CAPSTONE PROJECT REPORT DEVELOPMENT STRATEGIES OF PHUMY THERMAL POWER COMPANY IN PHASE 2011 – 2020 BÁO CÁO DỰ ÁN CAPSTONE CHIẾN LƯỢC PHÁT TRIỂN CỦA CÔNG TY NHIỆT ĐIỆN PHÚ MỸ GIAI ĐOẠN 2011 – 2020

CAPSTONE PROJECT REPORT DEVELOPMENT STRATEGIES OF PHUMY THERMAL POWER COMPANY IN PHASE 2011 – 2020 BÁO CÁO DỰ ÁN CAPSTONE CHIẾN LƯỢC PHÁT TRIỂN CỦA CÔNG TY NHIỆT ĐIỆN PHÚ MỸ GIAI ĐOẠN 2011 – 2020

Dinh Quoc Lam

Phan Van Dung

Cao Minh Trung

Vo Minh Thang

Class GaMBA01.D0109

Ho Chi Minh 2010

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Frst of all, we extremely thank the Management of Phu My Thermal Power Compay and Baria Thermal Power Joint stock Company for belief us and creating good onditions for us to learn, to acquire Business Administration knowledge, and

help usto access extremely valuable knowledge

li addition, we also thank to professors and assistant professors for bringing

us inviuable knowledge and experiences It helps us to enhance our awareness; help u: to develop and implement our goals to contribute to the Phu My thermal power :ompany in particular and EVN in general

Ve would like to thank all of the classmates for the solidarity and sharing

difficuties with us during learning process

Fnally, we greatly appreciate to Hochiminh Electric Power College, managers

of clas D0109 (mama) and board of D0109 class leaders helped us successfully

complée the course

Sncerest thanks

Ho Chi Minh, 20" November, 2010

Group No.03

caMBA01.D0109 Group No 03

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PDF Compressor Free Version OF CONTENTS

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25 ESTABLISHMENT AND CHOICE OF PMTP’S STRATEGY .58

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PDE Compressor Free W@£lk ABBREVIATIONS

Phu My 3 Power Company PetroVietnam Power Service Company PetroVietnam Power Company

PetroVietnam Gas Company

Original Equipment Manufacturer

Non-Original Equipment Manufacturer

Balance of Plant

Vil

GaMBA01.D0109 Group No 03

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Page Table 1.1: The technique analysis of external environment ‹«+ -«s- 16 DRS Lic WOT TI, sacra gern tas ahaa heidi ey i68nsiosadsesndldesdilessssaErseee 28 Table 2.1: Capacity of the power system from 2005 to 2010 - -<- 3]

Table 2.2: Capacity of system according to No.6 power pÏlanning 32

Table 2.3: Capacity and market share of exIstinø comp€ti(OrS -.-« -‹5- 47 Table 2.4: Capacity and market share of Potential competitors . .-‹- 48

Table 2.5: External Factors Evaluation (EFE) 00 0c.ccccccceeceeeeeeeeeeeeeeeeeeeeeeceeeeeees 49 Table 2.6: Human resource of PMTP for period from 2006-2010 51

Table 2.7: Performance report of PMTTP manufacturing 2006-2010 - 53

Table 2.8: Some basic financial taregets of PMTTP 2006-2009 .- 53

Table 2.9: Manufacturing price of electric of PMTTP 2006-2010 56

Table 2.10: Operational indicators of PMTP period 2006 — 2010 - 57

Table 2.1.1: Internal Faotots Bvaluatton CHẾ HD qucaagatigavAS0381G20446640504660 401384 58 1B bi,.L255: 5U lÀ ko, MT ETN¡s‹ssosssen007cu18062085404140896616056606805800556156613080445600660186/4046608.068836 61 Table.2.132QSPM MATRIX OF 8: —O STRATEGIBS sssciussacssasensvnrsvneamnvecsennceanss 64 1abIE.2.12: Q5EM MA LRIA.GIE S1 SI RA LH~—TE kueieeennsiavenaeseeeddee 65 Table 2.15: QSPM MATRIX OF W - O SŠTRATEGIES - <<<<<<55 66 Table 2.16: QSPM MATRIX OF W — T ŠTRATEGIES -<<<<<<<2 67 Table 3.1: Plans for implementation of general solutions .- -«s<-<<: 74 Table3.2:Plans and targets of power production and trading for EệRiGd GÓI 1-2 scisvissooogadGioosgiiosx4026666)930S0600G560046161204S008G29u082860404540668E 78 1-ãBIe 4.3: Hriplenieiitatiohi GỮN HD soieciccsecsgicssssegl0065g0g00)0213496125666604648680v043200066 81 Table 3.4: Implementation plan to service development strategIes 87

