This story appears in the October 14, 2012 issue of Forbes Asia. Subscribe to Forbes Asia
BY DONALD KIRK
Doosan Heavy Industries & Construction has forged ahead in the Middle East as South Korea's sole producer of nuclear reactors and a leading manufacturer of what rich but parched Gulf and Arab countries need: power and desalination plants.
The company expects sales this year to hit $10 billion, about half from ventures in the Mideast, says Kim Huntak, CEO of Doosan Heavy's power-provision group. Although brokerage analysts see results a good $1 billion short of that, the number should be a healthy increase. This reflects the remarkable emergence and transformation of a Korean family group dating to 1896, and how a growth region thousands of miles away can exert pull on North Asian corporate mainstays.
Doosan Heavy was formed from the takeover in late 2000 of Korea Heavy Industries & Construction, a deeply troubled giant that the government had acquired 20 years earlier and wanted to dump in the aftermath of the 1997-98 economic crisis. Named the prime bidder, Doosan made a $300 million offer for KHIC's enormous manufacturing complex at Changwon on the southern Korean coast where both nuclear and non-nuclear power technology is developed. Along with the entire plant came a staff well trained in producing power.
With that, Doosan plunged into full-scale production of power plants for turnkey transfer to oil-rich nations, two-thirds of its business today. KHIC, also widely known as Hanjung, had been in the Gulf since 1986, providing heat-recovery steam generators for the Jebel Ali thermal power plant in the United Arab Emirates. More work in the UAE, and deals in Saudi Arabia and Iran, followed.
(Click here for more stories focusing on business between Asia and the Mideast.)
Under the Doosan flag, however, sales have grown nearly fourfold. The company competes ever more seriously with the industry leaders--General Electric, Alstom and Siemens--in power plants for overseas markets.
Production capability has grown apace. Today Doosan Heavy makes equipment in Chennai, Da Nang and Romania to support its plant operations abroad, on top of the power-generation hub at Changwon. There, says 59-year-old executive Kim, steam generators are manufactured in the same sprawling building where Doosan Heavy produces nuclear reactors, including four for which the Emirates is paying $4 billion to the government-invested Korea Electric Power Corp., in overall charge of the $20 billion project.
That UAE deal calls for the four 1,400mw Doosan reactors and steam generators, the project's core ingredient, to go on line in Braka, near Abu Dhabi, from 2017 to 2021.
"Korea, Inc. is delivering complete projects,"says James Rooney, who was a civil engineer in the Mideast before migrating to Seoul, where he has an investment advisory firm, Market Force. "It behooves the government to make sure everyone gets a piece of the action."Among others, Samsung and Hyundai units have been contracted for the engineering and construction of the huge structures housing the reactors.
The reactor business had also come Doosan's way from the big 2000 acquisition. KHIC was the country's sole manufacturer of reactors, and the company, now Doosan, has so far built 11 reactors, with 8 more under construction. Nuclear power now fulfills 30% of the country's electrical power needs. "In Korea, obviously, building reactors was a government-driven business,"notes Rooney. It is becoming an export engine as well. While building the UAE reactors Doosan is courting more foreign buyers such as Turkey and India.
Kim prefers, however, to emphasize Doosan Heavy's success in setting up conventional thermal power plants--all told, bigger revenue earners than its nuclear program. "We have the total capability to produce power from any source,"he says. The firm's single biggest project right now is a deal for building plants at Rabigh, near Jeddah, on the Red Sea for Saudi Electric Power.
The plants are under construction and should be complete in 42 months at a total cost of $3.5 billion. Most important, he says, Doosan is providing engineering, procurement and construction services, or EPC, for the Rabigh plants, as well as the key components.
"This project is opening the market for using our own machines,"says Kim, the EPC boss. Saudi Arabia's plans to build still more plants creates new prospects for Doosan Heavy in strong competition with European and Japanese rivals. "Currently Doosan Heavy is able to go ahead with five or six projects, conducting all EPCs simultaneously,"he says. It ultimately aims to carry off ten at any given time.
On the desalination front Doosan has now built five plants in Saudi Arabia, with five more under construction. The UAE and Kuwait each have five plants, followed by Libya with two, and one each in Qatar and Oman. The company claims to be the world leader with its technology for "multistage flashing,"a technique in which seawater is converted to fresh water by evaporation.
Doosan has 40% of the multistage flashing market, says Yun Seokwon, 55, CEO of the water business group. Desalination was another vestige of the Korea Heavy takeover; Yun was in sales and marketing there.
Doosan's biggest water project is under construction in the industrial port of Ras Al Khair on Saudi Arabia's eastern coast that combines ?multistage flashing with reverse osmosis to filter out impurities. The goal is enough water to meet the daily needs of about 3.5 million people. The project is set for completion in 2014 at a cost of $1.7 billion.
Doosan has managed to stay centered amid its own and economic upheaval generally in recent years. "Now Doosan companies are considered quite capable,"says Hank Morris, financial advisor at Triple-A Partners, a Hong Kong investment advisory firm. "They have a long history and engineering capability."Somehow, he says, Doosan has weathered the global financial crunch, as well as unrest in the Mideast. "The construction industry has slowed down across the board,"he says. "Doosan is doing reasonably well."
Doosan Heavy is, to be sure, a company with an unusual past. From its origins as a textile merchant, the group christened Doosan ("little grains of sands that together make a mountain?) in 1925 later included Korea's biggest beer producer.
That dominance, through the OB, or Oriental Breweries, brand ended with the sale of the business a decade ago amid the corporate makeover that included the Korean Heavy aggregation, now Doosan Heavy, the group's largest entity.
In the process, the group survived and thrived despite bitter battles for control and direction among the third-generation brothers, grandchildren of founder Park Seung-jik. Doosan Heavy Chairman Park Geewon, 47, a great-grandson, was not made available for this article, nor was his photo.
The Doosan mantra is to improve lives by bringing electricity and water to billions in short supply of both. "We tried to consider how we can help people," says Kim Huntak, CEO for power provision. "The Park family considered this change from the mid-1990s and on to the fourth generation."
Or, as another company official carefully puts it, "Doosan Group successfully restructured its portfolio from consumer products and services to infrastructure support."
