Construction of the world’s largest petroleum refinery built from the ground up — along with the rollout of a national telecommunications network — required Reliance Industries, India’s largest private-sector company, to devise new management and technology solutions to develop its mega-projects.
The massive Jamnagar petrochemical refinery complex and the company’s information-communications business illustrate a willingness to tackle huge undertakings with big payoffs for the company and India, according to Hital R. Meswani, executive director of Reliance Industries, who spoke to a campus audience earlier this month on the topic: “Ideas That Worked: Creation of World-class Businesses through Management of Technology.” Reliance Industries is part of India’s largest conglomerate, the Reliance Group.
“Both these businesses have demonstrated to us that value creation is possible through effective management of technology, building competencies around people and placing trust in them,” said Meswani, who has degrees from both Wharton and the University of Pennsylvania’s engineering school.
Meswani, the top manager of both projects, is the great-nephew of Dhirubhai Ambani, a former gas station attendant who founded Reliance in 1968. He died in 2002 and his two sons, Mukesh and Anil, now control the firm, although recent media reports have highlighted differences between the Ambani brothers over the running of the company. With sales of $23 billion, Reliance’s businesses include textiles, synthetic fibers, petrochemicals, petroleum refining and marketing, oil and gas, power, and information and communications services.
The development of Jamnagar, located in the western state of Gujarat, goes back to 1996 when Reliance was exploring ways to increase revenues, said Meswani. Executives looked at the company’s portfolio of businesses and became convinced that a refinery would help further integrate its various interests and create more value than a single business alone. “A refinery would be the next logical step,” Meswani said, “but we had to think outside the box.”
The strategy was scoffed at in some financial circles because refineries had an historic return on capital of only 6% to 8% while the cost of capital at the time was 12%, according to Meswani. “We chose to swim against the tide. As the process was unfolding, it was obvious we had to depend on productivity and efficiency to get adequate returns and market confidence.” The company decided to go ahead and invest $6 billion in construction of India’s largest petroleum refinery. Ultimately it would take three years, 4,500 engineers and 80,000 construction workers to complete the facility, which covers a tract of arid land half the size of Manhattan.
Along the way, Reliance learned to focus on several key principles. First was to draw on knowledge from around the world. Engineers in London, Chicago, Houston, Mumbai, New Delhi and Jamnagar worked on the project simultaneously, linked by computer networks. The engineers handed off work across time zones to keep construction rolling around the clock. At one point, Meswani said, so many engineers in London were working on the project that Reliance reversed the typical outsourcing pattern and brought Indian engineers to London.
Reliance also learned to challenge conventional wisdom that pegged refining as an old economy, low-margin business. The company set out to build a refinery that was fully automated and designed to produce a vast range of products with enough flexibility to profit from price swings. While most refineries specialize in a few areas, Reliance developed Jamnagar to make a variety of products, including high-profit petrochemicals, such as propylene and polypropylene, and aromatics, such as benzyne. The refinery also can process 80 different kinds of crude oil, including low-grade crude, allowing it to squeeze product out of every drop of oil it brings into the refinery. “With a push of a button, if gasoline shoots up in price we can go back and make gasoline,” he said. “We created an elephant that would not only dance; it would fly.”
Reliance is “paranoid about productivity,” Meswani added, noting that Jamnagar was completed at 30% to 50% below the cost to build comparable refineries, and in 36 months compared to the more typical 60 to 80 months. “Lost money can be regained but lost time is lost forever,” he said. Engineering and construction processes, including purchasing orders, were integrated and monitored. “We had to spend $10 million per day. If we didn’t spend $10 million a day, something was wrong.”
Because Reliance needed electricians and other construction specialists, it built a training center and recruited workers from neighboring villages to become electricians and welders. Reliance, Meswani noted, strives to get ordinary people to do extraordinary things through careful management and the use of technology. For example, to create a sense of ownership during the construction of Jamnagar, the project was broken down into eight sectors with 42 units in each and thousands of systems and sub-systems. Each system head was vested with ownership. “We had guys in their 20s and 30s making decisions about a couple of million dollars. This motivated them as owners and managers as opposed to just working as employees,” said Meswani, who was also in his 20s during the construction.
In addition, Reliance has found that it pays to invest in infrastructure. At Jamnagar, Reliance had to construct the largest port terminal in India to bring in oil. Reliance also constructed 3,100 miles of pipeline, a water desalination plant that can process 12 million gallons of seawater a day, 105 miles of road and housing for 3,000 families.
Taking charge of its own infrastructure assured Reliance that its investment in the refinery would not be jeopardized. “It was not just a refinery, but a huge infrastructure undertaking,” said Meswani. “It was key to productivity, and no compromise could be made.” Construction of the refinery also needed to take into account ecological concerns to make sure that government and local residents would support the facility. Reliance wound up planting 2.2 million trees on the property and now produces mangos, teak and guava along with its petroleum products.
