Saturday, February 4, 2012

Engineering Services Department - the Trump Card for Long-term Success of Integrated Steel Plants (ISP)

Integrated Steel Plants (ISP) are prime movers of economy for many of the developed and developing nations. The ISPs are the major producers of iron and steel products viz., pig iron, wrought iron, blooms, billets, rods, wires, angles, channels, beams, rails, plates, slabs, etc  which are essential materials required in large tonnage for infrastructural development. Buildings, bridges, power distribution networks, railways, heavy machines, ships, automotives, railway wagons, consumer durables all need steels of various grades and forms. In reality the major industrial out put depends on the primary iron and steel products that are are produced by the ISPs. Due to this, there is a substantial direct and indirect impact this industry makes on the overall economy of the country where it is located.

Iron and steel production can be done in many ways.

One method is to have small iron and steel processing facilities such as small blast furnaces which produce pig iron from iron ore, direct reduction furnaces to produce Direct Reduced Iron (DRI) pellets, Open Hearth Furnaces and Electric Arc Furnaces to make steel of various grades, Continuous Casting Machines, Rolling Mills and Re-rolling mills for various kinds of merchant steel products, etc which are established at different locations, mostly in the non-corporate sector. While this kind of steel production is also desirable, it cannot be counted in the core industry grouping, because of the lower impact the individual units can have on the economy as a whole.

The most recognized method of production of iron and steel having a direct impact on economy is the ISP route. An ISP typically produce saleable steel products from primary raw materials like iron ore in the capacity ranges to the tune of Million tonnes per annum (Mtpa)

Normally an ISP is established in a green field site covering an area of a few thousand square meters where the production facilities together with an industrial township soon come into existence making total changes to the area. Ever since the inception of the ISP on a land having practically negligible economic value, it becomes a hub of all kinds of economic activities where millions of tonnes of raw material come in, processed and go out as finished products. Many small and medium scale ancillary industries come up in and around the ISP because of the opportunities the ISP offer. Thus the ISP site becomes home to thousands of people engaged in value added economic activities. An ISP thus functions as a growth engine and most often a new city may emerge due to the impetus it provided to the economy.

A steel plant which produces steel in the Mtpa range need not be an ISP because simple facilities producing steel from scrap with only one or two production processes in one location can also be termed as a steel plant in that capacity range. An ISP essentially integrates many production systems in one location. Most of the bulk production processes are carried out in different production facilities in the same plant area, each becoming a receiver and deliverer of bulk goods at the same time.

An ISP typically has bulk raw material receiving and handling yards, fuel handling facilities, iron making facilities, steel making facilities, steel rolling and finishing facilities, production and handling facilities for utilities and power, pollution control facilities, waste and bye product processing facilities, etc.

Direct employment potential by a typical ISP in the 2-4 Mtpa capacity range is to the tune of about 75000 at the plant location. In recent times a company owning and operating an ISP may not show that many people on its direct rolls because much work now-a-days gets outsourced to other agencies and companies. The direct employment potential of one ISP of 4 Million tpa may be taken as 30000 whereas its indirect potential in its home site would be to the order of 100,000. An ISP of this kind should typically have an annual turn over of over $ 25000 Million. The economic impact that creates in a country would be many times that and the government's coffers gets filled up by huge amounts in taxes, both direct and indirect, just by the  presence of one such ISP.

If an ISP gets in to a lock out or closure for some reason, it is the government who will be the biggest loser, no matter whether the ISP was owned and operated by public or private firms. All those directly and indirectly connected with it of course would most likely lose their source of bread-and-butter adding additional botherations for the government. Such situations have happened in some countries like the USA where the governments foolishly thought it wise to shift their attention from such core industries to other areas !

Setting up an ISP is not an easy task now-a-days. Thousands of acres of land area is required to be earmarked. Money in billions would be needed. Years of effort by thousands of people would be required. But once done, an ISP is a 'goose laying golden eggs' for decades, perhaps for a couple of centuries for the country and its people !

Most of the industrialized and so-called developed nations in this world such as the UK, USA, Japan, Russia etc achieved that position due to the high volumes of steel production they achieved through many ISPs that were established in the 19th and 20th centuries. Two nations that repeated the mass industrialization success in recent years by setting up large ISPs are South Korea and China.

In recent years the world has also seen emergence of new business tycoons who could catapult themselves to that position by acquiring control of some old ISPs whose previous owners thought it not wise to have those steel plants.

It is a classic example of how ISPs can be headache and loss making proposition for some while at the same time could be a pleasure and great profit making opportunity for some others.

Now the big question is how to keep this gigantic industrial establishment of an ISP running for the benefit of the nation and its people for decades and decades?

As the management of an ISP involves complex professional skills and competencies, any short sighted management approach can bring about long term adverse effects on an ISP.

Often it is the short sightedness of the ISP managers of the latter generations coupled with half-hearted government policies which kill an ISP which has served the nation for some decades.

One of the reasons for such a situation is the neglect the ISP management did in the days of good earnings and profits to keep the engineering service department of the ISP in sound performance levels.
While the equipment and the plants of the ISP are in peak performance, the short sighted ISP management is likely to do the folly of considering the engineering service as an unnecessary or unimportant department of the ISP.  The Operations and Maintenance (O&M) management, the Personnel Management, the Materials Management and the Marketing Management systems of the ISP could be considered as the most important functions and the short sighted top management may do the folly of succession planning neglecting the engineering services. The latter is required for planning future additions, modifications and replacements (AMR) including modernisations of equipment and plant systems to keep the ISP up-to-date with changing requirements of the times and this is possible only when there exist a key department with experienced engineers and technologists in all key functional disciplines who are well versed with the existing plant , its processes and systems. These are the people who keep a continuous eye on the changing market trends and the possibilities of effecting retrofits in the existing plant to keep the ISP running not succumbing to obsolescence.

The engineering services therefore should be a group well motivated and empowered with necessary facilities and support systems that make them competent to take up all engineering challenges concerning AMR schemes for their ISP at any point of time.

However, the output and the results of the efforts of the engineering service department cannot be visualized in a short duration. Exactly on account of this reason, there is all possibility that a short sighted top management of an ISP forgetting this department creating a doomsday situation for the ISP in future. When things go wrong, some ISP top managements try to do the fire fighting actions of recreation or re-activation of the engineering services. Often in this process, engineers with practically no experience in engineering services functions are drawn from other experience areas to revive the almost dead engineering service department. This department now comprising of engineers not having the required experience and competency levels are assigned with major tasks of planning future investments in the ISP. One can guess what would be the impact of this on the ISP.

A 2-4 Mtpa ISP typically employs hundreds of engineers to manage its plant and systems. In any ISP which has a track record of good performance for decades would have a well managed engineering service department who are the custodians of all technical documents concerning the ISP right from its inception. This department would be an important one kept directly reporting to the Chief Executive or someone of that standing in the overall organisational set up of the ISP.

For those ISPs which are of bad track record or fluctuating histories, this may not be the situation.

Anyone interested in finding why some integrated steel plants perform consistently well while many others linger on erratically it may be worth while to do a research on this aspect. It may also be an interesting finding that many poor performing integrated steel plants do not have professionals who are experienced in engineering services in their top decision making levels.

Engineering Services Department (ESD) in effect is the trump card for an ISP for its long term success. Those ISP managements who overlook this aspect create a situation of cutting short the life of the ISP or incurring avoidable losses in terms of unjustified capital expenses affecting the overall long term performance. This in effect is not only detrimental to the business of the company concerned, but also to the nation in which the ISP is located.

5 comments:

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