Demco Plc is an engineering, procurement and construction (EPC) contractor focusing on electrical systems in Thailand for the utility, telecommunications and renewable energy industries and an investor in renewable energy projects. Chairman Phongsak Siricupta discusses the company’s strategy and outlook.
What is Demco’s business model?
Demco is an EPC contractor that covers the electrical, mechanical, telecommunications and renewables industries. In electrical engineering we build everything required to transmit power from power plants to substations to the end user. This includes transmission lines, substation facilities and distribution lines. For mechanical engineering we provide the electrical work and instruments for factories, while for telecommunications engineering we install fibre-optic cables.
Demco started expanding into renewable energy in 2010 in both solar and wind farm projects as both a contractor and investor. Finally, to support all these businesses we have facilities that fabricate steel structures and a civil design and construction work department.
Why did Demco decide to expand into renewable energy?
Regardless of whether a project is solar, wind or biomass, the output is electricity, and Demco is a specialist in electrical systems. Thus, we saw the opportunity to expand into this industry as both an EPC contractor and an investor, as we could combine our core skill of electrical systems with our partners’ knowledge of renewable energy.
Furthermore, the Thai government has begun to support renewable energy industries, as Thailand must expand its electricity sources. Thus, with the combination of our core skills, our partnerships with the combination of our core skills, our partnerships with experts and government support, expanding into renewable energy was a natural step for us.
How are Demco’s investments in renewable energy progressing?
We currently have investments in wind farms, solar farms and solar roof projects, and biomass. For wind farms we hold 10% in Khao Kor, which has 60 megawatts. We also hold 25% in Aeolus, which in turn holds 60% in FKW and KRZ, generating 90 MW each, and finally in WEH we hold 4%, which has 930 MW.
For solar farms we own 45.7% of three projects of 1 MW each, and for solar roofs we hold 100% in Demco Power, which has 1 MW, plus stakes in two other solar roof projects. For biomass we recently started a company called CIN-Thailand, in which we own 25%, to focus on waste-to-energy projects in southern Thailand.
Thus, in total Demco owns, regarding our holdings, 37 MW of wind farms and 2.97 MW of solar power generation when all projects are completed. From our investments in Aeolus, Khao Kor and the solar projects, we expect to receive dividends of 180 million baht this year, 195 million next year and 230 million a year from 2016 onwards.
How is Demco’s backlog progressing?
We currently have a backlog of 6 billion baht, of which half should be realised in the second half of this year and the rest in the first half of next year. Going forward we’re continuing to target projects from the Electricity Generating Authority of Thailand (Egat) and the Provincial Electricity Authority (PEA) as well as independent and small power producers (IPPs and SPPs), renewable energy projects and steel structures.
From Egat we generally win 10% of total project values per year and from the PEA 25%. For renewable energy, a lot of our potential future backlog will come from the projects in which we’re currently invested as well as other private projects we’ll bid for. Finally, for steel structures we expect to continue our usual business.
How will the Asean Economic Community affect your business?
We’ve begun to explore opportunities in Laos through Demco Delao Co, in which we hold 90%, to focus on infrastructure concession projects. As this is our first experience abroad, we’re approaching this cautiously to ensure we understand the business environment and what the challenges are in doing business in a different country.
What differentiates Demco from other companies?
Demco is a one-stop shop for companies that need electrical systems. We can provide the civil work, foundation work, underground cables, substations, essentially everything, and this helps to reduce the project risks faced by our customers.
Also, because we’ve been in the electrical industry for three decades, we have a positive relationship with both the PEA and Egat, which allows us to prevent any delays in projects due to our understanding of their processes.
What are the biggest risks facing your business?
The biggest issue facing us and Thailand is human resources. The expansion of the renewable energy industry has resulted in increased demand for qualified engineers. And as we and other companies begin to expand abroad, the second issue is that 90% of engineers graduating from university have poor or no English skills. This is and will continue to be an impediment to Thai companies’ ability to expand regionally.
Where do you see Demco five years from now?
In the past five years, Demco has shifted from being a pure EPC contractor to both an EPC contractor and an investor in renewable energy as well as to being recognised as a leading electrical contractor in the renewable energy industy. In the next five years, we expect our investments in the projects to yield positive results, and we’ll continue to look for opportunities that add value to the company.