New Star in Plant Industry

The plant industry is emerging as a new growth engine for Korea with Korean companies winning various big plant construction orders. In 2005, overseas plant orders for Korean companies jumped 88% from the year earlier.

Plant orders for Korean companies have increased every year. Last year, they totalled US$46.2 billion. However, since the second half of 2008, many orders have been cancelled due to the world economy and a drop in energy prices. Plant orders for Korean builders dropped 67.3% in the first half of this year from the year before. An oil refinery project in Sudan worth US$3 billion was postponed, while Kuwait cancelled a US$1.7 billion pipeline construction project.

By regions, the Middle East accounted for 46% of total orders or US$3,373 million, with Asia and Africa 22% (US$1,595 million), 15% (US$1,090 million) respectively. An oil field development project in Saudi Arabia involving Hyundai Construction and Engineering accounted for 55% of total orders in the first half of this year. Plant orders decreased at the beginning of the year but began to increase in the second half thanks to signs of a recovery in the world economy.

In particular, such big orders are energizing the sluggish Korean economy. GS Engineering and Construction, Hyundai Engineering and Construction and Hyundai Heavy Industries won part of a gas plant project worth a total US$4.9 billion from a gas company in the United Arab Emirates in July. This project is a US$10 billion integrated gas development project in the Abu Dhabi area. Korean contractors won a combined US$4.9 billion out of the total US$10 billion available. GS Construction and Engineering won a natural gas refinery plant project worth US$2.2 billion by forming a partnership with British company, Petrofac. The company will be in charge of design, purchase, construction and test operation. The project is expected to take 48 months to complete.

Hyundai Construction and Engineering won a US$1.72 billion deal to build facilities to store gasoline and treat wastewater in the Habshan region 140 km southwest from Abu Dhabi. This project will also take 48 months to complete. Hyundai Heavy Industries secured a US$1 billion order for the same project. In July, Samsung Engineering, Daerim Industrial and SK Construction and Engineering secured core parts of the Jubail Petrochemical Complex Project worth US$2.84 billion

By company, Samsung Engineering received a US$1.6 billion order, Daerim Industrial, an US$820 million order and SK Construction and Engineering a US$420 million order. The Jubail Petrochemical Complex Project is the most significant project of the year and is valued at US$12 billion.

Samsung’s project involves the building of a plant for benzene and high-value-added light oil. Daelim Industrial will build facilities to collect acidic gas and sulfur while SK Construction and Engineering will take charge of the utility process at an oil refinery plant. This Jubail Petrochemical Complex is 98 times the size of Yeouido in Seoul and part of Jubail Industry City, the world’s largest oil refinery complex.

.In September, Korean firms continued to book plant orders. Doosan Heavy Industries received a 300 billion won order from Saudi Arabia to build power generation facilities. Doosan Heavy Industries will supply two boilers and steam turbines to two power plants in Saudi Arabia. Hanwha Construction and Engine-ering will take charge of construction of the plants.

STX Heavy Industries secured a US$200 million steel plant project from Saudi Arabia. The project involves building a steel plant in the Jijan Economic City in Saudi Arabia.

The steel plant will have the capacity to to produce one million tons of billets a year and 500,000 tons of iron reinforcing rods. STX Heavy Industries will complete construction of the plant in 2011.

With such a surge in orders, the plant industry is emerging as a next-generation growth engine for Corporate Korea. With Korean companies’ winning projects in the Middle East, such as the Jubail Project in Saudi Arabia, it also serves to remind people of a construction boom for Korean builders in the Middle Eastern market.

In particular, Samsung Engineering won a mega project worth a total US$2.6 billion from a government-run oil company in Algeria at the end of 2008. Samsung’s Algerian oil refinery modernization project is the single biggest project ever won by a Korean construction company.

The Middle East and Africa increased their orders thanks to a hike in oil prices and an increase in facility investments. In particular, Saudi Arabia and the UAE are decisively increasing investment in plants with an eye toward strengthening their competitiveness. Middle Eastern countries spend oil dollars on plant construction to create new jobs, change industrial paradigms and expand national wealth.

This means the plant construction market in the Middle East is growing. The plant industry is a human resources-oriented industry befitting Korea which is without rich natural resources. It is difficult to enter this industry, but with some experience, companies can secure a competitive edge.

Corporate Korea has accumulated a lot of experiences in the petrochemical plant, power generation and off-shore plant sectors. This is why Korean companies are able to secure orders over more advanced nations.

Korean companies also have a reputation for excellence and hard work.

Korean companies take full responsibilities for their projects while Western competitors do not. This fact makes Korean companies more reliable. Korea is conversant with and has rich experiences in construction and engineering. Korea companies also have price competitiveness.

Moreover, they are putting their utmost efforts into meeting their deadlines by working extra hours. Development of the plant industry requires strong competitiveness, more efforts to turn the industry into a high value-added knowledge-based one and fair competition.

“Korean companies are waging a price dumping war with one another in overseas construction markets. This is a big problem for the Korean construction industry. Korea must devise a system to solve this problem,” an industry expert said. “Korean builders also need to develop technologies to create more added value, while the Korean government and the Korean financial industry should give more active support to them.”