G1_00148 DEVELOPMENT STRATEGY TO EXPAND ELECTRICITY PRODUCTION AND TRADING OF PETROVIETNAM POWER NHON TRACH COMPANY PERIOD 2011 - 2020 CHIẾN LƯỢC PHÁT TRIỂN MỞ RỘNG SẢN XUẤT VÀ KINH DOANH ĐIỆN CỦA CÔNG TY ĐIỆN LỰC DẦU KHÍ NHƠN TRẠCH GIAI ĐOẠN 2011 - 2020

G1_00148 DEVELOPMENT STRATEGY TO EXPAND ELECTRICITY PRODUCTION AND TRADING OF PETROVIETNAM POWER NHON TRACH COMPANY PERIOD 2011 - 2020 CHIẾN LƯỢC PHÁT TRIỂN MỞ RỘNG SẢN XUẤT VÀ KINH DOANH ĐIỆN CỦA CÔNG TY ĐIỆN LỰC DẦU KHÍ NHƠN TRẠCH GIAI ĐOẠN 2011 - 2020 GRIGGS UNIVERSITY GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION CAPSTONE PROJECT REPORT DEVELOPMENT STRATEGY TO EXPAND ELECTRICITY PRODUCTION AND TRADING OF PETROVIETNAM P

Griccd ¬

GRIGGS UNIVERSITY GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION

CAPSTONE PROJECT REPORT

DEVELOPMENT STRATEGY TO EXPAND ELECTRICITY PRODUCTION AND TRADING OF

PETROVIETNAM POWER NHON TRACH COMPANY

PERIOD 2011 - 2020

Group: 7 Students’ name:

i Nguyen Thanh Tung

Many thanks to our instructors — who had tirelessly shared their knowledge and experience; including up to date information so that Class GaAMBAO1.D0109 always get to learn the best and the most up-to-date materials These efforts shall remain with us for years to come

Many thanks to the Management of PVPower Nhon Trach Company, Department of Planning, Department of ‘echnical Operations, Department of Human Resources; who had supported us by providing critical data and information for our graduation report

We have made every effort to produce a good assessment However, due to the lack of time, should this assessment be limited in scopes and accuracy, we wish

to receive your support and understanding

Best regards,

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Griggs University

TABLE OF CONTENTS Cover |

Cover 2

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OPERATIONS OF PETROVIETNAM POWER NHON TRACH

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2.1.3 Characteristics of PetroVietnam Power Nhon Trach Company 24

2.1.4 Invesment model and business results in 3 years from 2008 to 2010 25

2.1.4.1 Investment Scale (As of 30 October 2010) - 25

2.1.4.2 Business Results in 3 years from 2008 to 2010 - 26

2.2 ANALYSIS AND SELECTION STRATEGY OF PVPOWER NT 27

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2.2.2.6 Products Activities (QufPu[) «cà seieerrierrirerre 37 l3 DEƠNGGG D GeeeneneennesesseneseseideoleskvllssdGlkadš6 38 22.2.8; Financial Accounting ACH Vites on 2i600260sŸả600ssã 38 gioco F.XECĐTIBI Ef€t0f €VAHISHDðN = EEquadaooiaovoaavstuetigisgoibilseiliskazeði 4I 226 Internal Tactor evaluation: ~ TEE ucocseneeooobeeosiLitioditdAdEAiddaSEO cú Ag6g466088â6 43 22.2 Competitive imape Matrixaf PV Power NT vessccssscssensacsccescerssnecomasasaavons 44 Px ie 1 WG: ORIEL VOWED sansseoroasenoootbroDtoakxptoitiA6 0000610600 900 36956100.66g.3) 45 2.2.7 Strategies from SWỌT' mafF1X - - - G5 1v ng re 46 2.2.7.1 S-O group OÍ Sfraf€ØICS - -c c cư 46 PT Phong ch 46 221.3, NỈ» 6TDHDESVWBHWEISsGeocttddtdddoddioitdieolaeteee 47

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PETROVIETNAM POWER NHON TRACH COMPANY TO THE

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3.2.2 Development Strafۯ1CS 5 << ng re 57

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PETROVIETNAM POWER NHON TRACH COMPANY TO 2020 63

