21 January 2015
Mega Projects Management Lesson 3
Plump for the right technology
Technology is one of the most critical inputs that determine the survival and success of mega projects. That is because a wrong choice could jeopardise the very viability of mega projects that may score high on many other counts.
Consider the case of Vikram Ispat, which was the original sponge iron division of Aditya Birla-controlled Grasim Industries. Currently, Vikram Ispat, known as Welspun Maxsteel, is controlled by the Welspun Group.
The original mega sponge iron project of this Vikram Ispat makes an enlightening case study on the importance of right technology.
The project, conceived during the Nineties, opted for the untested and unproven Mexican HYL sponge iron technology and got into a mess.
Such a mess that the project cost moved up beyond control and considerably.
Needless to say that the technology choice was bad. Because, the Mexican HYL technology at best had a chequered global track record.
Here are the details of Vikram Ispat’s ordeal. The ore for the project was sourced from the Hospet-Bellary mines and that ore had just minimum distribution of fine materials.
Though the USA-based Midrex has previous experience in putting up projects that use such ore, Birla, for some inexplicable reason, plumped for the unproven and untested Mexican HYL technology.
The consequence was terrible, resulting much cash-burns and heartburns. What was the problem with the Mexican HYL technology?
Simple. Consider the sponge iron process to know and understand how simple the problem was.
Solid iron oxide was fed from the top of the reactor. Then it was reduced or de-oxygenated by the gas injected from below, thus resulting in direct reduced iron, DRI in abbreviated technical parlance.
Later, this DRI was hot-pressed into briquettes. In the case of Vikram Ispat’s furnace, the feedstock material failed to flow smoothly downwards. The result was a “gooey” output. Finally, the defect was discovered and it was at the discharge end of the reactor.
The defect was later rectified by removing the inserts. Thus, the passage was widened so that the desired output was obtained. Fine. Why did Birla opt for the not-so popular and thus unproven and untested Mexican HYL technology? Here is the revealing support story.
L R Talwar, a Birla doyen of many a mega project, was just basking in the glory of his successful Birla mega project of Indo Gulf Fertilisers. Talwar was assigned the task of identifying the right technology for Vikram Ispat’s sponge iron plant. Talwar was fascinated by the Mexican HYL technology and thus he toured extensively to study his favourite Mexican technology.
After witnessing the success of all those pilot plants using the Indian feedstock, he returned and recommended that Vikram Ispat should opt for the Mexican HYL technology. Talwar was also able to convince the Birlas that the technology was competitive cost-wise too.
Alas! That was not to be. It proved to be a grave monumental error of judgment.
Why? All those plants based on Mexican HYL technology that Talwar saw were cold-discharging. So, Talwar had seen only the successful operation of cold-discharging pilot plants.
But, Vikram Ispat’s plant was hot-briquetted and thus hot-discharging. And Midrex was the indisputable authority of hot-discharging plants. Birlas simply failed to realise then that it would be an expensive error.
What seemed to be a minor judgmental error ended up in making such an expensive difference, both in terms of time and money. An additional outlay of over Rs 60 crore and an additional 15 months of project time, just to identify and rectify the defect.
Such costs resulting from wrong technology choices make project investments dead for a long period. And leads to unproductive expenses, which were close to Rs 400 crore in the case of Grasim’s Vikram Ispat.
The message is loud, clear and stereophonic. Mega projects need to be carefully designed and commissioned.
True, much-harried Grasim’s Vikram Ispat did sort out the problem later by switching to more expensive pellets as feedstock. But, that was again after a killing delay in advanced pelletisation and forward integration.
Finally, Grasim learnt a lifetime lesson the hard way. So, the mega message here for all the CEOs: do not settle even for the second-best technology, only the best will do.
A few final words here. Sure, at times you may opt for the unproven technology, but only if that is really cost-competitive and only after a thorough risk analysis.
Whatever, the Vikram Ispat anecdote clearly proves that choosing the right technology is not all that easy. It calls for due diligence, patience and perseverance.
Remember, there are too many technology suppliers all over the world, all tom-tomming their superiority. So, the best technology is difficult to buy, but it is not impossible.
The mega money question now is this: how do you go about evaluating diverse and different technologies?
Well, here is a simple, yet comprehensive, guide and solution:
Do not shy away from comparing the different technologies available in terms of cost, feedstock availability, input suitability, degree of achievable product purity, energy efficiency, cost of production, and plant efficiency.
With the choice of the right technology, the mega project battle is nearly won.
(This is one of the chapters from my “Mega Projects Mega Realities”, published as an Amazon Kindle and Smashwords ebook and as an Amazon CreateSpace print-to-order paperback)
21 January 2015