Thursday, 5 November 2009

Risks In The Construction Of Hydropower Tunnels In Vietnam

The landscape and topography of Vietnam is characterized by high mountains and deep valleys. There are thousand of rivers across the country, out of which, about ten rivers has potential for hydropower development. As a result of economic deregulation over the pass two decades, Vietnam economy is growing rapidly, causing a great demand of electricity. At the end of 2004, Electricity of Vietnam (EVN) was forced to sign a deal to import electricity from China because of impending shortages and it is also expected to sign up for imports from Laos from 2008.

Tunnel in hydropower project is very important for the development of electricity in Vietnam. However, tunnel construction is very risky. Firstly, the geologic condition of underground rock is unforeseeable; the risk of tunnel collapse due to unstable of rock mass or excessive of underground water may cause accidents resulting in losing of human, damage to equipment, and time extension and extra money are needed to overcome it. Secondly, the equipment for tunneling are unique, sophisticated and very expensive, the cost for replacing the main equipment is very high and some time it is not available in the market so that contractors need time to order it from the manufacturers. Moreover, as specified by Charoenngam and Yeh (1999) the projects are capital intensive and have long duration so that financial risk is very high.
Vietnam’s hydropower project it is now suffering from cost overrun, failing to meet time targets and specifications due to lack of systematic risk management. Some major risks may not be identified and appropriate allocated so that risks may not be controlled properly. As a result, many projects were not successful completed as planed in view of economic efficiency, technical requirements and production.

Given that the construction of hydropower tunnels in Vietnam is experiencing many problems, Mr. Dau Xuan Thuy made a research with three main objectives such as follows: (1) to identify the unique or critical risks associated with hydropower tunnel construction projects in Vietnam; (2) to investigate perceptions of the parties about risk allocation in hydropower tunnel construction and whether the risks have really been allocated efficiently or not; and (3) to propose recommendations for the government agencies, the contractors, the consultants in developing human resources in order to build proper risk allocation strategies, leading to manage risks in future hydropower tunnel constructions more effectively.

His study revealed that in construction projects, cost over run and schedule delay can be prevented, work quality can be increased and disputes can be reduced if risks are identified and allocated properly. Tunneling is a special type of constructions but also have to face general risks like other type of constructions but also have to face some critical, unique risks that specific to underground works.
Mr. Thuy’s Risks first objective has been obtained. Risks in tunnel construction have been identified and ranked for significant at two case studies. In the order to determine the major risks, total weighting score, which is product of frequency of occurrence and degree of impact, has been calculated. The top-ten risks and its ranks were identified (see table below) at Buon Kuop project and Dai Ninh project.

The results showed that some risks are ranked somewhat differently between the two projects and this is because the two projects used different methods of tunnel excavation. About half of Dai Ninh tunnel were excavated by TBM, which are more mechanised than excavated by D&B method. The TBM itself is a unique and very complicated machine which is very sensitive to the risk of breakdown which explains why the risk ‘Productivity of equipment’ in Dai Ninh project ranked sixth and is significantly higher than in the Buon Kuop project which ranked ninth. Tunneling by TBM will produce fewer overbreaks than tunneling by D&B method. This explained why the risk ‘Overbreak’ in Dai Ninh ranked lower than in Buon Kuop project. On the contrary, the risk ‘Underground water’ in Dai Ninh project ranked higher in Buon Kuop project because the TBM, which are very heavy and run by electricity, is very sensitive to the ingress of water in rock mass cavities into tunnel.
Mr. Thuy’s study also identified and listed 15 risks that unique to tunnel projects (see table below). Some of these risks are also listed in the top-ten most important risks.

Mr. Thuy’s second objective was also obtained which are the results of the surveys about risk allocation opinion of respondents at the two projects. The risk allocation opinion is based on the percentages of total counts of participant responses such as risk should be allocated to the owner, to the contractor, to the consultant, shared between the owner and the contractor, or shared between the owner and the consultant.
Risk allocation is an important stage of risk management. The purpose of risk management is to reduce the cost of the owner and maximize the benefit of the contractor. As we know that contractors charge a higher price on projects when the risk is high than when it is low. Therefore, owners can reduce the cost on their projects by reducing the risks the contractors are required to bear. This potential is greatest for those forms of risk which the owner is in a better position to control than the contractor.

Hypothesis testing also revealed that risks allocation attitude of the owner and the contractor in tunnel project in Vietnam is not different. This indicates that owners and contractors in Vietnam have the same opinion about who should be responsible for a certain risk. This is an important advantage that could reduce deputes in project procurement process and making important contribution to the success of projects.

