'Time to go global for local O&M operators' an Interview with Syed Arfeen Khalid, CEO-Descon Power Solutions (Pvt) Limited

Mr. Syed Arfeen Khalid is the Chief Executive Officer of Descon Power Solutions Pvt. Limited. He holds a degree in B.Sc. Electrical Engineering from UET Lahore. Arfeen has been part of the industry and has worked in 8 countries over his 2 decades of experience. He has worked with Nokia Networks (Pakistan and GCC region), Schneider Electric and ABB Pakistan as the President and the CEO. Prior to joining Descon Power Solutions his last assignment was with Zeritek Consulting Inc., Canada in the capacity of Vice President Business Development.
BR Research recently met Mr. Arfeen at Descon Power Solutions' head office in Lahore. Following are the edited excerpts of the conversation:
BR Research: Tell us about Descon Power Solutions and the Operations and Maintenance (O&M) sector in general in the country.
Syed Arfeen Khalid: Descon Power Solutions - DPS as we call it - manages and operates power plants on behalf of the owners. Currently we have 14 power plants spread across Pakistan; and 1300 MW is the total capacity that we are managing as an O&M operator. The portfolio includes different types of simple cycle and combined cycle power plants from thermal to wind to biomass energy across the country from Jhimpir and Gharo in Sindh to Rahim Yar Khan, Bhiki and Balloki in Punjab.
O&M is part of the services sector. Unfortunately, it has remained out of the limelight or policy focus, whereas I believe it is a potential bread earner for Pakistan. When I call it a potential revenue generator for the country, I mean it has a potential to grow out of Pakistan. Players like ESBI out of Ireland, or ENGIE out of France are working across the globe.
Call it a misconception; people here generally take O&M business as highly capital intensive. Yes, it is a specialised sector, but it is highly dependent on the human capital. And let me tell you, we have a lot of expertise and skillsets within the country to take this sector global. That we do not require an indigenous technology means that we have a relatively easier way into the sector. It is a people-focused business where we manage complex power plants on behalf of the power companies. We can train our people on the equipment and the technology and get them the right experience here in Pakistan, before they go out.
Based on the advantages and the level of experience and expertise that we have gained over the years, Descon is trying to get projects on operating and maintaining wind power plants in the Middle East.
BRR: What advantages are you referring to in the O&M of wind power plants? Is it the competition?
SAK: Advantages here do not mean that there is no competition. Companies out of India, offer the same advantages as we do. We basically have two advantages. The wind sector in Pakistan has all the big global players working here; we have GE, Vestas, Siemens, Nordex, and Gold Wind.
The other inherent advantage is the cost benefit to get into the international market; our people are working on the machines and equipment, so they have the right experience of operating and troubleshooting those equipment and machines. In Pakistan, the labour is relatively cheap and in our case at least, it is well-trained. I'll give you an example. We are currently bidding for O&M projects for wind power plants in the Middle East. Out of the 14 power plants that we are managing as the O&M operator in Pakistan, 6 are wind power plants. We have a trained manpower and the right opportunity. We just need to connect these two to go global.
BRR: What does a usual OM activity for a power plant look like?
SAK: This would be different for different types of power plants. Wind would have a different O&M philosophy than thermal, and so on. Generally speaking, you need to look after the day to day activity of the power generating plant, the electrical equipment, and the civil works that include the building and road infrastructure. Also, often included now is the security of the site for a country like Pakistan. Often at times, the largest contingent of an O&M team is actually the security.
Then there is the recently emerging phenomenon of logical security, which sometimes is more important than the physical security. It is guarding against viruses, malicious cyber-attacks etc. as we get more digitalised. These digital cyber-attacks happened in Iran, and in one of the sites in Pakistan where the attacker took over the SCADA system and was asking for money in bit-coins. These attacks and viruses are a big threat.
BRR: Talking of security, how important is the health and security of your O&M team?