Table 3.5: Implementation plan to develop Investment strategles 92

PDF Compressor Free Vergigay OF FIGURES

Figure 1.1: Comprehensive strateøic management Model . ««+<+ 14

Figure 1.2: Michael Porterˆs FIve Competitive Forces model - - I9

Figure 1.3: The strategy - formulation analytical frameworK . «««««<«: 24

Figure 2.1: Simplified model of an electricity suppÌy system 31

Figire 2.2: Orpariizational chiatt Of PMT P wsencsncaasmnannmamnninccnemaenwous 39

LIST OF CHARTS

Chart 2.1: Installed Capacity Progress of PMÍTTP ¿- 5225 <+ << ssccess2 36 Chart 2.2>:Annual generated power-energy OF PMP sa ceseaeaseasseaaaseanasae a7 Chart 2.3: Ratio capacity of PMTP in national power system .- 37 Chart 2.4: Market share of PMTIP in national power sysStem - 38 Chart 2:5: Power energy ratio between PMTP and EVN wsisscsssssssssesscsccarsscessesssvsvaveis 38 Chart 2.65 Straiesic HOS tion OF PIT TƯ NT: an na 59

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GaMB.10I.D0109 Group No.03

2 Necessity of the subject

Being a subsidiary of EVN, PMTP is undergoing the equitization process and standing at the threshold of a competitive power market The question is whether or not such advantages PMITP gained in the past as: economy of scale, location, personnel, finance and technology still has an impact on its competitiveness in the market Besides, there are future threats that PMTP will encounter and have to overcome to achieve their goals and missions In order to adapt to the new business pattern of the competitive power market from a self-accounting system of a typical state-owned enterprise in a monopolistic electricity industry, PMTP should have specific strategic objectives and take step by step according to Vietnam macro

environment and electricity industry conditions that will have many changes in

coming years

With the mission of becoming a sustainably developing and of high quality corporation in South East Asia, PMTP should study thoroughly the business environment factors in order to form an appropriate business strategy

Resulting from the above mentioned reasons and imperative requirements, we decided to select the subject “Development strategies of Phu My Thermal Power Company for the period 2011 — 2020” for our master thesis of this MBA program,

in order to apply the knowledge obtained to our company (PMTP) practical

situation and also to carry out these strategies in the future

3 Purpose

The purpose of studying the subject is to analyze the operation of PMTP, the effects of the business environment to PMTP activities in order to point out its own

strengths and weaknesses as well as the opportunities and threats affecting to

PMTP Based on that, we can build appropriate strategies as well as propose some

sot leis CORRS eO ESTE SY SfRlfflomings and improve operational efficiency of PMTP on the journey of sustainable development

4 Object and Scope of strategy

Approaching to internal environment: Analysis of PMTP’s existing resources

to find out the strengths and weaknesses

5.2 Empirical method

This thesis’ research methods are primarily historical approach, describing

statistical method and analysis

- Survey data on revenue reports from 2006 to 2010 and financial statements of

PMTP

- Review PMITP activities, statistic data of production and business activities

- Surveys on business situation of PMTP and referring to comments of specialists, consultant experts and customers in functional units of PMTP to review and evaluate external and internal factors’ effects on PMTP’s operations

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GaMBA01.D0109 Group No.03

oF Deh SOPAREASS RE bfä£tWSlBhinicance of the subject

In the globalization and international integration process, the knowledge of mankind is rapidly spreading across all nations and peoples The research topic of

Our group is applying the knowledge acquired in master business administration of

international program — GaMBA Griggs University in Vietnam and the practical experiences over our time working in PMTP and in the electricity industry of Vietnam

Through the process of learning and researching topics, our group obtained the knowledge and valuable experiences from the program and all classmates: this is very useful for all members of the group in current and future daily work

This topic will be presented officially as a document and contributed in advising the leadership in direction, administration and operation of the company The proposals will closely accord to strategic goals in the short and long term of the company so that they will be compliant with regulations, vision and mission of the

company

7 Contents

Thesis is divided into three chapters as follow:

Chapter 1: The theory basis of business strategy of a company

Chapter 2: Analysis of Phu My Thermal Power Company’s current

business situation and their strategy establishment Chapter 3: Solutions for the implementation of the strategies of PMTP

CHAP TERPS UE fHKORY BASIS OF BUSINESS STRATEGY OF A

- According to Fred R David (2003): Strategy is the means to achieve long- term goals

- According to Rudolf Grunig va Richard Kuhn (2003): The strategy is long term and it orients the management manner to ensure for completion of long- term goals, the primary purposes of the company

