer on what type of bankable contractors they should have on board. Capacity is an important feature as well. Local Egyptian companies are extremely busy these days. What’s happening in Egypt is phenomenal in terms of construction across all industries, not just oil and gas. We need to think about capacities: Who is able to perform?
Since 2014, other than the wave of preference for local companies, a key issue has been the capacity of local contractors, and the number of them in the market. Locals are extremely busy, which causes a dilemma. Is it possible to have international ones? No, and there are huge barriers to entry. The barriers are not legal ones, but are more to do with the model.
We would like to see more private-sector investments, and we’ve been in talks with the government on many occasions about the necessity of considering more reliance on PPP models across all industries. We have witnessed a significant change in the mindset by adding the private sector, and it’s totally different from the EPC plus financing model, which used to be preferred as the state maintains the ownership and is paid back directly. But right now, I think the PPP model will replace this.
A solution would be to give the risk to the SPV [special purpose vehicle] that develops. Give the risk to the developer, step back a little bit, and act as a regulator. We always refer to that in our discussions with the government. Open the competition, and give the private sector the chance to compete.
We are extremely happy with what happened in the electricity sector. It’s enabling the private sector to come on board for power generation and distribution. It is the same with the new gas law; the idea was impressive. What they are doing right now when it comes to power and gas is amazing.

Following your investment in a building information modelling (BIM) Centre of Excellence in Egypt, how important is digitalisation to your activities?
The BIM is an example of a long-term investment in Egypt. Since our inception, we have invested a lot as a company in developing our in-house solutions and software for all the project management and engineering tasks. We have our own software for cloud-based document management, cost estimation, accounting and finance, human resources, storage management, monitoring cost control, etc.
The BIM is extremely important, not only for our building projects, but for our oil and gas projects as well. From inception, we made a wise decision that we needed to invest in that area, to the extent that we were co-developing with a large company like Bentley. We have two centres of excellence. They are in this New Cairo building and serve our projects worldwide, not only our projects in Egypt.
The appreciation for such solutions and such added value is more prevalent in other regional markets, such as the Gulf, and perhaps in Eastern Europe or CIS countries. For large infrastructure projects and oil and gas projects, the BIM team is serving all of these regions from Egypt.

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