Company management speeches

Complex construction of power plants

Andrey Klimenko, EPC-project Director, Deputy General Director of РJSC EMAlliance

Combining technological prospects and economic efficiency, EPC-contracting system (EPC means Engineering, Procurement and Construction) is considered as one of the best forms of management of investment projects in the world’s power engineering. EPC-contract in power engineering means the construction of power plants on turn-key basis.

With this contracting system, only one company, general contractor, is responsible for the total scope of services and supply. This company is also responsible for attaining to the design capacity and effectivity, for provision of the appropriate reliability of a power plant, for coordination of jobs and adherence to the deadlines. EPC-project includes: engineering survey at the site, concept/basic/detailed engineering, application procedure for all the required permissions, sourcing, manufacture and supply of process equipment and materials, civil and erection work, commissioning, performance tests and handing-over of the power plant to warranty and commercial operation. What is important, responsibilities of the general contractor include the development of quality control system for the relevant services and supply.

The general contractor gives the performance guarantees: electric and thermal output, specific consumption of the rated fuel, operation availability, noise level and the emission value of nitric oxides.

If guarantee performances are not achieved or in case of delay in putting into operation, liquidated damages amount to maximum 15 to 20 % of the contract price. In general, the total liability of the general contractor is not more than 25% of the contract price.

To learn from the world’s best companies

International corporations, operating as general contractors, normally incorporate specialized design departments. Smaller companies invite engineering companies on subcontract basis. Big EPC-contractor (general contractor) also incorporates financial and bank institutes to provide long-term financing and issue Performance Bonds.

General Electric, Toshiba-Westinghouse, Areva, Alstom and BНEL are the most famous power engineering companies operating on turn-key basis. With in-house capacities, they perform up to 50% supply and services required by a contract. At present, only a limited number of EPC-contractors with long reference-lists are capable to realize big projects at the power world’s market.

The construction of power plants under EPC-contract is usual for the leading foreign companies while this kind of construction is new in principal for Russian companies. The number of power projects constructed on EPC-basis is very small in this country. According to the investment programme of RAO UESR, new power plants of total capacity 40 GW shall be put in operation to 2011. Successful implementation of this large-scale programme requires active involvement of EPC-contractors. Experts estimate that up to 40 % power plants will be constructed on EPC-basis during the time period 2007 to 2011.

In Russia, JSC Technopromexport has a practical experience in EPC-contracts in this and other countries (and JSC Atomstroyexport in nuclear power engineering). As for new Russian companies such as JSC EMAlliance, JSC Group E4, JSC Power Machinery, Energomash Group, Intertechelectro-New Generation Ltd., for the present they declare their intention to develop construction on EPC-basis. However, it is worth mentioning that the given companies have in-house manufacturing and design capacities and experience in management of moderate projects and engineering of incomplete cycle. For example, JSC EMAlliance carries out construction of 420 MW CCPP on turn-key basis (in consortium with French Alstom).

Specific situation in Russia

Successful progress of EPC projects in Russia is restrained by the current situation in the market where you can hardly find design/engineering companies or construction/erection agencies capable of complex design and full cycle of works under large-scale investment programmes.

Another negative aspect is restricted capabilities of Russian power machine-building companies to manufacture the main equipment and auxiliaries for power plants. In other words, the manufacturers fail to ensure the required quality and adhere to the deadlines.

Finally, the current domestic market of EPC-services is a market of sellers which means difficulties for clients as they have no reference price to determine the cost of one kW of installed capacity at the constructing plants. Since EPC-market is only being created, many companies have an illusion that EPC-contract can be executed by any market player.

In spite of specific features of Russian market, we can forecast that, only after consolidation of engineering and manufacturing capacities and consequent expansion of functional capabilities, a company will compete successfully in bidding for construction of power plants on turn-key basis.

Moreover, future realization of EPC-contracts in Russia will depend on how quickly typical design will be implemented and, thus, allow to reduce significantly capital expenditures, design, manufacture and supply period for the main equipment. Standard models are prepared to form “the initial input” to design which is one of the most important business-methods to carry out EPC-projects. The main idea of this approach is that most basic engineering is completed before legal approval of the project. Naturally, realization of standard design models enables to reduce greatly expenditures for the construction of power plants. Though we can see positive trends, it is still rather difficult to estimate real outlook of turn-key construction of power plants in this country. This business is at the very beginning and is carried out in cooperation with the world’s leading companies. It is obvious that such approach is one of the necessary conditions to realize new power engineering projects in Russia and we believe that EMAlliance will play an active role in EPC-contracting process.

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