In summary, no matter how you approach, the business strategy also includes the following:

Business strategy is a series of commitments and actions that a company uses to gain a competitive advantage by exploiting the core competence in a certain market The purpose of business strategy is to make the differences between a company's positions in relation to their competitors

Concept of strategic management

Strategic management is a set of management decisions and actions determining the long-term performance of a company Strategic management includes a set of continuous actions: testing and evaluate the environment (inside and outside); forming strategies, implementing strategies and evaluating strategies Therefore, research the strategy to emphases on monitoring and evaluating the external opportunities and threats in the situation of the internal strengths and

weaknesses

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GaMBA01.D0109 Group No.03

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1.1.1 Benefits of Strategic management

Achieve strategic competitive advantage This is an advantage when a company has been formulating and implementing a strategy to get value to the conmapy

Achieve stable competitive advantages This is an advantage when a company

has been forming a strategy that its competitors could not have been, creating the advantages that the current competitors and other potential competitors could not have been

Achieve above-average sector profits, that are profits exceeding investors’ expectation from other investments that have similar risks

1.1.2 Comprehensive strategic management Model (Ref 2)

Catena Objectives Straten! Lòng Accounting, R&D, Performance

ait ee : and MIS Issues

Figure 1.1: Comprehensive strategic management Model (Fred R David)

Source: Fred R David, “Strategic Management Concepts & Cases” twelfth edition, chapter 1, page 46

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15!C@tS%f SUlt€fiè WfälfÄbement

1.2.1 Defining Vision, Mission

- Vision shows the highest and most general goals of a company Vision describes the company's aspirations about what the company wants to

achieve According to James Collins and Jerry Porras, structure of a vision

has two basic parts: core thoughts and envisioning for the future The core thoughts is the most stable part in a vision It reflects what the company protects or supports, the reason for the company to exist Those are the core values and core purposes Envisioning about the future is quite changed, is something that the company aspire to become, creating the images of the future is something that will require changes and significant progress to

- The main objectives of a company is determining what to do if the company

wants to achieve the mission The good goals must be and accurate,

measurable, must be targeted to key problems, must be challenging but have

to identify specific time to achieve

1.2.2 Analysis of external environment

External environment are the factors, regulations, regimes, etc That happen

beyond the enterprise’s control, but are affecting the enterprise’s operation efficiency

Analysis of external environment’s objective is to find out a “limited” list of

Opportunities for the enterprise and threats that the enterprise ought to shun

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GaMBA01.D0109 Group No.03 PDF CormpfS39†:F†tS \dMWue analysis of external environment

Scanning Identify early signs of changes and environmental trends

¬ Discovered meaning through continuous observations of changes

Monitoring

and trends of environment

; Develop plans for what will happen based on changes and trends Forecasting :

have been reviewed and monitored Determine the duration and importance of the environment changes Assessing

Source: Environmental Scanning by James L Morrison (1992) Tallahassee, Florida: The Association for

Institutional Research

1.2.2.1 Macroscopic Environment

(1) Economics environment

This is the key factor and has the most direct impact on enterprise

Economics environment shows the nature and direction of domestic and global economy within which the enterprise is operating

Four vital factors’ in macroscopic economics environment are as follow:

- The growth rate of economy

- The interest rate and the trend of interest rate of economy

- Monetary policy and rate of exchange

- Inflation rate

(2) Political/Legal Environment

Political and legal factors also has a major impact on activities of the business

That the environment changes constantly will affect significantly to competition

- Politics: political institutions and political stability are important factors in considering investment and business decisions

- Legislation: the legal system is the first condition affecting to the business environment The businesses need to understand and obey the laws to take advantage of the opportunities, as well as coping with threats in business

- Government plays a major role in macroscopic regulation through economic, financial, monetary policies and its spending programs To take advantage of

PDE.đ 900AfSSST hff6ak€lilelI, enterprises have to capture the point of views rules, and priorities and establish good relationships in order to create a favorable environment during operation

(3) Socioculture Environment

The impact of cultural - social factors is often long-term and more subtle than the other factors However, the impact range is often very large because it determines how people live, work, produce and consume products and services The variables impacting to Social cultural Environment are as follow:

- System of standard moral values; point of view of life quality

- Level of consciousness, knowledge

- Trends of consumption

- Population environment: scale, increasing rate, structure, life span, etc

(4) Technological Environment

The technological knowledge is particularly important Some factors should be

considered when studying technology environmental are:

- The born of new technologies

- The encouragement, funds available and costs for Research and Development activities

