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Rezzato and Devnya plant engineering and erection

Rezzato and Devnya plant engineering and erection: the challenges and successes in realising new plant construction when combining European and Chinese technologies: Roberto Fedi, Italcementi (Italy)

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Good morning to everybody, and thank you very much Keith for your introduction. I will start with the first part of the presentation. Till the technology choice description leaving to my colleague, Matteo Marconi, the task to complete the section related to the purchasing strategy and erection in both plants.

We will try to give you an idea on why, what and how we decided to realize the [xx] of the two our burdening line, Italian and Bulgarian, fulfilling the request of our company and stakeholders, including Challenges and successes of the realization. Before doing that, let me spend few words on Italchimici.

What are Italchimici and strategy, and then we will enter in the specific topic of the speech. Italchimici is a very old Italian company established in 1864, in 1925 was the first semi company listed in Italian Stocks Exchange. In 1992 with the acquisition of [xx], became the world's fifth larger producer. Today, between integrated plants, grinding center, and terminals, Italchimici is present in 22 countries with the consolidated production capacity of around 60 million tonne of cement, and a staff of around 18,500 people.

In 2013, the annual sales exceeded €4.2 billion on business. This year is the 105th anniversary of a successful business strategy implemented by a family-driven company at the fifth generation. After the words of Jack Christopher, I don't know how long this configuration will last. Italchimici foundation are research and innovation.

Italchimici has always pushed to the implementation of innovative, sustainable solution both in technologies and materials that are our means to build competitive advantage. Innova recently has launched his innovative approach to the market, Innova, which is a qualified system, universal and intuitiveorganize around the concept of performance.

All products are grouped into 11 performance [xx], each one offering solution for special needs facilitating the customer's choice and their purchase process. Group Technical Center. Let me now introduce CTG. CTG is an acronym of Group Technical Center, that is an Italchimici subsidiary, established in 1994 merging Italchimici engineering and Ciments Francais Technode.

In 2008, it was reorganized in three main departments. The first one, Research and Development and laboratory, to develop and implement strategic project concerning materials, products, and applications introducing the environmental impact and strengthening our market position. The second one, Technology and Performance, to assist the subsidiary in optimizing their technical and economic performance.

To support the Italchimici group new production process, testing, validating and introducing process innovation, and to support large project in a new installation realization for what concern? Technologies, and machine choice, and commissioning. Last, but not least, large projects to design and lead new plants,

Revamping expansion of existing one performing all the tasks from feasibility study upto the commission, insuring compliance with all project targets. In timing of time, cost and performance. Common task to all the departments is they know how preservation and the dissemination within the group.

Let me now talk about the two projects, and the reasons behind the strategic decision to revamp these two plants in a very difficult market situation. Here is the slide with the plant's location, Rezzato Close, to Gaba lake and Russia as a [xx] position in North of Italy. The first line [xx] for white [xx] production started in 1964 with a capacity of 600 tonne per day, followed by other two lines long semi dry, for dry cleaning production with local capacity of 2400 tonne per day.

Devonia close to Varna on the Red Sea started in 1955, the plant had six white lines able to produce more than 5000 tonne per day with road and railway connection. As you can see from the following aerial picture both installation are close to their limestone quarry, connected to the plant via conveyor belt. This is the quarry of the [xx], this is the connection to the plant, and this is the plant, Rezzato contrary to Devonia is inserted in a high density populated area, thank you very much.

Incoming environmental regulation would require high [xx] on both plants. This is the aerial view of the quarry and the plant in Devonia, and that is Devonia plant with the six now five with licence dealer there. The significant the month drop from 2006 to 2008 peak in both country is dramatic, as you can see from the graphic, the market in Italy dropped from more than 45 million up to 20 million in 2014, 14 will be 20 million. And in Bulgaria was even more dramatic from five million up to two million in 2014.

Analyzing this situation, we arrived to the following conclusion, strong reduction [xx] cement capacity utilization will emphasize the need for production cost reduction, and company restructuring to remain competitive in case of import stress on domestic price merging and export opportunity at challenging price. The need of alignment to the new initial regulation will impose important investment on absolute installation. Last but not least, is slow demand recovery in both countries will never reach the previous peak level. Privacy inputs brought to the natural decision to reduce the number of facilities and revamp the most strategic one with the aim at securing long term sustainable competitive position in the new normal.

