Sebastien Giancola ENSEADA Project

ENSEADA SHIPYARD PROJECT ANALYSIS

Sébastien GIANCOLA 14200517

Project Management 2014/15

ENSEADA PROJECT ANALYSIS

MSc.M - BMGT 44210 Joe Houghton

nOTES

1. ENSEADA project is still under construction, making the disposal of bibliography

very limited. This project was only possible thanks to the patience and help of

José Ernesto Campos Gonzalez, compliance manager of the ENSEADA project.

(referenced in this Analysis as (ENSEADA 2015))

2. This Analysis presents information and suggestions about the ENSEADA, which

are result of a Project Stakeholder Analysis; an Implementation Analysis and a

Risk Analysis.

Sébastien Giancola

TABLE CONTENT

EXCECUTIVE SUMMARY 5

1.INTRODUCTION 6

2. ENSEADA PROJECT 7

3.STAKEHOLD ER ANALYSIS 8 3.1 Polemic with the Brazilian Companies 10

4. IMP LEMENTATION ANALYSIS 12

5. RISK ANALYSIS 15

5.1. EXCHANGE RATE RISK 17

5.2.POLITICAL RISK 17

5.3.OPERATION RISK 18

5.4.FINANCIAL RISK 18

6. CONCLUSION 19

7. BIBLIOGRAP HY 20

ENSEADA Project Analysis

EXECUTIVE SUMMARY

The desire in expanding oil drilling in Brazil is clear. After several years of research, Petrobras - state-owned oil company - has found a considerable amount of good quality oil in the Pre-salt layer. This requires more equipments in both quantity and quality.

This demand created an interesting opportunity, which was taken by four private companies (3 Brazilians and 1 Japanese). Together they form the ENSEADA group which is now constructing a new and modern shipyard, in order to be attending the already ordered 6 drillships.

The ENSEADA Project has colossal dimensions and costs. It is the biggest private investment from the last 10 years in Bahia state and also the biggest investment of Brazilian History in the Naval industry. With the conclusion of this Project, both the local and Brazilian economy will experience a grow in quality and worldwide respect in the naval and oil drilling sector.

Big projects means big problems and, unfortunately ESEADA Project is not an exception. The Project is suppose to be concluded in December 2015, however it is struggling in following the timeline.

This Analysis aims in explaining what are those challenges that ENSEADA is facing and others that will possibly face later. Some recommendations are also offered, in order to transform ENSEADA Project in a more effective and efficient Project as it already is. The approach used was the analysis of the Project Stakeholders, Implementation and Risks.

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1. INTRODUCTION

Since 2006, Brazilian government – through the expertise of the state-owned oil

company, Petrobras – is successfully investing in drilling oil in deep water. In geology,

deep-water term refers to the Pre-salt layer. According to Petrobras researches, the

Pre-salt layer can mean reserves of over 50 billion barrels of oil, four times greater the

volume of the current Brazilian reserves. The oil found the deep water region is

considered of good quality. However, to access to this depths, it requires a highly

advances technology and, consequently, a large-scale investment. (PETROBRAS, 2008)

The economical opportunities from the Pre-salt oil are extremely attractive, putting

Brazil into a strategic position regarding high demand for energy worldwide. For this

reason, Brazilian government is investing massively in more efficient and effective

technology of drilling oil. So far, this investment has been successful and the annual

average of daily production Pre-salt oil has grown

almost 12 times. (PETROBRAS, 2014)

This automatically requires new and more advanced

technology and equipments. For this reason, the Brazilian

government approved a colossal private project of a

new and modern shipyard.

The reason of the construction a new shipyard, is due to

the necessity of Petrobras of others and more advanced

drillships.

The shipbuilding industry is dominated by Asiatic economies – such as Japan, Korea

and China. However, in the mid-twentieth century, Brazil experienced an expansion on

its economy; all sectors were developing and receiving incentives. These incentives

enabled Brazil to meet in the 70’s the condition of second world park shipbuilding.

(LIMA & de VELASCO)

Unlike the Asiatic producers, Brazil does not export ships. This means that the excellent

position that Brazil occupied in the 70’s and is still nowadays, is due to the impressive

national demand. This shows the importance and need in having a modern shipyard.

