An American Company Looks At Plant Construction Abroad
COSTS FOR CHEMICAL PROCESS PLANTS ABROAD lo The Jirst three parts to discussias
of this series were devoted
of the factors
whch affect com-
ponent costs
of chemical process plants at home
and abroad.
This part deals with the com-
plete installation and draws sone comparison between plants built abroad and in the U. J
H. CARL BAUMAN
igid direct comparisons are obviously impossible. No two plants in our experience in the chemical industry are exactly alike. Improvements on new processes occur so rapidly that plants of similar procesn and same stream-day capacity are different enough to make direct comparisons difficult. Other variables as site conditions, severity of weather during construction, strikes, changing tariff structure, and political climate contribute to the problem. Direct comparisons are also frustrating because of too few samples in various countries of plants similar with respect to process and capacity. However, taken in context with the use of some s i m p l i ing assumptions, comparisons can be made accurate enough for most fixed capital cost forecasts.
plant units each consisting of material, labor, contractors expense, and profit. Apparently, there exists a ‘pasonably good correlation of similar plant component costs among the various countries. Since the plants selected were not identical, viyiations exist among the sample in the quantity and, therefore, in costs of such utilities as steam, refrigeratioi, compressed air, and water. Extreme variations w uld be expected to affect the relative percentage of tot$ plant
clan9 costs Cornpnvd
EDITOR’S NOTE
A group of plants in the D category, recently built abroad of similar process and with a range of factorable capacities, was selected for study (Table 111). A breakdown of component costs by percentages of total cost was made for each of the plants in the countries indicated in Table I. The breakdown is by functional
This is thc fowth andfinal article in thc smies “An 4mnicad Company Looks at Plant Construction Abroad.” Rmious articles a@cmed in Mmch, May, and July. This sqies will be included in a book by Mr. Bauman, “Cost Engin m’ng in thc Chemical Industry,” to be publishd bv Reinhold d b l i s h i w Cmp. in 7963. i
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I N D U S T R I A L A N D ENGINSERING C H E M I S T R Y
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cost of the affected component. However, tde total value of combined utilities for each plant was not sufficient to distort unreasonably, the relaqionship among comparable cost components. In the case of the Canadian plant, the absence of site development, steam
I
plant ahd water supply components has the effect of increasihg percentage wise other component weights. Although designed for similar product mixes, the process plants included in the study were of various physical capacities. Most were constructed as battery limit additions to existing plants. The rest were grass 'roots, requiring roads, railroad sidings, office, shop and warehouse buildings. For comparison purposes, only battery limits installed costs for these projects were considefed in developing data shown in Table 11. That is, only installed cost for process equipment, their appurtenances and applicable engineering were included. No building costs were included. Table I1 shows the plant capacity ratios and the installed cost ratios, all referred to U. S. costs as reference. Costs were first transfortned to a common capacity base by assuming that they varied as the 0.6 power of the ratios of capacities to tbe U. S. reference. The installed cost ratios are therefork referred to a uniform base of similar process and capbcity in the countries shown. A colhparison of this table with Table V of Part 3 in the J$ly I&EC, page 38, shows close agreement of the total relative cost ratios in the same countries. The only ratio which does not check closely is that for Brazil &here a value of 1.05 was evolved in Part 3 compared with 0.96 experienced for an actual plant. There is reasod to believe that the ratio should be nearer the higher figure. The plant's proximity to industrialized areas wdere raw materials such as steel, pipe, and wiring, were readily available and exceptionally good lump-sum construction contracts could well have contributed to
I
L
lowering the cost below average. During the construction period, the wide fluctuation of the value of the Brazilian Cruzero relative to the U. S. dollar further tended to lower the plant cost on a dollar basis. Pmiecl Time
Reference was made in previous parts to the duration time for construction as a factor in the productivity equation. Table I11 records total project duration of a number of completed plants here and abroad. Project duration is defined as the total continuous time to engineer, construct and place into operation the process plant. Plants were grouped into installed cost and project type categories as defined in the table. Total elapsed calendar time is significantly greater abroad than on the North American continent for plants of less than $1 million. There is closer agreement in calendar
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cost of' Chemical Chemical'Plant Plant Components Abroad Arc Compared with U.S."
TABLE 1.
(%of installed cost)
cbmpomt Pmcess e+ipmcnt Site dcvclbpmmt Buildinga ?Ion-praetm equipment Piing hulatioq Inarmmaltation Electrical
steam'"p'
Refrigma ton cOmpress&d air Water su$ply and cooling Dktrihuti4n piping F i n pmt&ion Svvicc elktrical Painting P+ EngineeriAg, architect-engineer, add supervision Duties, cu8tom taxes, and special handling
s!=
i
Typ'cal
s.
