The 5 Key Challenges in the localisation process of nuclear equipment

THE 5 KEY CHALLENGES IN THE LOCALIZATION PROCESS OF NUCLEAR EQUIPMENT

– Strategies on how to become a sustainable player in the nuclear industry–

Research conducted by :

DYNATOM INTERNATIONAL GmbH

Areas covered

•  The nuclear power market provides innovation and opportunities to Turkish companies but technology and cost are increasing rapidly

•  The 5 Key Challenges in the

localization process

•  6 Steps to build a sustainable business

•  Ongoing Case Studies

The nuclear power market provides innovation and opportunities to Turkish companies…

... BUT Costs of Technology, and Human Resource are Increasing

•  While revenue continues to grow, margins decrease due to regulatory body and operator requirements

“Capacity factors today can be 90% +. Back in the 1980s, a capacity factor in the mid 80% was considered as excellent”

Milton Caplan, The Importance of Innovation to the Nuclear Industry February 14, 2014

•  Increase cost include commodity price escalation, engineering, and craft labor shortages and manufacturing and shipping constraints.

•  Combined with uncertainties about executing engineering and

construction, overnight cost estimates (that exclude the costs of escalation and financing) , etc.

World Nuclear Association, Nucleonics

Leaders in nuclear industry must improve through innovation

European Chamber Survey

CEIBS Survey Swiss Survey

Rising Labor Costs ✔ No. 1 ✔ No. 3 ✔ No. 1

Fierce Competition ✔ No. 6 ✔ No. 2 ✔ No. 2

Economic slowdown in China

✔ No. 3 ✔ No. 1 ✔ No. 3

Economic slowdown in home market

✔ No.2

✖

Slow recovery of global economy

✔ No. 5 (Lower international demand) ✔ No. 4 ✔ No. 4

Government policies ✖ ✔ No. 5 ✔ No. 5

Legal environment ✔ No. 8 (Biased relations/regulatory

enforcement) No. 9 (Burdensome regulatory

environment)

✔ No. 6 ✔ No. 6

Business it getting tougher and companies are chasing other markets such as Turkey

European Business in China: Business Confidence Survey European Chamber, 2013

2013 Business in China Survey & 2013 Swiss Business in China Survey,, A CEIBS, Swiss Center Shanghai, China Integrated Analysis

•  55 new reactors are forecasted in the Middle East and African Continent until 2030 and more until 2040

Sources: IAEA, World Nuclear, IEA, OCDE,

Source: UNCTAD, FDI/TNC database based on data from the Central Bank of Turkey

•  FDI in the Turkish energy market is just burgeoning while the electricity market is one of the fastest growing in the world, with approx. 9% annual growth on average, in 2010 and 2011.

Everybody Wants a Piece of the Golden Cake!

Nuclear is still a leading emerging market for investment such as MENA

1000 600 72 30

Source: Istanbul Chamber of Commerce and Ankara Chamber of Commerce

•  “One job created in the Nuclear industry will create ten other jobs in other segments “Viktor Karmatsky, June 8, 2012. Nuclear Intelligence Weekly

Sources: EDF, NIAUK, State of the World 2013, Dynatom International

Revenue from the nuclear market will become CRUCIAL for a a specific range of companies

•  From a large survey of the 1,000 top Turkish companies in the energy sector, a small number will gather into a nuclear cluster, others will get involved in construction and non safety equipment

125000

54000 39000 38000

0

50000

100000

150000

France UK Turkey Germany

Jobs generated in the nuclear industry

But a major challenge is the lack of an experienced human resource in nuclear

Two examples with VVER: Jordan and Turkey •  Jordan can neither afford the same level of

direct investment in its nuclear power assets nor the same level of support for educational and governmental institutions with a role in nuclear sector.