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3.5.2.1 Technology investment strategy for increasing power output .63 3.3.2.2 The Strategy of electricity production cncsxccuconcssevevecxorerecassneneronnvens 64 3.5.2.3 Strategy to deveÌop S€TVIC€S sư 64 3.5.2.4 Strategy of Training and Developing Human Resource 65

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3.6.1 Solution of production, technical management and operation 66

3.6.3 Solution of human resource develÌopim€n[ «se eeeeks 68 3.6.4 Solution OÝ ÍinanC€ c cc s11 vn HH nghi 69 3.6.4.1 Summary of financial objectives in period of 2011-2020 69 D6A2 SOM, OF GisSp0sal CANA ccccsscccscnmmunnnnnaawunenmime 69 3.6.5 Solution of Safety and Environmental Standards - 70 3.6.6 Solution of National Deten ccs ccissscnisccsscccsswessransssvermanxcesreuneveasnennsaveccs 70 8/632 TMGRUIIIDET.0Í)EISK:HTRHHPGTWHEueoseaaeoensorneoeebiasuiiasonoirakasketsxsÖingA0Gi43606654030 51a 70

CONCLUSION 72

ga rtoyroG20L0QGG(NDNGGGGGGIGISSNSGGBEBNQGSRfaiasgiuasg 78 Appendices 2.1: Operational Results 2008, 2009, and 9 months 2010 of PVPower

Appendices 2.2: Some objectives declared in balance sheet of PVPower NT 79 Appendices 3.1: Plans to generate electricity and fuel gas period 2011 — 2020 of

Appendices 3.2: Investment Plan period 2011-2020 of PVPower - 82 Appendices 3.3: Planning training and development of human resources period

2011-2020 OF P VL UY qua goi GettGii8G1662000066030306814166163ã080xữ:4 84 Appendices 3.4: The financial target period 2011 — 2020 of PVPower NT 86

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LIST OF ABBREVIATIONS

PVN -Vietnam Oil and Gas Group (PETROVIETNAM)

TKV - Vietnam National Coal - Mineral Industries Group

(Vinacomin) EVN - Vietnam Electricity

PV POWER - PetroVietnam Power Corporation

PVPower NT - PetroVietnam Power Nhon Trach Company

LILAMA - Vietnam Lilama Corporation

FDI - Foreign Direct Investment

: DuPont Objective Ratios 0.00.0 cecceecccceeessseeeeeeeeeeseneeeeeeeeeeseaeeeeeeeneeeees 4] : External Factor Evaluation (EFE) .- << Ă 5s veeeeeeeeeeeres 42 : Internal environment evaluaHon (TEE) c.ccc cv 0011662664 6156 43 :;đỉipetiive Imae MattiS 6E PPVPOWEIE N ggoeaaaeaodoaaaaaoaae 44 SSWOT Matix OF PVPOWEE ND sssccssccussssnscccrequacscnvessqerenniseccsajyesses 46 : QSPM of PVPower NT ỞS-O gụroup of strafẠg1es - ềềề- 49

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LIST OF DRAW GRAPHS

igure 1.1: Diagram the stages and the operations of strategy management 7

|'igure 1.2: Diagram a complete model of strategy managemerI «- l [Figure I.3: CŒeneral environimefn( << + + + + + x33 3 333 1v 1v 1v ngư 10 Figure 1:4: Model 015 Tb†ces óöf MIICHN6I E; PGÍEÏusoocoiioioodaiigtyG0 0 0 na II Figure 1.5: The main contents to be analyzed about competItOrs l Figure 2.1: View of Power Plant Nhon Trach | Opening Ceremony 4 21 Figure 2.2: Thermal Power Plant Nhon Trach | and 220kV Substation 22 Figure 2.3: Organizational Chart of PetroVietnam Power Nhon Trach Co 24

Chart 2.1: Staff qualifications break down for the period of 2008-2010 34

Chart 2.2: Distributed percentage of labor assignment in 2008, 2009, and 2010 35

Chart 2.3: Electricity Output in duration of 2008-2010 - c5 5555 <+s<<<<<<<<2 38 Chart 3.1: Growth in the months of power in 2011 compared to 2010 61 Chart 3.2: Power demend forecast in Viet Nam period 201 1-2020 62