The investigation into risk allocation practices at the two projects also have been done and the results show that although there are conflicts about policy perception for risk allocation between participants in the projects, majority of participants are satisfied with the current risk allocation arrangement in their projects. Risks are allocated more properly at Dai Ninh project than at Buon Kuop project, and respondents from Dai Ninh project are more optimistic about successfulness of risk control than the respondents at Buon Kuop Project. These differences between the two projects may be explained by the fact that Dai Ninh is an international project using FIDIC condition of contracts and most risks are allocated by contract clauses. Meanwhile, Buon Kuop is a local project and has not followed any standard contract form; consequently, many risks are not allocated properly.

Mr. Thuy’s recommendations

In recent years, the construction industry in Vietnam is having a good reputation of rapid development. However, many large scale projects invested by the government are still facing cost overrun and schedule delay. The main reason for these problems is that risks are not identified and allocated properly before project start. Owners and contractors don’t have official risk management systems for their projects. Through this study, the author would like to recommend some measures as follows:
Firstly, education and training policies should be established by the government to bring out the best of current human resources in the field of project management in which risk management is a major.

Secondly, corporations also had better have periodic risk training programs for its employees. Therefore, they can recognize the benefits of risk management and also know how to handle risks in their projects. It must help encourage responsibility, knowledge sharing, continuous improvement in coping with risks in tunnel construction projects.

Finally, a standard contract form should be developed and applied in all hydropower tunnel projects in Vietnam in which all major or known risks are allocated by contract clauses. So that risks can be managed by responsible party in order to reduce cost for the owner and maximize benefit to the contractor, preventing of conflicts, claims or litigations between the owner and the contractor.
His thesis abstract is copied and posted.

ABSTRACT

This research focuses on the identification of major risk factors faced by parties involved in hydropower tunnel construction in Vietnam and investigates into the risk allocation opinion among the involved parties. The data collections were carried out by structured interviews at two hydropower tunnel construction projects in Vietnam. Beside, the research also investigated into the risk allocation practices at the two projects to find out whether the risks in these projects are allocated properly or not.

The results of risk identification obtained at the two tunnel projects indicated that, in general, the two tunnel project facing the same risks; however, some of the risks are somewhat different in rank between these tunnel projects because they used different methods of construction. Tunneling by TBM, which is more mechanized than tunneling by drill and blast method (D&B method), faces more risk about equipment productivity and ingress of ground water but less risk about overbreak. Opinions on risk allocation were also obtained at the two projects. Hypothesis tests pointed out that there is no conflict of opinion about risk allocation between the owner and the contractor in tunnel construction in Vietnam. Furthermore, risk allocation practices at the two projects have been investigated. Although there are some conflicts about policy perception for risk allocation between participants in the projects, majority of participants are satisfied with the current risk allocation arrangement in their projects.

Tuesday, 3 November 2009

Professor Ali Jaafari Gives Lecture at AIT

Dr. Ali Jaafari, Professor and President of the Asia Pacific International College was invited to be the Speaker at the seminar held in AIT on 27 October 2009. The theme of this seminar is “The making of Professional Managers and Leaders: How to succeed on the Face of a Fast Challenging World”. This was attended by Dr. B. H. W. Hadikusumo, Associate Professor and Coordinator, CEIM-SET, some AIT staff and around 35 Ph. D. and M. S. Students of CEIM Field of Study.

About the Lecture

ABSTRACT

Professional people face different career paths to those of the past, when relative certainty and continuity were the norm. The socio-economic and political environments have changed to complex or even chaotic state and continue to challenge even the most hardened managers. Projects and programs have risen in complexity too, due to complex environments, changing goals and conflicting interests. Knowledge increases at a rapid rate and affects all fields of activity. In this environment a normative model of thinking and practice, based on best practice models, can no longer be the foundation of professionality in most fields of endeavour. In this presentation the author will attempt to respond to the following key questions and to raise the level of debate on professional development and practice as well as the role of educational institutions:
 What characterises the contemporary environment within which business, projects and endeavours take shape?
 What are the business and social drivers and how do these affect organisations in both public and private sectors?
 What are the implications for professional people?
 Why is it necessary to promote and apply a new model of professionalism along the concept of transformative leadership?
 Who are creative-reflective professionals, and what characterises them?
 How relevant are these concepts to professionals, classed as techno-management professionals?