•  Turkey has no operational experience of commercial-scale nuclear power, and may be vulnerable to a situation of information asymmetry in which the regulator may not have sufficient expertise and capacity to competently oversee an experienced Russian project company

John Banks, Kevin Massy, Charles Ebinger Human Resource Development in New Nuclear Energy States: Case Studies from the Middle East, Energy Security Initiative, Nov. 2012

1.  Erzhong Group 2.  Dongfang Electric 3.  Haerbin Electric 4.  Dongfang Boiler 5.  Fangda Carbon New Material Technology 6.  Wujian Dongwu Machinery 7.  AB Sandvik Materials Technology 8.  Aerzen 9.  ALFA LAVAL LUND AB 10.  Alstom Power Turbomachines 11.  Andritz AG 12.  AREVA 13.  Armaturenfabrik Franz Schneider

GmbH&Co.KG 14.  BERNARD CONTROLS S.A. 15.  CAMERON INTERNATIONAL

CORPORATION 16.  Canberra Industries, Inc. 17.  Emerson Process Management S.A.S. 18.  Erndtebrücker Eisenwerk GmbH&Co.KG

19.  Habia Cable AB 20.  Instalaciones Inabensa S.A. 21.  KSB Aktiengesellschaft (KSB AG) 22.  Manoir Industries 23.  NFM Technologies 24.  Rotork Control Limited 25.  Sandvik Materials Technology 26.  SCHOTT Electronic Packaging GmbH 27.  Siemens AG 28.  Sumitomo Metal Industries, Ltd. 29.  Swagelok Corporation

Source: Dynabond Powertech Service

More various, key suppliers are already in Turkey

Other 2%

Ukraine 1%

Switzerland 1%

Sweden 1%

Canada 2%

Austria 2% Spain

2%

South Korea

2% UK 5% Japan

6% Italy 6%

Russia 10%

Germany 16%

USA 18%

France 26%

Example in China: A large international supply chain

•  Since 2008, 231 Foreign companies from 19 countries received the HAF 604 certification for the sales of safety related equipment in China (China) National Nuclear Safety Authority January 2015

The 5 key challenges that threaten the localization

1.  Rising Cost & Lack of Skills

2.  Lack of local regulation3.  Inexistence of Industrial

Park4.  Timid involvement of

Research and the Industry

5.  No Lobbying Group

OECD

In the context of serious regional geopolitical tensions and the sluggish recovery in Europe, exports are projected to be subdued and GDP growth to be relatively weak by Turkish standards, at 3¼ per cent in 2015 and 4% in 2016

1.  Costs of setting up operations in Turkey alone may grow fast

•  Growth has lost momentum in 2014

A conventional mechanical engineer in Turkey with 20 years of experience earns a salary of 30,000 Euros

•  Lack of skilled labor will require Investment in human resource

Bureau of Labor statistics, National Careers Service, Onisep, CFHI

The Central Bank of Turkey cut its mid-point inflation forecast for the end of this year to 5.5 percent from a previous 6.1 percent, governor

•  Inflation rate is decreasing but still high

Governor Erdem Başçı, Central Bank of Turkey

0

20000

40000

60000

80000

USA UK France China

Average salary for graduated technician in nuclear industry (€)

Cost of Human resource

Payscale

11'409€ 22'087€

13'890€ 11'092€ 20'436€ 19'361€ 18'444€

84'427€

104'339€ 138'647€ 144'678€

148'375€ 141'663€

110'681€

'0€

20'000€

40'000€

60'000€

80'000€

100'000€

120'000€

140'000€

160'000€

180'000€

Anadolu Universitesi

Bilkent University Ege Universitesi Hacettepe University

Middle East Technical University

Yeditepe Universitesi

Yildiz Teknik Universitesi

Salary for Engineers from Major Schools

Minimum Maximum

Cost of Human resource

Payscale

406'699€

130'621€ 145'483€ 110'532€

55'248€

'0€ 50'000€

100'000€ 150'000€ 200'000€ 250'000€ 300'000€ 350'000€ 400'000€ 450'000€

Bachelor of Engineering (BEng /

BE), Mechanical Engineering (ME)

