The importance of the Onshore Maintain Potential Programme

Saudi Arabia

Ahmad Hassan Al Mohammadi, CEO of Gulf Consolidated Contractors (GCC), talks to The Energy Year about challenges in the construction sector and the importance of the Onshore Maintain Potential Programme (OMPP). GCC is a Saudi company set up to undertake complete construction activities for industrial projects in the oil and gas and petrochemicals sectors, among others.

What is the main challenge for GCC to grow further in the construction sector?
The market is booming, and there is a piece of the pie for everyone. The main limitation to participating in the Saudi construction sector comes from financing. Banks are reluctant to invest in the industry, as they consider it a low-reward business with a slow investment return. That makes it difficult for a company to borrow money and, in turn, become more prominent.
An immense amount of initial capital is needed for a company to thrive in this business. The revenue and margins can be good if you properly manage the element of time, but payments by clients come long after initial investment and operating costs are paid.
If you do not have adequate capital to invest in sustaining growth, you will fail before you even start. This also explains why the most thriving companies in the industry are those owned by successful businesspeople who decided to use their financial capabilities to expand into the construction segment.

How important is the OMPP in GCC’s portfolio?
GCC is part of the OMPP, which serves to maintain the country’s oil and gas production by exploring and developing new fields and maximising output from existing ones. Several billions of dollars are allocated to the programme every year.
GCC participates in it by building the pipeline network for new fields and working on mature ones that have been producing since the ‘50s and ‘60s and need additional wells to reverse their declining production curve. The activities under the OMPP constitute around 80-90% of our business today.
We are in fact experts in the domain of pipeline construction and have expanded into the OMPP business, including its associated scopes of power and communication.
Financing here is a minor issue. Both the materials and designs come from Saudi Aramco, and you execute the job. It is all about construction; little engineering is involved, as it is mostly repetitive work. The faster you deliver, the quicker you get paid, and the more additional work you are given.

What is GCC’s role under the National EPC Champion programme?
Saudi Aramco selected GCC as part of its National EPC Champion programme. The programme aims to form JVs involving Saudi and international players to develop national EC champions for large projects. GCC has partnered with Larsen & Toubro (L&T).
This will allow GCC to grow within the EPC segment while maintaining its more traditional line of business. It is a three-way MoU that we signed with Saudi Aramco and L&T. As per its structure, the JV must comply with specific localisation and value-added requirements for Saudi Aramco.
The JV will not change the way GCC operates. While we will hold a share of the JV and financially participate, the JV will have a completely different management group. In other words, GCC and the JV’s activities will not overlap.
GCC can undoubtedly benefit from the JV thanks to technology and know-how transfer. For example, we can ultimately internalise engineering and procurement through secondment posts. GCC can ask L&T to take in our Saudi engineers for long-term assignments in projects here in Saudi Arabia or even in India.
The National Champion programme reinforces the IKTVA [In-Kingdom Total Value Add] initiative, taking it one step further. While through the IKTVA initiative, you need to achieve some targets to be rewarded, the National Champion programme allows you to be part of a JV and work immediately with your partner and thus become more competitive over time.

How is the IKTVA programme shaping the contracting market in Saudi Arabia?
IKTVA is a programme created by Saudi Aramco for the benefit of Saudi Aramco and the kingdom. It serves to baseline, measure and support increased levels of localisation in Saudi Arabia.
Saudi Aramco made compliance with IKTVA a crucial component for doing business and contracting for them. That translates into international companies, such as SLB and Baker Hughes, competing against each other to have a higher IKTVA and in turn be assigned more projects. For local companies, this is highly beneficial.
Relying on local employees reduces your cost structure and makes your business more sustainable in the long term. The process of hiring expatriates is, in fact, much lengthier and more tedious.
That is especially true in our line of business, where, when Saudi Aramco gives a purchase order, it expects you to mobilise within a few days. On the contrary, increasing your working capacity locally is much easier. You sign the contract, and within a week, they are ready to start.

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