A view over the Gulf

Over three decades Prakash Khatri, director and managing partner of Trans Gulf Electr-Mechanical, has witnessed Dubai's MEP sector become unrecognisable from thes early days. Mush of the change is positive but, he tells Alison Luke, more is needed to cope with the latest developments in the market.

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By  Alison Luke Published  September 9, 2006

|~|4p14main200.gif|~|Prakash Khatri, director and managing partner of Trans Gulf Electro-Mechanical|~|“I’ve been here for 32 years and I have never before seen what is happening today,” exclaims Prakash Khatri, director and managing partner of MEP contractor Trans Gulf Electro-Mechanical.

The speed of the city’s meteoric rise in construction projects has caught the whole world by surprise, but what amazes Khatri most is how long this period of growth is being sustained.

“There have been booms in the past, but they have lasted for a maximum of four to five years and then you’d see a slump for one or two years. But this boom has lasted now for almost five years and I don’t see any signs of it coming down. It could go on for another five or ten years,” he predicts.

Khatri puts the continued buoyancy in the market down to government policy. “I think that the move from the government for the ownership law has fuelled all this expansion,” he explains. “I think that was a very smart move.”

When he arrived from India 32 years ago Dubai was a very different city to today, as was the MEP sector in which he began work. Trans Gulf was the second firm he joined in the Middle East after a short stint in Abu Dhabi.

He started as a site engineer with the firm and has worked his way up the ranks, becoming a partner after 12 years. Over this time he has seen and contributed to significant changes and growth in Trans Gulf.

“When I came here this was a very small company doing around AED4-5 million turnover only and there were around 30-40 staff at that time. Now we are doing almost AED500 million turnover and we have more than 2000 people on the payroll.”

The scale of the schemes undertaken by the firm has also risen. “We used to do projects of half a million or maybe one million Dirhams, that was it. Now projects are 300 or 400 million Dirhams. Things have changed totally,” he laughs.

At present the firm’s operations are limited to Dubai, although it does have a license to work in Sharjah. The decision to remain in the local market is purely down to the availability of work. “It is booming and there is so much work, there is no need for us to go out. We are not even able to handle what is in Dubai,” explains Khatri.

And as well as a constant supply of traditional MEP installation contracts, the booming economy has enabled the firm to diversify into new areas. This has been especially possible over the past few years when changing economics and a general trend towards energy efficiency and new technologies has required the construction market to catch up, opening up new market opportunities. One of the major developments in the sector has been the new market for district cooling plants.

Trans Gulf started its district cooling business in 2002, one of the first three firms to do so in the region. Since then it has completed two plants and recently begun work on a third. The latest project, DCP3 for Burj Dubai will have a capacity of 65,000TR, almost double the size of the firm’s previous district cooling project.

“Based on our performance on DCP2 we won the contract for DCP3,” explains Khatri. “Another element of this contract is going to be the distribution pipework, which is going to be in excess of 20km…so that’s a big chunk of work that we have to do and this plant is to be completed within 16 months.”

Khatri foresees a huge growth in the district cooling business in the region, at least in the short-term, as more clients and developers begin demanding environmentally friendly methods of running their buildings. “I think that there will be more than 30-40 plants planned for the next three to five years. This is going to be big business now,” he predicts, and it is an area of expansion that he welcomes.

“I think that this is a better way to do these jobs – an efficient way of doing air conditioning,” he comments. “You save a lot on [capital] cost and the running costs are also very low; clients could save 30-40% on the running costs,” he adds.

Not resting on his laurels, Khatri is continuing to seek new market opportunities and has spotted another opening that the firm is set to pursue. “We may start a division called low current systems,” he explains. This would cover installations such as cctv, access control and smart home technologies.

“These kind of things are being subcontracted at the moment but by making this a new division, we can take care of business inhouse,” he adds.