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INTRODUCTION

1 Reasons to choose topic

Power is one of the main resources to promote economic development and is indispensable in our daily life

Vietnam is a developing country so demand for electricity is increasing According to the report No.4294/CT-EVN dated Oct 20", 2010 of EVN, in the nine months of 2010; commercial electricity demand was 63.2 billion kWh, up 14.8% over the same period and is twice the growth of GDP During 2010, produced electricity production and purchase of EVN will be 72.031 billion kWh, including 44.0) billion kWh own production and purchased electricity is 28.03 billion kWh (purchased from China 4.06 million kWh.)

According to Decision 110/2007/QD-TTg dated July 18", 2007 of the Prime Minister approving the planning of national electricity development period from

2006 to 2015, extending to 2025, commercial electricity production in 2020 is expected to reach 164.96 billion kWh, more than three times in 2006, nearly 2.29 times higher than in 2010

According to Decision 1855/QD-TTg, on Dec 27", 2007, the Prime Minister

approved "Energy Development Strategy of Vietnam to 2020, vision to 2025” In fact, the appearance of retail electricity market will reach competitive for the period after 2022

Currently a series of power plants, transmission and distribution grid lines of advanced technologies are being built, with the participation of investment of foreign investors (BOT electricity plant Phu My 2.2 and Phu My 3) or domestic investors such as Petroleum General Corporation of Vietnam (PVN), Vietnam Coal

and Mineral General Corporation (TKV), Vietnam Machinery Installation General

Corporation (Lilama), etc

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PetroVietnam Power Nhon Trach Company is a member of the PV POWER as

a unit and power business, will certainly face increasingly stiff competition, and so the company must do what it takes to remain competitive in the power market

Coming from that urgent requirement, the group chose the subject

"Development strategy to expand electricity production and trading of PV Power

NT for the period 2011 — 2020" to be the research topic

2 Aim and mission of the research

2.1 Aim

- Systematize the theories, sentiments about the strategic management

- Analyze and assess the actual production and operations of PVPower NT

- Suggestion the strategy for the company to extend their business based on the result of the research about the company environment, strengths, weaknesses, risks, and opportunities all can have an effect on PVPower NT

2.2 Mission

- In theory: Systematize some of the basic theories, examinations about the realistic things so that we can make the concept of Marketing Strategy more clearly

- In reality: Analyze the PVPower NT” business, to gain insights about their advantages and disadvantages, strengths, weaknesses, opportunities, threats From that going-forward, propose good solutions to help PVPower NT to extend their business up to the year 2020

3 Objection and research scope

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4.1 Research method

We will combine the following methods:

- Investigative and statistical analysis:

- Comparative analysis;

- Systematic analysis

4.2 Sources

The sources of our data came from reports that provided by PVPower NT,

PetroVietnam Power Corporation (PV Power); Data from PetroVietnam (PVN), Vietnam Electricity Corporation (EVN), Government Decrees and Decisions,

journal articles and industry news, Internet related topics

5 The advantages of the group assessment

The research results will be applied to business strategy of the PVPower NT upcoming period

At the same time these results were also sent to make PV POWER application materials for factories, companies have a role similar to PVPower NT

6 The structure of the exercises

This assessment has 3 chapters, the introduction, the proposal, list of materials and appendix

Chapter |: Foundation of theory and strategic management

Chapter 2: Analyze the actual at PVPower NT

Chapter 3: Estimate the demands and develop strategies for PVPower NT period 2011-2020

7 The members of the team

1 Nguyen Thanh Tung

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1.1 OVERVIEW OF STRATEGY MANAGEMENT

1.1.1 Concept, role and importance of Strategy Management

1.1.1.1 Basic definitions of Strategic management

Marketing strategy has many different concepts due to various ways to approach and execute researching methods

achieve our long-term goal

- Follow by Alfred Chandler (Harvard University): Strategy is defined as the fundamental goals of the company; also, choosing the way of the process, contribution of critical resources that can be used to achieve the goal

