By Ed Attwood
Fresh from winning the German industrial heavyweight’s largest ever contract, Siemens Middle East and UAE chief executive Dietmar Siersdorfer says that the low oil price poses no threat to the firm’s continued development plans in the region
At first glance, Beni Suef seems to be an unlikely location for the heart of Egypt’s much-needed infrastructure revamp. But the city, based about 100km upstream from Cairo on the banks of the Nile river has a hugely important role to play if the Arab world’s most populous nation is to unchain itself from a history of aging power stations and an unreliable grid — not to mention the political and social consequences that can occur when such infrastructure fails.
Just over two months ago, four 445-tonne H-class gas turbines were placed in the new combined-cycle plant in Beni Suef — the first step on the road to making the facility the largest of its type in the world. When completed, the plant will have an installed capacity of 4.8 gigawatts (GW) and will be providing electricity to some 15 million Egyptians.
For German industrial powerhouse Siemens, the Beni Suef plant is something of a game-changer. Back in June last year, the firm signed off a $9bn deal with the Egyptian government — the largest in the former’s 168-year-old history — to build three combined cycle plants, six power grid substations and up to 12 windfarms. Siemens is also planning to build a turbine rotor-blade factory in Ain Sokhna that could open next year. Altogether, the contract is set to provide cheaper electricity to roughly half the Egyptian population.
And for Dietmar Siersdorfer, the genial chief executive of Siemens Middle East and UAE, the Egypt megaproject – as the company refers to the deal — is vindication of the German firm’s dedication to energy efficiency.
“We have 24 H-class turbines, plus steam turbines and gensets which are going into those power stations, and they’ve marked a world record,” the UAE-based Siersdorfer says. “They run at 61.5 percent efficiency, and when you look at the efficiency in the Egyptian system today, that’s at a range of 30 or 35 percent.
“What that means at the end of the day, is that with the amount of gas you are burning in those power stations, you can double your power output.”
Egypt has certainly been swayed by that argument, and the chances are that the colossal deal marks a return to form for Siemens as a whole as well. With 348,000 employees, Europe’s biggest industrial conglomerate — which has interests in everything from building technologies and railways to software and healthcare — ranks in 71st place on the Fortune Global 500, with a market cap of just under $90bn.
Yet recent years have seen the Siemens juggernaut attempt to reverse a pattern of revenue declines, spearheaded by chief executive Joe Kaeser, who took over in 2013. Around 3 percent of the workforce has been cut as part of a broad restructuring plan, with the most recent round of cuts — 2,500 jobs in Siemens’ oil, gas and mining businesses — taking place in March.
However, recent quarterly results have shown improvement, and the firm increased its earnings per share target for the fiscal year from €6-6.40 from €5.90-6.20, prompting a steep rise in its share price. That was followed by second-quarter net profits of €1.5bn ($1.65bn), well ahead of analyst estimates of €1.1bn ($1.2bn) — boosted by a large order in the UK and that mammoth Egyptian deal.
And while Siemens saw a decline in orders in the Americas, the firm saw order growth in Europe, Africa, the CIS, Asia, Australia and, of course, the Middle East.
The major issue facing the GCC economies at the moment, of course, is the prevailing low oil price environment. That has translated to cuts in government spending, particularly in countries such as Saudi Arabia, where authorities slashed the infrastructure and transport budget by 63 percent. But when questioned as to whether this is affecting either Siemens’ order book or its thinking in the region, Siersdorfer seems almost dismissive.
“The oil price crunch has led to customers thinking about energy efficiency,” he says. “That means you have to streamline your operations, but it also means you have to make your plants and your need for energy more efficient.
“That’s the business Siemens is in — we’re providing solutions for energy, for oil and gas, and for automation and this is where we can add value.”
As an example, Siersdorfer refers again to the Egyptian power deal, achieved at a time when the North African nation’s economy has been hit by a significant fall in tourism, the devaluation of the local currency, and slumps in both exports and foreign direct investment.
“Why are governments going for this kind of deal? They see that it’s important to build infrastructure for their people,” he points out. “If you have efficient infrastructure, you can build an industry on top of that. I don’t think governments are cutting spending on this.