(LIMA & de VELASCO)

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2. ENSEADA projecT

This is exactly the reason for construction of the ENSEADA shipyard. The project,

called Estaleiro ENSEADA do Paraguaçu (EEP), is the result of almost 5 years of

negotiation. Brazilian states were trying to find the best arguments to have the privilege

of being part of this national programme of naval revitalization. EEP and four others

shipyard will be constructed to attend the demand of 29 drillships. (ENSEADA 2015)

EEP is located in Bahia state, at the mouth of the Paraguaçu river, located on the Baìa

de Todos os Santos, a bay that offers natural protection from the

storms, or any other natural risk and deep waters for big size of

ships.

The EEP project started in 2012, with the expectation of conclusion

is in 2015.

Few figures about Estaleiro ENSEADA do Paraguaçu (ENSEADA 2015):

• The Project has an area of 1.6 million m2, with approximately 400 million m2;

• When fully operating, EEP will be processing 140 thousand tonnes of iron each

year and make ships of 400 thousand tonnes;

• Its budget is 3.2 billion reais (roughly 1 billion euros). It is the biggest private

investment in Bahia state and the biggest in the Brazilian Navy Industry;

• The State Government will be supporting the Project by constructing an

adequate infrastructure and helping the private investor to obtain the credits,

which are provided by the Brazilian Federal Government.

• It has already an order of U$6.4 billion, or €5.9 billion; and

• When fully installed, the shipyard will have the potential to employ directly 8

thousand people and 14 thousand indirectly.

EEP is a prosperous project, however it deserves further analysis. This project aims to

present a brief Stakeholder Analysis, Implementation Analysis and Risk Analysis and to

provide suggestions and comments on each of them.

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3. STAKEHOLD ER ANALYSIS

PMBOK defines stakeholder as “an individual, group or organization who may affect,

be affected by, or perceive itself to be affected by a decision, activity or outcome of

the project”. (PMI, 2013)

It is possible to separate the stakeholders of the EEP project as internal and external

(see charts below).

Some of them presents

more influence in the

Project than others:

Internal Stakeholders:o ENSEADA;

o Odebrecht;

o OAS;

o UTC;

o Kawasaki; and

o Shareholders

External Stakeholders:

o National Government;

o Bahia Government; and

o Petrobras.

ENSEADA is a composition of three private companies: Odebrecht, OAS and UTC

which own 70% and Kawasaki owns the other 30% of ENSEADA and, consequently

the four companies are the most influencer stakeholders. (ENSEADA 2015)

o OD EBRECHT: operates in the sectors of infrastructure, construction,

petrochemical, chemical, power, mining, sugar and alcohol;

o OAS: has national and international presence, standing out for major

projects in infrastructure sectors, energy, oil and gas, sanitation and

transportation;

o UTC: is an active company active in the offshore area, participates in

all stages of construction of offshore platforms.

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o KAWASAKI: in addition to manufacturing ships, it is world renowned

for its motorcycles, trains, airplanes, industrial plants, robots for industrial

and aerospace equipment.

Odebrecht, OAS and UTC are

Brazilian construction companies and

responsible for the construction of the

majority of the EEP project. Kawasaki

is a Japanese company with a long

expertise in shipyards technology.

Together, they create a complete

team, in order to provide an excellent

quality of service and product. The

final product will be a last generation

of shipyard fully automated with

Kawasaki technology.

The partnership with Kawasaki is

extremely interesting for the EEP, as

well as for the Brazilian economy. It

brings a long and well respected

expertise in the related technology. So

far, it has been an investment of $ 85

m i l l i o n i n Japan ' s t echno l ogy

transferred to Brazil. (ENSEADA 2015)

The re la t i on sh ip be tween t he

companies that form ENSEADA is

considered positive, with a direct

contact and exchange of information

between them.

ENSEADA is considered the Decision

Maker of the EEP project,

because any decision taken by

ENSEADA will be influencing the

Project as a whole. The group is the

one which is constructing, but also the

one paying.

On the hand, the other 4 companies

(Odebrecht, OAS, UTC and Kawasaki)

– which compose ENSEADA – are

considered Influencers. This can be

justified by any action or decision

taken, it will influence the Decision

Maker, but also the other stakeholders.

The State (Bahia) Government has a

role of Influencer within the EEP

Project. The influence of the State

Government was vital to make it

h appen i n Bah i a . T hey we r e

responsible for the 5 years negotiation.

