Collaborative Strategy between Stakeholders of Hydropower and Power Intensive Industry in Bhutan

Before 1960, handicrafts, wood products, bamboo products, agricultural products were manufactured in small scale. The number of industries continued to expand steadily after the implementation of first five year plan in 1961. Today most of produce includes cement, wood products, processed fruits, alcoholic beverages, calcium carbide and other minerals. (Bhutan, 2008). Due to high transportation cost, small domestic markets and under developed infrastructure, industrial development has experienced slow pace. Nevertheless as Bhutan continued cordial relation with India, growing demand for minerals and other products has made inevitable to exploit the available resources.

Industrial growth has increased to 5.8% in 2007 from 3.8 % in 2006. (Royal Monetary Authority, 2009). In spite of unprecedented industrial growth, RGOB has to slacken its development owing to power intensive. The demand of minerals and other products continues to grow but industrial development has to stand still until new hydropower plant is installed which can cater the power to these power intensive Industries.

As per the electricity demand scenario, with considerable increase in domestic demand and based on the existing demand forecast, there will be no power available for export by 2012 during the lean season. Due to increased coverage and industrial demand, 12 MW on average of power has to be added per annum to avoid reduction in export. 1 MW reduction of export of electricity will result in about Nu. 14.89 million losses in cash to the Government. (Department of Energy, 2005). The power intensive industries will be affected as the domestic tariff will make par with the export tariff.

The RGOB is in dilemma as to focus on industrial development which is backbone of socio-economic development or continue to earn enough revenue through the export of electricity. In order to encourage power intensive industries keeping in view the affordable domestic tariff and increased level of revenue through export of electricity, is it possible to have collaborative situation- i.e. “domestic tariff remains affordable while at the same time export earnings continue to grow” (Department of Energy,2005) so as to achieve the national goals of meeting the internal demand of the country at affordable tariff and at the same time increased sufficient revenues from the export of hydroelectricity for investment in socio-economic development sectors to achieve economic self-reliance and Gross National Happiness.

Mr. Karma Gyamtsho made a study which objectives were to: i) explore in-depth into the field of industrialization, hydropower generation and the policies of the Government and identify the key collaborative issues of different stakeholders and their behavioral approaches towards collaborative strategy between hydropower generation and power intensive industries in Bhutan; and ii) develop a collaborative framework between hydropower generation and power intensive industries of Bhutan keeping in view the unique development philosophy & strategy of Gross National Happiness and provide suggestions & recommendations.

Conclusion:

Economic growth in Bhutan through export of electricity and industrial development have become like two sides of coins, both cannot be seen at same time. If Bhutan strives to achieve economic development through export of electricity and industrial development, a complementary strategy of hydropower development by industrialist for its own consumptive uses should be permitted.

The network of interrelationships of the different stakeholders is illustrated in figure below.

The collaborative issues of the different stakeholders surfaced are lack of technical & managerial expertise, high logistic cost, import of foreign workers, land ownership, water user right, equitable regional development, under performance of the machines, excise duty, logistic cost, absence of policy, wheeling charges, feed- in tariff, opportunity cost, high lending rate, high insurance premium, absence of FDI in hydropower sector, environmental clearance, rational power tariff, scarcity of raw materials, excise duty, high lending rate, high insurance premium, equity in investment, access to external source of fund and sustainability. The collaborative approaches to the collaborative issues are human resource development, strategic infrastructural development, more foreign workers, full land ownership, full water user right, balanced development, excise duty refund, policy development, affordable wheeling charges, rights to feed in power, external borrowing, foreign insurance, accelerated environmental clearance, maximum equity in investment and affordable tariff. Based on the study, a collaborative strategy is developed.

The collaborative issues that are desired by the maximum stakeholders are policy development, strategic infrastructural development and human resource development. The collaborative issues such as wheeling charges and feed-in tariff are considered the most significant as it determines the tariff of electricity for the industries.

Recommendations

The following recommendations are made based on the collaborative strategy developed:

1. Policy Development: It is inferred that there is intense need for the policy development by Hydropower plant, Department of Industry, Bhutan Electric Authority, Investor, power intensive industries and department of Industry. The collaborative issues of these stakeholders include the absence of policy which inhibits them to develop such hydropower plant for industrial uses and there is considerable loss of opportunity for the nation. The rational power tariff between industries and hydropower plant can only be determined if the policy is in place and the inclusion of hydropower in foreign direct investment policy can greatly steer the investors. One window clearance system can reduce the lengthy procedures of approvals.

