R.

Kannan
MODULE - 9
TECHNICAL ASPECTS
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Technical Aspects
1. Locational Aspects
2. Technology Selection
3. Technology Content
4. Nature of Collaborators
5. Machinery Procurement
6. Project Implementation
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Locational Aspects
Increasing sizes of industrial units and
environmental concerns are leading to shift of
location of industrial units away from urban
centres.
Locational Criteria
a) Cost of bringing raw materials and product
evacuation.
Port and size of vessels to be handled (draft)
Pipelines, rail and road facilities
Hazards associated with raw materials/products
transport
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Locational Criteria
b) Environmental Aspects:
Land locked location
Availability of common facilities
Damage to endangered species (submarine pipelines)
Concentration of fishing industry
Damage to the soil/water and its impact on agriculture
Size of the population and air pollution
Environmental clearances
Rehabilitation in hydroelectric power projects
c) Quality and availability of infrastructure
- Power, Water, Roads
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Locational Criteria
d) Downstream and upstream industries
e) Labour Policy of the State government
f) Perishable nature of raw material/product

Cases: Inland Refineries
Cement Plants
Auto assembly units
Distillery units
Chemical units
Power and water intensive units
Explosives
Sugar units
Carbon Black
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Technology Selection
Industry is getting increasingly globalised with increasing sizes and
reducing energy consumption levels to make it internationally
competitive.
Criteria for Technology Selection:
a) Proveness of Technology state of the art
b) Collaborators background, his standing in the industry, size and
nature of the operations.
c) Collaborators financial, technical, organisational and research
strengths
d) Collaborators technical manpower resources and ability to
provide in plant training
e) Details of plants set up based on the technology and their
performance.
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Technology Selection (contd.)
Criteria for Technology Selection:
f) Capacity of the plant proposed - MES
g) Raw materials envisaged for the project
h) Desired product range
i) Government Policies
j) Minimising the overall cost representing the sum of
operating cost and capital related charges
k) Nature of the product (commodities/ specialties)
l) Plant flexibility frequency of shutdown, change over
m) Sophistication
Cases: Technology from R&D units
East European Technologies
Raw material issues (Petrochemicals, steel, paper)
Product range (Plastics, automobiles) GHCL
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Technology Fees
Fees are small as compared to project capital/ operating costs
(around 5 to 8%) and hence are less important in technology
selection. Optimising the total cost of production is the key.
a) One Time License Fee
Benefits company when the business risk is less
b) Recurring Royalty as percentage of sales
Benefits company in high risk businesses
c) Issue of equity to the collaborator
Adopted by companies in either high risk cases or involvement of
collaborator is required continuously for supplies, technology
upgradation and market development.
Normally overall compensation to the collaborator is a combination
of the above.
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Guarantees and Penalties
Again penalties are small (around 10 to 15% of the fees)
and hence the collaborators reputation is important.
Plant capacity
Consumption of inputs
Quality of product (100% penalty)
Plant workmanship / Performance
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Technology Content
Licensor (Suzuki, Mitsubishi, Shell)
1. Basic data of manufacture
2. Plant Operating know-how
3. Product application/product design know-how
4. Operational Training
5. Supply of Imported components/consumables
6. Consent to allow the use of trademark
7. Protection against patent infringement
8. Exclusivity
9. Right to sublicense the know-how
10. Right to export
Technology Content (contd.)
Equipment Designer (ABB, Siemens, L&T, BHEL)
1. Basic design of equipment based on licensor of product / process
2. Supply of imported equipment
3. Inspection of equipment
4. Supervision of erection and commissioning
5. Plant Maintenance procedures
Detailed Engineer (Powergas, Uhde)
1. Design of auxiliary items such as power and water supply, effluent
treatment, storage etc., which are not plant specific.
2. Supply / Inspection of local fabricated equipment.
Fabricators
Work for equipment designer / detailed engineer

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Technology Content (contd.)
In many plants such as power, cement etc., the entire
role may be performed by only one party. In the case
Lumpsum Turnkey Contracts (LSTK) the entire
technology / equipment is supplied by a single vendor at
a fixed price.
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Nature of Collaborators
Advantages -
A. Manufacturers of product
Product knowledge / upgradation
Easier to evaluate technology performance
Can provide better operating and application know-how
Can design multipurpose plants
Can use renowned trademarks.
Procuring/Patented know-how
Cases: Dupont/Reliance, Toray/Raymond; Century Enka/Enka
Hindustan Motor/Mitsubishi, Hero/Honda, Bajaj Auto/Kawasaki
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Nature of Collaborators (contd.)
B. Project Engineering Companies
Better selection and procurement of equipment and erection
services
Lower fees