Now their influence is in making the

project to obtain loan from the

National Government. They also

support the by constructing an

adequate infrastructure – mainly

creating new roads or paving the

existing ones. (ENSEADA 2015)

The National (Brazilian) Government

was key before the project proposal

acceptance. They were the one who

accepted this colossal investment. Of

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course, the Government saw the

opportunity to develop its Naval

industry, as well as the chance to

develop Petrobras, which is a oil state-

own company. Now the National

Government is considered Consenter

within EEP Project. If the Government

decide, they can veto the Project as a

whole. However, it certainly will not

happen due to the economical

opportunities related to this Project.

The National Government is however

responsible for the funds of this

project. It is a private project, but the

Brazilian government is providing the

majority of the funds, as a loan.

(ENSEADA 2015)

Petrobras has an important role with

EEP Project: they are the Players.

They are indirectly contributing to this

project. Without Petrobras, it is

possible to affirm that EEP will not

have reason to exist. It is due to the

strong necessity of new and modern

drillships that the Brazilian Government

decided to accept this giant project.

Petrobras has ordered 6 drillships, for

the future EEP,with a total value of

$4.8 billion. Beside the construction of

new ships, they will also require yards

to fix and control the existing fleet.

(ENSEADA 2015)

3.1. Polemic with the Brazilian Companies.

As the definition of stakeholder shows, a stakeholder can influence or be influenced

direct or indirectly by the project. It is exactly what is happening at the moment with

EEP. Recently, the three Brazilian construction companies and Petrobras are involved

with a massive corruption case in Brazil, called Operation “Lava Jato”. This is directly

affecting directly the trust and confidence of the others stakeholders.

The Brazilian Federal Police, responsible organ of the investigation, which started 17th

March 2014, is investigating a money-laundering scheme suspected to move more

than 10 billion reais (approximately €3.5 billion).

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For being owned mainly by the state, Petrobras receives an important amount of

capital from the State, in order to keep developing new projects – such as EEP in

order to be drilling oil from Pre-salt layer. And to develop those projects, Petrobras

requires the support of construction companies, because it does not possess the

technology and equipment necessary for, for example build a building, a road or a

new port. That is why construction private companies offer their services. However,

taking the historical of those companies, the same names are frequently appearing:

Odebrecht, OAS, UTC, among others.

Because of this historical connexion, the 3 construction companies are under

investigation. This affected directly the EEP project, because the National

Government stopped providing funds. The Project is now suffering several

consequences, which will be approached in the next session.

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4. IMP LEMENTATION ANALYSIS

The EEP project started with the

negotiation in being the Brazilian state

chosen among the others. It was five

years negotiating and providing the best

arguments to make it happen. This stage

can be considered the first one.

(ENSEADA 2015)

The next stage was to find funds to make

this giant project happen. The National

(Brazilian) Government approved the

project and created a fund especially for

this it: the Fund Merchant Marine – FMM

– (Fundo de Marinha Mercante). The

FMM is divided in two parts – one

corresponding to 1 billion reais (around

270 million euros) and another of 600

million reais (around 160 million euros).

The first part has been successfully

released, however the second one not

yet. (ENSEADA 2015)

The construction of the shipyard started

April 2012, with firstly the removal of the

vegetation. Part of this process was also

the delimitation of the construction area

to the preserved one. During the process

of the vegetation subtraction, the local

fauna and flora were successfully moved

to the preserved area. After this, it was

the stage of earthwork, in order to let the

area ready for the construction of the

structure. (ENSEADA 2015)

The first construction phase of the

shipyard infrastructure consisted on the

stake spiking, with the function to offer

stability by transmitting the weight of the

construction to the ground and more

resistant parts. Following the digging,

frame and concrete. This created a

strong and stable base to support the

rest. The second phase, consisted of the

superstructure , by assembl ing of

premolded blocks, frame and concrete in

situ. (ENSEADA 2015)

Those two phases were successfully

installed due to the commitment of 320

workers and an effective and well

structure plan. The result: the first parte of

the shipyard – called Cais I (Pier I) – was

de l i ve red 20 days i n advance .

(ENSEADA 2015)

The conclusion of this first part brought a

new scenario for the Project: the ability to

receive ships. This allowed ships coming

with material and equipment, reducing

costs and time with transportation.

