Saudi Arabia is set to emerge as a key market for the engineering group ABB after the company faced down activist investor pressure to sell its power grids business.
The decision by the Zurich-based engineering group to keep the business will make it a focus of investors looking for increased performance from the unit after a tough third quarter.
Electricity-hungry regional economies are important markets for the division, according to the ABB executive who oversees the group’s operations from Asia to Africa.
“What is clearly needed in Saudi is the development of the grid,” Frank Duggan, the president for Asia, Middle East and Africa at ABB, said in an interview in Dubai.
“They still have a number of weaknesses in the grid. They are also looking at alternative fuel, particularly renewables that will add a new complexity and the industrial development will also put more strain on the existing grid, which will have to be upgraded and made more robust.”
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View video of Frank Duggan's interview here, here, here and here
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ABB last month rejected demands by shareholder Cevian Capital to sell its grids business and instead capitalise on the emerging adoption of smart grids and renewable energy sources.
India, Saudi Arabia and other countries in the region could become a crucial battleground for the business as the company seeks to tap into a push to both industrialise and privatise.
Saudi Arabia last week revealed plans to privatise parts of Saudi Electricity Company, which could draw in private sector involvement in power distribution in the kingdom.
“Privatising parts of the grid, particularly around generation and possibly even distribution, has shown in other markets to bring in a wave of investment,” said Mr Duggan, who expects to see a revival in Saudi orders next year. “We have a very strong backlog in many parts of our business, so we also think the market will start to come back in 2017. Even in the fourth quarter we have started to see the Saudis place some contracts with contractors, and of course that will pass on to base orders for us.”
Last month ABB reported a 14 per cent decline in third-quarter orders to US$7.53 billion as it said uncertainty over Brexit and the US presidential race weighed on its performance.
In the Middle East, the weak oil price also took its toll on new orders in Saudi Arabia and the UAE.
Still, Mr Duggan is upbeat on the order pipeline in both countries moving into the fourth quarter and into 2017.
“I think everyone is commenting the [oil] price will come back, it’s just no one knows when and how high will it go, because clearly the depletion rates are higher than new stream coming on board – so it’s a matter of when it hits equilibrium again,” he said.
ABB is sending a larger than usual delegation of top brass to Adipec, which starts today, as it targets new orders across a range of industries and taps into the need for regional oil producers to create efficiencies in their operations.
“With the lower oil price, the industry in general has put a lot more focus on how you improve operations and get more out of your existing assets – how to sweat the assets more. That falls into the space of ABB quite neatly and gives us many opportunities to grow our business in oil and gas across the whole region.”
While the group faced strong economic headwinds across the region amid a weaker oil price, India has emerged as a sweet spot – generating both local orders and serving as a manufacturing export hub for many of the other markets it operates in.
It has more than 2,500 engineers in Bangalore and Chennai working on ABB projects around the world including in the fast growing renewables sector.
“In the Middle East there has been an upsurge in renewable energy particularly solar,” said Mr Duggan.
“Solar is becoming more cost-effective. The price of the panels is going down; the bidding for the latest projects has been on a downward trend.”
Part of the group’s renewables strategy has been to demonstrate to clients its commitment to the sector by developing its own projects such as the 315kW solar rooftop project at its Al Quoz facility in Dubai.
The electricity it generates will power its own office while any surplus goes back to the grid.
“We are looking to doing the same thing in Saudi, so we demonstrate to the customers our commitment to renewable energy and what we can offer.”
While ABB executives turn out in force at the Adipec exhibition in Abu Dhabi, it will also be pushing its renewables agenda at the COP 22 event in the Moroccan city of Marrakech that commences at the same time.
The rise of renewables in Africa will be a big theme of the event.
“On a continent where almost 600 million people lack access to electricity, energy will be the lifeblood for its ongoing development,” Mr Duggan said.
scronin@thenational.ae
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