From Floods to Cyclones
When tackling a project of this size — the refinery is the third largest in the world, behind refineries in Venezuela and South Korea that grew through expansion — it is crucial to engage all stakeholders in the process, said Meswani. For example, Reliance appealed to government officials through its provision of greater energy security. It also improved balance of payments by making the country, which had been importing 40% of its petroleum products, into a net exporter.
In addition to investing in infrastructure, Reliance bet heavily on new technology. At the start, the Jamnagar facility was visualized through a three-dimensional computer-modeling package, which was the world’s largest modeling effort, according to Meswani. Throughout the plant, automated processes maximize yield and conserve energy, monitor tank inventories, blend products and synch transportation systems. Finally, he said, Reliance executives have learned to adapt to adversity after being confronted with earthquakes, floods and other disasters. In June 1998, midway through construction, the Jamnagar complex was hit by a major cyclone.
With 16 hours’ advance notice, managers set up special teams to evacuate the site’s construction cranes and secure other equipment. The cyclone heavily damaged offices and other parts of the refinery, but there were few injuries, said Meswani. Within hours, the plant and surrounding villages were using candles, lamps and generators supplied by Reliance. Charter planes filled with roofing materials and other building supplies were on their way to Jamnagar. Managers and crews put in 24-hour workdays, eventually getting construction back on schedule. “What does this mean?” asked Meswani. “It means Indians can create world-class assets in India if they are given opportunities, challenges, trust and motivation.”
Along with success, the huge refinery has brought criticism as well. According to a report in the New York Times in February, Reliance is accused by some of influence-peddling and “obsessive secrecy.” To attract the refinery, the article said, “the government of Gujarat granted the company a 10-year holiday from steep sales taxes. The Indian Air Force has moved a squadron of F-14 fighters to an air strip not far away, along with a battery of surface-to-air missiles, to protect the site from any possible attack form Pakistan, 100 miles away.” In the article, Meswani defended the location, citing its deep harbors, which provide protection from storms, and the area’s proximity to Middle Eastern oil fields, among other factors.
“Archaic Digital Infrastructure”
After the completion of the Jamnagar refinery, Reliance again set out to tackle a new business on a grand scale. According to Meswani, Reliance settled on what it calls infocomm, or the intersection of communications and information technology, including mobile, national and international long distance, and broadband services.
By 2000, the Indian service sector was growing, and outsourcing was beginning to take off, but the country was limited by what Meswani called an “archaic digital infrastructure. The rollout would not just change the face of Reliance but the face of India.”
The company began its move into communications with mobile service, for which India was the highest-priced market in the world. Outgoing calls cost $1 per minute and incoming calls 50 cents. Reliance executives approved the new initiative on the basis of making the cost to call anywhere in India lower than the price of sending a post card, which was about one cent. To achieve that, Reliance relied on the same management strategies and commitment to technology it used at Jamnagar, said Meswani.
Reliance started fresh, like it had at Jamnagar. With no legacy system in place, the company was free to select new technologies. Although most of the world was using the Global System for Mobile (GSM) communication technology, Reliance chose an alternative technology, Code Division Multiple Access (CDMA), because it can transfer data faster and has enhanced voice capability and other technological advantages.
Also, as at Jamnagar, Reliance had to invest in infrastructure to build its infocomm business. For example, India lacked accurate maps, so the company generated maps in-house using Geographic Information Systems (GIS) to assist in network planning and engineering. “Reliance is the only player to own this strategic wealth of information which can be used for several products and services,” said Meswani. Ultimately, the company built a 65,000-kilometer fiber-optic network across India. At its peak, 50,000 laborers were working on the project.
Now, two years after the launch of its mobile service, Reliance has 11 million subscribers and 21% of India’s mobile market share.
Along the way, however, Reliance’s information business has raised a few hackles among its competitors. An article in The New York Times last year described what it called Reliance’s “back-door entry into the wireless market. While GSM companies, with international investors like AT&T and Singapore Telecommunications, bid for cellular licenses that have averaged hundreds of millions of dollars each, Reliance got limited-mobility rights along with fixed-line licenses sold by the government at a fraction of the cost. By interconnecting different circles of limited-mobility services, Reliance has assembled a nationwide network comparable to that of the GSM operators’ system. Cellular operators accused Reliance of breaching regulations on limited-mobility phones.”
Reliance, for its part, is already onto the next new thing. “Broadband is the next mission at hand,” said Meswani. When it comes to broadband, the company is focusing on a triple-play capability that will allow the transmission of voice, data and video over the same fiber. The company is also interested in providing Internet services to television sets because many homes in India have televisions but few have personal computers. “Management of technology is essential and can be done effectively in traditional and new industries,” said Meswani. “In creating large business initiatives in India, Reliance has faced challenges, but there are a few core ideas that enabled our teams to make the impossible possible.”