Saturday, 4 March 2017

Five questions for Osama Bishai: The Orascom Construction boss on what you do after you inaugurate the world’s two largest power plants

The first phase of the Burullus (pictured above) and New Cairo power stations were inaugurated on Thursday by President Abdel Fattah El Sisi and German Chancellor Angela Merkel. Once complete, the power stations will be the largest gas-fired combined cycle power plants in the world, Orascom Construction says. “Orascom and its consortium partner, Siemens, already connected a total of 2,400 MW to Egypt’s national grid at both power plants, exceeding delivery targets by 20%. Once complete, each power plant will generate a total of 4,800 MW.”

We had a quick talk with Orascom Construction CEO Osama Bishai to ask, for starters, how you exceed delivery target by 20% on something like a power plant.

Osama Bishai: The original plan from Siemens was for a staggered target based on the delivery sequence of the equipment: First Beni Suef, then Burullus, then the New Capital. It turns out that the New Capital site is almost ideal in its closeness to Cairo — and it had none of the onsite challenges of Burullus or Beni Suef. We added an additional 400 MW over the target capacity at the New Capital. Meanwhile, we’re also involved in other power plant projects and are converting 1,500 MW simple cycle plants we delivered in 2015 to combined cycle by adding an additional 750 MW. We’re also in final negotiations on a 250 MW wind farm with French and Japanese partners.

EN: How important is Egypt to you these days?

OB: Egypt represents over 50% of our backlog. Other countries in the Middle East are a bit slow, so the two main markets for us right now are Egypt and the United States.

EN: How is the float of the EGP affecting project budgets?

OB: I get asked that a lot these days. [laughs] In my professional career, this is the fourth or fifth devaluation I have — I started working when the USD was EGP 0.75, so it’s been a bumpy road. We all saw this coming — we had a year, a year and a half to prepare and maximize our chances of having a soft landing, and we’ve delivered on that. I can’t say more until our results are out, but we have contract provisions that protect us against drastic devaluations. Some contracts are payable in FX, others are payable in EGP, but pegged to the USD at time of payment. Taken together, these moves helped ensure we did not take a massive hit when devaluation happened. On the contrary: We’re in very good shape.

EN: What sectors do you see leading growth for the industry in the coming couple of years? 

OB: Order books will grow largely on infrastructure and, specifically, transportation. We have a fair share of the Cairo Metro and we’re pursuing the fourth line. By default, we also get a fair share of any road expansion work. So that’s something that we will expect to be well-positioned for.

I believe personally there will be more water and wastewater projects in the pipeline. The expansion of new cities will drive demand, and we have solid experience here. I think it fair to say we’re monitoring the power market: Renewable will continue to be active, but conventional may slow down a bit after the major expansion of capacity that the Siemens projects represent. So I definitely like infrastructure in general.

Healthcare is another sector where I expect to see a lot of business. We just finished work on three private hospitals in the last year and see demand for more work. When you look at it, Egypt has 90 mn people and healthcare is lagging — in both availability and quality. So I would expect hospitals and day clinics — all aspects of healthcare, really — to be part of the mix going forward. 

We are also involved in the construction of real estate projects but infrastructure will be the big target for everybody in the next few years. Only investment in infrastructure now will ensure that the country is ready to grow when inward investment comes and the economy takes off.

EN: It seems a lot of the work tendered in the last year or 18 months has been EPC plus finance. Is this the way to go?

OB: For a contractor, EPC plus finance is a great mechanism in one sense: The money is available to fund the project.

But I’m also a believer in private investment in infrastructure. Whether it’s PPP or BOT or concessions, I’d like to think that more projects could be done this way for a couple of reasons. First, it alleviates the debt burden on the government — the private sector brings the financing, the government guarantees it will pay for the service for the tenor of the concession. They have to provide the service anyway — you have to build water treatments plants no matter what, for example — so why take the debt and service it when you can make someone else do it for you? Second, opening to mechanisms other than EPC plus finance will catalyse foreign direct investment — whether that’s in water, wastewater, power or other sectors. The government needs to look at this — they can’t endlessly take on debt.  

I would expect more opportunities like this throughout the Middle East that allow for private investment in infrastructure. 

This model is adopted in Europe and is being discussed in the United States. Opening to foreign direct investment and the involvement of the private sector would catalyze a leap forward in infrastructure.

EN: What haven’t we asked you that you wanted to be asked?
OB: Look, Orascom is a big name and there are many entities that fall under that banner, but I’m always cognizant of the fact that this was our group’s original business. We’re really proud of what we’ve done. As a contractor, we think we play a big role in helping improve the quality of life for people in the countries in which we work. We’ve touched the lives of millions of Egyptians. We are involved in constructing projects in water, gas imports, power, transportation and healthcare among others. More recently, we are proud of the work we did to help make the summer of 2015 a better summer for everyone on the electricity front. Yes, we’re a contractor — but we also believe that we are helping improve quality of life for mns.

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