- According to Rudolf Grunting and Richard Kuhn (2003): Strategy is a long- term work, direction management and guarantee that the company can achieve their goal

what we should not do; things that can meet a specific group of customers’ need — but not all

- Mintzberg (1995): strategy is 5 “Ps”: Plan: series of action that predictable and consistent; Pattern: behaviour firm; Position: suitability for the company and atmosphere; Perspective: conceive the world around us; Ploy: how we can win in the competition

At the end, although all of the concepts about marketing strategy have several minor differences, in comparison to each other, but they all share the same meaning about:

e Suggestion and find ways to support the company to achieve the goal

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1.1.1.2 Role and importance of the Strategic management

- Help the company recognizes the opportunities and advantages in business; then use them and bring them to the strategy, suitable policy so that the company can achieve their goals

- Helps managers to predict the uncertainties and risks will occur in the future Since then, based on their potential businesses to actively cope with the uncertainty of this situation, exploit opportunities and reduce threats, identifying solutions, adapted to environment to achieve the goals of organizations and enterprises

- Help the managers make good use of their resources and allocate them in a good way

- Contribute amongst many functions in the company to reach the common goal(s) of that organization

- Help the managers to link short-term solutions to long-term goals and to focus

on productivity and cost-effectiveness

1.1.2 The process to plan and execute strategies

1.1.2.1 Stages of strategy management

Strategy management is comprised of three stages with significant inter- dependence and support

(1) Forming the strategy: this is the process to define the mission, research to

identify the strengths, weaknesses, opportunities, and threats; outline the long-

term goals, and choices between alternative strategies Actual analysis must be based on reality, trusted sources This is the first and most important stage of any strategy The formation of the strategy involves three basic activities as conducting research, harmonizing intuitions and analysis, making decision + Conduct research: Recognizing the important strengths and weaknesses in

the fields of functional businesses The internal factors could be identified

by solutions such as calculating ratios, measuring achievement, comparing

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Make decision: The decisions in the strategic formed period will have long- term influence which makes better or worse for the organization The strategist should have the best vision in order to understand the ramifications of the formation of decisions completely

(2) Executing the strategy: The process of implementing strategic goals into the business operation, using internal and external factors and resources well that

creates a shortest route, least cost, and most efficient Three basic operations of

implementing strategy:

+Establish annual goals;

+ Suggest the policy:

+ Distribute resources

(3) Assessing the strategy: the process of evaluating and controlling resuits in order to find solutions to adapt strategies to environmental circumstances, supervising the implementation of the strategy in each stage, analyze right and wrong, whether appropriate to fix and repair promptly Audit should be conducted regularly and continuously include the following activities: Review the elements are the basis of current strategy, the measurement of achievement and the performance of adjustments

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The above three periods reflect the cycle Plan - Do - Check in modern management; and are widely applied in the management of enterprises today The diagram below illustrates the phases and activities in the strategic management

process:

| w | ‘Doing | Intuition and | Makinga

=

_ Evaluating | Review Internal | | Measuring Doing

strategy | factor and outer achivement adjustment

Figure 1.1: Diagram the stages and the operations of strategy management

(Source: Fred R David (2003)

1.1.2.2 Model of strategy management

The process of strategy management can be researched and applied by using a model Each model represents a type of process The illustration of image 1.1 is the model of managing entire group, which is widely accepted The model cannot guarantee success but it expresses a clear and realistic method for establishing, enforcing, evaluating strategy

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Doing external Establis |: | Establish

efining Defining Distribut- |: | Evaluat-

Ẳ Select- | : †

control to strategy | : — ! define strengths to ị KJETUDHE ! and weaknesses follow | ;| Policies

| strategy 1 strategy | strategy |

Figure 1.2: Diagram a complete model of strategy management

(Source: Fred R David (2003)

1.1.3 The various level of strategy management

1.1.3.1 Corporate level strategies

Is the model of the decisions in company, it defines and indicates the purposes and targets of the company, defines business targets which the company follows, creates policies and basic plans to achieve the targets of the company The company’s strategy is established to define business operations and inside that the company will compete and distribute resources between the business operations

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1.1.3.2 Business (sale) level strategies

