Thore Lohmann thyssenkrupp egypt

With regards to expanding its downstream sector, the Egyptian government will have to decide on which direction they should focus on, petrochemicals or power generation. From our point of view, and from an economic perspective, it’s wiser to go with the longer value chain, in petrochemicals, than the very short value chain of electricity.

Thore LOHMANN Country CEO thyssenkrupp Industrial Solutions Egypt

in figures

Inflation in Egypt as of August 2016:15.5%

Local demand rules

October 18, 2016

TOGY talks to Thore Lohmann, CEO of ThyssenKrupp Industrial Solutions, about the demand factors driving Egypt's projects market and the country's potential as an energy centre. ThyssenKrupp Industrial Solutions is an EPC firm that serves the oil and gas industry, mining and cement sectors, among others in Egypt.

What are ThyssenKrupp’s achievements, milestones and contracts in Egypt for 2015?
For us, 2015 was a silent year as far as signing new contracts. It was more of a recovery year, in which we focused on managing our existing projects on the ground.
We currently have three big projects in Egypt. Firstly, there is the urea fertiliser and ammonia complex project in Damietta for the Misr Fertilizers Production Company (MOPCO). We restarted this project after it was suspended for three years due to political turmoil.
Secondly, we have a project for Egypt Hydrocarbons Corporation (EHC), the Carbon Holdings’ plant in Ein Sokhna, which we finalised successfully at the beginning of 2016. Lastly, we have a project with the Egyptian Propylene and Polypropylene Company (EPPC) in Port Said, which we just completed.
As for new signs of life, we have an EPC project for Sidi Kerir Petrochemicals Company (Sidpec). This contract is for a new carbon dioxide removal system. It is small in scale but for us, it’s a special project because it is our first EPC contract with a local entity. Moreover, we are now in discussions for two further projects in the Alexandria region.
If you only look at the numbers, it was not the best year for ThyssenKrupp. It was really about recovering after three years of silence. In this regard, our new strategy to localise in Egypt was quite successful.

What are some of the demand factors related to ThyssenKrupp’s projects in Egypt?
The demand factors in Egypt are clearly the growing population and urbanisation. Roughly 50% of Egyptians are living in cities, mainly in Cairo and Alexandria. The trend is further exacerbated by the rising demand for special products in cities.
This is always my answer when somebody asks, “Why invest in Egypt?” Egypt is a very important country because it has the largest population in the Arab region. Usually, Arab countries are primarily export-oriented. If you look at Saudi Arabia, Oman and Qatar, they are exporting 95% of what they are producing. In Egypt however, it’s a little bit different. Here they have a huge need to produce goods in the country to meet domestic demand.
This is what we are discussing with the German-Arab Chamber of Commerce. The production and industrialisation in this country needs to continue.
Over the past 30 years, we have sold 15 fertiliser plants to Egypt. Now the global fertiliser business is more saturated, especially with urea fertilisers. For the past few years, countries such as Saudi Arabia and Egypt have been exporting large amounts of fertilisers and are now in direct competition with the USA, where we built a number of plants after the shale gas discovery in recent years. However, there is still a need for other special products.
As a result, we are seeing a shift to the production of ammonium nitrate and petrochemicals in Egypt. As a first major project, we built the EPPC’s plant to produce polypropylene, which was the second built polypropylene plant in Egypt.
Another important point is the capacity these plants. Oriental Petrochemicals Company produces 160,000 tonnes of polypropylene per year at its petrochemicals plant, and the EPPC’s plant in Port Said is producing 350,000 tpy. We see similar projects on the horizon. The same goes for ethylene. We are discussing further capacity increases for ethylene plants. There are a lot of upcoming petrochemical projects where the products are going directly to local industries, making Egypt of such a strategic importance for us.

How would you rate the downstream revitalisation in Egypt compared to other refinery projects that are going on in the region?
From my point of view, people have the tendency to lump the MENA region together. In reality, however, there are the Gulf Co-operation Council (GCC) countries, which are mainly export-oriented. They are the main exporters to India and China. On the other hand, the rest of the North African market is more oriented towards Europe.
Egyptian companies export to Turkey, while GCC companies rarely do so because it means going through the Suez Canal, which adds costs. There lies the logistical advantage of operating in Egypt, where you have access to both the Red Sea and the Mediterranean Sea.
Additionally, the Egyptian oil and gas industry and downstream sector are very much Europe and of course, self-oriented, giving them another customer base relative to GCC countries. Therefore, I would say that as soon as political stability, security and gas availability fully return to Egypt, the rate of positive change will increase because Egypt is not very dependent on what is happening around the world. Although, you can never be completely independent as a country, Egypt is more independent relative to GCC countries.