“Where they are cutting spending is where they have inefficiencies and where they need to streamline operations, but not on these necessary infrastructure projects.”
If a quick roll call of Siemens’ recent contract wins in the region is to be believed, then Siersdorfer has a point. In May, the firm won a deal to provide six gas turbines for a new combined-cyle power station in Qatar, and it’s also believed to have beaten out its arch-rival, US giant General Electric (GE), to take a $550m gas turbine deal in Saudi Arabia.
Also in May, Siemens won a contract to build a 2.2GW gas-fired power plant in the Northern Emirates. All told, its technology accounts for some 40 percent of electricity generated in the country. From its headquarters at the heart of Abu Dhabi’s Masdar City, to the combined cycle plant Siemens is building in Jebel Ali — which will help meet electricity demand as Dubai builds up towards the World Expo in 2020 — the firm’s technology is embedded into the country’s infrastructure fabric.
And as the UAE and other countries turn towards renewable energy, Siersdorfer says Siemens has a part to play in that field as well.
“The energy demand in this region in the next few years is huge — the plants we are building in Egypt will add 14.4 GW of capacity,” he says. “When you go into the mix, I think there will be a fair amount in the very near future that is renewable.
“If I had to predict the outlook for the region, I would say that 70-75 percent in the future will still be based on gas and fossil fuels, but we will come up to 30, maybe 35 percent for renewables. For the Gulf that will be mainly solar, but when you go across the whole region, there will also be wind as a producing factor.”
While Siemens shut down its own solar power unit in 2013, citing approximately $1bn in losses since the division was set up two years previously, the firm is still active in providing components such as steam turbines and control systems for solar plants, as well as working on energy storage.
As with other global industry heavy-hitters, the firm has also built manufacturing plants in certain parts of the region, such as the turbine plant in Egypt and a similar facility in the Saudi city of Dammam. But Siersdorfer gives no hint that any further plants may be on the horizon.
“We base that [decision to build a plant] on the needs which we find in the country, and where you also have a market to do so,” he says. “It doesn’t make sense to build a manufacturing plant if there’s no local market, and you need to have a trained workforce that can work in that factory.”
Under its current CEO, Siemens’ mantra has been ‘electrification’, closely followed by ‘automation’ and ‘digitalisation’. That’s perhaps not surprising for a company that boasts some 35,000 software engineers. As Siersdorfer points out, that’s more than Microsoft or fellow German tech giant SAP.
“You don’t see it off the shelf — much of it is built into our products,” he says of the firm’s software output. “For example, we simulate the manufacturing of products. You don’t need to physically build your production line — you can test it and then afterwards there’s very little optimisation to be done.”
The firm’s digital technology was used to virtually simulate many of the potential issues the Solar Impulse aircraft could face on its round-the-world journey, which ended last week in Abu Dhabi. Similar technology was used to test the stresses and strains NASA’s Curiosity Rover might meet when it landed on Mars four years ago.
Closer to home, Siersdorfer says that the company’s automation processes have helped the likes of Ras Al Khaimah-based pharmaceuticals firm Julphar in the development of its insulin manufacturing plants. In Dubai, Siemens technology runs what has been dubbed as the world’s first 3D-printed office, symbolising the emirate’s first step in an industry it has earmarked as a sector of huge economic interest. While the CEO says Siemens has facilities “across the globe” working to support 3D printing, and that Siemens is looking to find the right partners in Dubai, he is again reticent about the possibility of setting up a plant here in the UAE.
“Time will tell,” he says. “There needs to be demand and a market — if there are those, then it may be possible to invest and build something.”
For the rest of this year, Siersdorfer says that the firm will both be looking into new opportunities in the market — without giving details — while at the same time executing the large-scale projects it has recently won. And while other companies in the Gulf have implemented cost-cutting operations and laid off staff, he says that no such plans are on the horizon for Siemens.
“Under the terms of our Vision 2020 programme, we have already done our cost-cutting two years back, so it’s not the case that we now have the need to put additional measures in,” he says.
“Having said that, we have different markets here in the Middle East where some are demanding resources and others are not, so we have to balance those out. We are on a healthy track with that.”For all the latest industry news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.