Hans ERLINGS, CEO of GALFAR ENGINEERING & CONTRACTING

The developments we see announced in the downstream are probably the biggest we have ever seen.

Hans ERLINGS CEO GALFAR ENGINEERING & CONTRACTING

Galfar Engineering on struggle and opportunity in Oman

October 3, 2018

Hans Erlings, CEO of Galfar Engineering & Contracting, talks to TOGY about how local companies fare in Oman’s engineering sector, the benefits of working in the oil and gas industry and areas of opportunity inside and outside the country. Galfar Oman is a multi-disciplinary firm that provides EPC for the hydrocarbons industry as well as the civil and power generation sectors.

• On the EPC market: “In Oman, oil companies are basically aligned with the biggest international EPC companies to do the work. There is not a single Omani EPC company that is handling large projects. The market is too small for that, and it comes and goes. You need a world player in EPC. What you see are big companies going around the world doing the main projects.”

• On payment in other sectors: “Generally, if project budgets are kept isolated from other projects, then payment is easier and well organised. But there are commitments, and when it comes to total commitments in 2018, they do not match the budget. This will be a problem. That is why we focus on oil and gas. A road project can be better than a certain oil and gas project, but if you do not get paid, there is no business. Oil and gas has a very professional community. There have been many years of professional management of any issues that come up. It is a much more mature market to work in than certain other areas.”

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How has the rise of oil prices affected Oman’s engineering and construction sector?
Expenditure on activities is changing continuously in Oman due to the fluctuating oil prices. Works related to roads and bridges have come down significantly over the last few years. There is also the problem of payment backlog. This is affecting all contractors. If cash liquidity is diminished, then a contractor cannot survive for long.
We as Galfar prefer to work with clients who have a clear contract management system and have the capability to pay on time. We have focused on the Duqm freezone with the engineering opportunities in the refinery, downstream petrochemical development, tankage, etc. There will also be a need for infrastructure works such as water, electricity, transportation, waste management, etc.

 

How do local companies fare in doing EPC work for major oil and gas operations?
The majority of our work is construction, not EPC. In Oman, oil companies are basically aligned with the biggest international EPC companies to do the work. There is not a single Omani EPC company that is handling large projects. The market is too small for that, and it comes and goes. You need a world player in EPC. What you see are big companies going around the world doing the main projects.
Our part in those main projects could be the construction of any part, and for certain packages they could give the EPC work to us – for example, the construction of a bundle of buildings or the power supply for certain oilfields. Those types of packages are being selected and rendered in the local market.

What are the main advantages of working on oil and gas projects?
For the companies related to oil and gas, there are no payment problems whatsoever. The reason for this is that the oil and gas sector works in a manner that will get them fast returns on their investments made. The faster they pay, the faster the contractor will work.
Works for other clients are normally done differently. They have a full packet of money to spend on several projects. A contractor may be working fast but the payment system cannot ensure his payment. Generally, if project budgets are kept isolated from other projects, then payment is easier and well organised. But there are commitments, and when it comes to total commitments in 2018, they do not match the budget. This will be a problem. That is why we focus on oil and gas.
A road project can be better than a certain oil and gas project, but if you do not get paid, there is no business. Oil and gas has a very professional community. There have been many years of professional management of any issues that come up. It is a much more mature market to work in than certain other areas.

Has the push for local content changed the landscape of the construction sector?
For construction companies, subcontracting and procurement is about 60% of the work that you do. The vast majority of this we buy in Oman, such as products made in Oman by true local manufacturers including cement and tiles. The vast majority of our procurement goes to local content.
At the moment, our local content is close to 20-30%. We have been higher and we have been lower.
There are initiatives to put Omanis to work. However, the people that are available are all fresh. You cannot put a fresh worker on a job that requires experience. Thus, there is only so much we can do. We are having great difficulty in getting Omanis doing work such as excavation, steel fixing shuttering, pouring concrete, bricklaying and the like. There are not enough local people available to do the job for us. Even in the future, there will be quite a few expats still doing that work.

In which areas of Oman do you see the most enticing prospects?

We see that some of the freezones have exciting opportunities and we want to be part of those developments. The developments we see announced in the downstream are probably the biggest we have ever seen. It looks positive.
There are plenty of opportunities for work. SEZAD [Special Economic Zone Authority at Duqm] is a nice place to work. BP is also a good client. The Duqm Refinery will start in a few years and when it finishes, we will have to look for other locations to work.
You cannot have constant work in construction. When it is finished, you cannot expect that you will continue in the same place. When you are our size, you have to have your legs in different places. That is what we are doing. This presents opportunities for Omani people to work in neighbouring countries.

Are you looking at contracts in other markets as well?
Oman is where we started and where we have grown up, but it is shrinking, and we are growing. The cap no longer fits. We have to be growing outside of Oman because the oil price is around USD 60-70 per barrel. If the oil prices remain in the USD 60-per-barrel range, it will not be enough to run the country. There will be limitations on development. Due to this, we have to work outside of the country.
There is a certain culture of working in the Middle East. I understand the way of working in Africa because I have worked there for a long time. India has significant potential. We are working on that continuously. Additionally, we have placed some people in Kuwait to actively start doing work.

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