Haluk Direskeneli Energy Analyst printable version send your friend message to author add comment ()

Saturday, 6 June 2009

 Your writer had great joy when he learnt that a Turkish engineering contractor group had received the turnkey contract for repowering an old thermal power plant in Istanbul. As of the end of 2008, the contract was announced to be 388 million Euros, and the down payment was released.  The officials of Electricity Generation Corp. General Directorate reported that they would make the site delivery in March 2009. The delivery period of 37 months is considered to expire sometime in March 2012.  It is good to have an order from a public company in such a large magnitude, for it means jobs for your staff and for your labor for next 37 months in these hard times of global crisis. The public company was also pleased since the second bidder’s quote (640m Euros?) was almost double the price of the lowest bidder.

The basic scope of the project would cover demolishing the existing old thermal power plant and delivering scrap to the client to enable them to sell it, constructing the new combined cycle power plant with new gas turbines (Siemens?), fabricating new heat recovery steam generators (fabrication in  partnership with an Austrian company?), renovating the existing steam turbines (in partnership with a U.S. company) and in the end making all run to generate 800+ Mwe (816Mwe?) electricity to the national grid.

We had news that the group would be cooperating with a reputable U.S. engineering company in design and project planning. They were also needed in prequalification for similar size repowering project references to meet tender preconditions. However that U.S. group gave no press release on the subject, which was unexpected given the importance of the project and implies cooperation is not certain.

On the other hand, the existing steam turbines were in terrible condition after almost nonstop operation for 30+ years. It was almost impossible to repair them, almost impossible to run them again. The best solution could be dismantling them for scrap and ordering new steam turbines, which is more feasible, more economical, and more logical. The legal issues prevented the client from opening a brand new tender for thermal power plant. Under the existing legal scheme, a public company can open a tender to rehabilitate or repower an old plant but cannot build a brand new power plant.

We understand that the chosen contracting group has worked with the engineering team of the nominated foreign OEM supplier without double checking the design and equipment prices of the other competitors. That is complete surrender to a single supplier and displays mistrust of the local engineering capability. What a pity.

Just for curiosity, we have made the available thermal power plant design software run for three leading OEM suppliers for the same 800+ MWe output electricity capacity while keeping all design conditions, ambient conditions, and altitude the same. To our surprise we found that the project cost is almost on the cutting edge. Prevailing costs are more than estimated during the tender process. We all want local engineering companies to be successful in their turn key thermal power plant orders. However one should be smart to get full control over cost figures. One should employ all means to become better informed. It is difficult to say that the existing project execution is in compliance with established international standards, or with acceptable business ethics.

Your writer is seriously worried about the project. Contractors should be careful in their calculations at all times.  Engineering and cost calculations are not to be left at the mercy of the foreign OEM suppliers, never to a single vendor. The OEM supplier will earn money for sure. But the local party may gain no profit or face a loss in the end unless it is prepared with capable engineering, including the necessary hardware and software, in their ventures. If it cannot meet the demand from its own talent pool, it should look for engineering from other local engineering sources by paying the price. Nothing is free in business, no free lunch.

Our local private companies are plagued with the same infection. They hate to pay for engineering as if it were free-of-charge. Engineering cost is the key factor in a profitable successful timely project execution. They have to decide if they will continue to have simple works all the time, and vanish, or make drastic change and start doing new investments on their own engineering talent by supplying the engineering staff with appropriate software and hardware, plus necessary technical licensing, to enable their companies work as turnkey EPC contractors and leading companies. That is the most important key decision now. In the end, the project may yield no profit, however the company will obviously get an important repowering reference to be implemented in its future ventures.