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Only nine months after the start of the constructions, the first ship docked – more

precisely on 22 of February. The ship was coming from Korea, bringing another vital

piece for this project: a colossal crane (called Goliath) with the capacity to carry 1.800

tonnes. In parallel to the construction, thousand of people were receiving courses, in

order to be able to work at the present stage of construction of the Project or to be

working after it will be completed. An enormous technological transfer between Brazil

and Japan is also being developed, result of the partnership between ENSEADA and

Kawasaki. It involves staff training, provision of technical expertise, management

software and technical assistance to professionals in Brazil, and 80 professionals have

been trained in Japan for a total of 102. (ENSEADA 2015)

The planning and the implementation of EEP is realistic, insuring the possibility in

delivering each step on time, cost and quality. However, the Project is now inert due to

the corruption scandal involving 3 of the main EEP’s stakeholders/shareholders –

Odebrecht, OAS, UTC.

Due to the investigation process, the National Government decided to not release the

second part of the FMM, affecting directly the progress of the project. (See Chart next

page).

It is clear how the funds suspension is badly influencing in the progress of the

implementation stages. The EEP project is now paralyzed in 81% of progress, as it

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should be 94%. This is affecting also affecting negatively the rest of the stakeholders:

delay, extra costs, and unemployment, among others. (ENSEADA 2015)

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5. RISK ANALYSIS

According to Chapman et al. (2001), risk relates to “an uncertain event or set of

circumstances that, should it occur, will have an effect on the achievement of the

projects’ objectives”. No amount of planning can perfectly alleviate risk or completely

control unanticipated circumstances (Larson et.al, 2014).

As it possible to understand from those affirmation, a risk has always a consequence to

the whole project.

Unfortunately, the ENSEADA managers did not take properly all the possible risks into

consideration. The project stopped in 81% for not having considered a risk related to its

shareholders. It could be considered a risk with likelihood of occurrence, but this a high

severity of impact within the whole project. By identifying this risk, many solutions could

be offered to mitigate or even avoid the occurrence of it. Solutions like:

• A full transparency among the shareholders;

• An appropriate and ethical behiavour from all of them; and

• Potential substitute shareholder.

The following table lists the main risks of EEP project:

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Potential Risck Detected Decription of the Risk Likehood of Occurrence Severity of the Impact Attitude/Action/Solution

Exchange Rate Risk

- The oscillation of the Dollar price can affect the project. High Dollar

rate, high price of equipments.

High (4)

High (4)

- Avoid buying when the Dollar is high;

- Take advantage of a low rate - buying

equipment in advance; - Search similar supplier

in other currencies.

Political Risk- Dependence on the

National Government; - Minimum of local

workforce;

Low (2)

Very High (5)

- Attend to the Government demand;

- Pay local and National taxes.

Operational Risk- Asiatic Competition - Low Profit Margin.

Medium (3)

Medium (3)

- Keep improving the quality of equipment and the workforce.

- Partnership a company with strong expertise.


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Financial Risk- High Expenses; - High dependence on

the National funds (Credits)

High (4)

High (4)

- Diversify the source of funds;

- Prepare an extra budget in case of interruption

of National funds

Occurence of Precipitation

- Decelerate the progress of the Project;

- Can damage the roads and construction

equipment.

Medium (3)

Medium (3)

- Follow the rain forecast and prepare the equipment for it;

- Reinforce the roads.

Lack of Qualified Workforce

- Local population unprepared (majority

were fishers).

Very High (5)

Low (2)

- Provide intensives courses, workshops and others activities with the

objective to form the population.

Possibility of a Worker Strike

- Risk of disagreement with Unions.

Low (2)

High (4)

- Keep informed the workforce;

- Provide decent work conditions.

Bureaucracy

- Delay in getting information from the

Government; - Delay in getting

governmental actions.

Medium (3)

Medium (3)

- Strengthen the relationship with the

Government. - Provide regular reports

to show the impact of the delays on the

Project.

Bankruptancy

- Possibility in the Funds (Credits) being

cancelled; - Withdrawing of the

main stakeholders.

Low (2)

Very High (5)

- Strengthen the relationship with the

stakeholders, especially the shareholders.

- Find other source of fundings.