- Intellectural Property and copyright Law; Technology Transfer Law

- Pressure and costs for new technology’s development and transfer

One of the most important impacts of technological change is that it can affect

the height of the industry’s entering barriers and reshape to the root of the industry structure In the high-tech technologies, the identification and assessment of critical technological opportunities and threats may be the most important part of the control of external factors in the strategic management activities

(5) Natural Environment

Natural conditions are always an important factor in human life, which in many

cases becomes an important element to form the competitive advantage of products and services

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GaMBA01.D0109 Group No.03

ĐI ors Heed to bE EGER environment:

- Geographical location, natural conditions and climate

- Depletion and scarcity of natural resources, minerals, energy resources

- Environmental pollution; the attention of government and community to environment

- Ecological imbalance

(6) The Global Environment

In condition of integration and globalization, there’s not any business which does not have a relationship directly or indirectly with the world economy, and more and more business are impacted by this effect

Depending on the type and business measure on the international market, the

analysis level of the global environment will be different

Globalization of business markets creates both opportunities and threats

In summary, the main goal of the macro-environment analysis is to identify the

changes and trends expected from elements of the external environment With focus

on the future, the analysis of the external environment allows enterprises to recognize the opportunities and threats

1.2.2.2 Industry Environment

(1) The need of the industry analysis

Industry environment analysis is the concepts and techniques to clarify the key issues as follows:

- The highlighted economic characteristics of the industry

- The competitors who are operating in the industry, the essence and strengths

of each competitor

- The motivation causing the changes in the industry and their impacts

- The key factors for success or failure in competition

- The attractiveness of the industry based on the ability to gain profit

(2) Five Competitive Forces Model (Ref 3)

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Michael E Porter, Professor of business administration at Harvard

University has built a model with five forces affecting to enterprises - also known as

Five Competitive Forces Model:

e Power of Buyers:

Notice when analyzing customers:

- To classify the group of customers

- To evaluate the strong of customers’s negotiation: price and quality

® Power of Suppliers:

Should consider these factors as follows:

- The quantity of supplyer

- Characteristics of products and services

- Price, quality and quantity of consumption of products and services

- The ability and cost when changing suppliers

Threat of New

Fig 1.2: Michael Porter’s Five Competitive Forces model

Source: Adapted and reprinted by permission of Harvard Business Review From “How Competitive Forces Shape Strategy” by Michael E Porter, Harvard Business Review, March/April 1979 © by the President and Fellows of Harvard College All rights reserved

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ŒGaMBA01.D0109 Group No.03

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° Pree h mpetitor:

To recognize the kind of competitor

Necessary content in order to analyse the competitor:

Approach ability to distribution channels

Cost disadvantages independent of scale

e The threat of substitute products:

Substitutes Products are other products which are giving consumers the features anc benefits equivalent to the products of the enterprise

(dentify Substitutes Products is a sophisticated, sensitive and very difficult wok

The substitutes Products are often the result of the improvement or new

tecinology

1.23 Internal Environment Analysis

Internal Environment of a business includes all the elements and its internal

sysems

According to Fred R David, purpose of internal analysis to identified and ass:ssed the strengths and weaknesses in the operation of the enterprise, including

maak QAP RESSOKi AS Ti NSACL accounting, production / operations, research & development and information systems

Organization: includes all management activities to create the relative between rights and responsibilities The specific tasks are: Organizational design, Job specialization, Job descriptions, Job specifications, Span of control, Unity of

command, Coordination, Job design, Job analysis

Promotion: Efforts to include the orientation of human activity, specific

Leadership, Communication, Work groups, Job enrichment, Job satisfaction, Needs

fulfillment, Organizational change, Morale

Staffing: Staffing is activities focused on individual managers or human resources management, including Wage & salary admin, Employee benefits,

Interviewing, Hiring, Firing, Training, Management, development, Safety, Affirmative action, EEO, Labor relations, Career development, Discipline

GaMBA01.D0109 Group No.03

The Basic Financial Indexes can be classified into 05 categories:

Indexes of Liquidity shown the firm’s ability to meet its short-term obligations

Indexes of Leverage shown the Extent of debt financing

Indexes of Activity shown Effective use of firm’s resources

Indexes of Profitability shown the overall effectiveness of management, the profit shown by returns on sales and investment

Indexes of Growth shows the firm’s ability to maintain economic position in the growth of the economy and the industry

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- The main strengths or weakness of five functions which can mean the success or failure of organization

1.2.3.5 Research and Development (R&D)

In order to evaluation the strengths, weakness of R&D activities, often based on costs for them

There are two kinds of R&D forms: self-control and/or hire researchers or independent organizations to develop individual products

