Oil & Gas companies

Ranhill Bhd has served a notice of takeover offer for all the 16.45 million shares, or 13.6%, of the equity of Ranhill Power Bhd (RPower) not already owned by Ranhill and persons acting in concert.

Ranhill, which currently owns 86.4% of RPower, offered a total RM35.4mil cash, or RM2.15 per RPower share. RPower closed unchanged at RM1.92 yesterday.

SCOMI Engineering Bhd is expected to ride the hive of activity and investments ploughed into the oil and gas (O&G) sector, but it is the monorail business that is the big and lucrative wild card to its future performance.

“There is no let-up in demand for O&G. We are investing heavily in that business,'' Scomi Engineering president Hilmy Zaini Zainal said.

“But we have also entered into a business that we will be focusing more on in the future. We believe monorail is the future, especially for the cities in this region.''

O&G is and has been for long the lifeblood of Scomi Engineering. The company's involvement in that sector is via its numerous machine shops sprinkled to the far corners of Asia that serve the big names in the energy sector.

Hilmy explained that Scomi Engineering, which will probably migrate to the main board of Bursa Malaysia next year, currently got the bulk of its revenue from its machine shops.

These machine shops make the threads on pipes and connectors that join the pipes together. These pipes are used in all aspects of the search and drilling for oil and gas.

“Whenever the O&G industry needs pipes, it will need our services. In a way, our business will never end,'' he said.

The company has 11 machine shops in seven countries - all of them making threads for pipes and some making manufacturing connectors as well - spanning from Saudi Arabia to Australia (Darwin).

The newer shops were set up at the behest of its large clients.

Hilmy said some of the newest plants, like the ones in Johor and Saudi Arabia, were being built at the request of Scomi's big clients, Halliburton and Saudi Aramco.

With the trend in the O&G industry heading to deepwater fields, Scomi believes the new oilfield discoveries in the Asia-Pacific region will lead to new growth opportunities.

The increased length of pipes needed in deepwater fields will also raise the amount of work for its machine shops.

“Today we are developing deepwater connectors in order to participate in the deepwater business,'' Hilmy said.

In the past three to four years, the machine shop business has grown by 30% a year. This year Scomi Engineering invested in five new machine shops, either in new locations or on bigger premises.

“The growth there is actually quite phenomenal and there is no let-up in the O&G business,'' he said.

On next year, Hilmy said plans were being drawn up to expand the machine shop coverage in Asia. “It's preliminary, but we are looking at a few countries in the region.''

Revenue-wise, the machine shop operations are still the biggest money spinner for the group, but Scomi Engineering believes that might change with its monorail business.

Scomi's maiden entry into this business was via a five-year contract from KTM Bhd to refurbish 1,500 wagons. That was followed by its acquisition of MTrans Transportation Sdn Bhd, which is now a wholly owned subsidiary renamed Scomi Rail Bhd.

That acquisition had allowed Scomi Engineering to tap the monorail business, where it is now one of three players in the world, said Hilmy. The other two are Hitachi and Bombardier.

The acquisition also gave Scomi Engineering its own technology in the monorail business and the ability to supply electrical and mechanical (E&M) systems and rolling stock for the monorail.

“We are building Scomi Rail Bhd to have the full range of capabilities,'' he said.

The reason behind developing a full suite of services is for Scomi Engineering to effectively bid for projects.

“When we tender for projects in Vietnam, Saudi Arabia and India, we must be able to offer everything. We cannot just say we can only fabricate the cars. It has to be a package,'' he said.

Scomi Engineering has a team of 30 in rolling stock and 25 in E&M building up the group capabilities in those two segments and it has paid off, creating the second generation of monorail, said Hilmy.

The new-generation monorail trains can fit 125 people in a car, making its people-moving capability comparable with light rail transit systems.

Cars are not only wider but now between six and eight cars can be pulled instead of the normal two people see plying the routes around KL.

Hilmy said the monorail was suitable for Asian cities as the system required a smaller footprint. Its tighter turning radius compared with LRTs lowers the cost of civil structures. The guideway beams are much narrower than LRT systems.

Other plus points, Hilmy said, were the monorail's pleasant aesthetics and its much quieter run.

But the biggest advantage was that a monorail system was cheaper and faster to construct, he said.

Although no firm monorail orders are in hand, the company is at various stages of negotiations with its potential customers.

In India, Scomi Engineering is focusing on four cities interested in monorail lines.

“Now it is actually going to the next stage of identifying the right partner for the civil structures and the right form of funding, whether PFI (private finance initiative), government funding or quasi PFI,'' he said.

“We are also in an advanced stage in Vietnam – in both Ho Chi Minh City and Hanoi. We were informed we would soon be given a letter of intent to give us the exclusive right to come up with a firm proposal,'' said Hilmy.

He said Scomi Engineering's partner in Medina had been working on a proposal for the past one year and had submitted the proposal to the Ministry of Transportation. The partner is now raising funding.

For Malaysia, Hilmy said, the rail business was starting to boom.

“There are the expansion in KL, new lines in Penang and Johor Baru, and the double tracking,'' he said.

Hilmy said rail players throughout the world were coming to Malaysia and setting up offices. “Malaysia is at a cycle where the country has to invest in rail,'' he said, adding that cities in the region such as Singapore, Manila and Bangkok were also ramping up their rail emphasis. The Government during Budget 2008 announced a spending plan of RM12bil to improve public transport in KL and Penang over four years.

Although bidding prices are secret, Hilmy said that going by the KL Monorail construction prices, the bill to construct a kilometre of monorail was RM100mil.

Of the RM100mil per km, Hilmy said, the civil works accounted for 40% of the cost while systems, about 60%.

He said Scomi Engineering was discussing building more than 20km of tracks and systems in Vietnam and in Medina, it involved more than 30km.

In India, the length in total is between 40km and 50km of monorail and in Penang, where it is partnering with Malaysian Resources Corp Bhd and Penang Port, it is more than 30km.

The real problem of a rail system, he said, was funding, especially when fares were kept low.

“No rail project is self funding or self sustainable without Government assistance in one form or another,” Hilmy said.