SAK: At Descon we are very focused on quality and health of the people and the environment. We have a very strict Environment Health and Security (EHS) Management system, where we follow the ISO standards: Integrate Management System (IMS) ISO 9001 for quality standards, 18001 for environment, and Occupational Health & Safety Assessment Series - OHSAS 18001 for occupational health and safety management system.
All our sites are certified, which is why we have an extremely good safety track record. There is an international standard LTIFR - Lost Time Injury Frequency Rate. The industry standard for power generation plants is 1.5, while we are at less than 0.5, which means that our sites are three times safer when it comes to quality and safety when compared against an international standard. You have to understand that most of the times, these power plants are outside the cities in remote areas; people living there are generally cut off from the rest apart from those living in that area. Their safety and mental health is extremely important, and that is what we try cater to with our team building exercises and regular engagements in our site areas, to keep people involved and motivated.
BRR: Who carries out the O&M of public sector GENCOs?
SAK: GENCOs usually do it themselves. But recently the government has come up with public entities like National Power Parks Management Company that have started to outsource O&M activity. These entities issue prequalification documents where the requirements are very stringent; the pre-qualified companies are then offered tender documents. Usually there is an international OEM player with a local partner that carries out the activity. This is a very healthy trend, which could be successfully replicated for GENCOs as well.
BRR: There are generally two kinds of O&M models around the world: project-based and contract-based. What model is common for O&M of utility power plants in the country, and why?
SAK: Actually both. Contractual O&M is where you get a contract say for 3 or 5 year or 8 years. Project based contracts are usually short and time bound. When an EPC contractor is putting up a project, from the commercial operation date till the end of the warranty period could be one possible scenario of a project based O&M contract that the EPC outsource. And usually, we differentiate by the scope of services as they are somewhat limited for the O&M sector. It's tricky in that sense.
An important concept in large contracts is the working capital requirements. In larger contracts, the successful contractor is given some money to move to the site and start the activity. This basically helps in the reduction of the working capital of the successful contractor. This money is called the mobilisation advance given by the company that owns the project, which is usually 10-20 percent of the project cost against a guarantee from the contractor.
At Descon, we only go project-based where our own EPC has done the project. In contractual O&M, we have the advantage of longer duration of time; we can take on partners etc.
BRR: You referred to thermal and wind power plants that you manage. Do you plan to go into coal or any other type of plant for that matter?
SAK: We are not in coal as of now. But next year we are focusing on three sectors: hydropower, solar and coal. These may not be in the same order, but we have plans to venture into these territories.
BRR: The O&M activity for a solar plant must be complex given the factors like cloud cover, sun intensity, relative humidity, and heat buildup that affect the solar power production efficiency. Will that be a challenge for you since you don't have any solar plants on board?
SAK: Very true; solar power is fluctuating and variable, and hence requires different O&M protocols. And true that solar cannot be compared to thermal power plants. But we have been managing wind power plants, and these two can be compared. Like the sun may not be there, wind may not blow at a particular time. There are times when wind and solar behave intermittently. And since we have expertise in wind, it will be easier for us to add solar to our portfolio.
BRR: You are strict on environment, health and safety. Would going into coal not be detrimental to your stance?
SAK: The environmental impact of coal when managed properly is not as much. Special filters need to be in place, and coal needs to be handled in a specific manner. There are international standards that, if followed correctly, mitigate the environmental impact to globally acceptable levels. These filters that I'm talking about are expensive investment. So if you are willing to take on that cost, things can be done in a much cleaner and greener manner.
BRR: What are you plans for the next five years or so?
SAK: Like I said, we want to move out of Pakistan in the coming years. We have already started exploring the market in the Middle East. Saudi Arabia recently awarded a 450MW wind power to a Danish company, and we are trying to get in touch with them and see if we can help them there. Oman is awarding a few wind power projects to different companies, and we are trying to get hold of them. Similarly, there are a couple of power plants coming up in Jordon. So we are exploring that market. We have just started doing that. Descon has a presence in 8 countries anyways. So we have a regional footprint, and we have the advantage of registered offices, established banking lines, available trained manpower etc. We want to leverage that.