1.2.3.6 Information System

The information links all of the functions in business together and provides the basis for all of management decisions It is the foundation of all organizations Evaluation of the strengths and weakness of information systems inside of the company are important side of internal control process

The criteria for evaluating information system

- Evaluate information intensity: The potential and existing information level

of processes and products of the company

- Determine how the technique of the information system forms a competitive

advantage

- Develop plans to take advantage of the technique of information systems

1.2.4 Process formed a stratergy (Ref 2)

In order to form a strategy, a decision-making process includes three phases: 1.2.4.1 Phase 1: Input phase

This phase summary of the basis information has been entered necessary for the formation of strategies

This phase uses tools: EFE matrix, [FE matrix

1.2.4.2 Phase 2: Combination phase

This phase focuses on making feasible strategies may be choices by arrangement, combination the inside and outside important elements

This phase uses tools: SWOT matrix, SPACE matrix

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1.2.4.3 Phase 3: Decision phase

This phase uses only one tool, strategic planning matrix can quantify (QSPM) QSPM matrix using input information derived from phase | in order to evaluate objectively feasible strategies may be selected in phase 2

THE INPUT STAGE

STAGE ¢ External Factor Evaluation (EFE) Matrix

1.» Internal Factor Evaluation (IFE) Matrix

=, see N

STAGE ¢ Strengths-Weaknesses-Oppotunities-Threats (SWOT)

2 Matrix

_^ * Strategic Position and Action Evaluation (SPACE) Matrix

THE DECISION STAGE STAGE

3 ST Quantitative Strategic Planning Matrix (QSPM)

aes” aati

Figure 1.3: The strategy formulation framework

Source: Fred R David, “Strategic Management Concepts & Cases” twelfth edition, chapter 6, page 222

Note: Tools such as SWOT Matrix, SPACE Matrix QSPM and matrix, can

significantly increase the quality of strategic decisions, but should not use them to

control strategies Aspects of formation and selection strategies such as behavior, culture and politics has always been important issues need to be reviewed and

management Under the pressure of the law by outside groups created, the

administrator must undertake a more active role in the analysis and strategic

choices This is a positive trend in organizations

1.2.5 Strategies formation and selection tools:

Within the scope of this thesis, from the actual production and business situation of PMTP, the appropriate tools for strategic planning are as follows:

1.2.54 ERE RSA Free Version

EFE Matrix is set up sequentially in five steps:

- Step 1: To make the list of elements that play a decisive role in the industries that the company is operating, including oppotunities and challanges effectting the company and the company’s business

- Step 2: To evalute importance of each factor on a scale from 0.0 to 1.0 (increasing importance level) with a total score of all the factors of 1 Appropriate classification level are based on comparision between successful businesses with failed enterprice

- Step 3: To scale from | to 4 for each factor with score shows the level of business response to such fector Score 4 is a good response Score 3 is an above average resposen Score 2 is an average resposen and Score | is a less response These level are based on effectiveness of the company strategies Thus, the

classification is based on company, while the classification in Step 2 is based on

industry

- Step 4: To multiply importance of each variable with its classification level in

oder to determine the importance score (Step 4 = Step 2 multiply by Step 3)

- Step 5: To determine the total importance score of the company by the total number of score gained in Step 3

The highest score is 4 and the lowest is 1 Average score is 2.5 The higher the score

is, the better the enterprise responses to external factors

1.2.5.2 IFE Matrix

IFE Matrix is set up sequentially in five steps:

- Step 1: To list the critical successful factors as defined in the internal control

process, including strengths and weaknesses

- Step 2: To set the importance by classcification from 0.0 (unimportant) to 1.0 (most important) for each factor Importance assigned for each of specific factors (regardless of the strengths or weaknesses) shows the relative

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PII6ear ìỀ9NchrE&-tbfTRÌP The success of the company in the industry The total of importance levels is 1.0

- Step 3: To classify from 1 to 4 for each element, which will indicate that the

element is presenting the biggest weakness (categorized by 1), smallest weakness (classified by 2), the smallest strengths (classified by 3) or the biggest strengths (classified by 4) Thus, classification is based on the company, while the importantce in the Step 2 is based on the industry

- Step 4: To multiply importance of each variable with its classification level in oder to determine the importance score for each variable (Step 4 = Step 2 multiply by Step 3)

- Step 5: To plus all importance scores for each variable to determine the total critical score in the organization