The following recommendations are done with regard to policy development:
The captive power policy formulation should be expedited meanwhile the permit to conduct survey and investigation for hydropower project should be issued to the interested industrialist.

Foreign Direct Investment should be allowed in hydropower sector.
One window clearance system should be established for speedy approvals for projects.

2.Strategic Infrastructural Development: There is also need for the strategic infrastructural development by contracting agencies, machinery supplier, raw material supplier, hydropower and power intensive industries where the collaborative issues is high logistic cost.

Following recommendations are done with regard to strategic infrastructural development:
- Enhanced quality and reliable road network should connect hydropower site and industrial estate.
- Alternate mode of transport such as ropeways and railways should be developed.
- The private sectors should be entrusted with the infrastructural development.

3. Human Resource Development: It also necessitate to have human resource development by the contracting agencies, machinery supplier, hydropower plant and power intensive industries where the collaborative issues includes lack of technical & managerial expertise and underperformance of machines.

The following recommendations are made with regard to human resource development:
- Mandate Indian contracting agencies executing the projects to induct Bhutanese contractors as joint venture.
- Establish more vocational training institutes which provide skill enhancement in Hydro Power and industrial sectors.
- Conduct short term courses and training in hydropower and industrial sectors.
- Financially support private and corporate sector for Human Resources Development.
- There should be involvement of Bhutanese with the reputed firm for the design of machineries and also in the operation & maintenance.

4. Environmental Clearances: An accelerated environmental clearance is also a priority for hydropower plant and power intensive industries where environmental clearance and the scarcity of raw materials are the collaborative issues. It is recommended to have one window clearance system for environmental clearance in the policy and more exploration for mines to meet the inadequate supply of raw materials for the industries.

5. External Borrowing: The permit to external borrowing is also necessary for hydropower plant and power intensive industries where high lending rate is the collaborative issues. It is recommended that the external borrowing should be permitted and the lending should be based on cash flow projection rather than the collateral based.

6. Refund of Excise Duty: The refund and exemption of excise duty is also emphasized by the machinery supplier, raw material supplier, hydropower plant and power intensive industries. It is recommended that there should be exemption of excise duty on import of machineries and refund of excise on the import of raw material.

7. Land Ownership: The land ownership is also area of concern for hydropower plant and power intensive industries. It is recommended that lease period specified in existing relevant policies and regulations should be increased and the lease rate to be made transparent in the relevant policies.

8. Import of foreign workers: It is desirable to allow more foreign workers for hydropower plant, power intensive industries and contracting agencies. It is recommended that entitlement of number of foreign workers should be based on actual requirement.

9. Balanced Development: Equitable regional development is desired by RGOB and is a collaborative issue for hydropower plant and power intensive industries. It is recommended that transmission grid should be extended connecting eastern and western grid. The industrial estate development should be diversified across the country.

10. High Insurance Premium: There is need to access the foreign insurance where high insurance premium is a collaborative issue of hydropower plant and power intensive industries. It is recommended that foreign insurance should be permitted and private insurance company established in the country.

11. Water User Right: The water user right need to assured to the hydro power plant. It is recommended that the full water user right should be assured through the license wherein the quantity and time frame of the use of water is specified.

12. Wheeling Charge: The affordable wheeling charge can be assured to the hydropower plant by BPC through the construction of sub-station and incorporating the cost of sub- station in the wheeling charge thereby reflecting in the contract agreement. It is recommended that wheeling charge be allowed and the necessary infrastructures developed by Bhutan Power Corporation.

13. Feed in Power: Feed in power in the BPC transmission grid is the issue of hydropower plant where the right can be assured through provision of energy banking facilities and willingness of the BPC to take the surplus energy at appropriate tariff. It is recommended that banking of energy be allowed and sale of surplus power to Bhutan Power Corporation at appropriate tariff be made available.

14. Equity of Investment: The investors can be attracted through the equity of investment. It is recommended that 100% equity in investment should be allowed.

15. Sustainability: The core of competency through cost leadership for the power intensive industries can be achieved through the affordable tariff that will be determined by the performance of hydropower plant. It is recommended that electricity duty should be exempted and subsidy on interest should be provided.

His thesis abstract is copied and pasted below.

Abstract

Bhutan still has the incidence to the poverty and unemployment which poses a challenge to industrial and hydropower sectors to create quality employment for the Bhutanese. The rapid industrial growth has increased the domestic power demand affecting the export quantity considerably. The power intensive industries will be affected if domestic tariff becomes par with export tariff. Therefore economic growth in Bhutan through export of electricity and industrial development have become like two sides of coins, both cannot be seen at same time.