Environmental Risk

- Fragil flora and fauna;Low (2)

Medium (3)

- Implement a strong action plan to avoid any environmental disaster;

- Prepare the workers to mitigate the risk in an eventual environmental

disaster.

Risk involving the Sharehlders

- Only few shareholders, if any type of issue happen

with them (financial, legal or internal), it will

compromise the Project.

Low (2)

High (4)

- Full transparency among the

shareholders; - Ethical behavior from all

of them; - Possible substitute

shareholder.


5. 1. Exchange Rate Risk

This risk is related with the oscillation of the Dollar. As the price increases, automatically

it will increase the project expenses, as all the main equipment is imported and

negotiated in Dollars. This is a risk with a high likelihood and also with high severity to

the project as a whole.

This is the current scenario; the dollar is more expensive comparing to the previous year.

In August 2014, 1 dollar was quoted in 2.26 reais, while one year after it is quoted in 3.34

reais. (Yahoo Finance 2015).

Unfortunately, there is nothing to do against it, as it is influenced by the global offer and

demand. However, the best attitude to mitigate this risk is by carefully follow the price

of the Dollar and when it is only increasing during a certain amount of time, purchase all

the equipment necessary for a long period and, of course, avoid purchasing equipment

when the Dollar is high. Another possible solution would be to search for similar suppliers

that do not trade in Dollars.

In the other hand, this high risk can be transformed as an opportunity. This can occur if

the value of the Dollar decreases, making the material and equipment also cheaper.

5. 2. Political Risk

This risk has a low likelihood to happen, however a high severity of impact. This is

explained by the role of the Government in project: a Concenter.

This Project only exists because of the demand of drillships from Petrobras – a state-

owned company. This means that the Government has an (in)direct connexion with the

Project. The Government settle few requirements in this Project before accepting it.

One of the requirements was naturally paying the taxes, which has been made since the

start. The other requirement from the Government was to the construction phase and

also it will be done, a certain percentage of the local workforce. (ENSEADA 2015)

This risk can be avoided by accepting Government’s conditions and by applying them.

At the moment, several action have been taken to attend them:

• When fully operating (before the interruption of the funds), 87%

(7.200 workers) of the workforce was from the region. (ENSEADA

2015)

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• Creation of several courses; and

• Payment of taxes.

5. 3. Operational Risk

This risk is considered medium in likelihood and presents also a medium severity on the

impact. However, it is an important risk to consider, because it involves the financial

results of the whole Project. This risk is also related with the high expenses and a

considered low profit margin. Any wrong step and the whole Project will not be able to

present immediate return on investment.

This ambitious project needs to have clear proves that it is profitable, especially for

being in a sector of low expertise in Brazil. It is a project that aims to compete with

traditional and strong market, which are economies such as Japan or Korean. The good

response from the managers was to create a partnership with the Japanese company

Kawasaki, which possess a term-term expertise in the high technology equipment of

shipyards. Although intensive technology exchange between Brazil and Japan, the

Brazilian workforce is still starting in this sector.

This partnership mitigates the risk, because the competition will be also always present.

Despite this “medium” risk, the implementation phase has shown that the workforce has

been successful so far, in the operational issue.

5. 4. Financial Risk

This is a high risk in both likelihood of occurrence and the severity of impact. EEP is an

extremely expansive project – the biggest in the last 10 years in Bahia state and the

biggest in Brazilian Naval industry. It is a risk considered high due to the dependence of

its creditors: Brazilian Government.

Only the Brazilian Government is providing the funds (through the FMM), which makes

the Project extremely dependent to it. Another important creditor is Petrobras, which

ordered 6 drillships and is paying for it.

The high dependence on only 2 major funders makes the financial risk considerably high.

The solution to mitigate this risk is by diversifying the source of capital, for example

private loans or participation of more private companies. Another solution would be to

ENSEADA prepare an extra budget in case of any issue from its main funders. 18


CONCLUSION

The economical growth of Brazil, especially in the oil sector, allowed the country to

think bigger. With that, was approved a colossal project, the Estaleiro ENSEADA do

Paraguaçu, or EEP. This project represents the biggest private investment in Bahia

state and also the biggest Brazilian investment in the naval industry. It is located a

strategic place, taking the advantages that the Bay of Todos os Santos offers:

natural protection and deep water. Four companies have taken the Project, each one

extremely strong in their sector – from construction to specialized oil engineer

equipment. Those same four companies are also the main shareholders, approved

and funded by the Brazilian Government. The construction of the project started April

2012 and all the stages present on the Project planning were successfully

implemented.