The thesis advanced by the author is that most graduates taught under a normative model cannot cope with a fast changing world nor perform professionally well despite all that training that goes to their preparation. They need additional and systemic preparation to develop different competencies and cognitive abilities that will aid them survive or even thrive in an environment of change and uncertainty. This thesis gave rise to the establishment of Asia Pacific International College (APIC) as a unique institution that aims to help both fresh university graduates as well as mature age professionals to acquire new resilience and abilities to rise above the complex challenges facing them. A major pillar of such development is leadership and transformative capabilities.

Photos during the Seminar




























Speaker’s Biography:

Professor Jaafari is a distinguished educator and consultant, recognised internationally, particularly in management of large complex projects and programs. He has delivered courses and training workshops for more than 3500 professionals and executives globally, including many multi-national corporations, EPC firms, major public and private sector organisations, and government agencies. Professor Jaafari has published widely in major international journals and conferences, books and monographs. He currently heads Asia Pacific International College. He held the Chair of Project Management at the University of Sydney until August 2004. Professor Jaafari has an extensive professional track record in this field and is known as an authority internationally.

Monday, 2 November 2009

Prof. Peter Barrett gives lecture on “The important place of construction in the economy (using results from the revaluing construction work)”

The School of Engineering and Technology (AIT Thailand) conducted a seminar with the theme “The important place of construction in the economy (using results from the revaluing construction work)” last 19 October 2009. Professor Peter Barrett was invited to be the guest speaker for this event. Prof. Barrett is currently Professor in Construction and Property Management of the University of Salford.

Dr. Chotchai Charoenngam, Associate Professor, CEIM-SET and around 40 Ph. D. and Master Students attended this event.




Prof. Peter Barrett and Dr. Chotchai Charoenngam after the lecture.



Group photo : Prof. Barrett and Dr. Chotchai (center) together with CEIM staff, Ph. D. and M. S. students


About the Speaker
Peter is President of the UN-established International Council for Research and Innovation in Building and Construction (CIB) involving 2000 experts in 60 countries. He is a past Director of Salford’s top rated, 6* Research Institute for the Built and Human Environment and is currently Chairman of the £5M EPSRC funded, Salford Centre for Research and Innovation. From 2001 - 2008 Professor Barrett was Pro-Vice Chancellor for Research with overall responsibility for all research across Salford University, which in this period grew from involving 38% to 60% of academic staff. See Research and Graduate College,Peter is a Fellow of the Royal Institution of Chartered Surveyors and in 1989 was the first Chartered Building Surveyor to gain a PhD. He has since supervised and supported a wide range of Post Graduate students. To date he has produced over one hundred and seventy single volume publications, refereed papers and reports, and has made over one hundred and ten presentations in around sixteen countries. Professor Barrett has undertaken a wide range of research, typified by a management focus around real world problems using a range of hard and soft research methods. He is currently focusing on the theme of Revaluing Construction with a particular interest in the links between Senses, Brain and Spaces.

Wednesday, 28 October 2009

AIT-CV August 2009 Intake for CEIM and MPM Field of Studies

The AIT-CV Hanoi branch accepted 13 students for August 2009 semester. Twelve (12) students are now enrolled in Professional Master in Project Management and one (1) MS student for Construction, Engineering and Infrastructure Management.

In AIT-CV Ho Chi Minh City Branch, twenty four (24) students are currently registered; four (4) MS students and one (1) Ph. D. for Construction, Engineering and Infrastructure Management, while nineteen (19) students for Professional Master in Project Management field of study.

Below is the complete list of AIT-CV students.

Hanoi Branch

No. Name Field
1. Mr. Tran Van Trung - MPM
2. Mr. Pham Nhu Dung - MPM
3. Ms. Le Ngoc Diep - MPM
4. Mr. Doan Thai Duong - MPM
5. Mr. Le Nam Binh - MPM
6. Mr. Pham Van Thanh - MPM
7. Mr. Le Van Thu - MPM
8. Mr. Nguyen Trung Kien - MPM
9. Mr. Nguyen Duy Duc Thu - MPM
10. Mr. Dinh Quang Hiep - MPM
11. Mr. Bui Duc Luong - MPM
12. Mr. Vu Van Cao - MPM
13. Ms. Nguyen Phung Hai - CEIM