What's the new normal? For the time being, we don't know. The following consideration were at the base of the revamping project for both plants. Raw material availability more than 100 years, reduction environmental foot print, industrial network readjustment with local production increased by 25%, and in case of Devonia, export possibility. After the restructuring, Italian will remain with nine complete plants, and two of them will be just for clincher need just in case, but normally, we remain grinding center, and five grinding centers.

As you can imagine, municipal authorization for project realization was not so easy to be obtained, and we had to negotiate with the local authority additionally prevent, and compensation, as in case of [xx] strong emission level reduction of visual and noise impact by closing all the main structure, and the organization of the vehicle traffic outside the plant.

In Devonia, they asked for cycle rehabilitation and demolition, first rain water treatment inside the plant, and future realization of a covered cool storage. Just to give an example, to receive the Fronte Municipality, the green light for the upgrading of Rezzato, we had to sign a protocol with very strange emission limits. On specific concentration,

Well below the best available technique limits, resulting in the reduction of 65% versus 2006, over pollutant mass flow on yearly basis. Also internal requirements to authorize the project were very strong, and we had been obliged to revise many times the project, both for technical solution, and purchasing and execution strategy.

The most important internal request the work [xx] as you can imagine where minimization of the total cost for investment, minimization of production cost, respect of the best available technique [xx] ready to use alternative fuel in both plant and utilization as much as possible of innovative technical solution.

For internal authorization we had to commit not only on project cost, but also on industrial performance, in this page the comparison between the industrial performance for Rezzato, and Devonia that we assured to our [xx] customer. So the stronger reduction in heat consumption, and also in water consumption.

Our Stephano Gardi as the manager and Philip Fonta, will be very happy for emerging water consumption reduction. As you can imagine, the imposed limited by the municipality, and the owner requirement were so strange that we had to use a state of art technologies, and mainly Rezzato innovative not yet standard solution for cement industry.

In the next stage, the future of the main [xx] plants, are listed with some flow sheet and specific characteristic of the installed machines. Here in this light, I summarize the current figure for the two lines gained by the supplier, able to deliver the requested industrial performance from the company.

As you can see, the heat consumption is much lower than what requested by the company for industrial performance. Here is the flow sheet of Devonia plant, Devonia plant is a more conventional configuration with a Chinese fifth stage pre heater in a concealment, kiln on the supporter, I can cool initial vertical room, a selective non characteristic reduction for [xx] reduction, and in America I filter with bags long as 6.5 meters for raw material triangle, to benefit of the hot gas from the cooler. Even if the perfomance are challenging, this convention line does not present particular issues for the engineering realization also because the room for direction is separated from the existing operated lines.

Only during the day we will have some interference. Here is the flow sheet, the general flow sheet of Rezzato. Rezzato new line on the contrary, in order to reach the environmental and operating performance to respect the budget limitation and to allow direction in the narrow passage between white and grey kilns have been engineered by using a lot of innovative solution.

Here we have a five stage pre heater within line concealment, the kiln on two piece, the cooler and the grinding department with roller press in finishing configuration totally engineered by THD. In addition, we have four knots[sp?] apartment, in selective non catalytic reduction, and on top of all the conditioning tower, we have a high dust selective catalytic reduction engineered by [xx].

For SO2 apartment, we have a system, dry injection of sodium carbonate engineered by [xx]. In the cooler we have a filter with a very high temperature bags able to resist at an operating condition, temperature condition of 400 degree engineered by Echo Spritech[sp?]. And last but not least, a kiln bag filter with fiberglass bags 8 meter length manufactured by Shoike.

Unfortunately, time is passing very fast I don't want to steal too much time to the interesting speech of my colleague Mateo, who will illustrate the challenge and success in project realization. Thank to everybody I remain available for any question.
Thank you Alberto, you hear me? Okay. Thank you very much.

Just following this brief presentation about the content of the project, I would like to briefly introduce how we, actually decided to implement this project, because we followed two different strategies on the two projects, and my intent is to illustrate the main features of both of them, and try to underline what had been the main point of strength and weaknesses of both of them.

So let's first have a look at how we decided to implement the two projects. First of all project for the Rezzato project we opted for a direct execution approach, where the owner has [xx] strategy take the role of central interface to coordinate all the different parts, engineering, procuring, and construction. So developed the project through 35 main purchase owners, with five of them as major packages covering around 90% of the project budget.

