Moderator:

George Berbari, CEO, DC PRO Engineering

Panellists:

▪ Sekhar Reddy, Managing Director, Lexzander

▪ Prakasha Rudrappa, Vice President of Engineering, AG Engineering

▪ A R Suresh Kumar, General Manager – Projects & Corporate Business Development, Voltas

(A R Suresh Kumar was unable to attend owing to unavoidable circumstance and so sent a video presentation, which set the stage for the discussion. In his presentation, Kumar outlined the challenges the District Cooling industry faces. He highlighted the struggle of the industry in attracting and retaining high-quality MEP contractors, vendors and consultants in the region. His presentation provided an overview of the industry’s challenges, including time constraints, deadlines, negotiation processes, supply chain management, regulatory compliance and adapting to changing specifications.)

Following the presentation, Berbari shared an overview of the current state of the contracts, particularly in the context of MEP projects. He also shared an observation that contracts are biased towards developers and unfair to contractors. Furthermore, he added that there is a lack of a standardised and fair form of contract that addresses the needs of both parties. “The contracting industry needs to develop a more equitable standard form of contract that considers the requirements of developers and contractors,” Berbari said. “Moreover, the negotiation process for contracts is often lengthy and time-consuming, leading to delays in starting the projects. Additionally, there is a concern about slippage and approval processes, such as in the case of District Cooling projects.”

Commenting on Berbari’s statement regarding the need for a more balanced and efficient approach to contracts in the industry, where the interests of developers and contractors are considered and addressed, Reddy pointed out the difficulties faced by contractors and emphasised the importance of effective collaboration and communication within project teams. He also mentioned the success of District Cooling plants in the market since 2004 but expressed concerns about the downside, including learning curves and overall project delivery. He said, “A project management approach, where all stakeholders, including the project manager, architect, contractor and key vendors, collaborate and align their efforts, is crucial for a project’s success.” Reddy also shared a positive experience with a project that exceeded expectations due to thorough planning and coordination. However, he acknowledged that such flexibility may not be available for all projects and reiterated the need for a project management approach.

Weighing in, Rudrappa discussed the length of the contract period, which currently averages around 13-14 months, and underlined the significance of extending it up to 18 months. He also shared a similar perspective on the issues surrounding contracts and pointed out the complexities involved. Rudrappa expressed a preference for a conditional contract or changes in the existing contract structure. Furthermore, he elaborated on the challenges and liabilities associated with delays and noted the lack of contract grading or evaluation to ensure fairness. He highlighted that if the current scenario is not addressed and resolved, only a few contractors will remain in the industry. Berbari jumped in at this juncture to say that he agreed with Rudrappa. He noted that competition is diminishing in the market, particularly in Saudi Arabia, where a District Cooling provider had difficulty finding enough consultants and contractors. “This suggests that the number of players in the industry has reached a critically low level,” he said.

Taking the cue from Rudrappa, Reddy pointed out the importance of risk assessment, hiring accountability metrics, and credit ratings for parties involved in specialised projects. He also highlighted the need to reduce complex and damaging contract conditions, promote trust and transparency, and engage in collaborative discussions among the contractor, project manager and client’s representative. Reddy further pointed out a significant gap in the closeout phase of projects, where the delivered product often falls short of expected standards.

Rudrappa said that contractors also face challenges in reading and understanding extensive specifications within a limited timeframe of 3-4 weeks. He suggested that the ideal timeframe for reviewing specifications should be expanded to a minimum of six weeks to ensure thorough coverage and compliance with project requirements. Adequate time is required to properly review and address the specifications in order to meet the project’s needs, he said.

The Panel Discussion concluded with the following messages:

1) Proactive measures are necessary to address the challenges faced by MEP contractors in the contracting industry, and to foster a healthier and more efficient environment.

2) The issues identified, such as lack of time for design and coordination, lengthy contract negotiation processes, limited availability of skilled contractors, dependence on specialised supply chains and complex contract terms are obstacles to the success of a project.

3) To overcome these challenges, the industry should consider several measures, including developing a fair and standardised form of contract, extending contract durations, implementing fair price escalation clauses, clarifying provisions for performance-based bidding and delay liabilities, promoting project partnership and transparency, and streamlining specifications and submission processes.

