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Blow Hot, Blow Cold

Munawar Shariff elaborates on the current market situation for compressors in the Middle East.

| | May 15, 2010 | 11:37 am
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Munawar Shariff elaborates on the current market situation for compressors in the Middle East.

One would think that, with summer here, the compressor market would be booming, but given the lingering downturn, the market, as per many industry insiders, is not as good as in 2008 but is steadily becoming positive. “The situation is different for each market, says Uday Mahadeokar, Marketing Manager, Emerson Climate Technologies. “The UAE is recovering slowly, what with the slowdown in new constructions. Abu Dhabi is still strong. Dubai is making a very slow recovery. Other parts of the Middle East are still strong and haven’t slowed down as much as the UAE. Kuwait, Jordan, Bahrain are all recovering slowly. Of course, volumes of trade will never reach 2008 levels when every economy and market was growing, but it’s positive as compared to a few months ago.”

It’s not surprising, then, that the mass reduction in spending has led to a completely different set of needs. In district cooling, for example, the two drivers are new constructions and existing machines. Since there is a major drop in new constructions, businesses are concentrating on maintenance of existing machines. District cooling exclusively used centrifugal compressors, for their ability to provide operational economy and reliability, especially for large building complexes. Now the emphasis is on small-sized compressors, with a big focus on efficiency on the kilowatt per tonne, as centrifugal compressors are known to be very efficient.

Screw compressors, which are widely used in Europe and Japan, are called Variable Flow Refrigerant (VFR) systems. These are attractive currently, as they are the latest products, technology-wise, and are environmentally friendly. The refrigerant, R410A reportedly has high efficiency at partload operations. For most of its life, it runs at 40 to 80% capacity and, then, switches from full capacity to partial load. Modulating from using the most electricity at highest loads to pumping less and using less electricity when the need for cooling reduces, this enables the refrigerant to have a lower carbon footprint and not use full power continuously.

However these refrigerants are currently not being used in the Middle East. The most common refrigerant in the region is the R22 refrigerant, which is known to be ozone depleting, whereas the R410A does not deplete the ozone layer. Awareness of the qualities of the R22 refrigerant is widespread, but that hasn’t stopped companies from using them. “This is because the region comes under the category of developing countries, and the use of this refrigerant is allowed in developing countries till 2030,” Mahadeokar says. “Developed countries cannot use this refrigerant, and so they are using the R410A.”

R22 refrigerants are hydrochlorofluorocarbons (HCFCs), and R410A refrigerants are hydrofluorocarbons (HFCs). The latter are crucial in the non-damaging elimination of use of the former refrigerants. HFCs aid in conserving more energy and provide quicker cooling. Having said that, an R410A machine requires stricter installation procedures by certified technicians, a small detail which can be overlooked.

To get value for money from existing investments, developers are placing huge emphasis on energy efficiency and on reducing the carbon footprint. Says Liju Thomas, General Manager of Al Arif: “More efficient use of energy is the way forward. There is an increasing demand for water-cooled chillers now because of their energy efficiency, and people are very meticulous about getting value for money.”

Says Mahadeokar: “Our main focus these days lies in two areas, one is energy conservation. And the other is trying to engage different bodies in trying to promote environmentally friendly refrigerants.”

Energy conservation is an important factor which needs to be established with regulatory authorities like the Emirates Authority for Standardisation and Metrology (ESMA) and Saudi Arabian Standards Organisation (SASO). These are the main regulatory bodies that ensure efficiency in air conditioning standards are put in place in the region. Emerson also works with the international regulatory body, the Air Conditioning Heating and Refrigeration Institute (AHRI), as a neutral player. They are taking the initiative to bring the original equipment manufacturers (OEMs) and regulatory bodies together by preparing presentations with these bodies and presenting them to Dubai Municipality in order to establish energyefficiency standards. Says Mahadeokar: “We have seen success. SASO announced a standard, last month. ESMA has announced a plan to have standards in place by the end of the year, with implementation by mid 2011.

Other Middle Eastern countries are also quick to be on par. Kuwait has upgraded from January of this year and is focusing on energy saving and technology production. Every country is actively starting to adhere to standards and upgrading them every two to three years; reflecting this trend are the OEMs. They have new product ranges with ecofriendly refrigerants, and it can easily be predicted that in the next three to five years, there is going to be a 50 to 60% rise in the use of these energy-efficient and ecofriendly refrigerants in the region.

A most important trend today is the VRF modulated technology. Says Mahadeokar: “Modulated technology depends on how long the air conditioning is running. Normally, we don’t want the unit to run continuously, hence the modulated compressor, depending on the load. This technology is getting very popular today. The percentage share of VRF will definitely increase in the near future.”

The VRF Modular compressor trend goes hand in hand with Dubai Municipality’s green initiative, which is calling for individual metering. In such a regimen, consumers are able to track their individual meters and have a direct impact on their consumption levels and the bills they pay each month so they can get the benefits of using less. The current system has less incentives for reducing bills as, usually, a building complex has three big chillers, and every house or office does not have the ability to track their usage.

What about the business end of things? Issues being faced by larger compressor companies and smaller companies in the market differ in a big way. Eapen says: “For our company, Al Arif, business has not decreased; in fact, it has increased. But the biggest problem in the market right now is receiving payments. So although there are plenty of jobs out there, we’re not committing ourselves, unless payments have been secured.”

Eapen says he follows his gut when it comes to finalising contracts with clients. “We have experience in the market,” he says. “It’s not difficult to gather intelligence. This is a small market place, and word gets around if a certain company is defaulting on payments. All then stay clear of the company. If we don’t get a 50% advance payment, we don’t go ahead with the contract, because the initial 50% covers our material cost. A loss in labour cost can be absorbed, but a loss in material cost cannot be absorbed. But there have even been occasions where we have received the LPO and no payments have materialised.”

Not only is receiving payments a big issue currently but also the availability of only a few contracts and a lot of companies quoting for them. Says Eapen: “We’ve been in the business for six years. There have always been plenty of companies and jobs, with the possibility of acquiring projects much higher before the recession. Now there are few jobs and a large number of companies, including direct suppliers, vying for projects. Recently, there was a project for Dubai College where they had a need for chiller and package units. Fifteen companies quoted for them, including direct suppliers.”

But Eapen is leaving no stone unturned to retain his share of the market. “Now we have to knock on more doors than we did in the past. We are establishing our client base on credibility, keeping a balance of sales and expenses. It’s not the right time to think about doubling the size of the company. It’s enough that we’re running on profits and not losses. We’ve always been in the maintenance market. Today, our work is 50% new installations and 50% maintenance of existing units. Exploring new markets is not on our agenda, as we are a very small company of only 25 employees. So we are focusing on the local market.”

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