Bachelor of Science (BS / BSc), Industrial

Engineering (IE)

Doctorate (PhD) Bachelor's Degree Bachelor's Degree, Computer Engineering

(CE)

Maximum salary range for popular degrees

21'802€

29'693€

17'295€ 14'295€

8'972€

'0€ 5'000€

10'000€ 15'000€ 20'000€ 25'000€ 30'000€ 35'000€

Bachelor of Engineering (BEng /

BE), Mechanical Engineering (ME)

Bachelor of Science (BS / BSc), Industrial

Engineering (IE)

Doctorate (PhD) Bachelor's Degree Bachelor's Degree, Computer Engineering

(CE)

Minimum salary range for popular degrees

•  The regulator does not have any regulation to control or monitor the foreign competition

•  The HAF regulations in China allow the safety authority to monitor foreign companies and support the local industry

2.  Lack of Local Regulation and industrial strategy

HAF 604 Union des Forgerons

0  20  40  60  80  

100  120  

HAF601   HAF604  

•  The creation of a local park dedicated to nuclear is a magnet for new ventures and investment.

•  Sinop and Akkuyu do not have a local supply chain, in particular a nuclear industrial park

3.  Inexistence of a Nuclear Industrial Park

Areva, signed an agreement with Haiyan that it would invest 300 million yuan to establish Areva (China) Nuclear Power Service which is exclusively foreign-owned with a registered capital of 100 million yuan in Qinshan Sub district (The nuclear power operation area of the China Nuclear City). This company to be established will offer main services to the local enterprises, and also to other nuclear power enterprises in China.

Haiyan Government

Haiyan

Haiyang

Taishan

•  The interaction between the academic and industry is essential to fasten the applied research

Since its creation, the PNB gathers 160 entities. More than 3 000 jobs were created in Burgundy and investments of above 700 Million Euros. Nuclear represents 12,000 jobs in the region, 70 square kilometers around Dijon

Pole Nucléaire Bourgogne

4.  Timid harmonization between the research and industry

•  Europe SNETP set up a Task Force comprising research organizations and industrial partners to develop the European Sustainable Nuclear Industrial Initiative (ESNII) in support of the SET-Plan.

•  The National Nuclear Laboratory (NNL) welcomes the establishment of the Nuclear Innovation and Research Office (NIRO). NIRO is is the body responsible for providing advice to Government, industry and other bodies on R&D and innovation opportunities in the nuclear sector under the guidance of the Nuclear Innovation and Research Advisory Board (NIRAB) Snept.eu, National Nuclear Laboratories

4.  The core of Burgundy Nuclear Partnership

Operator, 1 Research Center, 2 Bank & Insurance, 3 NDT, 3

Consulting, 5

Government body, 8

Engineering , 11

Schools and Universities, 13

Heavy Industry, 15

Components Manufacturer, 39

Gérard Kottmann, President of the Burgundy Nuclear Partnership, signed with the French State a performance contract engaging the PNB in an ambitious programme covering, R&D, innovation and education.

25/07/2011 - France, Power generation

4.  The core of Burgundy Nuclear Partnership

•  Spanish Nuclear Group is a consortium of four Spanish companies, ENSA, ENUSA, RINGO and TECNATOM in order to coordinate, increase and promote these companies operations in the marketing sector of goods and services for nuclear power stations in which the core business carry out their activities.

•  Founded by industrial organizations, FinNuclear purpose is to promote Finnish companies’ general preconditions, cooperation, competences, international profile in manufacturing, construction and service activities in the nuclear energy field.

•  It covers the whole lifecycle of nuclear power plants and associated plants, including design, licensing, construction, operation, maintenance, modernization, fuel cycle, waste management and decommissioning as well as related research activities.

•  PFME is an association of EDF suppliers for the French nuclear program who provide equipment and services for nuclear power plants around the world.

