Engineering, Procurement & Construction: Korean Players

by?Yunki Jo?| May 02, 2023

Last week, while discussing the plant industry's definition, I briefly touched on EPC, which is considered the central pillar of the industry. EPC stands for Engineering, Procurement, and Construction and represents the comprehensive process of designing, procuring, and constructing a plant from start to finish in an integrated manner. An EPC project encompasses all these stages.

EPC projects involve a time lag between the EPC contractor's expenditure and the receipt of payment from the Project Owner, who commissioned the plant construction. As a result, undertaking an EPC project requires contractors to possess a substantial amount of mobilizable capital. In Korea, construction companies that have prior experience in executing large-scale projects, such as apartment constructions, and are affiliated with conglomerates capable of mobilizing significant amounts of capital are the ones capable of undertaking EPC projects.

Today, I will talk about the plant/EPC businesses of major Korean construction companies that have earned a reputation in the global plant market. (I will discuss marine plants, which have distinct characteristics, later on.)

I decided to organize the data based on the number of executed projects listed on the company's website rather than the contract amount received. Focusing solely on contract amount may overlook the importance of a plant that plays a crucial role in a desperately needed location, even if it is on a small scale. Therefore, the number of constructed plants, as reflected by the number of executed projects listed on the website, was a more suitable basis for organizing the data. It is important to note that the order in which the construction companies are mentioned does not carry any significance.

Samsung Engineering

The data available on the website regarding contract performance was not enough to determine whether a particular region had exceptionally good performance. Nonetheless, being the largest plant construction company in the country, the company possess a wider and more varied range of accomplishments compared to other domestic competitors.

The unique aspect is that there are no accomplishments related to power plant construction due to Samsung C&T's same group company, Samsung Heavy Industries, performing the EPC business for power plants. In addition, unlike other major construction companies that undertake various domestic building and civil engineering projects such as apartments, Samsung C&T differentiates itself by focusing solely on plant construction, even though it also builds apartments and undertakes civil engineering projects within the same group company.

Daelim Industrial

Daelim Industrial is a highly regarded construction company with strong EPC business capabilities. It has successfully completed plant projects in various parts of Asia, including the Middle East and Africa, and has actively participated in the construction and expansion of petrochemical complexes in Ulsan, Yeosu, and Seosan. This includes Yeochun NCC, which is jointly owned with Hanwha Solutions.

A distinguishing characteristic of Daelim Industrial is its exceptional track record of business performance in Iran, which surpasses that of its domestic competitors. This can be attributed to Daelim Industrial's strong relationship with Iran. Despite the ongoing war between Iran and Iraq in the 1980s, Daelim Industrial remained in Iran while other Korean construction companies withdrew, and even during times when its employees were killed in the war, Daelim Industrial did not abandon Iran. It appears that Iran's trust in Daelim Industrial, which provided assistance during difficult times, has increased the company's opportunities for winning EPC business projects in Iran.

GS Engineering & Construction

GS E&C's competitive advantage lies in its ability to win contracts across the entire plant market without being biased towards a specific region. While working on projects for GS Caltex, a subsidiary of the same group, there are many domestic contracts. However, the proportion of contracts won externally, including those from GS Caltex projects and state-owned enterprises, is similar.

The most prominent feature of GS is its significant emphasis on environmental projects, which surpasses that of other plant construction companies. Their portfolio of environmental plants includes a variety of facilities, such as wastewater treatment plants, large-scale incineration facilities, resource recovery facilities, food waste recycling facilities, and electronics recycling centers. This indicates that the company has the capability to design and construct various types of environmental plants.

Based on the documents posted on its website, the first project that GS undertook when entering the plant industry was an environmental project to investigate and restore contaminated soil in Kuwait.

Daewoo Engineering & Construction

Daewoo Construction has received a good reputation in Africa, particularly in Nigeria, where it has contributed significantly to the country's industrial development by constructing various types of plants, including gas plants, petrochemical plants, and power plants.

Daewoo Construction's expertise lies in the highly advanced technology required for LNG liquefaction plant construction, where they hold a 10% market share worldwide. Last year, the company formed a consortium with other construction companies and won a contract to construct an LNG liquefaction plant in Nigeria. What sets this project apart is that Daewoo Construction was the prime contractor for the LNG project, rather than a subcontractor who only carries out the construction work, as they had done for previous LNG plant construction projects.

Furthermore, the LNG plant construction market has been monopolized by a few global plant construction companies with exclusive technological capabilities, due to the existence of cartels, similar to the drug trade. However, with this recent contract, Daewoo Construction has also joined the ranks of the exclusive group of companies in the LNG cartel.

Despite rumors of the company's potential sale, Daewoo Construction possesses sufficient technological capabilities to join the LNG cartel and monopolize the thriving LNG plant market.

SK Ecoplant (formerly SK E&C)

SK Ecoplant (formerly SK E&C) is undertaking plant projects worldwide. In the Middle East, its track record in Kuwait is particularly noteworthy, and it has also won a significant number of projects in Thailand. In particular, it has consistently achieved sales performance in the United States and Central and South America. Last year, S entered the Western European plant market for the first time by participating in a plant project in Belgium (in the pre-EPC design phase).

It has a competitive advantage over other rivals due to the support it receives from other SK Group affiliates, such as SK Innovation and SK Hynix. SK Innovation's construction/expansion projects in the oil refining and petrochemical plant sectors have been particularly prevalent in domestic projects. Regarding industrial plants, it seems that approximately 70% of the projects won after the acquisition of SK Hynix are related to Hynix plants, as SK Ecoplant has been benefiting from Hynix's buffer since the acquisition. However, prior to the acquisition, SK Ecoplant carried out various industrial plant construction projects, although there were also many projects by other SK affiliates at that time.

The company has a high dependence on plant projects compared to other major domestic construction companies (in 2019, 61% of revenue came from plants). SK Ecoplant, it seems, has built up its capabilities while carrying out many affiliate projects.

In addition, there are many construction companies that are well-known in the global plant market, such as Hanwha Engineering & Construction, POSCO E&C, and Lotte E&C. Among them, Hyundai Construction and Hyundai Engineering are particularly famous EPC contractors that deserve detailed explanation in the main text. However, due to the lack of information on their websites, I couldn't conduct a separate analysis.

Next week, I will be talking about the EPC players by region and their competitive strengths.

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