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Prepare to dock…

Interview - April 3, 2012
Mr. M.J. Park, Chief Executive Officer, Oman Drydock Company, discusses the opportunities presented by the brand new $1.5 billion dry dock at Duqm
OMAN DRYDOCK COMPANY
MR. M.J. PARK | CHIEF EXECUTIVE OFFICER, OMAN DRYDOCK COMPANY

Oman Drydock Company (ODC) was established in 2006 by the Government of Oman. That same year, Daewoo Shipbuilding & Marine Engineering (DSME) was awarded a contract to operate and manage the dry dock. What are the main benefits of the partnership with DSME?

This project was initiated in 2002 as part of the Vision 2020 and the long-term development of Duqm. The Government of Oman has three key objectives: to diversify the industry, to create employment for young Omanis, and to develop the regional balance. Right now Oman is fully dependent on the petrochemical industry, but the oil and gas reserve is dropping year by year. So the government wants to develop other industries and diversify the economy. Secondly, the project in Duqm is aimed to provide employment to as many young Omanis as possible in this region. And thirdly, the Northern part of Oman is well developed with cities like Muscat, Sohar, Sur, and so on. The Southern part is relatively developed as well with Salalah. But the middle part of Oman, called the Al Wusta region, is underdeveloped. So the government wants to promote a regionally balanced growth in the country. And which industry is most appropriate to fulfill these objectives? They concluded that it is the ship repair business because it is very labor intensive.

The Korean shipyard companies are very good in this field, and Oman and South Korea have had a very good relationship since the early 1990s. That is why the DSME agreed to develop the industry in Duqm. The contract that DSME signed with the government is for 10 years, from 2006-2016, and if both parties have no objections, it will be extended another 10 years.

We started the feasibility study in 2004 and the construction in 2008. The construction period was three years, then ODC started the experimental operation in April of 2011. We are very happy to say that last year, we delivered 43 projects on time. And today, by the 19th of March, 2012, we have received the order for 33 projects, and we have delivered 10 vessels already. We have another 10 vessels in our shipyard now, and the remaining 13 projects are waiting for us. Once we start the full-fledged operation, our aim is approximately 200 vessels per year.

I think the trend of the business is going well. But this is not a small or medium-scale business. We have to be patient and we need time to improve the system in order to start the fully-fledged operation in the near future.

How big was the investment in the Duqm dry dock?

The dry dock itself, including the infrastructure and superstructure, was 1.5 billion U.S. dollars.

Why did the government chose Duqm to develop the ship repair business?

There are many reasons why Duqm was the best choice in terms of location for the ship repair business. Geopolitically, Duqm is located outside of Hormuz. And in terms of climate, it is quite nice – much milder than in Dubai, Bahrain, or Muscat, where the maximum temperature in the summer can often reach 49 degrees Celsius. However, in Duqm, the temperature it is always 10 degrees lower than that. Also, there is no rain and there is little humidity or fog. The weather is a very important factor for the ship repair business, so Duqm is the right place for this kind of business.

Also, ODC has very good facilities. We have not only all the modern facilities, but we also provide slop and sludge facilities to our clients, which are required for the oil tankers. Before the repair of an oil carrier, the remaining residual fuel has to be unloaded onto the land. In the case of our competitors in Bahrain and Dubai, tankers first have to go to Fujairah, in the northern part of the peninsula, to discharge the remaining fuel and then they can go to the shipyard for repair. At ODC, we have our own facilities for slop and sludge, and we can provide one-stop service to our clients. This is a very attractive point as it saves our clients time and money.

What other competitive advantages do you have with regards to your competitors in Bahrain and Dubai?
 
In terms of the scale of the dry dock and pier facilities, the operations of Dubai and ODC are very similar, while the facilities in Bahrain are a little smaller than ours. Our competitors in Dubai and Bahrain started their business almost 30 years ago, so they have a lot of experience and well-developed skills. However, in terms of hardware, we operate new machines, new facilities with new technologies, while they have the old facilities and old machines.

Also, the DSME is now doing only the new shipbuilding business. However, they stopped the ship repair business 10 years ago. DSME has a subsidiary in Romania called DMHI (Daewoo Mangalia Heavy Industries) located in Mangalia. This is a joint venture with the Romanian government. They are doing ship repair at the moment, so we can cooperate with each other in terms of technology and manpower exchange. This is a win-win strategy for both, ODC and DMHI.

Where are your clients from? What is your target market?

Our market is scattered all over the world. The European market is very important for us. This is because the Greek ship owners have a huge fleet, including oil carriers, gas carriers, bulk carriers and containers as well. We also have many clients from Germany and Northern Europe. Then, there is the Far East market with Korea, Japan and Singapore.


Also, two days ago we received our first ship from America. So at the moment, the American flag is in our drydock, it is a car carrier named Freedom. She is now under repair and maintenance, and is going to be redelivered in 10 days. The vessel is large, she can carry approximately 6,000 cars.  It is a good business and a good start for us – our first American ship.

We are located on the most important trading route of oil and gas. Therefore, according to our long-term business plan, our major targets are the large scale oil and gas carriers. In the future, they should make up to 60-65% of our market. We are targeting Very Large Crude Carriers (VLCCs) and Ultra Large Crude Carriers (ULCCs) because our dry dock has the capacity to service the largest oil or gas carriers in the world.

Currently, we have two graving docks. This year, we are also going to start the construction of a floating, which should be operational by 2014. It will be smaller than the graving docks, we call it “Panamax size,” which means it will have an inside breadth of 32 meters. This will be a very good facility for small and medium-sized vessels. Our graving dock is too big for those.