•  The main objective of the association is to support PFME countries wishing to develop or redevelop their nuclear industry giving them the benefit of the experience and expertise of French suppliers.

5.  No Lobbying Group

http://english.finnuclear.fi/finnuclearassociation

http://www.sngc.es/en/about-us/

http://aifen.fr/site/membres/membres-n-r/pfme-partenariat-france-monde-electricite/

5.  The French China Electricity Partnership

Fuel cycle 4%

Ventilation, insulation,

sealing 7%

Civil Engineering

11%

Hydraulic, pumps, valves,

pipes 20%

Electricity 13%

Mecanic, handling

19%

Protection & Control

26%

The leading Lobbying Group in China: The French China Nuclear Partnership The PFCE aims to promote the safety and competitiveness of nuclear electricity production through sustainable involvement of French industry especially in the realization of China's nuclear program, particularly implantation units in China and partnerships between French and Chinese nuclear industries in the areas of design, manufacturing, construction, commissioning, monitoring, maintenance and decommissioning of nuclear power production electricity.

http://www.pfce-online.com

6 Steps to get localized in the nuclear market in 2015

1.  Safety is the key 2.  Assess the domestic

market and local skills 3.  Create a combined

Research Group 4.  Rally the industry in a

lobbying group 5.  Partner with an

experienced foreign company

6.  Open industrial parks to attract investment

STEP 1

Develop a Safety Culture

Safety always comes first

Have a clear understanding of the culture of safety

•  Less than 10% of the Chinese companies certified by the National Nuclear Safety Authority for design, manufacture, install and NDT have applied for the ASME stamp.

•  The main reason is the insurance liability and insurance premium.

•  State Nuclear Power Technology Corporation (SNPTC) senior expert Xu Lian-yi:

Measured by international standards, construction site safety records in China are poor. The behaviour of contractors on safety management are of grave concern, including the lack of provision of personal protection equipment, regular safety meetings, and safety training

C.M. Tam, S.X. Zeng, , Z.M. Deng Identifying elements of poor construction safety

management in China

"Our weakness is the management standard is not high enough, and there is a big gap between the international standards."

国国家家核核电技技术公公司司(SNPTC)资深深专家家许连义曾曾说：： ““我我们致致命命

的的弱弱点点是是管管理理标准准不不够高高，，

和和国国际标准准还有有很很大大差差距距。。””

http://www.heneng.net.cn/index.php?mod=news&action=show&article_id=34229&category_id=9

STEP 2

Assess the domestic market and local skills

•  Create a corporate website with reports available to the public:

Make your company the expert in the industry: Market data crushes product data

Always know what is going on in your market segment

No News = Bad News

•  Get first hand information Participate in workgroup with government agencies, such as ASO, ISO, KOSGEB,MUSIAD TUBITAK...and create partnership with Engineering universities. Ex: PNB in France, CNEA in China

•  In China 82 companies provide safety related valves Screen on daily basis a maximum of information related to your competitors in your markets

Most skilled workers in Turkey tend to immigrate

•  Early cooperation with Technical schools and universities: benefit of the research in your company

•  Ex: Gedik University

•  CEA and the industry Finances doctorates CTCI/CTCR

•  Finance Doctorates to retain knowhow and future managers

CEA-INSTN

CNNC and Harbin Engineering University signed strategic agreement and agreement on joint personnel training.

CNNC, December 2010

•  Create a strong QM department, and design team.

