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The association is trying to strengthen mutual cooperation and network building through the forum
In 2010, Korea won plant construction orders worth over US$64.5 billion in total overseas, turning its plant industry into a future growth driver. In order to check the industry’s current status and future assignments, BusinessKorea conducted an interview with chairman Choi Kil-seon of the Korean Plant Industries Association (KOPIA). The chairman was previously president of Hyundai Heavy Industries between 2005 and 2009 and has headed KOPIA since 2009.
Q: Could you tell our readers about the size of the recent plant construction orders won by Korean companies?
A: In the first half of 2010, Korean orders overseas recorded US$33.5 billion. This figure is expected to reach US$30 billion during the same period this year. If we allow for the UAE nuclear power plant project won earlier this year, the total value of overseas orders our private-sector players received in 1H 2011 can be more than double last year. The UAE project won by the Korea Electric Power Corporation (KEPCO) is worth approximately US$18.6 billion.
Especially noteworthy is their excellent performance in the marine plant segment, which is led mainly by drillship and floating production storage and offloading (FPSO) projects. There, Korean corporations saw US$12 billion in order acceptance during the first half, exceeding last year’s total of US$8.6 billion during the first six months of 2011. As a result it could be said that the industry is experiencing another boom, similar to that of 2007.
If global oil prices are maintained between US$90 and US$100, the sum is likely to continue growing, giving a boost to their overseas plant construction business.
Q: Some are concerned about a deterioration in profitability stemming from excessive competition. What countermeasures does the association have?
A: Excessive competition and profitability deterioration have been two of the concerns that Korea’s fast-growing plant industry has struggled to free from. However, competition among Korean companies themselves and with their foreign rivals is unavoidable as the majority of overseas plant construction projects take the form of competitive open bids. The trend is conspicuous in the Middle East above all.
Nevertheless, Korean plant builders are striving to deal with a potential decrease in profits by means of technological development and cost reduction. At the same time, they are paying increasing attention to Latin American and African markets in order to make their projects more lucrative.
The association, for its part, is assisting them in many aspects. It has sent and invited delegations to and from the emerging markets, conducted market research activities and held the Plant Industry Forum on a regular basis.
Q: Is there anything you want from the government to further increase overseas order acceptance?
A: First of all, I believe the government can do more in terms of financing. Financial backup is emerging these days as one of the most conclusive factors in deciding which country wins more deals and it is almost certain that this trend will continue down the road.
Of course, I am well aware that the government is stepping up efforts to that end. Nonetheless, I would like to ask for more so that the plant industry can position itself more definitely as the country’s future growth engine.
It would also be greatly appreciated if the government further strengthens international cooperation for the industry through high-level talks.
Q: What tasks does the plant industry of Korea face in order to sustain growth and join the ranks of global leaders?
I would like to mention order acceptance in fields other than the engineering, procurement and construction (EPC) and the penetration of emerging markets as two key tasks.
Korean plant constructors have focused heavily on EPC, whose added-value level is relatively low despite intense competition. In the meantime, more promising segments like the front-end engineering and design (FEED) and project management consultancy (PMC) have been almost monopolized by American and European corporations. If Korea’s plant industry wants to continue its successful growth, it should be more competitive in FEED and PMC.
Korean plant builders might also do well to diversify into markets such as Africa and Latin America as they are currently lopsided heavily to the Middle East. Numerous government-level economic stimulus plans are underway in these two regions, utilizing their abundant energy resources, and there is no doubt that the two must be the next targets of Korean plant companies.
Q: You said that the KOPIA has regularly held a Plant Industry Forum. Could you tell our readers more about the event and about this year’s event of it?
A: It has been held since 2003 and is Korea’s only international forum for the plant industry. Its objective is to invite CEOs, government officials and financial experts from major ordering nations and organizations in order to strengthen mutual cooperation and network building.
This year’s 30 or so invitees include: the minister of Electric Power No. 2 of Myanmar; the minister of Energy, Democratic Republic of Congo; vice minister of Water Resources, Works & Housing of Ghana.
The morning session of this year’s event is divided into power plant and marine plant sub-sessions. The global power plant sector is witnessing increasing demand in emerging nations, while its marine plant counterpart is poised to grow explosively on the back of rising oil prices.
In the afternoon session, the recent movements of major countries’ financial institutions will be introduced along with new products from various credit providers as well as ways to utilize these.
Q: What can be mentioned as the major accomplishments of past Plant Industry Forums?
A: During the last eight years until 2010, a total of 247 high-ranking government officials were invited from many countries, including Paraguay, Ghana, and India. This has created numerous opportunities for Korean plant construction companies to show off their advanced technological strengths and expertise via business meetings and industry tour programs.
At the same time, such occasions have significantly contributed to their winning of 81 projects worth US$23.6 billion in aggregate, including that for the Angamos Thermoelectric Power Plant in Chile.
Q: What are the long-term growth plans and visions of the forum?
A: The purpose of the Plant Industry Forum is to assist Korean enterprises in obtaining plant construction orders overseas. As such, we have made it a rule to mirror the industry’s needs thoroughly since Day 1.
In this context, for this year’s occasion, we are going to decide the forum’s topic, organization and list of invitees through negotiations with a consultative body made up of executive members of participating companies.
Furthermore, we are planning to secure more funds so as to expand the size of the forum, while launching additional overseas marketing activities to raise awareness.
Ultimately, we will grow the forum within two to three years to that of an internationally authoritative one like the Hannover Messe and World Knowledge Forum. This will ensure that more major ordering bodies of foreign nations will voluntarily participate and meet Korea’s EPC companies.
Q: You are a live witness of Korea’s plant industry. What is your advice regarding the future development direction of the industry?
A: It can be said that Korea’s plant industry was born in March 1973 by Hyundai Heavy Industries, a world-class shipbuilder. Then, in just seven months, it faced unexpected difficulties because of the Arab-Israeli Wars and the first oil shock. However, the industry successfully tided over this, enjoying its heyday between the late 1970s and the early 1980s.
Hyundai Heavy Industries, during this period, kicked off its plant business in earnest by establishing its Middle East business unit. Unfortunately, however, the unit suffered a 7%-level deficit annually until 2003. Profits then began to increase more 10% annually, and since 2005, it has set the stage for its thriving plant business by working on areas such as design, purchasing, and palletizing. More recently, it completed the establishment of its own project management framework.
At present, Korea’s plant industry is way ahead of its Japanese and Chinese counterparts in terms of detailed design, project management, FPSO, drillship building, etc, as are the plant engineering segment’s gross sales. However, it still has a long way to go to catch up with Japan when it comes to FEED, a type of high-end engineering.
As the one at the helm of the KOPIA, I would like to ask the industry’s participants to change their viewpoint. We cannot be complacent any longer about our achievements during the past four decades. I believe that now is the time for us to face reality and further sharpen our competitive edge so that the industry can remain a driver of sustainable growth for the Korean economy. Indispensible in this aspect are highly-educated, well-trained engineers. The government will have to take note of this point and step up its efforts to that end.