Ho Chi Minh City Branch

No. Name Field

1. Mr. Nguyen Tuan Tu - CEIM
2. Mr. Bui Duy Khanh - CEIM
3. Mr. Nguyen Quoc Trung - CEIM
4. Mr. Duong Quang Minh - CEIM
5. Mr. Ha Cong Huy - CEIM - Ph. D.
6. Mr. Bui Kim Binh - MPM
7. Mr. Nguyen Phan Hoa Binh - MPM
8. Mr. Truong Thai Binh - MPM
9. Mr. Le Minh Đang - MPM
10. Mr. Truong Ngoc Dung - MPM
11. Mr. Nguyen Duy Thien Giang- MPM
12. Ms. Trinh Thi Thu Ha - MPM
13. Mr. Bien Nam Hai - MPM
14. Mr. Vo Si Hoai - MPM
15. Mr. Bui Hai Nam - MPM
16. Mr. Ha Chi Nghia - MPM
17. Mr. Nguyen Van Nhan - MPM
18. Mr. Nguyen Chanh Phuong - MPM
19. Mr. Nguyen Le Thuan - MPM
20. Mr. Le Mien Thuy - MPM
21. Ms. Nguyen Thu Trang - MPM
22. Mr. Nguyen Duc Trong - MPM
23. Mr. Nguyen Quoc Viet - MPM
24. Ms. Nguyen Thi Vui - MPM

Tuesday, 27 October 2009

Knowledge Management in the Construction Project Environment

The construction industry, wherein the highest capital investment is drawn up at the construction stage, is one intensely competitive business with a high risk and low profit margin. Currently, the construction industry still encounters the consequences of construction delays, cost overruns and delivery failures (Beatham et. al., 2004). Issues of controversy have been on means of improving the construction industry from a less productive and poorly organized set-up to a fully effective and yet remain highly competitive. The use of knowledge in organizations has been increasingly seen as a basis for enhancing a competitive advantage (Krogh et. al., 2000; Goh, 2002, Carrillo, 2004). The challenges therefore lie in the means of managing knowledge resources and capabilities, contributing to project success and sustained organizational competitiveness.

In Thailand and other developing countries, construction projects have inadequate and ineffective control strategies towards project management problems. The operational modes of contractors are mainly based on sole ownership, headed by entrepreneurs lacking efficient expertise in construction management. Evidently, the most important factor inhibiting the successful completion of a construction project is the scarcity of skilled personnel at all levels of construction personnel especially supervisors (Ofori 1985; Imbert 1990; Mackenzie et al., 2000). However, most owners do not want to incur expenditures on employing qualified professionals to compliment and enhance management competency.

Mr. Wasan Teerajetgul made a case study to examine the key knowledge influencing factors (individual and organizational factors) and the knowledge creation process that affects construction project team creativity, and his research mainly focused on the practice of knowledge management in Thai construction projects at the on-site work level. The following are his specific objectives to: (1) identify knowledge factors influencing on-site construction; (2) examine the current practice of knowledge factors in association with the knowledge creation process and project team creativity during the course of on-site construction; (3) examine the influence of key knowledge factors and the knowledge creation process on project team creativity; and (4) propose improved mechanisms of knowledge creation process for on-site construction.

In his analyses, he identified the knowledge factors influencing on-site construction works using Varimax rotation. These analytical techniques showed that that there are six important knowledge factors with 36 items under each. These knowledge factors are: 1) visionary leadership, 2) reward or incentive, 3) collaboration, 4) trust, 5) information technology, and 6) individual competency or skills. Analyses of components of the knowledge creation process revealed that a total of 21 items are under the four dimensions of socialization, externalization, combination, and internalization.

The results of the study showed that majority of respondents tend to mostly rate their assessment between somewhat and agree on the scale of measurement. This could be attributed to respondent’s particular reluctance to disclose negative perceptions about knowledge management practices. As peculiar to the Thai culture, Thais are generally hesitant to openly critique others and issues of concern.

IT support has the largest effect and uniquely contributed to the knowledge creation process. Such result automatically reflects the complexity of engineering knowledge that requires rich technology applications such as the use of 3D simulations. IT allows construction engineers to retrieve critical information, incorporate information with their experiences and enhance additional opportunities to create new concepts by sharing knowledge and techniques with each other. Nonaka and Takeuchi (1995) argued that the IT networks have proved to be a limited means for disseminating tacit knowledge. They address the added importance of human networks than IT networks.

Experience provides individuals with the opportunity to create knowledge through trial-and-error learning. Experience also affects individuals’ ability or competency to transfer knowledge (Argote et al., 2003). Individual competency is a set of skills, related knowledge, and attributes that allow an individual to perform a task or an activity within the scope of a specific function or job.

The results also showed that there is a significant influence of the overall knowledge creation process on project team creativity. In this study, if each part of the knowledge creation process is perceived as mutually exclusive, then only internalization comes into the limelight. Internalization significantly affects project team creativity. Schonstrom (2005) discussed that when knowledge is transferred, it is suggested that knowledge has to be first internalized by the receiving individual before it can be used. The internalized learning through problem-solving facilitated construction engineers in becoming experts and therefore they could use existing knowledge to create products, stimulate innovations and creativity in addition to much more. The results explain that internalization is the process whereby one increases knowledge by learning from external events such as work and apprenticeship.