Khatri reports that the demand for such systems is currently rising and the trend is set to continue. “This is a new idea that is catching on in this market now. Everybody wants to have everything automatic. It’s to do with control systems like smart homes, where you can control everything by electronics; you can control the curtains, the air conditioning, you can be sitting in another country and via the telephone line you can operate your home,” he explains. “Everything like this would come under the low current system division.”

A key driver for starting this new division rather than continuing to subcontract is the lack of skilled operatives and firms available to cope with the sheer volume of work available. “A big portion of our work now consists of low current systems and electrical engineering. If I’m not mistaken it is almost 15-20% of our work, so it is better to have a division of our own,” he explains.

“At the moment subcontractors are really busy and they are not giving it the proper attention,” he opines. “So in order to avoid problems it is better to [carry out work] inhouse.”

Khatri is careful to stress the need for more trained operatives across the market in general and how the lack of suitable labour will affect construction in the region if this trend continues. “That’s a big problem; I consider that there is a big shortage of skilled, unskilled and engineering staff at the moment,” he says.

“There is also a big shortage of MEP contractors in the Dubai market now. The work is there – I could double my turnover if I want – but there are too few people to do the work.”

The firm has a continuous training programme and is recruiting larger numbers each year. Such a policy should enable it to continue its growth, but also to carry out more work inhouse, which Khatri believes to be a positive move for the future.

The benefits of carrying out work inhouse are becoming increasingly evident with the trend for design and build contracts he reports. “I think [design and build] is a better way of doing things,” opines Khatri. “You have total control, you don’t have to depend upon the consultant; I know what I have to do and the consultant works to my requirements, where he is employed by me.

“It is good for the client also as it gets the project done in shorter time,” he stresses. “I think that you can save six months easily on the total project time.” Ever-demanding clients that want their projects completed as quickly as possible will welcome such timesaving methods of construction, but Khatri warns that this desire for speed is bad for the industry and the long-term future of the buildings.

“People are coming in with these ideas now to cut down the duration of projects. There is so much work and everybody wants to finish in the shortest possible time,” he reports. “ I think they have to slow down the pace. What’s happening is not right,” he stresses.

Khatri’s concern is the effect that this speed has on the final installations: “You always have to compromise the quality. If something takes three years to do, it has to be done in three years – they want us to do it in two years,” he exclaims.

“Then you have to compromise on quality and price and all sorts of things will come into force. That’s the biggest problem I can see here nowadays. Everybody is coming up with big projects but the time around them is very short.”

A man that is clearly passionate about the industry to which he has devoted his working life, Khatri fears for the future of MEP contractors if certain factors do not change.

“The biggest problem we have these days is price escalation,” he stresses. “Materials prices are shooting up and contracts are fixed lump sum, so we don’t have any process for price escalation. That’s a very bad thing acting against us.

“Also, labour costs are going through the roof these days because there are so many regulations coming into the picture now and we have to increase top salaries by up to 30-40% every year, because of what is happening to the rent hikes,” he adds.

Contractors are finding that by the completion of a contract any profit margin they included at tender stage has been seriously eroded. “I took some jobs when copper was US $3000 per tonne, now it is $8000 per tonne – two and a half times the cost – so where can I claim that money from now? All profit is gone,” he states.

“The same thing has happened with steel and there are some items like insulation, which is based on crude oil prices – crude oil is also going up, so those prices are also rising. There is no way out of the situation – it has to come out of your pocket,” he states.

Despite these issues he retains a positive stance. “I think that this will change now because you cannot take on these things forever,” he predicts. “If you have to cover all risks, firms will price it in that way. The client will be at a disadvantage as they will pay for all those risks unknowingly. It is in their interest to go for contracts where escalation clauses are included, then [contractors] will not include risks in the price, and clients will only pay for those risks that actually happen.

“The biggest problem that I see is that too much is happening in a very short time. How long could you sustain that? The higher you go, there will be a bigger and bigger fall. But at the moment I can say for ten years I don’t have a problem [getting work],” he laughs. ||**||

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