How are you reaching out to the clients in terms of marketing?

This business is quite unique. We have regional agents and brokers in every important region. For example, in the Greek market, we have very strong liaisons and brokers. In the United States, we have the regional agent as well.

Also, our partner, DSME, has more than 20 overseas branch offices, and they support us with promotion and advertising. And DSME is a good shipyard with loyal clients whom they are introducing ODC to. This is very helpful. With only the name ODC, we cannot do anything. But when the clients see the DSME name in our catalog or documents, they think the other way. It is a very good partner

Your are currently focused on repairing and servicing ships, but in the future, you are also planning to venture into ship fabrication. Can you comment on your future plans?

That is the long-term aim, but in the meantime, we first want to have the concrete foundation of a ship repair operation. The next plan is to do the industrial work on offshore business. This region, the Middle East including GCC, is doing a lot of industrial works and offshore projects. Our premises are very nice for doing the fabrication of the heavy steel structure and the large scale of the plant as well. That is why ODC’s partnered with DSME in Korea, as it has the strong point of doing business in both the offshore field and the industrial work field.

As you mentioned earlier, job creation was one of the main objectives behind the development of the Duqm project. How many jobs have you created so far? How popular are the employment opportunities that you offer among the young Omanis?

At the moment our total number of employees is 1,400. Among them, we have 300 Omanis, and we have also recruited experienced and skilled manpower from India, Sri Lanka, Philippines, Vietnam, etc. Also, DSME has dispatched 40 experts to Duqm, including myself, to run the business.

The number of jobs will be increasing continuously, year by year. Our plan for this year is to have 2,000 employees, and by the year 2020 we should have approximately 4,000 employees. This is a very labor-intensive business and we want to hire as many young Omanis as possible. It is the first time a dry dock business is established in Oman, so there are no experienced workers in the local labor market.

We have two categories of jobs: one is production-related work, and the other is non-production related, i.e. administration or white-collar work. According to statistics, white-collar work is very suitable for the Omani people and that is why we would like to increase the percentage of Omanisation in this segment.

When it comes to the production related work, our industry is called 3D, which stands for: dirty, dangerous, and difficult. The Omani lifestyle is not exactly suited to the 3D work. We have a strategy to separate direct and indirect production. This is a very challenging task. However, we have also employed blue-collar workers from the Al Wusta region and other parts of Oman and we are going to continue training them.

What are your short and medium term priorities, as Chief Executive Officer?

The short-term priority is the concrete foundation of the company. There are four major fields: production, marketing, administration, and finance. Among these four fields, all are important, but marketing and production are the backbone of the company. That is why we are going to concentrate on those two as a top priority, and we want to continue the proper system as soon as possible for the successful repair operation. That is the short-term goal, and the next immediate step is to start the new business fields, like industrial work and offshore projects.

You have been living and working in Oman since 2005. You have seen the Duqm project developing from scratch. What is your dream for the future of Duqm?

When I first arrived in Duqm, there was nothing there, only the beach. But my vision is very clear. I joined DSME in 1982. At that time, the shipyard in the Okpo village in Korea, where DSME is located, was quite similar to Duqm today. That was 30 years ago. But today Okpo is well developed city, it is not only a shipyard, but it has all the related industries, accommodation, entertainment facilities, and the entire social infrastructure. So I have a dream: that Duqm will be the same as Okpo shipyard in 30 years.

How would you evaluate your cooperation with the government of Oman?

It is excellent. The government and all of its ministries are very supportive in helping the operation be as successful as possible, as soon as possible. Up until November 2011, we had to contact on our own all the related ministries (Ministry of Manpower, Ministry of the Environment, etc). But in November last year, the government established the Special Economic Zone (SEZ) Authority at Duqm, and now they are facilitating our work and we can fully focus on developing our core business. The SEZ Duqm Authority has been excellent for our successful operation. They need time to develop their own structure and manpower, but the future seems very bright.

Being a Greenfield project, Duqm offers many investment opportunities. What specific areas would you like to point out for international investors?

As the CEO of a ship repair yard, I can say that we need very specialized subcontractors. You can see a good example in Dubai and Bahrain. At Maritime City in Dubai, they have their own complexes related to the factory, to support the Dubai dry dock. We need many different kinds of jobs, but this year we cannot hire all the necessary manpower in our shipyard. We are going to maintain our essential manpower and function. However, sometimes we need double manpower, so when we have overload we will need subcontractors. If they are near us, in Duqm, then we can find a mutual benefit in working with them. That is why we absolutely need the small and medium sized industry here in Duqm. I already proposed to SEZ Authority at Duqm the types of small and medium businesses that are required for the successful operation of ODC. It is not a huge scale, but I think the small and medium-scale investors are interested.

The best and most important point for investors, local and international, is that the SEZ Authority at Duqm will do the right thing in the right way. The Chairman, H.E. Yahya Al Jabri, is a very commercially oriented leader; he understands the business and wants to ensure that the authority provides very attractive conditions and proposals for the investors. They are aware of the competition and realize that if we do not offer better conditions, nobody will come to Duqm.  ODC is a purely commercial business and it has to be run as such.

Let me give you one example: during the operation last year, most of the ships were not too large and we could manage by ourselves. But in some cases, we needed immediate support from Dubai, or Singapore, or Bahrain. However, some subcontractors hesitated to come to Duqm because tax, custom, and immigration regulations were very complicated. The SEZ Authority at Duqm realized that these were great obstacles for business and investment and they tried to remove them as quickly as possible. So now that we are all working together towards a common goal, the future looks very bright.

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