Namely the detail design, the technology [xx] have been purchased as a single package for the entire, so the package has been purchased by one supplier through competitive bit, that are being then assigned to a European supplier as we said was KHD. One package for the main control system, one package for the Medium Voltage Distribution, and one for the construction of the entire plant,

So covering all the disciplines, civil, mechanical and E&I altogether, so mainly we see that this project has main European contents. Conversely on the Devonia project in Bulgaria, we opted for a full scope EPC contract on lump sums and key bases that are being then assigned again on a competitive bid to Chinese contractors namely [xx] CBMI, and so this project has being characterized by main Chinese content.

So let's give a look at the main points, strength and weaknesses of these two approaches. We can see up on the Rezzato project, main advantage is definitely the direct control over the planning and execution, so we have the way to act directly more than normally EPC contractor, and of course having a higher flexibility and a shorter decision proxy, because everything was managed internally, and an easier communication,

While the weakest point have been of course the higher risk of cost of the run having the entire scope on our side and the always risk of changes along the execution as we normally face unfortunately the project. Definitely complex organized coordination of the different phases, very massive effort in term of preparation before starting the execution, so we had to prepare a very detailed pre engineering and all the management tools, and a very complex conflict management environment, and managing several interfaces.

On the positive side on the Devonia project we had, the advantage of risk transfer on the contractor due to this completely packaged EPC, that was based on the very detailed contract that actually prevented us from any changes along the execution that have been a very strong point for that. A lighter front and management organisation, or at least in principle a lighter than we realize that during execution we had to reinforce this structure for many reasons, and for sure having a single reference for the entire project constitutes a good advantage. On the opposite side of course first points that I want to stress and underline very strong emphasis is the very complex communication, communication has been a huge issue, both in terms of language that is of course an issue, but in terms of cultural background as well, so this is definitely the key element dealing with a Chinese contractor at least in our experience. Second point definitely the integration of Chinese contractor with the local reality that is something that need to be mediated somehow, and last but not least a reduced control and visibility over the decision of proptures[sp?] with the contractor, because of course every decision taken by the contractor is not that directly visible to the owner, or not easily directly visible. So just having a look at where keeping in mind these, key points just a few hints about the main aspects in terms of healthy and safety, just want to stress again the point about communication, in health and safety we had big problems in terms of communication on the Devonia projects, not only because of, of course the mutual understanding of the different standards from China and Europe, but even from a physical point of view the communication, the language gap can be an agency issue, a [xx] issue, quite important, one of the most important accident we had was just because of a communication problem within the crane operator, and the field operator they could not understand each other, and they created a big problem. And this is one of the key points that I want to stress, then of course on all the others, yeah, working the European contractors is easier, the familiarity with the contracting standards, but of course the complexity of having multiple inter phases, and multiple sub contractors to be managed directly generated a lot of problems. On engineering and supply, of course advantage on the European side of direct control of engineering and the familiarity with the standards has been a good point of strength, a weakness of course has been the owner responsibility in front of the construction contractor for the delivery of engineering and equipment to the construction site. On the opposite side again on Devonia yes, having a single point of responsibilities for sure a great advantage, but again the communication is a big point in the engineering developments, and the need to translate the Chinese standards into local standards have been quite an issue, and generated a very huge even document management flow at the end. Then on the construction again, the general contractor that was actually chosen for Rezzato project constituting a single point has been a big advantage, and the other advantage being the direct control over the progress so we could actually implement a very detailed progress management system that helped us to keep the pace that we will see later, on the opposite side of course the complex contract management having several inter phases to be managed generated some problems, and last but not least the lack of cement experience sub contractors in the Italian area generated some problems in terms of learning curve along the execution of the construction. While on the Devonia project, yes, definitely the experienced Chinese manpower building their own plant, has been a big advantage, because they actually follow that very strict length, and the integrated management over the supply chain has been a very good point, and again on the construction side on Chinese the limited possibility to import the manpower generates some problems of integration between Chinese and Bulgarian reality. So just few snapshots of the job sites that they are right now, this photos are from a couple of weeks ago, but we see this is the Rezzato project where you can actually look at the congested area where we had to work in, because we are strictly between two working camps, and here you see that the huge job site area that was realized outside the plant in order to facilitate material management and the reassembling activities.

