emerging markets require massive energy infrastructure projects -- and the right local talent to get them to the finish line
BY SARAH FISTER GALE
Global energy consumption is expected to jump 37 percent during the next 20 years, according to BP’s Energy Outlook 2035. And 96 percent of that growth will occur outside the 34 mostly affluent countries in the Organization of Economic Cooperation and Development. More than half of that growth will be in India and China alone.
To meet that demand, public and private organizations are backing major energy infrastructure projects in emerging markets around the globe. (Check out case studies on pages 36-41.)
But if the need for energy infrastructure projects is clear, so are the challenges. Everything from immature project management practices, security threats, unreliable vendor networks and local politics can stymie project progress—or even stop it dead in its tracks.
But the biggest challenge facing project leaders is the shortage of experienced workers and technical skills, says Brian Mushimba, PMP, Kampala, Uganda-based technical director at South African public utility Eskom.
“In the U.S., for every project I worked on I could get the specific skills I needed on my team,” says Mr. Mushimba, who spent 14 years working at global engineering organizations in the U.S. before moving to Eskom in 2013. The lack of relevant skills in the local talent pool makes meeting quality, cost and schedule goals a daily obstacle, he says. “We constantly have to manage that risk.”
Global energy consumption is expected to jump 37 percent during the next 20 years. More than half of that growth will be in India and China alone.
The lack of relevant skills in the local talent pool makes meeting quality, cost and schedule goals a daily obstacle. “We constantly have to manage that risk.”
—Brian Mushimba, PMP, Eskom, Kampala, Uganda
PHOTO BY JAKE LYELL
PHOTOS COURTESY OF ESKOM HOLDINGS SOC
A lack of project talent played a significant role in Eskom missing critical milestones in two current coal-fired power station projects in South Africa, for example. The plants were supposed to be fully commissioned in 2017, but the company announced in April that the combined 9,000-megawatt plants won’t be fully operational until 2021.
“We didn’t do enough risk assessment or stress-test the tasks on the critical path” to know that a lack of specialized talent would inevitably lead to cost overruns and poor stakeholder management. “We got burned because we weren’t honest with ourselves from the start,” he adds.
One common solution is to bring in industry veterans from other countries to manage the local teams. But that can spark its own set of language and cultural issues, says John Gustke, managing director of energy business in Asia, Black & Veatch, Bangkok, Thailand. Black & Veatch is a global engineering, consulting and construction company.
To avoid these challenges, the company focuses on grooming local talent to eventually take charge.
“When we bring in senior experts from the U.S., we hire local people to work with them, rotating into different roles on-site and in the office so they can learn the skills they need to manage projects themselves,” Mr. Gustke says. Visiting experts focus specifically on training local talent about scheduling, cost controls and risk management.
Recognizing its talent gap, Eskom is using the delayed coal power plant projects as an opportunity to catalyze change. The company recruited Mr. Mushimba to help standardize its project management practices. And one of the first steps he’s taking is developing more realistic project schedules that account for training time and leave some wiggle room for team errors. “You have to incorporate that into the schedule up front and make sure stakeholders understand why you need that extra time,” he says.
Mr. Mushimba is also building a formal project management process and documentation to be used by project practitioners across the organization, and implementing training programs for workers focused on skills essential to power plant projects. “Overcoming the learning curve,” he says, “can reduce the risk of errors and eventually shorten project schedules.”
“When we bring in senior experts from the U.S., we hire local people to work with them, rotating into different roles on-site and in the office so they can learn the skills they need to manage projects themselves.”
—John Gustke, Black & Veatch, Bangkok, Thailand
SCOUTING FOR LOCAL TALENT
Black & Veatch has been putting its local talent incubator strategy to work in China for more than a decade. With its explosive economic growth, the country has huge demand for energy projects. Yet it remains a particularly difficult place for an expatriate to manage projects due to language and cultural challenges, Mr. Gustke says.
In response, Black & Veatch is focusing on grooming young local project managers into leadership roles. “If we can blend the Black & Veatch way with the China way, we can manage these projects more effectively,” Mr. Gustke says. Shan Zhiqiang is one of those up-and-coming Chinese project managers. A trained engineer, he joined the company’s Beijing office in 2004 as a project discipline engineer and worked his way up to project manager in 2013. Along the way, Black & Veatch provided him with mentors from the home office and enrolled him in project management training programs, both an online program offered by the company and a program in Beijing. “These experiences were crucial in giving me foundational knowledge in project management and international best practices,” he says.