•  Use the licensing culture of US Companies

Find the right people to work with

0

20

40

60

80

100

120

1 2 3 4 5 6 7 8 9 10 11

Certification for Design awarded 2004-2014

(HAF 601)

STEP 3

Combine Education, Research, Industry,

Engineering, Operation, Finance, and

Insurance in a nuclear network

•  Early cooperation with French, German, Czech and Finnish, associations: benefit of international experience for your nuclear cluster

•  PFME (France) •  GIIN (France) •  NIA (UK) •  SGNC (Spain) •  FINNUCLEAR (Finland) •  OCI (Canada)

•  Use the leverage of your market to attract foreign associations

The (PFCE) and the French Nuclear Industry Association (GIIN) signed in Haiyan a letter of intent for promoting cooperation in nuclear related industry with the local government

Nicobar Group August 2010

Implement a cooperation agreement with foreign industrial associations and provinces

•  ILLINOIS •  BURGUNDY •  NORTH RHINE WESTPHALIA •  GREAT MANCHESTER •  ZHEJIANG

•  Create industrial partnership with provinces and states craving for business expansion

•  Start using foreign interns from the nuclear engineering schools, subcontract nuclear engineering to local companies, educate your banker and insurer

STEP 4

Join the Industry to establish a lobbying group

•  Increase public acceptance for nuclear. Even in China, public stops projects ( Shandong / Guangdong)

1.  Create a nuclear subgroup within the ISO, ASO, KOSGEB, TUSIAD…

2.  Use promotional supports in schools •  Film Sales Corp (Pandora Promise) •  The Heritage Foundation

3.  Organize regular visit of your factory to local / national politicians

•  Many of Chinese leaders are from Zhejiang and Shanghai area

•  French Minister of SME was the mayor of the capital of Burgundy

4.  Create a bilingual media platform

Educate the market and government bodies

The starting point of all achievement is desire Napoleon Hill

STEP 5

“Alliances and partnerships produce

stability when they reflect realities and

interests”. Stephen Kinzer

Make Communication your Priority No. 1 and Develop Cultural Intelligence

“To see me does not necessarily mean to see my face. To understand my thoughts is to have seen me.”

Mustafa Kemal Ataturk

Expectations from your company

Expectations from the

foreign partner

Proactive business development in regional programs (UAE, Egypt,

KSA, Jordan, Armenia…)

Expansion of the Brand, Control of non proliferation to Iran, Syria,

Libya

Protection of IP, reporting on local regulations, relation with TAEK

and EPC

Experience in the nuclear market, investment in training program

Continuous development of new equipment

Using the foreign Brand

Transfer of technology, Russian US and French codes and

standards

Education to the staff

The search for the right partner: PREPARE

•  The challengers are more open to discussion

•  The companies that are not “state owned minded” react faster

•  The large brand are often too bureaucratic and slow to decide

Assess the top 2 and 3 in the market

Prepare a list of technical needs and regional market opportunities

•  You are expected to work as equal partner

-  Know your nuclear environment

-  Assess your technological gaps, and your competitor weakness

•  Outline your multi national strategy MENA

The long term commitment, financial and master of the local regulations

Sign fast, prepare for a first consulting project

•  Show your commitment to excellence, nuclear is long run:

-Investment in Human Resource, Codes and standard, and a considerable QM program.

•  Develop your network with TAEK, TUBITAK, AFAD, and the Ministry of Energy

•  Visit fast your partner facilities

•  Draft a first consulting /research project (your investment) to learn from the foreign company

•  Prepare for a joint program within the next 3 months.

Foreign partner wants visibility

Except in a few cases, avoid the star,

take the challenger

Show your will to invest in development to match the

partner standard

Foreigners are impatient due closure of major market such as China

To lead an untrained people to war, is to throw them away Confucius

Which partner should you target?