Contribution to Practice
This research established evidence on how construction project teams adopted the knowledge creation process to improve its project performance. Thai construction managers are seen to place emphasis individual competency or tacit knowledge. Their flexible thoughts and engineering techniques were elements of tacit knowledge fundamental to foster knowledge management and creativity. The strength of knowledge management rests on the vision and aspiration of construction managers in applying creativity in on-site knowledge practices. By having appropriate and attractive incentives, competent project teams were brought in to utilize and generate new knowledge in the form of problem solving. In order to make knowledge visible, the competency in using IT to convert conceptual ideas and package knowledge into obvious activities must be inherent. IT is seen to facilitate the knowledge creation process by capturing knowledge in real time and thereafter, making it accessible for future use. IT greatly benefits construction projects in that it speeds up the project team’s decision making process and thus shortens the product life cycle. The knowledge creation process is seen to facilitate the improvement of project performance. In conclusion, successful execution of construction projects requires that project managers to consider the above-mentioned three important factors.

Contribution to Research
The following are summarized contributions of this research to the body of knowledge in construction projects at large.

1. This study establishes the new instrument for measuring knowledge factors, knowledge creation, and project team creativity in Thai construction.
2. The study provides opportunity to facilitate and to manage the key knowledge factors identified and knowledge creative environment for improving competitive advantage.
3. The research proposes improved mechanisms of knowledge creation that will generate effective practices in a construction project environment, for example, fostering knowledge sharing culture (employee exchange knowledge as standard operating procedure), providing knowledge vision, platform or community of practice, and knowledge process, and knowledge delegation etc.
4. These improved mechanisms can be applied at all levels of construction organizations that need to improve its knowledge management process.

His thesis abstract is copied and posted.

Abstract

The research focuses on the practice of knowledge management practice in Thai construction projects at on-site work level with the objectives as follows: 1) to identify knowledge factors including individual and organizational factors influencing on-site construction execution; 2) to examine the current practice status of knowledge factors in association with knowledge creation process and project team creativity; 3) to examine the influences of key knowledge factors and knowledge creation process on project team creativity; and 4) to propose an improving mechanism of knowledge creation process at on-site construction.

The design of this research is cross-sectional and uses a blended methodological approach of both quantitative and qualitative methods. The research model includes the following variables: a) six knowledge factors: vision of leadership, trust, collaboration, incentives, Information Technology (IT) support, and individual competencies, b) four knowledge creation processes: socialization, externalization, combination, and internalization, and c) team creativity

At the beginning stage, the qualitative method using focus-group interviews is used due to the novel nature of knowledge management practice in Thai construction. This method helps the researcher to obtain some rich data. The quantitative method is used when exploring the effects of the knowledge factors, the knowledge creation process, on the project team creativity. Then, the study results are verified through the qualitative method by using a case study again.

Survey data from 70 construction projects in Thai construction firms, obtained in second stage by means of a questionnaire developed by the researcher, were collated and analyzed. As a means of testing the model, regression analysis techniques were used to analyze the data. Consistent with previous empirical evidence, three knowledge factors affected the knowledge creation process: incentives, IT, and individual competencies. It was noted that these factors overlay the knowledge creation process at all execution stages of on-site construction. In other, only internalization of knowledge creation process affected project team creativity. It was presented that construction members had focused largely on managers’ conception as individual.
This research is expected to contribute to a better understanding of important knowledge factors and knowledge management research in Thai construction which is still at an infancy stage. In order to build a knowledge creative culture, construction project executives need to support and maximize the value of human assets (individual competencies). Furthermore, facilitating IT-supported knowledge management in construction projects needs to be considered and emphasized needs to be placed on productive work and gain a competitive advantage.

Monday, 26 October 2009

Risk Management In Port & Waterway Projects: A Case Study Of The Southern Focal Economic Area Of Vietnam

Facility construction involves a wide variety of risks. Factors impacting owner investment decisions can be quite complex and may vary significantly from region to region and project to project. Contractors face similar difficulties when they consider working outside of their resident jurisdiction. The risks arise from many areas such as legal requirements, construction systems, technology, and management techniques. The success of a specific venture, and in some cases the viability of an organization, can hinge on an understanding of the risks associated with such projects. Construction projects that fail to meet scope, budget, and schedule can result in a host of impacts with serious economic, social, and political ramifications.