Today Mr. Shan is managing the engineering and procurement services for a 1,000-megawatt coal-fired power plant project located in the city of Ipoh, Malaysia.
One piece of the project management puzzle is making sure Chinese equipment vendors meet Black & Veatch’s global quality goals. This often requires his team’s engineers to review vendor designs and personally inspect equipment manufactured at the construction site.
“We play an important role in supporting the suppliers as they source through their own supply chain,” he says. “This isn’t often easy, but when we get it right, it’s very rewarding.”
It can take years for organizations in the energy sector to develop skilled project managers like Mr. Shan, but ultimately the effort pays off in reduced budget overruns and improved project outcomes. “It’s not enough to have good project management skills,” Mr. Gustke says. “Your team has to be familiar with the local business practices, language and culture.”
Access Above All
Clean energy is nice, but meeting rising demand remains the paramount goal for most emerging markets.
From climate change to technological breakthroughs, the global energy industry is contending with a potent combination of disruptive trends. But in emerging markets, project leaders are focused squarely on the basics.
In light of urbanization and industrialization, the overriding priority in emerging markets is to provide reliable power to a large population, says Philipp Gerbert, senior partner and managing director, Boston Consulting Group, Munich, Germany.
Here’s a look at the power project landscape in emerging markets:
With more than 80 percent of homes electrified, South Africa is one of the continent’s most developed countries in terms of power accessibility, Mr. Gerbert says. “The big issue now is the increasing demand for generation, with the economy taking strain with periodic load shedding.”
President Jacob Zuma has set ambitious goals to increase capacity, but some project sponsors complain about a lack of infrastructure connecting private power generation plants to the national grid. The country will need to ramp up investment in its power distribution network while also encouraging more private power plant projects. Some of that growth should be coming from renewables. IHS Global Insights ranked South Africa the most attractive emerging country for solar energy in a 2014 report, pointing to plenty of project potential.
Most other African countries struggle with a lack of investment in reliable energy service, Mr. Gerbert says. For power generation project sponsors, the biggest obstacle is whether governments will establish fair pricing and build out the necessary distribution networks.
Comprising more than 18,000 islands, the country faces geographic obstacles to building extensive power networks. Indonesia has a low accessibility rate, and generation capacity growth isn’t keeping up with demand, according to the U.S. Energy Information Administration (EIA).
“They own a lot of gas, but they don’t have the networks in place to take full advantage of it,” Mr. Gerbert says.
As the government tries to stimulate foreign investment in the sector, look for it to sponsor a growing number of generation projects.
With a very high electrification rate, China is now focusing on diversifying its energy portfolio away from fossil fuels. “Its biggest issue continues to be a heavy reliance on coal,” Mr. Gerbert says, which has led to urban air pollution problems.
The country is making large-scale infrastructure project investments in hydroelectric sources and other renewables. According to a report by GlobalData, renewable energy sources in China are expected to provide 20 percent of the country’s total electricity generated by 2020.
Renovating and extending energy infrastructure is the country’s top priority. “Even if people have access to a power network, it often doesn’t work,” says Mr. Gerbert.
Also on the agenda: installing cleaner technologies to reduce the country’s notorious pollution levels. But that will require power plant owners to launch major upgrades or new-build projects to replace the mostly coal-based current infrastructure.
The government plans to increase the country’s solar power generating capacity fivefold—if it can obtain the necessary land and transmission lines. Prime Minister Narendra Modi’s administration has struggled with land acquisition issues while working with five state governments to build 25 solar parks.
The country’s energy infrastructure is predominantly coal-based and saddled with outdated systems unable to meet rising demand. Recent energy reforms opening opportunities for investment by private firms, however, are expected to spur growth of generation and network capacity.
“There’s a lot of momentum around energy infrastructure investment in Mexico right now,” says Bjarne Steffen, project leader, Boston Consulting Group, Munich, Germany. “The question is whether they can keep investment in these projects coming in to encourage the renewal of aging infrastructure.”
Unlike most emerging markets, Brazil’s energy sector is largely based on hydropower, accounting for roughly 80 percent of the country’s generating capacity, according to the EIA. “The challenge now is how to shift from heavy reliance on hydro to more consistently reliable sources of power,” Mr. Gerbert says.