2.0 8.9 17.8 5.4 7.8 1.1 2.1 3.3 2.8 2.0 1.7 0.8 3.4 1.7 5.4 0.4 2.0
Indie 20.0 0.8 14.0 4.4 10.0 1.o 2.0 4.7 2.6 2.3 1.6 2.4 2.1 3.0 5.5 0.7 3.3
Maxico 27.8 2.1 9.6 6.0 11.0 0.7 2.3 5.6 3.5 2.4 2.4 4.7 3.0 2.4 6.0 0.4 1.1
Braril
26.4 2.5 18.1 0.6 11.3 1.8 5.0 6.3 3.1 1.2 0.6 2.5 3.1 0.6 3.2 1.2 1.2 11.3
13.2
12.7
4.8
10.7
6.9
4.2
(I.
Italy
b
27.0 0.4 11.6 4.3 8.0 0.4 2.1 2.8 4.6 4.7 4.3 1.6 4.0 2.0 10.5 0.5 0.5
'
C d a
England
26 8
2.2 0.1 2.4 1.6 1.0
21.5 2.7 24.6 2.5 7.8 1.6 3.1 7.6 3.0 1 9 1.9 0.6 2.5 0.4 1.1 0.4 1.1
14.9
15.7
... 18.0 3.0 12.4 4.0 3.5 6.3
... 2 0 1.8
...
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VOL 54
NO. 9 S E P T E M B E R 1 9 6 2
41
Batter]) Limzts Construction Costs CornJared
TABLE II.
(For siniilar plants abroad) CapaciQ Ratio
u.s.
Installed Cost Rulzo
1 1 0 1 0 0
Canada Italy India Mexico Brazil England
1 1 0 0 1 0 0
64 02 64 68 7 00
0 0 9 95 03 96 85
Building Costs
TABLE 111. Total T i m e Required to Engineer, Construct, and Place Into Operatton Chemical Plants at Home and Abroad
Less than Country
u. s.
Canada
England Switzerland India Taiwan Australia Italy Mexico Brazil
Plant T y k e
$ 7 Million
A and B A and B B: C, and D B and D C and D B and D A , B, and D C
13
D A D D D D D D D D
Auerage J o b Duration .Months $ 7 to $5 Over Million $5 million
20 10 18
25 12 18
29 24
14 23
15 17 17 13 20 18
catalysts, pharmaceutiral, finiihing planrv.
C'nequipjed Buzldzng Costs" are Cornbared for U . S . us. Abroad zn 1962 (U. S. dollars per square foot)
Country
u. s. Canada England Australia Italy India Mexico Brazil
O@C? Buildings, Laboratories
Warehouses, Utility, and Light Chemical Manufacture
$11-20 11-20 12-20 10-18 9-1 5 10-20 7-1 6 7-1 6
$9-1 5 9-1 5 9-1 5 7-1 2 7-1 2 8-1 4 6-1 2 6-1 2
Heaty Chemical Manvjacture
$1 5-30 15-30 18-35 18-35 ...
18-40 . . . . .
a Includes shell, floors, roof, heating, lighting, ventilation, and engineering: does not include land, air conditioning, sprinklers, furniture, and equipmert.
AUTHOR H . Carl Bauman is Manager oJ the Cost Engineering Department, Engineering and Construction Division of American Cyanamid. H e authored I&EC's Costs features on alternate months f r o m April 1958 t o October 7961. 42
To enable comparisons of process plant costs, buildiiigs were omitted from the data in Table 11. Requirements for housing varied widely in size, configuration, and construction materials in the plants studied. Experiencc in building costs abroad is recorded in Table IV, on a square foot basis. Twelve feet average ceiling heights for office buildings and laboratories; 16 feet for Tvarchouse: utilities, buildings and chemicals rnanufacturc are assumed. Cost ranges are highest in U. S., Canada, and England; somewhat lower in Australia and India; and lowest in Mexico and Brazil. .4vailahility of indigenous materials generally determines the type o l construction used. U. S., Canada, and England favor steel frame and steel, abestos, or curtain wall sidings. Brick sidings are used frequently in England. Use of concrete, reinforced and prestressed structures is prcvalent in Mexico, Brazil, and India. Building specifications and unit costs are showm in Table V for representative structures defined in colurnn I, for some countries abroad. Buildings varied i n sizc from approximately 6000 to 30,000 square feet total area. Unit installed costs cover complete buildings including lighting, necessary plumbing, heating and ventilation, and engineering costs only.
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A = office buildings, laboratories, change houses. Steam and power plants. Effluent plants. Air conditioning systems. B = kilns, dryers, storage systems. C = basic chemicals HzSOa, HNOz, "3, heavy fertilizers. D = light chemicals,
TABLE IV.
time for jobs in the $1 to $5 million group. It should be recalled how ever, that work week hours abroad a c generally higher than in the U. S. A. See Table I\', Part 3, I&EC July 1962, page 38, for work week hour correction factors.
