Lifting in the land of fire11 October 2013
In the first of a two part in-depth region report, Stuart Anderson examines the broad economy of Central Asia, and looks in detail at Azerbaijan. Next month’s article will look at the countries to the east of the Caspian.
During the past five years over 1,500 new mobile cranes have been sold in the vast area of the Caucasus and Central Asian Republics. Well over 80% of these are small telescopic truck cranes mainly supplied by the leading Chinese and Russian manufacturers. Rough terrain and crawler cranes have also been purchased in increasing quantities for both oil and gas, and infrastructure projects while luffing boom and flat top tower cranes are adding to the already impressive skylines of the region's largest cities.
Until relatively recently these regions were of little interest to crane manufacturers with, historically, only a few Russian and Ukrainian truck and tower cranes sold. This vast region runs from the Caspian Sea in the west to the China in the east and is bordered to the north by Russia and to the south by Iran, Afghanistan and China. Its enormous natural resources are subject to strong interest from overseas with China, Russia and the West all with varying degrees of influence over these precious comodities.
An energy economy
Economically the region as a whole has posted a solid recovery in the wake of the global financial crisis. The four oil and gas exporting nations -- Kazakhstan, Azerbaijan, Turkmenistan and Uzbekistan -- are expected to record 2013 GDP growth of 5.5%, about the same as 2012, though moderated from 2011's 7% because of lower growth in hydrocarbon production.
Public spending is providing strong activity in the non-oil and gas sector. For the oil and gas importing countries in the Caucasus and Kyrgystan and Tajikistan, average growth of 5.8% is predicted for 2013, compared to 5% in 2012. Kyrgyzstan is also benefitting from higher gold production.
With a population of only 17 million people in a huge landlocked country of 2.7m sq km, the largest regional oil producer Kazakhstan is currently averaging an output of almost 2m barrels per day of oil and natural gas.
While the growth of the oil and gas and minerals sectors can be expected to boost demand for heavy cranes and construction equipment in the region, the general poverty of its citizens doesn't suggest that residential or commercial construction will see the same levels of demand.
Kazakhstan has the largest regional per capita GDP, but still only $11,000 per head. Per capita income amongst the populations of the other oil and gas producers is even more limited: $7,000 for Azerbaijan's 9.4m citizens, $5,000 for Turkmenistan's impoverished 5.1m and a $1,600 average for each the near 30m citizens Uzbekistan.
The weight of war
Historically the Caucasus region has seen its fair share of political and military conflict. Russia's Northern Caucasus Federal District, which includes Chechnya as well as North and South Ossetia, remains Russia's most challenging region with the lowest per capita income, lowest investment and highest unemployment. However, South Ossetia is the most significant market for Russian truck cranes, followed by neighbour Abkhazia.
The central Caucasus Republic of Armenia is similarly challenged. For two decades Armenia's borders with Turkey to the west and Azerbaijan to the east and have been closed. Military conflict on the Azerbaijan border recently flared up again. This leaves the land-locked nation only with open borders with Georgia to the north and Iran to the south.
Armenia's economy grew at a double digit rate for a decade until the 2008 economic crisis. After a brief pick-up the economy has suffered two years of steep decline with construction especially hard hit. With a population of 3 million Armenia has never been a significant crane market but sales of Russian truck cranes were good through the 2000s, and as recently as 2010 Avtokran Ivanovets sold eight mainly 25t truck cranes. That declined to three units in 2011 and only one last year. Gas and water fuel growth
Georgia's strategic location between Europe and Asia has long been recognised and over the past decade the emerging hydrocarbon production of Azerbaijan has focussed global attention more. In the mid-2000s gas and oil pipelines from Baku to Ceyhan and Erzurum in Turkey were laid in a large northwards loop through Georgia and avoiding isolated Armenia to the south. Similarly routed is a new and improved railroad that was started in 2006 and, after the interruption of 2008's South Ossetia War, is due for completion this year. Azerbaijan has funded much of the development including favourable loans to Georgia. This development and numerous current and planned highway construction and rehabilitation projects will increase the efficiency of the nation's transportation infrastructure.
After GDP growth of 10% in 2006-7, Georgia's economy has somewhat recovered from the global crisis with 6% growth for the past two years. Another highly significant key to Georgia's economic future is hydropower. Thanks in large part to the Greater Mountain range that runs 1100km from the Black Sea to the Caspian, defining Georgia's northern border with Russia as well as the southern Lesser Caucasus range, Georgia has no less than 26,000 mainly fast-flowing rivers. At present some 85% of domestic energy is produced by hydropower, with electricity generation rising from 6.9TWh in 2004 to 10.1TWh in 2011. Since 2007 the country has been a net electricity exporter with Russia, Turkey and Azerbaijan its largest customers.