It will be prudent if industrialists are permitted to develop hydropower plant for their own consumptive uses and Royal Government of Bhutan continue to focus on revenue generation through export of electricity. As Bhutan has always chosen middle path of sustainable development guided by central development policy of Gross National Happiness, it is necessary to explore the collaborative issues and the approaches of the stakeholders involved in hydropower development for industrial uses before realigning country’s development plan and policies to address these opportunities and challenges. A framework of collaborative strategy between hydropower generation and power intensive industries has to be sensibly derived based on collaborative issues and approaches of stakeholders for effective implementation without deterring the philosophy and strategy of Gross National Happiness.

Construction Claim Types and Causes: A Study of Tala Hydroelectric Project, Bhutan

One of the key areas of controversy that arises in the field of construction industry is from the claim situation. The inherent problems of most of the construction projects are their uncertainty, complex in nature involving a wide variety of business parties that often extend over a lengthy period of time requiring detail plans and specifications, skillful supervisions and efficient coordination. Thus, in such complex process, the occurrences of claims are common phenomena that hinder the completion of project on time and cause cost overruns. Although the symptoms are well known, the real causes and associated costs that arise due to such claims and disputes are not well understood. Construction contract itself is often very long, complex documents which are not well understood by the parties leading to differing interpretation by the different parties and consequently, disagreements or disputes arises regarding contractual obligations or expectations. When one party feels that the contractual obligations or expectations have not been met by the other party, and believe that they deserve monetary and/or time compensation, they may submit a claim.

It is generally accepted and agreed by both the contractors and the contracting agencies that handling of the claims arising out of the construction projects is a serious problem, and that efforts are needed to improve both methods of preventing claims and procedures for settling them when they occur. It not only drains the energy and resources of the parties in trying to solve them but also brings about adversarial relationship between them. Often, the claims that cannot be settled by negotiated adjustments has to be dealt with higher appellate (arbitration, courts etc) which sometimes takes years to resolve. Thus, it is the common interest of both contractor and owner to device means to avoid claims as far as possible in the first place and manage claim process when it occurs.

With the accelerated hydropower development policy in place to achieve the target of 10,000 MW by the year 2020 in Bhutan, a lot of constructions of hydropower projects are in the pipeline and is expected to see the construction boom within next five years. The construction of Pungtsangchu I and Dagachhu are already in full swing. Punatsangchu II and Mangdechhu projects are expected to begin by early 2010 and the studies are being done on many other projects. It has been estimated that around Nu 442 billion will be invested to generate around 10,406 MW by year 2020 (DGPCL website, 2009).

In view of the expected mega constructions that would be taken up in Bhutan, it is pertinent that we look back to the past projects and learn from the experiences. Hence, this study on the construction claims in the recently completed Tala hydroelectric Project was very important and would be helpful to the project participants in preventing and resolving claims in the upcoming projects.

Mr. Sonam Tobgay made a case study which main objective was to find which causes of claims are important and which types of claims were frequent during the construction of Tala Hydroelectric Project in Bhutan. The objectives of his study were summarized as follows:
- Carry out the comprehensive analysis of the claims, their types and the causes that occurred in Tala Hydroelectric Project.
- Study the frequency and severity of each claim and rank them accordingly.
- Study how the claims have been settled/resolved (study the different modes of resolution applied with references to contract clauses)
- Provide solutions to reduce/ minimize or prevent the claims for the future hydropower projects in Bhutan.

Conclusions:

Two types of claims have occurred in this project namely Change claim and Impact claims. Though Change claims (23/35) were more frequent than Impact claim (12/35), the severity (amount) of the claim and duration for settlement was more with the Impact Claims.

The common causations of claims was also analyzed and result showed that five (05) broad groups namely ‘Differing site conditions’, ‘Delay from Project Participants’, ‘Changes in Design and Specifications’, ‘Force Majeure(Flood)’ and ‘Omissions/Ambiguous Contract Provisions’.

The claims due to ‘Differing site conditions’ ranked first followed by claims due to ‘Delay from Project Participants’. This result supports the similar studies done for hydropower projects in India and Vietnam where they also found ‘Differing site conditions’ as the main cause of Claims (Pillai et.al, 2001 and Thinh V.B, 2004). The Adverse Geological Occurrence (AGO) was the main differing condition claims that triggered and gave rise to both change claims and impact claims in different forms.