BHEL/Powerplants, Larsen & Toubro/Cement plants
Inventa AG/DCL Polyester
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Nature of Collaborators (contd.)
Preference for manufacturer as collaborator
1. Product Design is important Cars, Motorcycles, Appliances
2. Manufacture of Specialty products Special chemicals
3. Products requiring frequent design upgrade (Electronic goods)
4. Products requiring application development (Agrochemicals)
5. Inexperienced sponsor
Preference for engineering company as collaborator
1. Experienced sponsor
2. Commodity products (Cement, Power, Fertilizers)
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Procurement of Machinery
1 Inhouse Fabrication Small items like vessels or simple
critical items
2 Direct Purchase Repeat purchase of small standard
equipment, spares
Proprietary equipment
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Criteria for Selection
a) Experience of the vendor in the relevant line and past performance with
respect of quality, reliability and efficiency ascertained from earlier users
b) Size of the vendor
c) Financial position of the vendor
d) After sales service / spare parts
e) Delivery schedules
f) Price and payment terms
g) Order book position of the vendor vis--vis his capacity
Procurement of Machinery
3 Limited Tendering Multiple vendors and large value
equipment
4 International Competitive bidding
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Schedule of Implementation
A. General:
Bar Charts
CPM charts
Critical Activities the management / lenders to concentrate
important for lenders
Impact on cost of project if certain critical activities are
expedited incurring additional cost important for project
management
B. CPM:
Activity is a definite task, job, function (with head and tail of
the arrow signifying beginning and end of activity)
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C. Problem:
Activity Time Taken (Months) No.*
Land acquisition / roads / civil construction 13 1 - 2
Design of equipment / ordering 12 1 3
Delivery of equipment 8 3 4
Foundation 2 2 4
Utilities 15 2 5
Erection and equipment commissioning 2 4 - 5
* 1 -2 indicates that land acquisition / roads / civil construction will start at 1 and
End at 2 after 13 months
** Activities have an order; 3-4 cannot start before 1 3; (i.e) unless the equipment
is designed and ordered, delivery cannot take place
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Network Diagram
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Calculation of Earlier Occurrence Time (EOT)
Event EOT
1 0
2 13
3 12
4 20
5 28
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Calculation of Latest Occurrence Time (LOT)
Event LOT
1 0
2 13
3 18
4 26
5 28
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Event EOT LOT
1 0 0
2 13 13
3 12 18
4 20 26
5 28 28
1 -2 -5 is critical path
Land Acquisition /
Civil construction
Utilities
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Special issues in Infrastructure projects
A) Toll Road Projects
a) Traffic studies
- Population modelling (growth, migration)
- Trip generation (willingness to pay, origin and end of journey)
- Trip distribution (growth, simulation of traffic)
- Econometrics (trends, future estimation)
- Other cash flows (advertising)
- Traffic diversion (alternate routes)
- Land use (accessibility of toll way, traffic history regressions)
- Selection of toll booth site / toll optimisation
- Mode of transport
- Traffic assignments (counts, time saved, time value of money, preferences)
- Hassle factors (ease of use, parking)
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Special issues in Infrastructure projects
A) Toll Road Projects
b) Traffic forecasting
- Potential users (existing)
- How many of current users will use toll road (advantages of toll road,
willingness to pay, total cost saved)
- Growth of traffic in the recent past (volume)
- Growth in economic activity
- Growth in employment
c) Model
- Design a model for potential traffic through economic, demographic, market
trends
- Factor in willingness to pay and user benefits to arrive at traffic revenue
- Toll is a function of cost saved
- Cost saved = (differential distance X vehicle operating cost)
+ (differential travel time X value of time)
+ Motorway bonus (safety, convenience)
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Special issues in Infrastructure projects
B) Power
- Review design, EPC and construction management (LE)
- Completion / performance guarantees and liquidated damages (LE)
- Cost estimate, schedule (LE)
- Study the enforceability of contracts (LC)
- Logistics (LE)
- Conduct / review Environment Impact Assessment (EIA) study
C) Resources (oil, mining)
- Reserve estimation
- Production cost
- Environment
D) Telecom
- Subscriber studies
- Obsolence of technology
- Initial large equity