But as the country copes with a recession, energy portfolio diversification seems far off. Indeed, a giant hydro project is moving toward completion: The BRL30 billion Belo Monte hydroelectric dam will be the third-largest hydroelectric power plant in the world when it starts operating in 2019.
Bring in the Vendors
Given the sector’s talent crunch, many organizations rely heavily on local subcontractors to keep energy projects moving. That means building a support system of training and oversight—and sometimes financial resources.
“These big projects rely on a lot of small local contractors and subcontractors,” that “can’t always mobilize the people, resources or equipment to keep up with the schedule,” says Sanjay Kumar, former assistant vice president of engineering, procurement and construction, and power projects at Reliance Infrastructure, Mumbai, India.
To mitigate this risk, his team’s project plans often include accelerated payments and shorter payment cycles to help “smooth cash flow issues” that local subcontractors may face. “In India, if you have a strong supply chain of financially stable contractors, you can deliver a project faster,” Mr. Kumar says.
It can also pave the way for the next generation of power projects: “If you invest in training and supporting local contractors today, your future projects will go better.”
A gas pipeline project in Tunisia requires extraordinary security measures.
PHOTOS COURTESY OF OMV
Project managers routinely manage and mitigate risk. But those risks are a matter of life and death for Ahmed Abdessalem, PMI-RMP, PMP, a project services team leader for global oil and gas company OMV. As he and his team work on a pipeline project in southern Tunisia, they must also contend with terrorist organizations targeting energy infrastructure facilities in North Africa.
Earlier this year, Islamist militants attacked oil fields and a pipeline in the eastern part of Libya, setting one pipeline ablaze and halting production at Sarir, the country’s largest oil field. In 2013, Islamist militants attacked a gas plant in the Algerian Sahara, leading to a four-day confrontation that left 29 attackers and at least 37 of the plant’s foreign workers dead.
The terrorists’ goal is to undermine the stability of the local economy and leadership. But the need for power remains. So Mr. Abdessalem carries on overseeing the two-year pipeline project that’s part of a €500 million natural gas field program in southern Tunisia.
But he and the team are keenly aware of the threat.
“The area is restricted, as it sits near the borders of Libya and Algeria, where terrorist activities are a very real risk,” says Mr. Abdessalem.
To keep workers safe, his team worked directly with Tunisia’s military during project planning to align their schedule and site design plans with military security protocols. To monitor activities around the site, the project team installed earth-filled barriers and a helipad for evacuations. Mid- and long-range cameras and bullet-proof concrete shelters to protect workers in case of an attack are also in the works. “If terrorists come, workers have no other means of protecting themselves,” he says.
Since construction on the pipelines began in 2014, military personnel have constantly supervised the project site, and any vehicles going into or out of the area travel in convoys for added protection. All vehicles are equipped with a real-time monitoring system.
The company also sticks to locals on the site whenever possible. “Expats are much bigger targets than local workers,” Mr. Abdessalem says, “so it is better to keep them away.”
“The area is restricted, as it sits near the borders of Libya and Algeria, where terrorist activities are a very real risk.”
—Ahmed Abdessalem, PMI-RMP, PMP, OMV, Tunisia
Under mounting pressure to tighten schedules and budgets, Black & Veatch revamps its project processes while bringing more power to market.
Asia’s fast-changing energy needs are pushing practitioners into new project territory—and practices. Sponsors want more energy brought to market in a more cost-effective manner—and they want it now.
“Asia’s high economic growth rate necessitates the delivery of much infrastructure in the coming years,” says John Gustke, managing director of energy business in Asia, Black & Veatch, Bangkok, Thailand.
“That has caused an evolution in the way we manage projects and respond to clients,” says Mr. Gustke, who has worked on energy projects in Southeast Asia since the late 1980s.
PHOTO COURTESY OF THE ELECTRICITY GENERATING AUTHORITY OF THAILAND
Take the example of the company’s work on two gas-fired power plant projects in Thailand completed in April and June of 2014. The two plants—with a combined budget of roughly US$1 billion—are located approximately 800 kilometers (497 miles) apart and have different designs and site conditions.
“Asia’s high economic growth rate necessitates the delivery of much infrastructure in the coming years. That has caused an evolution in the way we manage projects and respond to clients.”