Many experts agreed that the company that earned the highest profit has a good risk management system. Management of Risk (MoR) is not only about avoiding explosions or natural disasters. In fact for most businesses it is about profit. And many businesses do it without really understanding how better risk management could help their organization achieve its goals. Risk management proponents say that the better the organization is at managing risk, the more profitable it will be.

In summary, a certain amount of risk taking is inevitable, and even to be encouraged, if an organization is to achieve its objectives. Objective management and acceptance of risk helps to improve performance by contributing to:
a. Increased certainty and fewer surprises
b. Better service delivery
c. More effective management of change
d. More efficient use of resources
e. Better management at all levels through improved decision making
f. Reduced waste and fraud, and better value for money
g. Innovation
h. Management of contingent and maintenance activities

Although there are many improvements of management in Vietnam, the construction industry still has to face many changes in both market and government policies. The causes are many but one of them is the lack of attentiveness with the important of the risk management process.

Besides, the value of systematic risk management of project activity is not fully recognized by the construction industry (Walewski, et al. 2002). Since no common view of risk exists, owners, investors, designers, and constructors have differing objectives and adverse relationships between the parties are common. Attempts at coordinating risk analysis management between all of the project participants have not been formalized and this is especially true between contractors and owners.

Moreover, the construction engineers were not familiar with the risk management issues and they found it was hard when working in a competitive climate, especially in a project. Because of lack of knowledge of management and risk management, they were not preferred with the relevant works such as planning than the technical issues like designing or calculating structural. Thus it is understandable if they were unaware of risks and less concerned of risk management. Therefore, a study of risks and risk management is necessary and beneficial to all of the construction industry in general and Port & Waterway Projects particularly. In summary, the problems are stated as follow:
§ The ambiguous of risks and risk management of the Vietnamese engineers.
§ The lack of awareness and knowledge of risk management.

Mr. Nguyen Viet Dung made a case study which focused on the management of risks in P&W projects in Southern Focal Economic Area (SFEA). The framework of his research started with the findings of risk management that include risk management planning, risk identification, risk analysis, risk response and risk monitoring and control which followed by the analysis and the discussion. Based on the collected information, improvement suggestions will be made to improve effectiveness in risk management in port and waterway projects in SFEA of Vietnam. His specific objectives were:
§ Finding the potential risks and how are they managed in P&W projects
§ Suggest how to effectively manage risks in port & waterway projects.

His study was conducted with the intention of giving more benefit to the engineers working on P&W projects though it could be useful for other fields of the construction industry. He found out that the most important risks consisted of 1) corruption and bribery, 2) budget viable (contractor), 3) incompetent project team, 4) changes in law and regulation, and 5) inadequate designer.

He investigated two projects were the picture of risk management in P&W projects was clearly defined. In both studied projects, they have formal processes of risk management and are constantly improving by practicing experience. The process consisted of 4 main stages:
1. Risk management planning - although most of interviewees agreed about its importance, it is still not utilized carefully. Project budget and project management plan are important and usually used.
2. Risk identification and analysis - performance is quite fine. A few formal standards have been applied and encouraged the engineers to participate. The project budget is considered as the most concerned subject, while business environment factors are accounted to cope with changes in the market. Tools and techniques which based on historical data and experience are highly utilized. The engineers prefer easy and convenient methods to do their work when it proves useful and is accepted by the authorities.
3. Risk response - mitigation and sharing are mostly utilized and have high effectiveness when these strategies could make the stakeholders reach agreement without arising disputes and losing time. Thus the experts with high skill of negotiation are needed to motivate the relevant parties and ensure the success of the agreement.
4. Risk monitoring and control - though new risks appearing in the project life aren’t identified very well, it is successful in other means. By applying “risk audit” and “technical performance measurement”, the risk responses and risk management process is evaluated and necessary activities will be implemented to ensure the success of achieving the project’s objectives. However new risks could be major problems if they are ignored, especially in complex projects where risks can’t be recognized fully in identification stage. Therefore applying the strategies to continuously uncover the new risks such as “risk reassessment” is suggested to make the risk management process concrete.

At present, risk management is still a new area in the management field. Therefore, facing difficulties are frequent and unavoidable.

Mr. Dung found out that although the founded general attitude was that risk management was already so much of concern. Thus if more effort was put into it, no other work would get done. He also found out that the transferring of risks and risk management knowledge from project to project was poor. The interviewees admitted that even if they proposed a new solution and put serious effort into transferring that knowledge to others, but it would be difficult even within their own organization.