Regardless of how many elements there are in the IFE Matrix, the total importance score may be classified from the lowest of 1.0 to the highest of 4.0 and average

score is 2.5 The score of less than 2.5 indicates the company internal weakness and

the score of higher than 2.5 indicates the company internal strength

1.2.5.3 SPACE Matrix

The strategic position and action evaluation matrix (SPACE) is an important combined tool in Phase 2 of the strategy formulation process The axes of the SPACE Matrix present two sides within the organization (financial strength [FS]) and competitive advantage [CA]) and two external side of the organization (the Environment Stability [ES]) and Industry Strength [IS]) These four factors are the most important factors for the overall strategic position of the organization

Depending on the type of the organization, there may be many variables present on the elements representing for axes of the SPACE Matrix, e.g: Investment profit, Leverage, Liquidity, Working Capital and Cash Flow, which are often

considered as the crucial elements of the financial strength of an organization

ThE HS UES ESP XCR Matrix

Step 1: To select a group of variables for Financial Strength (FS), Competitive Advantage (CA), Environment Stability (ES), and Industry Strength (IS)

Step 2: To set numeric values from: plus | (worst) to plus 6 (best) for each variable belonging to the side of ES and CA To set numeric values from: minus

1 (best) to minus 6 (worst) for each variable belonging to the side of FS and IS Step 3: To caculate the average score for FS, IS, ES and CA by adding the values assigned to the variables of each side and divide them by the number of variables in the correlative side

Step 4: To mark the average score of FS, IS, ES and CA in the feasible axis of

the SPACE Matrix

Step 5: To plus two scores of X axis and marking the result scores on the X axis

To plus two scores in the Y axis and marking the result scores in the Y axis Marking the intersection of two new score on this XY axes

Step 6: To draw the vector directing from the original point of the SPACE

Matrix through the new intersection This vector indicates the type of organization strategy: attacking, competitive, defensive or cautious

1.2.5.4 SWOT Matrix

To establish SWOT matrix there are 08 steps

Step 1: Step 1: To list the major opportunities outside of the company;

- Step 2: To list the important threats outside of the company;

- Step 3: To list the key strengths within the company

- Step 4: To list the key weaknesses within the company

- Step 5: To combine the internal strengths with external opportunities and

record the result of SO strategy in the feasible box;

- Step 6: To combine the internal weakness with the external opportunities and record the result of WO strategy:

MỸ

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PDF SOP Fessunibihe MŒRIMhnal strengths with the external threats and record the result of ST strategy

- Step 8: To combine the internal weakness with external threats and record

the result of WT strategy

The SWOT Matrix is showed by the following cell:

The strategies chosen to entered in the QSPM Matrix are not all strategies

found in Phase 2

In order to build the QSPM Matrix there are six Steps:

- Step 1: To list the elements S, W, O, T taken from IFE and EFE Matrix

- Step 2: To classify for each inside and outside critical success element for the IFE and EFE Matrix

- Step 3: To study the Matrix in phase 2 and identify possible alternative strategies

- Step 4: To identify the total of attractions score (TAS) for each element: Score

are scale from] to 4, with 1 being not attractive, 2 being little attractive, 3 being

quite attractive, 4 being very attractive

- POE Cempresspe disee Ye SiGAL of attractions score(TAS) in each row by multiplying the classification scores in Step 2 with a score of AS in Step 4

- Step 6: To calculate the total number of attractions score in each strategy

The most attractive strategy is a strategy which has the highest score in Step 6 1.3 Summary

With desire of success in business, companies need to know their core abilities

such as finance, revenue, knowledge, skills and experience of human resources,

vision building and development, to capture the changes in the external

environment such as economic environment, political - legal environment,

technology environment and the influence of suppliers, customers on production and business situation of the company The analysis of internal environment and external environment will help the company make the right decisions in building its business strategy

Business strategy is based on the fundamental targets of the company, based on the analysis of business environments to propose strategic targets to concretize specific actions and solutions Thanks to analysis of the strengths and weaknesses in the internal affairs of the company as well as the opportunities and threats from the external environment, the companies can continue to build and maintain competitive advantage from the strengths, overcome weaknesses, exploit the

opportunities and prevent the potential threats

In summary, that the planning and implementation of business strategy is feasible or not depends very much on the process of analyzing and evaluating core ability and on the impact of external factors to the company

The theory basis presented above will be used to establish the business strategy for Phu My Thermal Power Company Limited for the period 2011-2020, which are presented in Chapter 2 below

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CHRP FOR BT SREY Sis’ GE BAU MY THERMAL POWER’S CURRENT

ESTABLISHMENT

2.1 Panorama of the electricity industry

> Electricity industry specialities

- Electricity is a kind of un-storable goods, of which the demand and supply must balanced at one time and that means no supplemental generation for reservation can be carried out Once the unbalance happens, the power system may encounter problem and collapse if a timely recovery is not done