The different mode of claim settlement adopted in this project was also studied. Almost all the claims resolved were through negotiation. Only three (03) cases out of thirty-five (35) cases accounting to USD 1,890343.19 (5% of claim amount) went to Arbitration or Litigation, rests of the claims were resolved through mutual agreement or direct negotiation. The findings supports the of study done by Zaneldin (2006) in UAE where he found that more than 77.1% of the claims are resolved using negotiation while only 4.9% of claims are resolved through litigation.

Analysis revealed that duration of claim settlement varied from minimum of six (06) months to as long as four (04) years. The claims that were settled through negotiation took much shorter time than the arbitration cases which took as long as four (04) years. Among others, most of the claim cases that took longer duration for settlement sprung from the ‘omissions or ambiguous/conflicting contract provisions/clauses’(1.64 years) followed by claims due to ‘Force majeure’(1.63 years).

Overall, only 39% of the total claimed amount was successfully achieved by the contractor through negotiation. Rest of the claim either got rejected by the owner in the first place or contractor dropped the case during the process of arbitration or litigation. This indicates that the bargaining power of the contractor is much less than the owners since most of the claim cases were not pursued after being rejected by the owner for fear of future adversarial relationship.

The severity and frequency of claims in different contract packages were also studied and found that major portion of claims appeared from civil works (21/35 cases) with over 81% of the total claimed amount while the rest (19%) was from the hydro-mechanical and electro-mechanical combined. Claims from ‘differing site conditions’ which ranked first were more prominent and high for the contract packages which dealt with underground tunneling works while the claims due to ‘delay from project participants(owner)’ dominated the claim for the electro-mechanical works. This is due to the fact that most all the electro-mechanical items were purchased from foreign countries like Japan, Germany, Italy etc which needed long procurement lead time whereby the supply order for these items and mobilization notifications for other resources were done in order to meet the original schedule. Meanwhile, due to delay in completion of preceding civil works for varied reasons, the electro-mechanical works got delayed leaving the mobilized resources to remain idle. Thus, the claim for compensation for the idling charges of the resources.

All the claim issues being analyzed were originated form contractor side. The contractor put up the claim to client with factual narrative of ‘how’, ‘why’ and ‘when’ claims have arisen along with attachments of detail calculation of claim amount, site records, correspondences, photographs if any, change orders etc. On the other hand, the client verifies the claims referring to the various documented proofs and contract clauses, and makes their own justification. The final approval goes through different hierarchy of officials of different departments for their comments and vetting.

Recommendations for minimizing/avoiding claims in future projects:

Having studied the claim cases in Tala Hydroelectric Project, Bhutan, the author has learnt a lot with regard to how and why the claims happened in this project and the various factors that contribute to the occurrence of claims. The different ways and means adopted by the parties to resolve the claims have also been studied. From the knowledge gained by studying the claim issues in this project, the following are the recommendations for minimizing the occurrence of claims in future projects. However, in view of the constraint of the study: limited study period focused only on one project, the implementations of recommendations would further need the suggestions and inputs of the experts.

1.Involve site people in early recognition of potential areas of claim occurrence and risk sharing by partners.
2.Substantive pre-project site condition and hydro-geological investigations.
3.Proper planning, timely schedule updates and coordination according to the actual progress.
4.Develop clear, complete and unambiguous contract.
5.Have regular constructive meetings at site and device ways and means to prevent claims.
6.Have change orders or variation orders from the client before doing any work beyond the contract.
7.Clear provision in the contract defining the time frame for settling claims.

His thesis abstract is copied and pasted below.

Abstract

Due to the nature of hydropower construction projects being complex, uncertain, having long gestation period, involving many parties and requiring the integration of different work components (Civil, Mechanical and Electrical) together to work as a whole unit, claims are one of the common occurrences in such projects. Since claims are undesirable issues in construction projects, it is the common interest of all the parties involved to prevent/minimize from occurring at the first hand and resolve them in a most amicable way after their occurrence.

In this research, the study was done in Tala Hydroelectric project, Bhutan with the objectives to find out (1) How and why the claims occurred (2) What are the claim types (3) How are the claims raised (4) How are the claims resolved (5) What are the common causes of claims and (6) to provide recommendations for avoiding/minimizing claims in future projects with the experiences from this project. The study result shows that two main types of claims namely: Change Claims and Impact Claims have occurred in this project while the main/recurring sources of claims was found to be from ‘Differing site conditions’ coming mainly from the unforeseen hydro-geological conditions during the underground tunneling works. The methods and measures adopted in resolving the claims issues was mostly through the negotiated settlements while few cases of arbitration did also occur. The fact that most of the claims have been resolved through negotiation indicates that the parties enjoyed cordial relationship which enabled the project to successfully complete despite many hindrances due to encounterance of worst geology.