Georgia has identified more than 130 potential hydropower projects with a total investment of over $4 billion. These new hydropower plants are expected to boost power output by 2018 to 4bn kWh compared to 1.2bn kWh in 2010.
Bringing Caspian gas to Europe
In a few short years Azerbaijan has seen its oil exports first double between 1998 and 2005, then double again by 2007, and the top 1m barrels per day in 2008. BP has a long-standing relationship with SOCAR (the State Oil Co of the Azerbaijan Republic) but in the wake of the Gulf of Mexico oil spill disaster, has implemented a more rigorous maintenance and inspection regime in the Caspian Sea that has shaved production somewhat.
In late June the Shah Deniz Consortium (made up of BP, SOCAR and Total) announced in Baku that the Trans Adriatic Pipeline (TAP) had been selected to transport natural gas from Azerbaijan's giant Shah Deniz II field to the most attractive markets in Europe. The 870-km (545-mile) TAP will connect with the Trans Anatolian Pipeline (TANAP) near the Turkish-Greek border, cross Greece and Albania and the Adriatic Sea and come ashore in southern Italy, expanding capacity from 10bn to 20bn cubic metres a year.
The field lies 70km (44 miles) offshore in the Azerbaijan sector of the Caspian Sea. The project is expected to include two new bridgelinked production platforms, 26 subsea wells to be drilled with two semi-submersible rigs, 500km (310 miles) of subsea pipeline to be built at depths of up to 550m (1,800ft), a 16 bcm upgrade of the South Caucasus pipeline and expansion of the Sangachal terminal. Further pipelines will be built to transport the gas through Turkey and to the EU.
Norway's Aker Solutions has a long-term presence in Azerbaijan, having previously delivered eight drilling rigs to the Caspian. Last year Aker opened a new facility in Baku and in July won a contract from Caspian Drilling Co Ltd to provide topside equipment for a new semi-submersible drilling rig in Baku.
A gas-inflated economy
Commercial construction work is also gaining momentum. The Baku Metro, currently with 34.6km of track, announced in May plans extensions for up to 119km to the country's second city, Sumgait, and is also considering new links to Ganja in the north west and the enclave of Nakhchivan. German foundation specialist Bauer has been heavily involved with piling rigs and crawler cranes on the Baku Metro.
Government meetings aimed at broader business cooperation between Azerbaijan and Kazakhstan have recognized the need for new logistics centers. Similarly intense inter-government cooperation discussions continue between Baku and the Belarus Government.
Another major project commenced in 2011 and due for completion in 2015 is the Baku Olympic Stadium. With a closed area of 300,000sq m the stadium will be 45m high (150ft) on a 32ha site and features a retractable roof. The project is being funded by SOCAR and built by Turkish contractor Tekfen. SOCAR will shortly take delivery of a 1,250t capacity Terex CC 6800 crawler crane whose main task will be to lift and place the retractable roof. The crane will be installed by Terex's Turkish distributor DAS Otomotive's Baku branch team. After this work the crane will join SOCAR's existing fleet wide range of Terex crawler, rough terrain, all terrain and tower cranes on its ongoing oil and gas projects. SOCAR in fact has a fleet of no less than 32 Demag crawler cranes including two 650t CC 4000s purchased between 1979 and 1984.
As far as heavy lifting is concerned, the competition is intense. Mammoet Caspian, based in Baku, has a record of large scale lifts and moves in the region dating back almost a decade. The successful strand-jack push-up of a 16,800t topside for the West Azeri oil exploration platform was probably a regional record. However it is generally Turkish crane service companies such as Sarilar and Hareket that are prominent for most crane-based lifting projects. Last year Hareket deployed four 600t Terex-Demag CC 2800-1 crawler cranes to lift and move a 1,241t drilling support module for the AMEC-Tekfen-Azfen consortium as part of the Chirag Oil Project in Baku.