INDUSTRIAL A N D ENGINEERING CHEMISTRY
Import Duties
An important component in the cost of the plant tiuilt abroad is the duty on machinery, equipment, and material which may have to be imported for the process plant. ATever entirely predictable, changing bvorld trade conditions and preferential treatment adds to thc difficulty of forecasting the cost of customs imposts. Although many countries attempt to list duties for specific items, interpretation of the listings with regard to applicability is sometimes quite hopeless. Many dutiable items are subject to negotiation bet\veen thc importer and custom officials. The Bureau of International Programs of' thc U. S. Department of Commerce is an excellent starting source of information regarding foreign import tariff systems. Duties plus ocean freight aggregating up to 30y0 of thc value of all process equipment has been experienced. Duty rate varies generalll- with the availability of thc specific equipment in the country of import. Items not manufactured may enter free in many cases. 'The duty rises rapidly on items manufactured in competition with the exporting country. Basis for duties are weight and/or valuation. The former basis is termed a specific duty and is applied on the gross, legal, or net weight. Sometimes it is applicd on the unit of capacity in liquid shipments. Duties are also applied on the C.I.F. (cost, insurancc: and
TABLE
V. Typical Building S’eczjkations
and U n i t Costs
Country
Building Class
Building Sfieczjcacation
Australia
Combination manufacture, office, laboratory, and warehouse Case 1 Case 2
Steel frame, corrugated asbestos roof and siding, reinforced concrete floor slab
U n i t Cost b?/sg. ft.
8.20 8.90
India a
Case 1 Case 2b England
Italy
Mexico Brazil
a
Steel frame, brick cavity wall, 3-ply built-up roof, 3 story Steel frame, hollow Utility building metal roof and siding, 1 story Steel frame, brick Process building cavity wall, aluminum sash, 3-ply built-up roof, 1 story 25 feet high Process and ware- Reinforced concrete frame and floors, house concrete block walls, poured concrete roof slab, 2-ply built-up roof, warehouse areaarched concrete truss roof with poured concrete plank covered with built-up roof Utility and service Reinforced concrete frame and floors, bldg. concrete block walls, concrete plank built-up roof Process, utility and Construction same as warehouse bldg. Italy Process, utility and Reinforced concrete warehouse frame, transite roof on steel trusses, concrete block walls a
Same as Australia.
12,90 8 00 15 70
In Summary 11 .oo
33,OO
9.50
8.50
7.70
7.70
b Twice area ofCase 1 .
TABLE VI.
Duty Ratts Abroad f o r Pumps
Country
Argent in a
0.11-0 1 7 gold pesos
Australia Brazil Canada France Western Germany India Italy Japan Mexico
0 05-0.15 pesos
65 80 f 5% surtax 22 5a 12-1 8‘ 3-1 3b Free-7c 10 206 15c 15-20 5-45
a Based on fair market value in country of export. European Economic Community.
freight) values or net price. These are ad valorem duties. Mexico also has an official valuation system where imported items are evaluated by the government and the duty is paid on ad valorem value or official valuation, whichever is higher. Imports to Mexico are also taxed on a specific duty basis in addition to the ad valorem and/or official valuation duty. Space does not permit a detailed discussion of duties on representative list of equipment. Table VI covers typical duties on pumps only in several countries abroad to illustrate relative magnitudes and range.
0-40 pesos
From U. S.
c
From
The foregoing series represents some of an American chemical manufacturer’s construction experience abroad. The going gets tougher as world-wide industry settles down to the long competitive challenge ahead. The geometric increase in technological know-how abroad tends to decrease the gap in comparative costs. As in the U. S., labor rates will tend to rise with improving productivity and living standards. Taxes and tariff differentials place real limitations on profit margins on exports and the trend toward increased building abroad is bound to continue. Actually, the trend is in both directions. There is already much foreign capital invested in U. S. industry and more coming. Freer world trade is apparent in the growth of the European Economic Community, the Latin American Free Trade Association, the British Commonwealth System, and the “favored nation principle.” The net effect of the impact of these changes would appear to tend towards an equalization of world construction costs. This is hardly likely since the many factors which determine installed costs rule out absolute equalization. Just as there are still differences in construction costs among various sections in the U. S.after many years of industrial and technological growth, so are there apt to be differences in cost among the countries of the world. There is much room for productivity improvement in the U. S.through the advanced technological techniques of automation and optimization. Constant acceptance of the challenge of competition should assure the maintenance of a competitive world position in plant construction and operation. This series covered largely the factors involved in constructing chemical process plants abroad and touched only lightly on others such as, political and economic factors. The May 18, 1962, issue of Business International carried a table of 92 “Factors in Choosing a Foreign Manufacturing Site.” These were broken down in groups under the following headings : Economic, Political, Government, Geographic, Labor, Tax, Capital Sources and Business factors. The table is an excellent check list for those who contemplate building new process facilities abroad. On the basis of correlated information, the West German median average hourly earnings for chemical workers shown in Table I, page 41, May I&EC, should now be 0.72. The median figure should be 0.68. VOL. 5 4
NO. 9
SEPTEMBER 1962
43