We’ve heard that Egypt is becoming an energy centre, not just for distributing gas, but also for power generation. How do you think that that can come about and what do you think ThyssenKrupp’s role will be in facilitating this transition?
We have to see if this comes true, at least I have some doubts if Egypt will really be a big energy exporter in the future. Based on market demand numbers and expected Zohr gasfield production figures, Egypt will have the ability to fulfil its own demand in the next few years.
However, if the government doesn’t take serious steps regarding the rising demand for electricity, lifting of fossil fuel subsidies and efficiency in using power, the country simply won’t be able to handle a yearly increase of 6% in power consumption, which is met mainly through gas combustion.
With regards to expanding its downstream sector, the Egyptian government will have to decide on which direction they should focus on, petrochemicals or power generation. From our point of view, and from an economic perspective, it’s wiser to go with the longer value chain, in petrochemicals, than the very short value chain of electricity. This is where we could be an important partner.
I think the government is leaning towards this direction because they are starting to think about renewables. They are also discussing nuclear, coal and solar power plants. If you compare Egypt with Saudi Arabia and Qatar or its Western neighbours, Libya and Algeria, its energy resources are relatively small. For Egypt, it’s more important to be self-sufficient than to be an exporter. Therefore, I don’t see it as becoming a big energy exporter.
What makes a lot more sense is to go for the value-added direction and be self-sufficient for products that don’t need to import. For example, Egypt doesn’t need to import petrol and plastics. Eventually, Egypt can export those products to other countries, especially to a few regional markets.

 

Would you say that the local workforce is another advantage for Egypt’s engineering and construction sector?
In Egypt, we have highly skilled engineers. Ain Shams University and Cairo University are just two examples for really excellent universities in process and mechanical engineering. As a result, we are hiring very talented people. Of course, as is the case all over the world, they need training. However, their theoretical background is quite strong.
Conversely, at the blue-collar level, Egypt is lacking in skilled workers, partly because the blue-collar worker doesn’t hold the same standing in society that other workers do. That is a conception that requires addressing on societal and governmental levels. What Egypt is missing is the dual system that we have in Germany. The dual system trains people for manual-oriented work. In Egypt, the workforce is there and they are motivated.
We are a partner in the National Employment Pact in Egypt. Our sister company TK Elevator, for example, has a training centre where they train elevator service staff.

What do you think sets Egypt’s downstream sector apart from other similar economies such as India’s?
Egypt is similar to India with regards to its rising population. Both countries are emerging countries which are experiencing similar challenges, including foreign currency shortages. In addition, inflation rates are more or less the same at 10%. Inflation is now lower in India but it has also been as high as 15-16% in the past few years.
The huge differentiating factor for Egypt is its natural gas resources. India is an energy importer. I think the combination of local demand and local supply is quite unique globally. There are only a handful of examples of this in the world. In the USA, for example, there is both a huge local demand and supply for shale gas.

What do you offer as an international EPC contractor that other international firms such as UOP and Maire Tecnimont don’t?
We are not just a technical services provider but a leading partner for the engineering, construction and servicing for all industrial plants and systems. In collaboration with our customers, we develop top-quality solutions and deliver efficiency, reliability and sustainability over the entire life cycle, ensuring maximum productivity and cost-efficiency. We have our own technologies for some areas, so we are competing here with other technology competitors. In other cases, we are utilising technologies from other companies and acting just as an EPC contractor. In yet other cases, we are combining everything together. The different from other international contractors, as we have also a local entity in Egypt, which gives us benefits in business development because we are simply closer to the customer.
Regarding EPC project execution, our projects are running quite smoothly. In Egypt, you have to know the contractors and how to deal with them. You need to know whom you can employ and in which area. We have a lot of experience and personal relationships in the country. From my point of view that is the essence of working in Egypt. Some competitors closed their local entities after the revolution. We remained through the crises and supplied the office from external projects with more or less zero earnings before interest and tax. Now, we can easily return on a full-scale and the market is paying us back for staying. Local companies have seen that even in difficult times, we have remained in the country. Egypt has a relatively conservative business environment, where local companies seek sustainability.

Do you see Egypt benefiting from the current crisis between Turkey and Russia, as Turkey was previously an export market for Russia’s oil and gas?
This is difficult to assess. The discussion is always based on political circumstances, especially in Russia. If you look back to the Cold War, the Russians had no problems delivering huge amounts of gas to Germany, although they didn’t have a good relationship with the country at that time. You can think about the South Stream project in the same way.
There is a possibility that business relations might be uncoupled from the current political environment in the same sense between Turkey and Russia. The Russians are thinking with a long-term perspective, where maintaining the gas supply link is more economically beneficial for the country.

What is ThyssenKrupp’s main contribution in Egypt?
For us, our main contribution is efficiency. We strive for efficiency in the downstream sector, especially by making energy efficient plants. That is becoming even more important because energy efficiency is really about ensuring that 100% of the product being utilised somehow and somewhere in the value chain. We are always looking at the value chain and trying to engineer our technologies to make a raw product relatively close to an end product.
I think this is also Egypt’s strategy, which fits very nicely with our own. For example, the EPPC is in the business of manufacturing polypropylene. They are selling the majority of their polypropylene to a local company for the creation of consumer products. If Egypt had more examples like this, I think the market would be very prosperous.

What is ThyssenKrupp’s strategy going forward?
In the past, we focused on Egypt remotely from Germany. We did everything in Germany except some support and construction supervision, which we did from Egypt. Now, we are shifting our strategy to substantially increase our value-added activities in Egypt.
For projects with small and mid-size, we want to execute the EPC completely in Egypt. Large scale Projects still need to be executed from Germany given their complexity and the customer’s needs. We have hired 70 new engineers in Egypt and we are investing in our local entity in the country to carry out the EPC and services.

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