Liebherr also has a strong market presence. Since Liebherr MCCtec Nenzing established Liebherr-Azeri LLC in Baku five years ago, the company has continued to enjoy success with mobile and crawler cranes as well as foundation machines. In 2010 Liebherr-Azeri won a contract with Azerbaijan's Energy Company 'Azenco' for ten 70t LTM 1070-4 and a 1,200tLTM 11200- 9.1 and the following year entered into a service contract to support the over thirty Liebherr mobile and crawler cranes operated by Azenco. Last year Baku-based ADO-G Group, a civil and energy construction company added another 90t Liebherr HS 855HD to its fleet and most recently, at Bauma, Liebherr sold the third of its new topof- the-line LB 44 drilling machines to KBR, Azerbaijan. This is by far the most powerful in Liebherr's LB series. With a working weight of 160t it can drill to 3000mm diameter (9ft 10ins) and 92m (302ft) depth. It is powered by a 505kW (677hp) Liebherr D 9508 A7 SCR Stage IIIB/Tier 4i diesel that delivers a massive 560kW maximum push-pull force. Not surprisingly, Azerbaijan is now Liebherr MMCtec Nenzing's fifth most important market worldwide.
SOCAR remains the largest crane buyer in Azerbaijan with a burgeoning fleet of all varieties of Terex Cranes and Genie aerial lifts sold and locally supported by DAS Otomotive. Recently Terex Comedil tower cranes have figured largely in SOCAR's plans with two 32t capacity CTL 630-32 luffers and three 10t capacity CTT 231-10 flat tops already in service and soon to be joined by eight of the brand-new 18t capacity CTT 361-18 that was introduced at Bauma. Also displayed at Bauma were Terex's Italian-built larger capacity rough terrains with three of each of the new 75t and 100t units joining SOCAR's recent additions in the 32-60t range.
Chinese and Russian favourites
As impressive as these sales are, in terms of pure numbers of cranes, the market remains dominated by small telescopic truck cranes. Some 80% of all sold are in the 25t class, with the honours fairly evenly divided between the Chinese led by XCMG and the Russians led by Avtokran Ivanovets. While Avtokran has a presence dating back to Soviet days, Azerbaijan has been an important market for XCMG since the mid- 2000s, leading them to establish XCMG Azerbaijan based in Baku back in 2007. That investment has paidoff with the sale of several hundred truck cranes, mainly of the popular 25t capacity QY 25K series.
Until the arrival of the Chinese, this market sector was almost totally controlled by the Russian and Ukrainian truck crane manufacturers. All of these cranes are available mounted on a choice of trucks (KamAZ, Ural, MAZ and KrAZ). In markets such as these it is the vehicle that does most of the hard work. For most customers the choice of vehicle is often as critical or even more important than the choice of crane. The use of vehicles that employ the same or similar drive trains to other heavy equipment means that there is a very large vehicle population, extensive servicing know-how and parts availability. This familiarity and truck dealer network are of great benefit to regional crane buyers.
Although the XCMG QY 25K-11 has certain lifting performance benefits such as boom length (34.2m versus 30.7m) the best-selling Avtokran AK 25 (KC-45717) has the benefit of entrenched local support for the heavy duty KamAZ or Ural carriers. In addition these vehicles are available in either 6x4 or 6x6 wheel drive versions. They also feature very high ground clearance that is invaluable in off-road situations. This latest series of Avtokran truck cranes are much more advanced than the popular image of Russian cranes. They have formed 'Ovaloid' high tensile steel booms as well as axial piston hydraulics. Another feature on the 6x6 wheel drive models is the use of large single variable pressure tyres all round with a centralised system to maintain proper air pressure. Over the past four years Avtokran's master distributor for Russia and the CIS, NAMEX Ltd, has delivered approximately 100 of these three-axle truck cranes to customers in Azerbaijan -- mostly mounted on KamAZ trucks.
Landing at Baku one could be forgiven for thinking you'd mistakenly caught a flight to the steel and glass canyons of Shanghai. For Baku is already nicknamed "Skyscraper City" and this is before the construction of 30 architectural 'innovations' planned to be built annually over the next 15- years. Tallest of these is the startling twisted architecture of the new 40- story headquarters building for SOCAR being built by Turkey's Tekfen Construction. At 209m (685ft) tall, the $250m SOCAR Tower will be the tallest building in the Caucasus region when it opens next year. It truly is a new world.
From Turkey to Azerbaijan
DAS Otomotive, based in Turkey, recently opened a new depot in Baku. Vice chairman Ali Basakinci spoke to Stuart Anderson about the company's growth in the region.
SA Could you tell us a little about DAS Otomotive's experience in the Central Asian markets.