EEP Project is supposes to be 96% concluded by August 2015 and completed by

December 2015. However the project is since few months in 81%. This is due to the

involvement of the main stakeholders (Odebrecht, OAS, UTC and Petrobras) with a

corruption scandal, which affected the trust of the Brazilian Government, the main

funder of this giant project.

This could be avoided if a rigorous Risk Analysis had been made, by take in

consideration the legitimacy of all the shareholders. By detecting this risk, it could

possible to see its likelihood of occurrence and its severity of impact on the whole

Project. The detection of this risk would also allow the creation of action plan in order

to mitigate this risk or even avoid it.

The scenario that ENSEADA is now facing shows the importance of each area of

project management. Any mistake or any forgotten aspect can provoke severe

consequences and, sometimes irreparable.

The next stage now for ENSEADA is to mitigate the effects of this funds recession, by

making resource-allocation decisions (Bodley-Scott S. and Brache A. P., 2009), which

has been made, according to the ENSEADA compliance manager. They are finding

other source of capital in order to maintain the progress made so far and, if possible,

continue with some minor constructions.

This has been an important learning to ENSEADA and any project manager.

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Even if the project looks perfect, all the stages of a project management –

Stakeholder Analysis; Risk Analysis; Implementation Analysis, etc. – need to be

carefully prepared and rigorously followed.

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7.BIBLIOGRAP HY

BAHIA Government. 2014, Anual Report.Available in : http://www.seplan.ba.gov.br/wp-content/uploads/2012/12/RAG_2014_Volume_I_ONLINE.pdf

BARBOSA, F. 2015. ENSEADA.

BODLEY-SCOTT S.; Brache A. P., 2009. Which Initiatives Should You Implement? Harvard Business Review. Available in: https://hbr.org/2009/02/which-initiatives-should-you-i.html

CHAPMAN. C, Ward.S, Transforming project risk management into project uncertainty management, International journal of project management 21 (2003) 97-105. Available in : http://ac.els-cdn.com/S0263786301000801/1-s2.0-S0263786301000801-main.pdf?_tid=20f1cb4c-296b-11e5-96d3-00000aab0f27&acdnat=1436797759_17781d8c2da30af8629cbcf2d6db122bBAR

ENSEADA. 2015. Institutional Presentation

FREEMAN, E. and Mc Vea, J., A Stakeholder approach to strategic management.Available in: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=263511.

KOTTER, J. P., 2007. Leading Change: Why Transformation Efforts Fail. Harvard Business Review. Available in: https://hbr.org/2007/01/leading-change-why-transformation-efforts-fail

LEONARD-BARTON, D.; Kraus W. A., 1985. Implementing New Technology. Harvard Business Review. Available in: https://hbr.org/1985/11/implementing-new-technology/ar/8

LIMA, E. T.; L. O. M., de VELASCO. Construção Naval no Brasil: Existem Perspectivas?

PETROBRAS. 2008. Annual Report 2007. Available in: http://www.ons.org.br/download/biblioteca_virtual/relatorios_anuais/relatorio_anual_2007.pdf

PETROBRAS. 2014. Annual Report 2013. Available in: https://www.petros.com.br/petrossite/servicos/hotsite_relatorio_anual_2013/CadernoPrincipal.pdf

PETROBRAS. 2014, Petrobras Strategic & Business Plan 2009 – 2013.Available in: http://ita.doc.gov/td/energy/PETROBRAS%20Strategic%20&%20Business%20Plan%202009-2013%20OTC%2020091.pdf

PROJECT MANAGEMENT INSTITUTE. 2013. A Guide to the Project Management Body of Knowledge – Fifth Edition

TURNER, A. N. 1982. Consulting Is More Than Giving Advice. Harvard Business Review. Available in: https://hbr.org/1982/09/consulting-is-more-than-giving-advice

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https://hbr.org/1982/09/consulting-is-more-than-giving-advice


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ENSEADA SHIPYARD

PROJECT

Documents

Sebastien Giancola ENSEADA Project