Mining In South America Works Wonders For The Economy June 24, 2012 at 4:19 pm
In general, the South American culture is more hierarchical and places more emphasis on the importance of groups. The implications of these values include a more vertically differentiated, hierarchical project team structure and the need for managers to be more autocratic. In addition, it is often necessary to be far more specific and provide greater detail when asking employees to complete a given task. In general, engineering and construction activities will require more supervision than would be the case in North America.
The importance of language proficiency cannot be overemphasized. The foreigner who speaks even a modest amount of Spanish will find his or her value to the project immeasurably enhanced. Before sending employees south for medium to long term assignments, North American firms are well advised to provide some basic instruction in Spanish, as well as local culture.
There is little doubt that capital project development in South America presents unique challenges. In some cases, the source of these challenges is due to regulatory differences and in other cases cultural differences, but whatever the reason, it is important to identify methods of adjusting to the differences to ensure that a project is completed satisfactorily. The following is a summary of differences that Kilborn has observed.
In general, Peru, Chile and Brazil have a pool of well educated engineers, designers and drafting personnel available in most disciplines and technical staff generally tend to be well versed in theory. Where there are deficiencies, they are usually due to limited practical experience in the mining industry, or to lack of trained personnel in specific areas such as process metallurgy or instrumentation.
One area where Chilean and Peruvian engineering companies often lag behind their North American counterparts is in the implementation of internal project controls to effectively monitor manhour expenditure and production of drawings and specifications to meet schedule commitments. In addition, project managers sometimes do not have the authority or experience that is necessary to control large engineering projects effectively.
Charge-out rates for expatriates range from two to five times those for local personnel in the mining consulting field. It is difficult to be specific about comparative productivities but it is generally accepted that the higher productivity typically achieved in North American engineering offices will go a long way to offset the initial man-hour cost advantage of South American engineers. In general, a productivity of approximately one-third of North American standards for both engineering and construction can be used to produce a rough estimate of labour costs associated with projects in South America.
Generally, despite low labour rates, direct engineering and construction labour costs are not substantially lower in South America, due to both labour productivity and additional work that would not be required in North America. However, in some cases, taxation on work completed outside of the country can make completing engineering work in South America less expensive.
In addition to productivity differences, estimating man-hour requirements for engineering design contracts in South America will be affected by some of the standard engineering practice differences. For instance fabrication drawings for structural steel and platework are completed by the fabricator in North America, based on design drawings from the engineer. In South America, the engineering firm usually produces all fabrication drawings, and the engineering firm typically produces all of the detailed re-bar schedules for the civil contractor. Also engineering companies are expected to produce installation drawings for almost every piece of equipment, showing location dimensions, platform access levels, and size and location of all services connections. In North America, it is usually only necessary to complete installation drawings to this level of detail for large, complicated equipment.
Construction and Management
Peru, Chile and Brazil have very capable construction firms. However, it is often the case that engineering firms engaged in EPCM contracts are not strong in the area of construction management. As a result, management systems for contract administration, cost control, purchasing and project scheduling often require the support of North American consulting firms.
As previously mentioned, it is necessary to produce installation drawings for every piece of equipment, regardless of its size or complexity. North American practice, such as delegating the responsibility for field run piping or pump bases to the sub-contractor, for example, is often impractical, if not impossible, for use in South America. Clearly, this can have negative impacts on project schedule if there are any problems with engineering drawings because, in some cases, the contractor will emphasise compliance with engineering drawings as opposed to functionality.
The scope of responsibility of contractors is also different. In most North American projects it is unnecessary to specify, for example, heaters for electrical starters, because the electrical subcontractor will install them, if needed. In South America, however, the engineering firm is responsible for specifying and ensuring that all materials are on-site and if heaters were not specified in the purchase order, the electrical contractor will not have heaters to install.
Broadly speaking, procurement can be subdivided into two areas, imported equipment purchases and local equipment purchases, and each has its own peculiarities and pitfalls.
For mining and metallurgical projects large and/or complex process equipment must be imported. For imported purchases, either FOB shipping port or CIF local port basis can be selected. When purchasing FOB shipping port it is essential that the engineer or owner hire an experienced and competent freight forwarder, who is familiar with local shipping and importation requirements. If equipment is to be imported on a CIF local port basis, the key to success is to hire an experienced customs agent who has handled importation of equipment for the mining industry.
In the case of CIF, the equipment vendors will have their own freight forwarders, and will be responsible for all freight and insurance until the goods are unloaded in the local port. Regardless of the method used, we are all aware of situations when urgently needed equipment has been stranded in customs for weeks because of improperly executed documentation. The challenges associated with importing equipment and materials are compounded by the need to produce all documentation in Spanish or Portugese, and often North American standards, such as NPT (National Pipe Thread), do not have a local equivalent. It has been Kilborn’s experience that any additional cost associated with hiring freight forwarders or customs agents are paid back in project schedule, which can swing as much as eight weeks depending on the performance of the equipment importation group.
Each country has specific laws regarding the importation of equipment, and hiring local expertise in this area is extremely important. As an example, in Chile mining equipment which will generate export revenue will qualify for a deferral of import duty payment, but only if the first shipment for a given piece of equipment is the largest, both in terms of weight and value. Furthermore, the value of spare parts shipped cannot exceed 10% of the total value of the shipment. Obviously, local expertise can have a significant impact on both project costs and schedule.
A growing selection of mining and metallurgical process equipment is now being manufactured locally in South America. In Chile, for example, pumps, hydrocyclones, belt conveyors, cranes and flotation cells are among the equipment that can be purchased locally. In most cases, quality is up to North American standards, but quoted shipment dates are not always reliable and therefore buyers often insist upon a penalty clause for late delivery.
In conclusion, when considering working in South America, the first step should involve gaining a better understanding of your work environment. One aspect of this includes becoming knowledgeable about the business regulations in the country of interest. Another aspect, equally as important, is learning how to adapt your business approach to suit the local culture, language and customs.