4) It is important for all stakeholders to work together towards common goals to drive growth, innovation and sustainability in the MEP contracting industry.

Voices

Insights and observations heard during the Conference…

“Mostly, the calculation of cooling loads in the GCC region, even if a Building Assembly Model is available, is still done manually using old software. This is the case for approximately 99% of the market. Designers and engineering consultants continue to use these traditional methods, despite having access to BAMs. When we perform manual calculations without utilising any BAMs, we compromise accuracy, and there is no built-in functionality to ensure the correctness of input data.”

Viktor Osokin, CEO, TEVMO

“The raw material for any kind of artificial intelligence, and its associated advantages, is data. There is a concept that is not often discussed nowadays, called digitisation. In the past, digitisation simply meant taking a piece of paper, scanning it and storing it on a hard drive. However, in today’s world, digitisation is no longer a concern, because we generate data on a daily basis. As individuals and companies, our ERPs and scales, among other sources, collect and store this information. What truly matters is how we manage and store this data, as well as its quality. Inadequate information or poor data quality can significantly impact the effectiveness of any AI system.

Jai Masand, Projects and Solution Sales Manager, Drives MENA, Danfoss

Regulation is key, because we have discussed both top-down approaches. In Europe, we have seen that the only way we have heavily developed renewable energy sources and these technology networks is through external regulation.

Steve Lemione, CEO Middle East, Dalkia EDF Group

The Dalkia EDF Group is operating around 330 District Energy networks worldwide, including in countries such as China, the US, France and others. We have recently entered this market, which is why you (referring to George Berbari, the Chairperson of DC Dialogue) mentioned us as newcomers, and we are pleased to be recognised as such. Additionally, you are correct that we have recently signed several projects in the Kingdom of Saudi Arabia. Currently, we are in the process of completing the construction of the District Cooling plant in Misk City, which happens to be the world’s first non-profit city.

Steve Lemione, CEO Middle East, Dalkia EDF Group

Actually, artificial intelligence is not new. It may seem new due to advancements like ChatGPT, which has gained significant popularity. However, we have been working on artificial intelligence for a considerable amount of time, aiming to predict breakdowns and movements. Drawing upon our extensive expertise, we have developed models that enable us to anticipate red flags on equipment, and this is what artificial intelligence entails. The goal of digitalisation, now and in the future, is to achieve full automation in all plants.

Steve Lemione, CEO Middle East, Dalkia EDF Group

Lately, in Egypt, the government and the new cities have been moving towards District Cooling, specifically in industrial cities and the new administrative capital. Over the past five years, as the work in the city streets began, the concept of District Cooling has been implemented in the infrastructure and across various districts. It has been employed to create environmentally friendly solutions in all districts, ranging from the financial district to business districts, and even in towers and residential areas.

Ibrahim Hassanien, Lead Projects Engineer, Allied Consultants

When discussing recent developments in Saudi Arabia, their focus lies on the protection of energy resources. They prioritise the wellbeing of the state, particularly regarding energy. Currently, they are emphasising the adoption of renewable energy and exploring various alternative sources, such as hydrogen and sulphur.

Khalid A Al Mulhim, Business Development Director, Suhaimi Design – Protecooling

We’re dealing with an industry that is a monopoly—a private company providing services to the citizens. Psychologically, there is no sheriff in town, leading to resistance during simple psychological phases. So, it is important to provide comfort and psychological reassurance as soon as possible, along with addressing technical aspects such as energy efficiency and other related issues, including reputation. This is a complex business that revolves around driving business objectives, and it is crucial not to overlook the significance of this cycle, which is indeed very real.

Dominic McPolin, Advisor at the Office of the Minister, Bahrain Ministry of Works

Research from the World Bank and other sources highlights the extent of cooling penetration in buildings in Egypt. For non-residential buildings, the penetration rate reaches as high as 70-75%. However, there is a sector with potential that remains as low as 25%, and this applies not only to major cities. Currently, cooling accounts for approximately 20% of the country’s overall energy consumption. However, the historical trajectory suggests that the demand for cooling, both in residential and non-residential sectors, is increasing. As it continues to rise, reaching higher levels, the energy consumption for cooling is expected to reach 40%. And I think this increase in cooling demand should drive a stronger push for more efficient cooling solutions.

Omnia Halawani, Co-Founder & Co-CEO, GRFN Global