While we see that Devonia project is definitely located in more side, we have more room to develop the project, and we are currently running the raw grinding and we should be able to start up the line along, possibly the 15th October is the plan, so we are very, very, close to the fire up,

When on Rezzato we are, it should be 10 days later, but on both of them we are in the final rush it is quite stressing [xx] good time.Few hints on the cost, if you look at the bench mark just trying to normalize the cost of raw grinding and burning line cost which are the common scope on both the projects say, not only in terms of equipment but in terms of engineering, supply, and construction, and normalize all the annual clincher production, we see on Devonia, a factor of €82.2 per tonne, against the Rezzato which is around 111.8, 112 with a factor of 136.

And looking at some of the main cost voices, we see there for [xx] Construction the unit rates in terms of euro per cubic meter including everything. We go from Devonia on 557 against the Rezzato 1300s with a factor of 2.3, this has been quite a huge difference in terms of cost. We see similarly a factor of 1.5 for the units rates of equipment in terms of euro per kilogram,

One on man power, part of the cost of man hour, if we normalize that on the erection productivity it has been quite different, because we see 74.3 hours per ton of steel on Devonia against the 41.7 that the erection unit rate is on 1.4 Euro for kilogram of steel on Devonia against the 2.1 on Rezzato again with a factor 1.5, so we can own or summarize a difference in terms of cost in order of 1.51 on the other.

And this is not only due on the Chinese contractor only, but of course on the different context of Italy against Bulgaria that you have some quite different cost days is all we know. Timing quite important so, at the touch of being developed keeping the original baseline. So we maintain the original baseline as you can see from the curves there that was 25 months from the assignment that meant to purchase orders, and we had a substantial, we had some few deviation due to some changes in the execution sequence, but essentially we maintained what has been the plan that we developed for placing the orders.While on the Devonia project we accumulated a five months delay against the Regional Contractor Baseline.

The Regional Contract Baseline was for 26 months from the contract signature, and we are currently closing the project in 31 months. What is important to note is that as you can see here, there had been a very hard start of the project. We accumulated these five months in the first say 10 to 12 months,

But after we actually find the way to work together, and we could be able to, re-plan the entire stuff then we follow this re-forecast that was done on May 2013 until now, and we are currently touching the 100% with the start of this as we said is planned for coming weeks. Now this is quite an important aspect to consider in terms of time management

That leads to the last points, to just trying to summarize what are the main lessons learnt that we can try to dig out from this experience. First of all on the Rezzato project, we want to stress the need of a very accurate basic design, but if we approach a project in terms of direct execution, we need to invest a lot on the preparation, and to invest a lot on the development of the management tools to be able to take care of all the complexities that we need to manage together.

The second point is, while we confirm that Parker's approach as a winning approach on the opposite side we need to avoid to force suppliers to do too much beyond their normal, say perimeter of supply, because this can somehow generate some problems. Force the contractor to go in area where they're not well experienced.

On Devonia project, on the opposite side we could stress the point that we need to ensure an in deep understanding of the project context, dealing with a Chinese contractor we need to ensure that there is a very in deep understanding of where the project will be developed, and what the issue will be that sense.

Second point register is to invest in communication skills, there is a strong need to really find a way to communicate and understand each other, and last but not least a very adequate and very in deep analysis of the schedule and the management tools to have since day one, are very control to share the whole stuff.

And that's can just close to few conclusions of this entire speech, I'm sorry probably got somehow longer than expected. So as we said, once a strategic decision has been taken of course the project of a new cement launch need to take into account many aspects. So strongly, strongly affected by the environment regulation and the local needs as I said, so we said energy consumption above the emission of pollutants and everything need to be considered, not only for permits on the authorities but of course on the key stakeholders managements on the local communities, and again the need to invest in technological innovation in this sense.

So the correct choice then of the execution strategy constitute a key element to bring a project to success, but I think these two experience I just, we just briefly presented show a way how to somehow deal and manage this kind of ventures, and we believe that these two projects that are quite unique in the European environment right now should represent in any case a key element and a reference point for the future of our say continent that we still believe should keep on investing in this sector, not withstanding all the say, crows that we have around.

Thank you very much and we are of course available for any questions you'd like to ask us.

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