Despite the variations, Black & Veatch assigned both projects to the same project management and core design teams, and used almost identical schedules in an effort to increase efficiencies. The team used local suppliers for materials and equipment, in some cases breaking procurement requests into multiple pieces if an order was too big for any one supplier to fulfill. Taking such steps enables smaller contractors to get a foothold with the big projects, and reduces Black & Veatch’s risk of relying too heavily on a single source.
“It’s all about understanding the local market and working with them to find the right balance,” Mr. Gustke says.
The organization also hired mostly Thai workers to deliver the project, while using expat project management leaders to ensure teams met key milestones and adhered to the global company’s quality standards.
The projects came in on time and within budget, he says. “Being able to integrate the most appropriate team at the right time helped us deliver the most cost-effective solution.”
Keeping the Poachers at Bay
With experienced energy practitioners scarce in Mexico, CH2M rebooted its training practices and culture to recruit and retain sector stars.
PHOTOS BY SUSANA GONZALEZ/BLOOMBERG VIA GETTY IMAGES
Energy infrastructure doesn’t come cheap. So after a decades-long monopoly of the energy sector by the two state-owned energy companies, Mexico’s government liberalized regulations to lure in private investment. Launched in December 2013, the move aims to attract billions of pesos in investment to the country’s ailing oil, gas and electricity sectors. It’s working—but it also exposed a major talent gap.
“Mexico’s energy reform will trigger a lot of growth in the sector, which is very exciting,” says Carlo Orsenigo, Latin America oil and gas lead at global engineering and construction company CH2M, Mexico City, Mexico. “But it will put a high burden on the local industry’s resources.”
“Mexico’s energy reform will trigger a lot of growth in the sector, which is very exciting. But it will put a high burden on the local industry’s resources.”
—Carlo Orsenigo, CH2M, Mexico City, Mexico
After decades of low investment, the energy sector has a serious dearth of talented and experienced practitioners. Engineering expertise is particularly scarce.
“It hasn’t been a sexy industry to enter into,” Mr. Orsenigo says. “We need to make the profession more appealing to young people by showing them the opportunities to work on challenging projects using state-of-the-art technology.”
Organizations that do finally find the right project then face the constant threat of poaching. CH2M is responding with a holistic approach to ensure its best and brightest stay engaged. The company recruits engineers in Mexico directly from university and immediately puts them on a development fast track that includes chances to work with senior-level mentors, training in project management practices, and regular promotions and salary increases.
“Retention is not just an issue of salary, though that’s part of it,” Mr. Orsenigo says. “It’s also about providing opportunities for young, hungry engineers to learn and grow in the field.”
FREEDOM TO DISAGREE
Along with rigorous retention efforts, Mr. Orsenigo has also been working to shift the organization’s culture in Mexico to be more reflective of CH2M’s global practices. “The Mexican management style is very authoritarian, but we believe a corporate culture must be collaborative to be effective,” he explains. “Differing points of view add value to the project process.”
When Mr. Orsenigo came to the company’s Mexico office five years ago, he was surprised by how quickly teams built consensus on major decisions and the total lack of disagreement in meetings. Initially he thought agreement was manufactured to please him, but later he realized it is common practice in Mexico to defer to leaders.
So he began a campaign to change that attitude.
It began with simple things, like monthly movie nights after which the team would discuss whether they liked the film or not. “It created an opportunity to disagree in a safe way,” Mr. Orsenigo says. Then he started holding more specific discussions, asking team members to offer their opinions about project strategies. He made sure everyone had an opportunity to speak and was acknowledged for adding value to the conversation. Over time the culture shifted, and now project teams often clash about planning or execution approaches before reaching consensus.
The benefits are clear, Mr. Orsenigo says. Hashing through an argument helps project teams identify the best solutions to problems—not just the one touted by the most senior person in the room. On a recent project, for example, some aspects of the pipeline system design didn’t account for certain operational requirements, like easy access for maintenance tasks. That prompted discussions that ultimately led to a revised design simplifying some aspects while making others more user-friendly.
“The Mexican management style is very authoritarian, but we believe a corporate culture must be collaborative to be effective.”
“Through disagreements, we optimized the final solution,” he says.
This more collaborative corporate culture has also benefited CH2M’s recruiting process. Hiring managers tout employee opportunities to contribute to the project planning process, which is especially appealing to millennials, he says.
“We tell them we expect everyone on our team to express their point of view and be able to negotiate with other team members,” Mr. Orsenigo says. Turnover in the Mexico City office has decreased enormously, and “that tells us our efforts are working.” PM
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