- Investment for an power system including generation, transmission and distribution system is of rather high cost and time-taking, while suffered from input material (fuel) and widely affecting to surrounding environment (including soil, fossil fuel, etc.) That is a huge barrier for investors in this industry

- Electricity has an important impact on economic development, especially with a newly-developing country like Vietnam In developed or developing country, the

co-efficient of elasticity between power demand and GDP ranges from | to 1.2,

while in countries like Vietnam, this co-efficient is nearly 2 (i.e for each 1% of

GDP growth, electricity production has to increase twice, 2%) (Ref 1/9) Therefore, the Government always wants to restrain electricity price in the market at a low rate to assure economic development, but that in turn puts a high pressure on electricity output demand This is an existing conflict in the industry and has not been duly solved yet

Over head Transmition line

Transformer High voltage costomers

Station (step -up) 110, 66 kv

Power plant

Fig 2.1: Simplified model of an electricity supply system

(Source: Draw by ourselves)

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PD F0 dd#othitefor power supply to GDP

According to the No.6 power planning of government, to meet the needs of GDP growth rate of 8.5-9% in period 2006 - 2010 and to meet the forecasts

of increase in electricity needs of our country from 17% per annum to 22%

per annum for the period 2006-2015 (Ref /5)

In fact, average GDP growth rate in the 2006-2010 period is 6.9%, while the actual installed power capacity increased to 14.9% per year Thus, power supplies development rate is twice as much as GDP growth rate

Table 2.1: Capacity of the power system from 2005 to 2010

Total Actual ` Planning Actual

Year Installed Percentage | Percentage

3 S8 capacity oo increase increase

Electricity Electricity | increased

Source: EVN, annual reports and No.6 Electricity Planning

According to the latest forecast of Ministry of Planning and Investment, in five-year 2011-2015 average GDP increased 7.5-8% per year According to statistics through many experiences in recent years, the coefficient of elasticity is

GaMBA01.D0109 Group No.03

apphUK theme Br esse! Tate YE5WAPrate of energy production / growth rate of GDP),

meaning that the growth rate of power supply to 16% per year On the basis of the development phase from 2011 to 2015 the economy has grown a lot, has great power, so from 2016 to 2020 growth rate not as high as the previous period, but the amount of power is greatly increased Specific No.6 power planning, the supply will

be as follows:

Table 2.2: Capacity of system according to No.6 power planning

Installed Installed Year capacity of capacity Percentage

power system | increased | increase (%)

Source: Government, No.6 Electricity Planning

Therefore, with the progress of power development in accordance with No 6 power plan, the total annual power supply will ensure social and economic

development

> The problem of fuel scarcity

> On Hydropower: All the Asian countries are located in the Mekong region with a great potential for exploitation, but there is a fact that the negative impacts of hydropower production are causing widespread flooding and migration Hydropower also depends heavily on water

PĐFđp'thif°£edritift poween gas fuel sources are limited, gas fields are

Targets of electricity industry

Properly satisfy the power demand for socio-economic development Strive

to reach electricity output of 201 to 250 billions kWh in 2020

Push up the program of supplying power to rural and highland regions Target to reach 100% of households have electricity in 2020

Assure a strong financial balance

Diversify the investment methods and prepare for importing power from

neighbors: Laos, Cambodia and China

Train and educate the staff force of professional and highly responsible people to catch up with the fast growth of electricity industry

Control and reduce environment contamination in power production activities

Strategies to develop power sources

Give first priority to hydroelectricity power, especially to multi-function projects (water supply, drought — flood prevention, etc.):

Hydroelectric plants are planned to be built almost anywhere possible To

2020, the total capacity of these plants is estimated to reach 13,000 — 15,000

MW

Thermo power plants are developed at a reasonable ratio, according to fuel allocation and supply capability

Coal power: capacity to 2010 is expected to reach 4,400 MW In the period

of 2010 — 2020 there is a need of 4,500 to 5,500 MW more (base scenario),

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GiMBA01.D0109 Group No.03

PDF FA RBUO IGN ORO WAV Bich scenario) Due to shortage of domestic coal supply, plants using imported coal should be considered

- Gas power: In the period of 2010 — 2020 there is a need of 3,500 MW more

(gas supply in base scenario), or even 7,000 MW, in case additional gas supplies are discovered

- Invest in research, surveys and well prepare for establishing the first nuclear power plant in Vietnam with capacity of around 2,000 MW The plant is expected to come into operation after 2015

c) Imported electricity: According to the signed Energy Co-operation

Convention, Vietnam will import around 2,000 MW from Laos In the future,

power may be imported from Cambodia and China also

d) Develop plants using new energy and recycled energy

2.2 Overview of PMTP’s business situation

2.2.1 History of the company

PMTP is firstly established as Phu My Power Plant, a member of EVN,

according to government decree No.48 DVN/HDQT dated 15/02/1997 by EVN Board of Management

