When the Egyptian Government decided to make vast extensions to the Suez Canal, competition for contracts was fierce. Entering into a consortium that at one point deployed 70 percent of the world’s marine dredging power, National Marine Dredging Company overcame a series of financial and logistical hurdles to play a huge part in the $1.6 billion – and highly improbable – mega project.
“This was the biggest mega-project to have happened at the time in Egypt,” Gautam Pradhan draws immense satisfaction from his part in the Suez Canal’s extension, and with good reason. The development is set to offer a major boost to Egypt’s economy, and the National Marine Dredging Company (NMDC) chief financial officer was a crucial change agent in making the development a possibility.
NMDC’s work, as its name suggests, centres around dredging, marine and port construction, as well as breaking water for beach and environmental protection. The company has cultivated a reputation for a series of large-scale projects, including the development of four artificial islands to create new oil fields in Abu Dhabi on behalf of ZADCO.
It’s easy to imagine how a company that handles such large projects would have some heavy costs to bear. “Our industry is extremely capital-intensive,” Pradhan says. “The equipment costs are huge, as are fuel and people. This is a very unique industry, and people are the driver of it. Finding the right people who can drive these projects is very tough. The industry is very concentrated, and requires very specialised staff, which is a big challenge.”
Pradhan adds that “around 25-30 percent” of costs go towards equipment, a similar number goes towards fuel, while “15-20” percent is spent on staff and other overheads.
The company’s formidable reputation stretched across the Red Sea. For Egypt, strong ports and connectivity form a vital part of its economy, with the Suez Canal, situated in the north east of the country a key pillar in trade. The Egyptian Government had long desired to make substantial expansions to this channel, but for various inhibiting factors had been unable to do so. “They recognised the benefits that were at stake if they could push this through,” Pradhan says. “Suez is the heart of the connection between continents, and fantastic opportunities could be opened if it could be expanded.”
After much deliberation, the Egyptian Government, in partnership with the Suez Canal Authority, decided that risks had to be taken, and the project would have to commence.
Due to the sheer scale of the project, the Egyptian Government recognised that their ambitious deadline – completing work in a nine-month timeframe, beginning in October 2014 – could never be met without enlisting several partners. “In order to dredge a volume of over 200 million cubic metres, it would take a single company well over 3-4 years to complete,” Pradhan says. With this constraint in mind, NMDC, enlisted by the Egyptian Government, agreed to begin work on the Suez Canal. They would be part of a consortium consisting of three other marine dredging partners, including Dutch firms Boskalis and Van Oord, and Belgian company Jan De Nul.
Working in tandem with some of NMDC’s biggest international competitors did not come without its challenges, however. “Arranging the banking requirements, guarantees, bonds, insurances and managing working capital with all the partners were all things that required a lot of work and consideration,” Pradhan says. “Structuring the finance of the deal had to be handled carefully.”
Adding to this complexity were the difficulties that the Egyptian economy had faced in prior years. Chief among these issues was the convertibility of the Egyptian pound to euros and dollars. “Foreign currency availability in Egypt was very low, and there were a lot of constrictions in terms of getting money out of the country due to the Central Bank,” Pradhan says. Throw into the mix NMDC’s background of working in a tax-free environment, and there were a number of potential banana skins to overcome before a deal had even been agreed.
All received wisdom indicated that an agreement would be difficult to tie up. “When we started this project, banks and financial institutions told us that what we were doing was impossible,” Pradhan says. “Nobody imagined that paying $1.6 billion in a year would be achievable. The Suez Canal Authority, the Central Bank of Egypt, and the Government of Egypt took this as a challenge to make sure they could deliver something great for the Egyptian people.”
In spite of all the exchange problems faced, as well various regulatory issues, a deal was eventually struck. “The Egyptian Government were fantastic, and considered the long-term view of the country’s population as motivation to get things moving,” Pradhan says. “The sooner this job was delivered, the faster revenue generating streams were going to come in.”
In such a large project, the potential risks for NMDC had to be carefully considered, but Pradhan was confident that huge return on investment was due if things went to plan. “For us, every job is a risk and an opportunity,” he says. “In the marine industry, we go all around the world with our work, but we always look at everything we can in order to mitigate risk.” Nevertheless, Pradhan was careful to be sure of the laws and regulations that were specific to Egypt. “We had to ensure compliance mandates were followed properly, and could deliver wealth to our shareholders and stakeholders from agreeing this deal.”
After signing the contract for proceedings to begin, a series of logistical hurdles would have to be overcome. “Mobilising staff was difficult,” Pradhan says. “This job would require very highly skilled people. The integration of dredging and marines is very important. Weather and soil conditions also play a massive part, and these are conditions that are out of our control.” Space constraints on the site would have to be considered. “With so many dredgers working in one area, you have to keep all the equipment in one area. Once work on the Canal had begun, NMDC and the other dredging partners were also prohibited from blocking other vessels from passing.”
The same day the contract for the project was signed, NMDC’s dredgers set sail from Abu Dhabi. “Bringing the necessary equipment from around the world to Egypt was the first major logistical challenge we had to tackle,” Pradhan says. In spite of all these difficulties, work was able to begin, and all four dredging companies hit the ground running. The initiative required tireless dedication from all the firms involved. “At one point in time, 70 percent of the entire world’s dredging production capacity was deployed on the Suez site,” Pradhan says.
Following a painstaking nine months for NMDC and the trio of dredging partners, Pradhan has walked away having played his part in a record completion time for a marine dredging project of this size. NMDC and the dredging partners successfully established a parallel 35km-long additional waterway to the Canal, which had around minus 24 metres in depth, while also adding widened and deepened bypasses to 37km of existing waterway.
This has already begun to ease congestion on the Canal. “Before, the Canal only had one-way traffic, and ships had to wait for traffic to pass by,” Pradhan says. “The new waterway saves around 8-9 hours of sailing time per vessel, which is a huge benefit.”
The changes stand to bring substantial benefits to Egypt’s economy, with considerably larger containers now able to pass down the Canal, which will increase the volume of Egypt’s imports and exports. The development of infrastructure along the Canal’s banks, meanwhile, also has developed the possibility of “more industrialisation” and offer more employment opportunities. “Once trade starts increasing, this will also bring more foreign exchange opportunities into the country,” Pradhan says.
Pradhan relished the experience of collaborating with operating alongside some of NMDC’s biggest competitors. “It was a great opportunity to learn from their best practices, and how they manage their working capital across different countries and continents,” he says. “The approach to the whole job from a finance perspective was a great experience for me.”
He has also gained a new outlook on the benefits of collaborating with those who had traditionally been seen as adversaries. “One of the most interesting dynamics I had to manage was transforming a relationship with a competitor into being a partner. In this gloablised world, it’s important to have a different approach to business. This kind of approach helps you to come out of your comfort zone and can help you take an organisation to a different level.”
Pradhan also draws great pride from the benefits it could bring to the UAE as a whole. “I think it’s great to have companies from this country going out and competing with the world’s best for this kind of contract.”
The project has earned NMDC worldwide recognition, giving the company extra clout in terms of landing new projects. It has also given them vital access to the Indian market, which had previously been dominated by a series of players. With the UAE and Indian governments having signed an agreement for infrastructure development, NMDC is set to benefit with a series of new dredging contracts.