Country   Advantage   Weakness   Expecta>on  

Belgium   Reacts  Fast,  experienced,  mul>cultural   High  expecta>on,  oFen  suspicious   Region  oriented  

Canada   Easy  going,  trusGul   CANDU  oriented  mostly,  not  aggressive   Moderated  

China   Speed  in  execu>on   Slow  in  Decision,  poor  communica>on,  state  oriented   Fast  Return  on  Investment  

Czech   Russian  standards   State  Oriented   Expects  orders  from  Rosatom    

France   Experienced  in  overseas  market   Suspicious  in  transfer  of  technology,  non  exclusive   Expects  purchase  orders  from  you  

Germany  Market  oriented,  experienced,  need  to  act  fast   Made  in  Germany:  small  transfer  of  technology   Planning  

Japan   Quality   Poor  communica>on,  lack  of  leadership,  language  barrier  

To  sell  directly  through  their  sogo  sosha  

Korea   Aggressive   Control  freak   Fast  Return  on  Investment  

USA   Licensing   Process  guru,  license  export,  more  maintenance  oriented   Visibility    

STEP 6

Develop the Nuclear Industrial

Parks

•  Check with ISPAT if Sinop and Akkuyu are Technology Development Zones (TDZ) to support R&D activities and attract foreign investments nuclear manufacturing.

•  Invest in design and manufacturing of Class 3 equipment.

Create entities in industrial parks close to NPP

•  Look how Germany implemented its industrial supply chain. Many similarities can be taken into account:

•  The projects in Turkey (3-4 sites) are more or less the same than actual market of Germany

•  Population (75-80), •  Strategic position and leading status( Europe-MENA) •  TSO agreement

FDI Inflows By Countries, 2012, Central Bank of Turkey

The Netherlands 19,7% Austria 8,8% Germany 8,8% UK 7,1% Spain 6,3% Luxembourg 5,2% France 4,9% USA 4,8% Russia 4,7% UAE 4,3% Switzerland 3,4%

Ongoing Case Studies

1.  Mavinci 2.  GEDIK

Mavinci: Nuclear Safety

•  Leader in CBRN development, but: -  No experience in nuclear power market -  Lack of vision in the market

•  What was done ? -  Assessment of Mavinci capabilities -  Proposal of several markets to get involved in -  Suggestion of the partner and business model -  Planning of the partnership, and market opportunities -  Commitment to investment in the nuclear training center

•  Delivery -  Partnership with the leading Technical Safety Organization from Germany (GRS) -  Creation of a consortium with Hacettepe University -  Planning of specific research and nuclear safety projects for 2015

Gedik: Nuclear Casting

•  Leader in welding and valve, but: -  No experience in nuclear power market -  Lack of understanding of standards and codes

•  What was done ? -  Assessment of Gedik capabilities -  Suggestion of the partner and business model -  Planning of the partnership, and market opportunities in the region -  Commitment of investment from Gedik to complete Forgemasters offer

•  Delivery -  Partnership with Sheffield Forgemasters from United Kingdom -  Creation of an education project between the UK and Gedik -  Planning of specific consulting projects for 2015

•  Dynatom International is consulting firm focused in nuclear market only

•  Located in Fribourg, Switzerland, with branches- representation in Beijing, Chicago, Valencia and Istanbul

•  Specialized in Technology transfer in China and overseas market dominance

•  Since 2014 expansion in Turkey to develop the industry has a hub for all NPP in the MENA and Africa

A Word from our Sponsor

•  Transfer of Technology •  Certification Process •  Market Intelligence and

dominance •  Strategic development in

overseas markets •  Communication and

Branding •  Trade and Investment

Expertise and origin of our portfolio

Any industrialized country that uses nuclear power controls 90% of the supply chain. China, India, the Middle East, Asia Minor, Africa and Latin America are no exceptions to this rule, it is just a question of timing. Your role is to act in the global market and to anticipate new challenges rather than wait for orders and control the damage from your competitors. Contact us: •  Turkey (Istanbul): Aline Telle, +90 (531) 763 14 09

•  [email protected] •  Switzerland (Fribourg): Arnaud Lefevre +41 (76) 588 09 66

•  [email protected] •  USA (Chicago) : Frederic Mouen +1 (872) 220 5063

•  [email protected] •  China (Beijing) Nicolas Schlumberger+86 158-2194-4786

•  [email protected] “Action without thinking is the cause of every failure” Peter Drucker.

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