AB We have been serving customers operating throughout the former C.I.S. countries for many years and have developed a thorough knowledge and experience of these markets. Obviously the dynamic development of the huge oil and gas resources in and around the Caspian Sea has created an extraordinary demand for the construction and maintenance of a burgeoning industrial infrastructure which has significantly involved several of Turkey's leading international customers, most of whom are longterm major customers of our company. We have deep relationships with these companies and they know from their own experience that wherever their work takes them we will be there, by their side, supporting them with local service technicians, spare parts, training and so on.
SA Particularly why was Azerbaijan selected as a location for the establishment of a local DAS company?
AB Our customers led us here. In the industrial sectors the range of work extends from both on- and offshore oil and gas exploration facilities to all of the processing and refining facilities, pipelines, etc., and all of the related civil work. Then there's the dynamic urban development that involves some of the most amazing ground-breaking designs for sports and conference facilities, first class hotels, transportation systems, and so on. The volume of work demanded we have feet on the ground year-round. Back in 2008 we started to research the broader needs and long-term potential of the market and by mid- 2010 we had assembled all the resources to open our branch in Baku. We were very fortunate to recruit a guy who from day one has been heading up our local operation. He had all the right qualifications including several years' experience with a Turkish contractor and fluency in Turkish, Russian and English.
SA What were the challenges in establishing a business in this part of the world?
AB In fact as a Turkish company it's been really quite straight-forward. Communications are no problems for us since as Turks we can understand at least 60% of the local spoken and written language. Particularly important is the fact that the Azerbaijani Government is doing a great job of encouraging inward direct investment. Visa and customs requirements are minimal and we've found addressing necessary legal and financial requirements as really quite easy to negotiate. Logistically there are six flights per day between Istanbul and Baku and there are also regular over-land bus and truck services. Today there are very close and strong political ties between our two countries and Turkish companies have a huge presence from food and consumables to services and machinery.
SA How is your business developing?
AB Very well indeed. Our sales have grown very satisfactorily for each of the past four years. We started with our mobile crane line and have enjoyed significant successes with our lines of Terex-Bendini rough terrain and Terex-Demag all terrain cranes both with local state-owned companies like SOCAR, the international oil companies such as BP and Turkish international contractors who operate in Azerbaijan such as Tekfen. We're also building on the great reputation of Demag crawler cranes in this market. There's large fleet of Demag crawlers that in some cases date back to the late 1970s and recently we have had great success with the popular 600-tonne capacity CC 2800-1 as well as with the 1,250-tonne capacity CC 6800 and 1,600-tonne capacity CC8800-1 - the first units of which will be delivered during the next few months.
SA So your business is essentially mobile crane based?
AB Well that's where it started but step-by-step we've progressively expanded the range of products we're marketing here. During the past three years we've done increasingly well with the Genie lines of aerial work platforms and telescopic handlers, many of which are working in support of the cranes. In addition, most recently, we won a major contract for eight of the brand new and very powerful Terex-Comedil CTT 361-18HD 18-tonne capacity Flat-Top tower cranes which are working on the new Olympic Stadium. Beyond the Terex portfolio we've also added complementary products such as GEDA construction hoists.
SA How have you found the reception of local customer?
AB We've been very well-received. World class product support is still in pretty scarce supply in this part of the world and something of which many local customers have little experience. Historically this was a market served by Russian equipment and today there are still quite a few old Russian tower cranes and truck cranes as well as some new small Chinese truck cranes. By establishing our own local parts and service support, installing the equipment with our own local people, carefully training customer's operators and mechanics, maintaining scheduled customer service visits throughout and beyond the warranty period we've established a level of customer care that most local users have never previously experienced. Our team is seasoned and experienced as well as being supported by all of our broader service resources. When needed, our customers know that we will be there for them without delay and with the right level of expertise.
SA Do you have plans for further regional expansion?
AB For several years we've been supporting our customers in countries throughout Central Asia, as well as all across the Middle East and in large parts of Africa. In the Middle East we've long supported a very large population of cranes, in Central Asia we have a significant presence in markets such as Azerbaijan, Turkmenistan and Georgia and a growing presence in markets like Kazakhstan. Unsatisfactory experience with low-cost, low-quality equipment is gradually showing equipment users the merit of buying quality machinery with world class support. We're confident that here, just as in more mature markets, the old adage remains absolutely valid - "the salesmen may sell the first crane but it's service that sells the second."