Brazilian project is Scomi Engineering’s much-awaited breakthrough

Kanesan: ‘We will now provide solutions to concession owners and PPP owners, rather than traditionally to the government.’

Kanesan: ‘We will now provide solutions to concession owners and PPP owners, rather than traditionally to the government.’

WINNING the Sao Paulo Line 18 project opens a lot of opportune doors for Scomi Engineering Bhd .

“This is a landmark victory because it opens the blue ocean of opportunities for us. All this while we have been tendering for government projects. This is the first PPP (public-private partnership) project, which means that it is private money.

“The private money, equities and funding that is going into this project have chosen monorail as the technology that they will be able to invest in and run for 25 years. This opens up a whole new horizon of projects,” says chief executive officer Kanesan Veluppillai.

He adds that this is a breakthrough that the industry and Scomi Engineering has been waiting for.

The monorail space is evolving into a more accepted and chosen mode of transportation, evident in the exponential growth in passengers per hour per direction (PPHPD). Scomi Engineering’s first train in 2002, the two-car train KL Monorail, had the capacity of carrying 3,200 PPHPD.

Fast forward to 2014, it has grown to a five- to six-car train, with the capacity of 36,000 PPHPD for its Sao Paulo and Manaus monorail projects.

It seems like monorail trains are going into the light rail transit/light metro space, with this new statistic.

Typically, the light rail transit trains have the capacity of carrying just under 30,000 passengers while the light metro trains have the capacity of carrying about 35,000 passengers, and the heavy metro trains up to 60,000 passengers.

“Monorail today is a mass rapid transit transport system as a support to the metro,” Kanesan tells StarBizWeek.

Fresh off from winning the Sao Paulo Line 18 project, Scomi Engineering is not resting on its laurels. Instead, it is gearing itself for even more projects to come.

The company, whose core business is in the provision of transport solutions, is bidding for more projects in Brazil and India, its current two largest markets.

The group, together with its partners, is looking to tender for two other PPP projects in Brazil, one of which will be in Rio de Janeiro, in tandem with the 2016 Olympic Games that will be held there. The other PPP project is in Santa Catarina.

“We will now provide solutions to concession owners and PPP owners, rather than traditionally to the government,” he says.

In India, the group completed the first phase of India’s Mumbai Monorail, which spans 8.9km connecting Wadala to Chembur, in February 2014.

The second phase of the RM1.8bil project is expected to be commissioned next year, says Kanesan. “There could be a possible extension to the Mumbai Monorail, with designs for an additional 10km,” he adds.

In the meantime, the group is in the midst of delivering all the rolling stock for the second phase.

“The new government in India is pushing ahead the fast tracking of all the transport projects there. Also they have had significant changes in funding of these projects from the central government and we expect a lot of the states will be hastening the transport projects,” Kanesan says.

Scomi Engineering is also working on two projects in Turkey. “It is now at quite an advanced stage and there are possibilities of tenders coming up within 12 months,” he says.

The group intends to build up its order book to RM2bil to RM3bil by early 2016 or 2017 so that by then it will have a sustained turnover for the supply of cars and services.

Its current order book, excluding its latest Sao Paulo Line 18 win, stands at about RM750mil and will last the group up to three years.

“We are currently finalising the (Sao Paulo Line 18 project) figures with our clients,” he says.

On Wednesday, StarBiz reported on Scomi Engineering’s Sao Paulo Line 18 project win, which is scheduled to start early next year.

The company will function as the technology provider to Consorcio ABC Integrado, which was awarded the PPP project for a 25-year concession period.

Scomi Engineering will provide the design of rolling stock and track switches, supply of vehicle management system and bogies, as well as system integration.

The RM5.2bil tender project is Scomi Engineering’s first project in Brazil where it is involved in operations and maintenance support. Assuming the company’s portion of the project is between 25% and 30%, it should boost its order book by as much as RM1.56bil.

Kanesan says that over the years, the group has worked on a model, as part of its global strategy to manage risks such as project delays and forex risk, and cost management.

Scomi Engineering aims to execute total rail systems, which will entail the multi-tasking of people and its capabilities. “We have a set of capabilities that we have built the monorail technology around and executed it. The same skill set can do a MRT, LRT, tram system, and so on,” Kanesan says.

The group also intends to localise manufacturing in the countries it operates in for transport, namely Brazil and India, to mitigate foreign exchange (forex) risk.

Localised manufacturing entails the development of content and supply chains, and will provide the company with economies of scale.

While it has already established localised manufacturing in Brazil, it will start localised manufacturing for its Indian projects in the near future.

“Localised manufacturing decouples the forex risk by keeping it in country as much as possible. So, we raise funds through banking and mitigate forex risk by doing it in that country. We believe it is the model going forward for Scomi Engineering,” he says.

Scomi Engineering is continuously looking to drive costs down in both its services as well as its product offering, Kanesan says, adding: “We need to be constantly looking out for better production rates, better quality and still reduce costs. We need to be able to keep the cost of our product as the lowest cost per passenger.”

Ideally, Scomi Engineering is looking at at least 5% cost reductions incrementally.

The group has had quite a challenging period over the last few years due to the financial downturn in 2010, unfavourable forex, and delays in projects.

“The lessons we have learnt are to ensure that in our future projects, we mitigate these risks.”

He says that Scomi Engineering is now in the recovery process and is working with its clients to win more projects. “Next, is to grow our topline.”