Cement sector is slowly heading for a major consolidation

P K Ghosh, Chairman, ERCOM Engineers Pvt Ltd talks at length to ICR on various aspects of the business and the cement sector. ERCOM Engineers Pvt. Ltd is one of the leading ISO-9001:2008 certified Technical, Management and Engineering Consultancy Organization mainly specializing in the field of cement industry. The group has been providing consultancy services to reputed industrial houses in over 23 countries for the past 27 years. Their clients include Aditya Birla Group, J.K. Corp & J.K. Cements, Lafarge, Heidelberg, Reliance, and JP Group, along with international clients from UAE, Oman, Bahrain, Lebanon, Sudan, Mozambique, Nigeria, Central African Republic, apart from SAARC countries.

ERCOM has undertaken many challenging projects including the recent Study entrusted by SAARC Secretariat through IDBI for the possibility of setting up a number of Cement Plants in the SAARC countries through regional cooperation and integrated logistics. Recent challenging projects include complete Engineering Consultancy for 7500 TPD single line clinkerisation unit of Gulf Cement Company, Ras Al Khaima installing the largest capacity of Vertical Roller Mill Quadrapole supplied by Polysius Germany; a Cement Plant in Bahrain with global sourcing of all raw materials and other cement retrofitting projects which require sharp engineering skills due to layout and space constraints in the existing plants. We have worked with ABG – Ultratech Cement, on GRASIM Raipur and also in another Plant in Orissa where Technology & Efficiency levels were the main focus and we have come out with the best combination of Technology & Efficiency. Is Indian market less challenging than the international?

We find Indian projects equally challenging, because our major Indian clients have a good knowledge base and a very good existing engineering set up, so they expect value addition from the consultant over and above that base level. Our vast range of experience comes from the handling of hundreds of projects in 23 countries with different technology, different suppliers and also the operational and performance feedbacks. For example, for a green field cement project, once all the pre-project activities including approvals and procurement of land and limestone deposits are in place, it can be implemented quickly. ERCOM provides Project Management and Monitoring Services utilizing the latest IT techniques to prevent project cost and time overrun. However, we find that due to the various political and legal issues, the completion of pre-project activities, specially acquiring limestone deposit and land procurement including Environmental Clearances, takes much more time in India as compared to most other countries.

Consultants play a very important role with newer emerging technologies and process. Evaluation of alternate technology coupled with their operational experience and adaptability in the Indian conditions and with local raw materials is very important. We are already working on alternate fuels, marginal grade raw materials and Green Cement Technologies which will have a major impact on the Cement Industry once they are approved by our authorities like the Bureau of Indian Standards (BIS).

There are, in fact, only four or five major consultancy organization in India dedicated to the Cement Industry; and approximately 1000 professionals in the permanent rolls of the companies.

As a major Engineering Consultancy organization, we always endeavour not to have bias to any particular technology. As it is well known, the major patented technologies in the field of Cement Industry come from big suppliers mostly based in Europe and Japan which includes FLSmidth, Polysius Corp, KHD Humboldt Wedag, IKN, PSP and CMPAG, Taheyo Engineering Corporation and Kawasaki, UBE, Pfeiffer, Loesche, etc. Most of the major suppliers have their own subsidiary or joint venture companies in India and China. We have cement plants in India utilizing almost all the above technologies and their selection is on the basis of the specific application with local raw materials, product mix and also techno-commercial considerations. Today, the technologies are selected based on the best efficiency levels, which are the key factor for the future survival and sustainability, in a highly competitive market of global players.

Indian Cement Industry has been very quick and proactive in adopting new innovation in technology and we have cement plants operating in India which are among the best internationally in terms of operational efficiency, technological features, environmental management, etc. Some of the new innovative technologies for the Cement Industry now includes the Beta Mill which claims to have superior features compared to the modern cement grinding like VRM or Roll Press, advancement in system relating to Waste Heat Recovery in cement plants for Power Generation, Grate coolers of higher efficiency and also improvements in the pyro system to achieve lowest possible levels of Nox and Sox emissions.