In theory, although many methods of carrying out risk management processes are presented, they were not in practice. Some of the interviewees were working with risk management, and they admitted that they had little knowledge about risk management methods. Professionalism and experience are very important in identifying and managing risks, but it is necessary to encourage larger participants and apply more appropriate tools and techniques.

Formal methods of communicating and of sharing experiences and knowledge of risks and risk management were missing or inadequate. That is why in order to secure the activities of the project, it is important to adapt the most suitable approach. Therefore, risk management courses for all construction project engineers are necessary to increase the level of knowledge of formal risk management processes. Furthermore, understanding its benefits would increase the willingness to invest in risk management and capabilities to do it.

His thesis abstract is copied and posted

Abstract
Project risk management has been a subject of intensive discussion in recent years. Still, research on how project risk management should be adopted is inadequate. The objectives of this study are to identify the risks and how to manage risks in Port and Waterway (P&W) Projects. The focus of the study is on the means for risk management. The purpose is to emphasize the importance and requirement of risk management.

The study was conducted with 7 interviews in two different P&W projects and mainly targeted to the engineers involved in the projects. Literature searches were mostly done by using AIT library materials and databases.
Empirical study was used to show the application area for risk management derived from literature. Based on this, a picture of risk management in P&W projects was formed. The basic idea of the picture is to sensitize the engineers regarding the potential risks and suggest how to manage them. According to the understanding gained during this study, it is suggested that by enabling more caution of risk management methods, project risk management will become more efficient and the inefficient and costly activities identified would be reduced.

Thursday, 22 October 2009

Factors In Power Purchase Agreements Affecting Investment Flows In Independent Power Production In The Nepalese Environment

“Public private partnerships (PPPs)” have a critical role to play in implementing the development projects in developing countries. Traditionally, the responsibility of constructing and operating infrastructure facilities had rested with the government, but with the growth of economy outstripping infrastructure supply (Gupta and Sravat, 1998) and the need for providing infrastructure facilities to keep up the pace of development, the burden of infrastructure development has been shifted to private sector through concession contracts such as Build-Own-Transfer (BOT). As the term implies, public private partnership is a structure that implements and carries infrastructure projects into effect on a basis of partnership, each sector contributing what it does best.

In South Asia, private participation in electricity was oriented mainly towards building generation capacity also in the form of independent power producers (IPP). This focus reflects the need in the region to expand generation capacity to keep pace with expected demand. Nepal alone with substantial hydropower capacity will require an investment estimated to be US$ 1.8 billion (Private Participation in Infrastructure: Trends in Developing Countries in 1990-2001, 2001) for the expansion of the power sector for domestic demand over the next ten years. With the declining trend of availability of scarce public resources soft loans and grants from multilateral and bilateral agencies, such financial resources will have to be mobilized through the private sector, in the form of IPPs.

Despite having a feasible generation potential of about 43000 MW and with a demand growth rate of about 10%, Nepal's current total installed capacity is only about 526MW with only 40% of the total population having access to electricity. The quality of the supply is poor, system losses high, and power shortages persistent. The cost of electricity for the consumers in Nepal is also one of the highest in South Asia.

Project Sponsors and lenders seek to reap adequate returns in stable environments, minimizing political, financial, operational and other risks associated with the project ensuring a steady stream of revenues.

Likewise, the state owned public enterprises will want to limit the abuses of monopoly power by the private operator and will seek to maximize production efficiency. The responsibility of the state owned enterprises also lies in ensuring the appropriate quality, environment, health standards and social justice.

Similarly, other stakeholders to IPPs have interests ranging from social welfare from the project company to reasonable costs of services.

Private hydropower production is still in the phase of evolution in Nepal, and the process is proving to be slow and expensive. Prospective developers continue to face risks and difficulties and fifteen years after the introduction of the Hydropower Development Policy in the early 1990s, the government of Nepal has only been able to attract limited private investments in power generation.

As pointed out by Head (2000), all private infrastructure development carries common risks such as political, currency exposure, force majeure etc. but hydropower is perceived as being exposed to additional risks in project definition, risks in hydrology, environment, financing, and regulatory risks. Even straightforward issues like scheduled outages and contract energy have led to disputes in PPAs in the Nepalese environment. Therefore, in the process of designing PPAs, a variety of questions need to be asked about the best feasible means satisfying the concerned parties allowing them to come to a zone of possible agreement.

