Risk Factors in Vietnam Power Plant Projects

In the past, risk management has been an important tool to control safety-related risks. However, we see the shift away from the traditional compliance and insurance-motivated risk management to one that is closely linked to business performance and long-term society commitment.

In order to minimize the interfaces and risks between the separated contractor and the project company during executing an oil and gas project, the oil and gas companies normally prefer to award and sign an EPC contract with the EPC contractor. However, this project delivery method will take a lot of time to make clarification, explanation and get the mutually agreement on the contract clauses between the contractor and the project company. The following problems are normally involved with the EPC contract clauses:

1. Take time to make the clarification and finalization before contract signing;

2. Wrong understanding and interpreting of stipulated clauses in the contract;

3. Conflict between contractor and the project company during project execution

An EPC contract is generally applied for developing the oil and gas project, in case of problems or disputes happen during the project execution, then these problems and disputes shall be resolved in accordance with stipulated clauses in the signed contract, therefore, Nguyen Duc Thanh made a case study which aimed to focus on the following issues related to EPC contract:

1. To study the contract of EPC project and contractual risks

2. To study contractual problems occurring in a project.

3. To propose a recommendation for improvement

Conclusion

The research study summary and concern the risks we often meet when executing EPC oil and gas project in Vietnam. It also mentions and suggests effective solutions that can be performed to avoid or overcome the obstacles in contractor management.

The literature review sections introduce and cover the form, phases and activities for general EPC project. It is also listed advantages or disadvantages and challenges when we apply EPC model to manage project, especially managing Vietnam EPC project. The advantages under investor’s point of view of EPC contract model in respect of following:

1. Reduction in project management works for an investment owner;

2. Reduction in risks of difference between design and construction;

3. Costs for an EPC package are easier to estimate and control because it is lump sum contract.

This chapter has also raised reason which case EPC should be applied in Vietnam:

1, Project with multiple options of construction methods;

2. Projects in which whose design and equipment production cannot be separated

3. And in case a project has urgent progression.

In two case studies mentioned in previous chapter, through collecting related document and attending as one of duty to solve these problems, risk in Vietnam appeared in oil and gas projects normally come from what parties haven’t defined or stipulated in contracts. Moreover, maybe some contractor want to expand profit as well as possible, they change some conditions they can, except some case is compulsory for pushing project schedule.

According to studies and data statistic, client needs to play as interface when many contractors participate in project. It requests a professional team to monitor, assess and can hold point whole activity of contractors. Schedule is always updated and mobilization plan of employee and equipments must comply with master schedule.

Through the review of literature on EPC model and risk in EPC contract, it’s proposed that solutions of effective EPC risk management needed such as “the problems often appear in execution stage of project and we meet difficulty in avoiding them. However, we can ignore or minimize problem through understanding and clarify term, scope of work in contract. In additional, these problems that can be predict or determine happen in the next phases but can’t solve at this time, we need to stipulate them in contract about solutions to control, monitor or solve”.

In conclusion, for each of EPC project, risks accompany by them are not the same. The risks depend on whole EPC project such as: scope of work, material specifications, equipment style and requirements of client. Therefore, risks management application for the kinds of EPC projects will be different little or more. So, application should be considered via EPC project style.

Suggestion of further researchers

In order to fully understand the EPC risk management in Oil and Gas project, which can be applied in some kinds of project, especially international oil and gas project, further researchers can be suggested on the following fields:

1. Develop risk research in another phase of projects: design, construction, commissioning

2. Based on result of research, proposing solution to risk management.

Abstract

Oil and gas projects are established intensely to satisfy the energy demand on the world. In an EPC contracts help provide ‘turnkey ‘systems for companies. This is where a single point of contract is given which includes the design work, engineering procurement, installation works, commissioning, start up, supply chain materials, testing activities. Due to this single point of responsibility, almost all the risk is transferred from the owner to the contractor. In this contract, there are guaranteed completion dates, performance, clear division of obligations and liabilities. EPC projects which are also known as turnkey project service face many challenges to stay in the competitive within the industry business environment despite of the efforts made towards compressing activities by phase overlapping, in order to reduce time scale and to obtain better EPC projects. These project challenges lead to cost overrun and schedule delay. Understanding the function of EPC Project Risk Management is important to protect interest of both parties and to engage tools and techniques to allocate risks between the owners and contractors.

Most projects are bound to be affected risks such as construction risks, operational risks, financial and economic risks, legal risks etc. All these risks are interrelated and have a chain effect in overall start-up and commissioning. Common delays and cost overruns can have severe effects and causes as a primary effect on construction risks. Therefore it is important in a project when structuring EPC contract. EPC contract comes many new risks that are often severe due to the complex nature and high cost frequently associated with this type of project involved

By finding out and analyzing the problems happening in Nhon Trach power Project  and Ca Mau Project, through collecting data and assessing status of project in each phase, the research study aim to identify and analyze problems that often occurring as well as resolutions and try to suggest solutions which are effective to solve the problems.

Solutions to manage Risk in EPC project was developed as a result of the research case study which is helpful for Vietnam oil and gas projects wishing to overcome obstacles by avoiding or minimizing these risk.