Mena's future mega energy projects need super-efficient organisation

Workers walk past a LNG tank at the site of a giant gas exporting project in the Arabian Sea. REUTERS/Khaled Abdullah

The energy industry in the Middle East and North Africa (Mena) will see a wave of major capital projects - more than US$1.1 trillion (Dh4.04tn) in projected spending, approximately one-fourth of the industry's total global investment through 2020.

Large resource holders such as Saudi Arabia, the UAE and Kuwait are expected to lead the way in spending.

This new construction will come on the heels of significant expansion by regional energy companies. These companies have spent the past decade diversifying upstream and downstream in the energy value chain. They have also entered adjacent industries such as bulk petrochemicals, natural gas, liquefied natural gas, steel and aluminium.

The next wave of capital projects will be larger and more complex. History suggests that the region's companies have a mixed record of executing large capital projects. Cost overruns, schedule slippages and inconsistent quality are recurring concerns.

Many of these problems arise from within the industries themselves. In our experience, the root causes include inadequate engineering and project management, a lack of clear governance, inadequate checks and balances, insufficient standardisation, and a shortage of local capabilities.

Today, Mena energy companies have a rare opportunity fundamentally to review the way they develop, manage and execute capital projects. The industry will need to master seven key habits to achieve world-class project delivery.

First, Mena companies should develop a clear strategy for engineering and project management. To do this, companies should create a rigorous and transparent framework for classifying projects by risk, size, complexity and type. Companies can determine which activities they will performand which will be outsourced.

Second, energy companies must develop and implement a governance model for their capital projects, including clear accountabilities for each step of the stage-gate process. In the past, Mena companies often had a stage-gate approach on paper and little discipline in following it. This has led to changes in later stages resulting in more work, higher costs and delays.

Third, top-performing companies also have appropriate checks and balances to ensure that safety, quality and performance standards are met before projects move from one phase to another.

Some of these companies have even adopted peer reviews at different gates to augment project governance.

Fourth, companies need to develop in-house centres of excellence in key engineering and project management areas. These centres can achieve excellence by standardising processes and capturing and disseminating best practices.

Fifth, Mena energy companies should develop strategic alliances to address local capability gaps. Historically, they have outsourced critical functions to third parties such as engineering firms. That approach does not build lasting internal and local capabilities.

Sixth, concurrent with the adoption of strategic alliances, regional energy companies should create project and commercial academies. These can bridge the gap between the industry and students, as well as enhance existing company capabilities.

The academy programmes will necessarily be tailor-made, as they must answer practical problems for company managers and professionals. Furthermore, these centres could also provide a necessary research catalyst around specific scientific topics in line with company objectives.

Finally, regional companies should establish internal engineering standards and raise standardisation levels through reference manuals and the like. This can improve business efficiency and cost reduction by simplifying design, controlling design options, and favouring interchangeability of equipment and enhanced technical integrity.

*Raed Kombargi is a partner, Alain Masuy and Asheesh Sastry are principals and Frederic Ozeir is a senior associate at Booz & Company

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