Mr. Raju B. Shrestha made a research which aimed to 1) identify the underlying factors in PPAs in hydropower production in the Nepalese environment; b) identify how the principle issues affect the stakeholders; and 3) identify ways to address the principle issues

He believed that the benefits of his study will have contributions to the body of knowledge pertaining to PPAs in the Nepalese environment.
· Assessment of the underlying factors for project sponsors, utilities, lenders and the host Government.
· The impact of the underlying factors to the concerned parties.
· Positions of the concerned parties, their shared interests, and uncertainties.
· The strategy to adopt for future projects.

His analyses of the PPAs concluded to date, and the perception study of the prime stakeholders has shown the following:
· The analyses of the PPAs concluded to date in the Nepalese environment have shown that discriminatory clauses and unequal treatment are present in the key issues of the agreements.
· The prime stakeholders have divergent perceptions in the key issues of the PPAs, and that not all the clauses have been acceptable to the parties concerned. The responses of the prime stakeholders of the contracting parties reflect the past trends and practices in PPAs between the utility and the IPPs of various types.

From this study, the contracting parties can better evaluate future projects as well as negotiate the terms in the PPAs and provide suitable alternatives wherever required. The past trends of PPAs, the degree of convergence of opinions in each clause in terms of its importance and its importance in inclusion in PPAs can be evaluated. This will facilitate the contracting parties in negotiations to come to agreement sooner and successfully conclude PPAs.

The responses regarding the clauses of the PPAs of the other major stakeholders, namely the lenders and the government, will further help in facilitating successful conclusion of PPAs. His conclusions are categorized in 5 aspects such as:

1. Power Purchase Guarantees
a. Take or Pay Clauses
b. Purchase Guarantees of Interim Energy
c. Supply Guarantee of Minimum energy
d. Purchase Guarantee of Excess Energy
e. Two Part Tariff- Demand Charge
f. Third Party Sales Guarantees

The clauses in the PPAs are more favourable to IPPs with foreign investment than IPPs with local investment with guarantees of purchase of excess energy, interim energy, and better escalation rates, more coverage from exposure to political and changes in law risks.
· The clauses of the PPAs with investment in JV with the Utility have favourable clause for the project sponsors with better escalation rates and purchase guarantees of excess and interim energy than projects with local investment, and explicit clause covering political risks.
· Take or pay clause has not been favourable to the utility as it has resulted in losses.

2. Force Majeure Guarantees
a. Political Risk s
b. Natural Disasters
c. Changes in Law
d. Buyout Clauses

3 Financial and Foreign Exchange Guarantees
a. Convertibility
b. Repatriation
c. Devaluation
d. Escalation
f. Tax Holidays
g. Concessional Funding

4. Operation Risks
a. Dispatch Rights
b. Scheduled Outages
c. Availability Declaration
d. Maintenance Clauses

5 Other Risk Mitigating Measures
a. Dispute resolution Methods
b. Informal Dispute Resolution Methods
c. Arbitration
d. Insurance
e. Insurance Before RCOD
f. Insurance after RCOD

His thesis abstract is copied and posted.
ABSTRACT
With the Introduction of Hydropower Development Policy in the early 1990s, combined with the changes in electricity legislation and the opening up of the power industry to the private sector, Independent Power producers (IPPs) have been playing a bigger role in the development of the electricity sector. However, further investment in this sector has been difficult to mobilize, and part of this difficulty can be attributed to the factors in the existing Power Purchase Agreements (PPAs) and inconsistencies in the guarantees provided by the state owned utility.
The research provides the underlying factors in PPAs in hydropower production in the Nepalese environment, which are of most significance to the stakeholders of independent power production. The research is carried out with a triangulation approach taking into account both the qualitative viewpoint, in the form of comparative studies; and quantitative viewpoint, a questionnaire survey, regarding issues of PPAs.
From a pool of existing independent power producers, 10 PPAs are compared for patterns of specific variables by examining, categorizing and tabulating the underlying factors of PPAs. Opinions in the form of a questionnaire are sought from the stakeholders and the means of the ranks tested by Kruskal-Wallis tests to see if the perceptions of the stakeholders differ in the key issues of PPAs. Further, Mann-whitney tests are carried out to examine the difference in the perception between the pairs of stakeholders in the key issues of PPAs.
The research shows that discriminatory clauses and unequal treatment are present in key issues of the agreements. Questionnaire survey of the stakeholder’s shows the significant clauses of the PPAs and the clauses most likely to be included in PPAs by the stakeholders. With the knowledge of the underlying factors in PPAs, the research allows the stakeholders of the power production to clearly understand the positions of the parties involved. The parties can combine their shared interests to create a joint value and deal with multiple issues and make trades between them, eventually both the parties getting something that they value.