With the findings and the lessons learnt from this construction project, it is hoped that it will guide and help improve in the project performance and claim management in future hydropower construction projects in Bhutan.

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AITVN organizes an Opening Ceremony & Welcome Party

The AITVN organized an Opening Ceremony & Welcome Party for the 5th entry of the Professional Master Program in Project Management in Construction (MPM Program) at the Majestic Hotel on Saturday, 10 September, 2011.

This event was attended by Dr. Amrit Bart, AITVN Director; Dr. B.H.W. Hadikusumo, SET Representative; Mr. Hoang Don Dung, SCQC General Director; Dr. Nakhle Kattan, Project Director of

Nestle Vietnam; and Mr. Nguyen Van Nhan, CEIM

student and Amata Project Manager.

The ceremony was followed by dinner party with raffle draws as an additional entertainment.

Group photo with new MPM students 2011 intake and MPM alumni from 2007, 2008, 2009, and 2010



In photo: (L-R) Mr. Hoang Don Dung, SCQC General Director, VIP guest
Mr. Ng Eng Wan, MPM faculty; Dr. Hadikusumo; Mr. Nguyen Van Nhan, CEIM student, Amata Project Manager; Dr. Nakhle Kattan, Project Director of
Nestle Vietnam





Awarding of prizes for the raffle draws

AIT khai giảng chương trình Thạc sỹ chuyên nghiệp

Quản lý dự án đối với các dự án xây dựng quốc tế

Đặc điểm nổi bật của các dự án xây dựng quốc tế là sự tham gia của nhiều tổ chức quốc tế và quy mô của dự án là rất lớn.

Tại các nước phát triển như Việt Nam có rất nhiều các dự án quốc tế đã và đang thực hiện chẳng hạn như nhà máy điện, đường ống dẫn khí, đường cao tốc, hóa dầu, cũng như các dự án cơ sở hạ tầng công cộng như sân bay, cầu và tàu điện ngầm.

Theo Hofstede (http://www.geerthofstede.nl), mỗi quốc gia có những đặc trưng văn hóa riêng, điều đó được biểu hiện qua đặc điểm chính: một là khoảng cách quyền lực; hai là sự biểu thị giới tính; ba là tâm lý ngại rủi ro; bốn là thuộc tính cá nhân; năm là thiên hướng xây dựng mối quan hệ ổn định. Theo kết quả nghiên cứu của chúng tôi tại Viện Công nghệ châu Á thì những vấn đề về văn hóa có ảnh hưởng đến công tác quản lý dự án. Việc quan trọng nhất đó là giải quyết các vấn đề khi các đối tác tham gia dự án có nhiều đặc điểm văn hóa khác nhau. Chúng ta nên xem xét thuộc tính văn hóa nào có thể mang đến cơ hội cho sự thành công của dự án.

Theo một nghiên cứu đang được thực hiện tại AIT, có ba loại niềm tin có thể được áp dụng trong quản lý dự án xây dựng: niềm tin được dựa trên hệ thống pháp luật, dựa trên sự đánh giá về đối tác của mình và dựa trên mối quan hệ. Tại các quốc gia đã phát triển, sự tin tưởng dựa trên hệ thống pháp luật đóng vai trò quan trọng bởi vì hệ thống pháp luật rất rõ ràng. Riêng tại các nước đang phát triển, niềm tin dựa trên các mối quan hệ đóng vai trò quan trọng bởi vì niềm tin dựa trên hệ thống pháp luật chưa thực sự lớn.

Tóm lại, một số vấn đề then chốt cho việc quản lý thành công các dự án quốc tế như sau:
• Năng lực cá nhân trong quản lý dự án
• Hệ thống quản lý dự án thích hợp
• Am hiểu sự khác nhau về văn hóa và cách quản lý chúng
• Quản lý và thương thảo hợp đồng thích hợp
• Xây dựng niềm tin giữa các thành viên dự án như đã nêu trên.

Chương trình Thạc sĩ chuyên nghiệp Quản lý dự án Xây dựng - AIT đang tiến hành tuyển sinh khóa 5 vào tháng 9/2011. Hạn chót nộp hồ sơ: 10/8/2011.

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