Due to decree No.241/2005/QD-TTg dated 04/10/2005 by Government Prime

Minister, Phu My Power Plant is transformed into Phu My State-own One member

Thermal Power Company Limited

On 14/5/2007 Ministry of Industry issued a decree No.1647/QD-BCN to

privatize PMTP Currently PMTP is going under privatization

2.2.2 Business Scope

Business scope of PMTP was executed conform to the business registration license

No 4904000013, which was granted by Ba Ria- Vung Tau Planning and investment Department on February 14'" 2006, registered to change the first time on June 20"

2007

Main business fields of PMTP include:

e Electricity generation and trading

PDE Compr Fr rsi : :

e Démineralization Sate and hydrogen producing and trading

e Maintenance and installation service for electrical switchyard and power transmission line up to 110kV

Services: Repair, recover, and manufacture parts of power plant equipment, electric experiment, and chemical experiment, equipment adjustment; Power plant efficiency measurement; Dry and filter insulated oil; Lease oil tank, oil pipe line and harbor to transport oil; Hire operators out to other power plants

2.2.3 Technology and manufacturing scale

2.2.3.1 Technology

Currently, PMTP is administrating 4 power plants, including 13 machine units (9 gas turbines and 4 steam turbines) with the total capacity amount is

2.485MW, in which:

(1) Phu My 2.1 power plant (2 gas turbines, 2 Heat Recovery Steam

Generator - HRSG, and | steam turbine)

- Capacity: 450 MW

- Manufacturer: ABB (Alstom) — Switzerland)

- Increasing Power System: 27 MW (Alstom) (2) Phu My 2.1 extension power plant (2 gas turbines, 2 HRSGs, and | steam turbine)

- Capacity: 440 MW

- Manufacturer: Alstom— Switzerland; Siemens- Germany

- Increasing Power System: 28 MW (Alstom) (3) Phu My | power plant (3 gas turbines, 3 HRSGs, and | steam turbine)

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The main fuel of electricity generation is natural gas D.O oil is used as back-up fuel whenever shortage of gas supply is occurred

PMTP is the owner of power plants which have modern and advanced automatic technology Its facility and technology were equipped modernly, scientifically Working environment at PMTP is green and clean Thus, employees working at PMTP need to follow the industrial manner In addition, they must be

always dynamic, creative and keep learning and researching in managing and using

facilities and equipments PMTP’s employees also need to perceive of PMTP’s responsibilities and important roles in the national electric system specifically, and

in the national economy generally

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ANNUAL GENERATED POWER ENERGY OF PMTP

Estimated

==" Annual Power Energy =#— Accumulated Power Energy

Chart 2.2: Annual generated power energy of PMTP (source: PMTP)

* Electricity production increased drastically from 1997 to 2007 since projects

were invested and operated in each period in turn Since 2007, after all

invested projects were exploited; annual generated power energy of PMTP

has been kept at the level of 17 billion kWh on average

Currently, PMTP has the total capacity of 2,485 MW, occupied 12% of the total capacity of the national power system

| PMTP'S CAPACITY RATIO IN SYSTEM

@ Active Power ratio of PMTP ® Active Power ratio of others in system

Chart 2.2: Ratio capacity of PMTP in national power system (source: PMTP)

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ANNUAL POWER ENERGY OF EVN AND PMTP

2005 2006 2007 2008 2009 2010 Year

8 Annual Power Energy of EVN # Annual Power Energy of PMTP

Chart 2.3: Market share of PMTP in national power system (source: PMTP)

POWER ENERGY RATIO BETWEEN PMTP AND EVN

Chart 2.4: Power energy ratio between PMTP and EVN (source: PMTP)

The Chart 2.2 and 2.3 demonstrated that the annual power energy of the power

system dramatically increases Within 5 years from 2005 to 2010, PMTP’s market

share decreased from 26% to 18.6% because of new power plants construction

2 BQF 6p#a0I#389h Free Version

Organizational chart

CHAIRMAN CUM DIRECTOR

_,} Supervisor

— Operation [7 Maintenance Business Finance

Technical Mechanical General Co- Finance & Account

Department | Maintenance Dept Ordination Dept Dept

No.1 Operation ` Eleetical Human Resources Planning & |

ia Department Maintenance Dept Department Logistics Dept

Director Assistant including 4 deputy directors

Shop division including 4 shops

Office division including 6 departments

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