Worldwide consultancy services are limited to companies like Taheyo – Japan, PEG – Switzerland, and Dickerhoff – Germany. These companies are not very large, in fact much smaller than the companies in India today which are controlling almost 60 per cent of the consultancy services worldwide from India; and the services are quite comparable in terms of Engineering & Technology expertise. Unlike India, the worldwide trend now is to go for turnkey and EPC basis for setting up large projects, where mostly the foreign suppliers are involved with their own contracting firms to take care of civil construction, local fabrication, erection of the plant and machinery, including commissioning assistance. However, these services are also being managed to a great extent by Indian expatriates. In India today almost all the products and equipment are available which can be considered on par with international standards, except few equipment say, for example the MMD Crusher, very large gear boxes, and hydraulic systems, which are manufactured in Europe/ Japan and cannot be compared with any Indian product for its application and quality including technology and efficiency parameters. Similarly, pipe conveyors and belts for such conveyors are manufactured either in Japan or in Europe/ USA, including downhill large conveyors for the European companies, have better technology than us and many of the Indian companies prefer these suppliers over the Indian suppliers purely from a quality and reliability point of view, although the cost is higher.

As of today, the Indian cement manufacturing companies are procuring all the core equipment from the major workshops available in India, except for certain casting, gear boxes and special application drives, purely from the reliability point of view, to maximise the cement plant’s life for 40 years and above. The price on EPC basis today in India with 100 per cent Indian equipment could still be at USD120 to USD130 per annual tonne of the installed capacity, as against foreign supplies from Europe, compared on apple to apple basis, which comes to USD150 per tonne. In the context, an equivalent plant purely from China can come at USD105 – 110 per tonne (all supplies from China).

Our industry giants are going for the best value in money, keeping in mind the previous performance and most of the industry houses are repeating similar orders subject to raw material variation, which would be key to sizing of the equipment. There is no question of settlement for the second best and that may be the reason why China has not been able to penetrate the Indian market in a significant manner, though they are cheaper. One advantage of Chinese companies is that they are ready to offer total plant and machinery on a turnkey basis which covers engineering, procurement and supplies and construction. In this context, Indian cement machinery manufactures are not forthcoming on EPC basis and most of the cement manufactures have to necessarily deal with many agencies for completing the project and that leads at times over-run and other engineering and coordination- related issues.

Keeping in mind the acute constraints on good raw materials availability, stringent environmental needs to reduce the carbon emission and the thrust towards cleaner technologies is an imminent need. This requires quick adoption of new technologies including the concept of grinding blended cement with low clinker requirement. Our government agencies, along with the Standards Organisations , have to work together to encourage green technologies and also come up quickly with relevant standards for green cement specifying the guidelines for their utilization and specific areas of applications.

ERCOM is already working with an American Technology provider having patented the green cement technology, based on Class C / Class F fly ash and this cement meets all the performance criteria of ASTM -C-1157. This green cement technology is being tried in India, also subject to the approval of BIS, specially for using them in low intensity areas such as floors / roofs, walls etc. We should work towards a future, when the Ordinary Portland Cement (OPC) use should be restricted to special load bearing applications, special foundations, special building structures only, whereby we will be saving lot of mineral resources as well as minimize the extent of carbon emission including NOx & Sox (general oxides of nitrogen – NO, NO2, N2O2, etc.; and the general oxides of sulfur – SO2, SO3, etc.)

The cement sector is slowly heading for a major consolidation, and day by day, green field projects are becoming difficult to set up due to increased hassles in areas like mineral concession, land acquisition and related environmental and operation issues. Having said this, the government and the approving authorities like BIS will have to necessarily look into the green cement technologies and it is expected that the green cement will ultimately take a market share of approximately 12 per cent of total cement market by the year 2020. Moreover, due to the depletion of good quality limestone, a major shift may be on new technologies, which will utilize low and marginal grade raw materials. ERCOM has the privilege of presently working for a large capacity cement project being set up entirely on the basis of marginal and waste grade raw materials in Northern India.

This may lead the cement Industry in India to be consolidated in the hands of a few major giant cement companies, and only a few cement companies with single or smaller capacity plants shall continue to operate purely due to regional and local factors.

We are offering financial consultancy services in terms of feasibility and economic viability and also in terms of due diligence for taking over / acquisition status, mostly on behalf of large cement industry houses and sometimes on behalf of financial institutions.

The major financial institutions like IDBI / ICICI / IFCI / SBI and large banking consortiums are generally willing to fund only the major established cement players and are not very enthusiastic for the new companies wanting to enter the cement business. The newcomers would need relatively more aggressive private banks / PE funding with an objective to operate the project professionally with complete project management with Engineering, Procurement, Construction Management (EPCM) kind of operation. The preference for funding such projects is due to better control on the project cost and time overrun, thereby keeping the investment safer.

The best source of funding in India are still the private banks and the PE funding, who generally look into the group’s background and image, technology selected for the project, market size where the product will ultimately go and the competition that will be faced with the existing reputed brands. Besides, the PE funding are also looking into the logistics parameters, which is now becoming one major area of focus in the cement business.