Business strategy is planned to determining product choices or market detail for business operations within the company; it defines how the company will compete with similar business activities of its competitors, and against its competitor's performance Business level strategies determine the ways in which every business unit will try to complete their goal in order to contribute to corporate goals If the company serves a single sector/industry, business-level strategy is the same as corporate level strategy

1.1.3.3 Strategy of function level

Focus on the implementing of company strategy and focus on fields of demonstrator, fields of business

1.2 BASIS OF ESTABLISHING BUSINESS STRATEGY

1.2.1 Analyzing external environment

External environment is a system involving complicated factors, usually has a lot of opportunities and threats impacting the operations of a company in various levels Although big potential resources exist, business also cannot react to all of environment influences Therefore, while analyzing external elements, management will want to develope a list of opportunities in an environment that can bring benefits for the company; and the list of threats that the company will need to come

up with the solutions for

External environment includes general environment and specific business environment

1.2.2.1 General environment

Factors belong to general environment: aspects in society which can impact

an industry and companies in that industry consists of demography, legal, politics, society, culture technology These are illustrated by figure /.3

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Figure 1.3: General environment

(Source: Slide of Griggs University USA)

(1) Economic environment: |mpact of this environment has a direct impact and more significant than other factors of general environment Fluctuations of macroeconomics always bring forth different opportunities and risks for every business in each other profession Some of these factors are: trend of gross domestic product (GDP) and Gross National Product (GNP); interests and trend of interest; balance of international payments; inflation level; tax system

and tax rate; etc

(2) Environment of culture and society: Including the main factors such as ethical values, living standards, customs, society concerns, level of awareness, society’s general knowledge

(3) Environment of politics and legal: \ncluding legal interpretations; judicial system and governmental policies It is also important to be aware of domestic and foreign policies These factors affect a firm’s structure and development

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(4) Demographic environment: population size can significantly affect the market including products, services and consumers The main influences include: population size, age structure, geography distribution, race diversification, income distribution, climate, pollution, energy shortages and resource scarcity (5) Technology environment: \nfluences of technology create opportunities as well as risks in the strategic management process for a company Technical development can create new markets This results in the creation of new

environment impacts strongly on manufacturers in the fields of tele- communications, computing and power (e.g electricity)

(6) Global environment: Changes are created in society and the world economy, which are created by the links and exchanges between countries, through organizations and individuals as culture knowledge, economic The main influences of global environment changes are important political events, global

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(1) Competitors: The main topics of a competitive analysis are illustrated such as

below:

multi-dimensional _ Are the competitors satisfied with the current

~~~ market circumstances?

- How can the competitors transfer and change

the strategic direction?

- What is the weak point of competitors? By _Z* - What could help competitors retaliate

Figure 1.5: The main contents to be analyzed about competitors

(Source: Michael E Porter - 1985)

(2) Customers: Customers decide the existence of the business The trust in business may be the most valuable assets of the business The credibility is gained by meeting the demands of customer better than their competitors (3) Suppliers: Suppliers may assert their power by threatening to increase prices

or reduce product quality and services Suppliers will have an advantage if they have enough conditions: if we have only a small number of suppliers who sell to a large quantity of buyers in a given industry, when replacement products are not available, when commodities or services which are essential

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(5) Replacement product: Replacement product reduces the profit potential of the industry by imposing a ceiling price that the companies in the industry can provide, as long as it is within profitable range

1.2.2 Analyzing the internal environment

Analyzing the internal environment of business is a foundation to help businesses recognize the strengths and weaknesses compared to their competitors, and helps management gain the ability to capture a competitive advantage in each period There are some internal elements such as human resource, finance, marketing, operations management, and information system

1.2.2.2 Finance

Financial conditions are often methods to evaluate the most competitive position of the company and the most attractive conditions for investors Making strategies effective, we need to identify the strengths and weaknesses about business financially It is shown through the analysis of some basic financial such as

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Program

1.2.2.4 Operations management

Management includes 4 basis functions such as planning, organization, leading and controlling

preparation for the future Specifically, they are forecasts, set-up goals, making strategies, developing policies, establishing plans

(2) Organization: \ncluding all management activities to create the structure of

responsibilities (i.e staff in charge of particular job functions) Specifically, they are organizational design, job specialization, job descriptions, detailed

work, control expansion, consistent command, co-ordination, and task design

and task analysis

(3) Leadership: Including efforts to train, manage and align human activities, such as leadership development, communications, team building, change management, delegation of the power, job satisfaction, employee morale and management style

(4) Controlling: Relating to all management activities to ensure the result will be consistent with the result being planned The popular activities include: quality

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control, financial control, sales, inventory, expenses, analysis changes, rewards and punishment

1.2.2.5 Information systems

Information links all business functions together and provides the foundation for all management decisions Assess the strengths and weaknesses about information systems within the company are critical aspects of the implementation

of the internal control Information system is an important strategy resource to follow the changes of the environment, recognize the threats in competition, and support for the implementation, evaluation and control strategies

1.3 TOOLS FOR PLANNING AND CHOOSING STRATEGIES

1.3.1 Tools for strategic planning

1.3.1.1 The External Factor Evaluation matrix (EFE)

This matrix allows summary and evaluated external environment of business Regardless of the number opportunities and threats are included in the matrix, the total number of important point highest that an organization can have is 4 points and minimum is | point Total average point is 2.5 The highest score shows that organizations are responding very well to the opportunities and the threats in their environment Total score of 1 point reflects that the strategy devised did not take advantage of the opportunities or can be used to avoid external threats

Table 1.1: The external factor evaluation matrix — EFE

(Source: Fred R David (2003), Concept about strategic management, Translator:

Truong Cong Minh, Tran Tuan Thac, Tran Thi Tuong Nhu, Statistics Publishing

House, Ho Chi Minh City)

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1.3.1.2 The competitive image matrix

The competitive image matrix is an expansion of external environment matrix, comparison between companies in the case of important levels, the types and important points with the same meaning Total score was assessed by the competitive companies will be compared with the company being evaluated This analysis will provide important strategic information These elements include: market share, competitiveness, financial position, quality product, and customer loyalty The various scores reflect the ways in which company strategies choose to react to each factor: With 4 is the best, 3 is above average, 2 is average and | is bad

Table 1.2: The matrix image competition

Truong Cong Minh, Tran Tuan Thac, Tran Thi Tuong Nhu, Statistics Publishing

House, Ho Chi Minh City) 1.3.1.3 Internal Factor Evaluation Matrix (IFE)

Similar with EFE matrix, Internal Factor Evaluation Matrix (IFE) is a tool, which is used to sum up and evaluate not only the good sides but also the bad sides

of business function parts IFE also provides the basis to define and evaluate the relationship between each of these parts

Not counting how many factors the Internal Factor Evaluation Matrix has, total important points that could be classified from the lowest point of 1.0 to the highest point of 4.0 and the average point is 2.5 If the total important point is lower

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Listed internal elements

Total

(Source: Fred R David (2003), Concept about strategic management, Translator:

Truong Cong Minh, Tran Tuan Thac, Tran Thi Tuong Nhu, Statistics Publishing

House, Ho Chi Minh City)

1.3.1.4 Building strategy -The SWOT matrix tool

SWOT matrix is important combination tools that can help managers build

up to 4 kinds of strategy:

- The strategy of Strength - Opportunity (SO)

- The strategy of Weakness - Opportunity (WO)

- The strategy of Strength - Threat (ST)

- The strategy of Weakness - Threat (WT)

The combination between the internal factors and the outside factors is the most difficult task to develop the SWOT matrix, it requires the good judgment and

it will not have a perfect combination

The SO strategies use the internal strong points of the company to take full advantage of the outside opportunities In most cases, the organizations will pursue

WO, ST or WT strategies; it means they can reach the situation which they can apply the SO strategy

The WO strategies will improve the internal weaknesses by taking full advantage of the outside opportunities Sometimes, there are a lot of big opportunities, which are occurring outside, but the company is still having the internal weaknesses what prevents business to exploit these opportunities

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The ST strategies use the internal strong points of the company to evade or

reduce the influence of the outside threats

The WI strategies are the defensive strategies to reduce the internal

weaknesses and to evade the outside threats

The table of SWOT matrix, which are showed in table 1.4 below includes 9

cells, four of them have important elements (S, W, O, T), 4 cells of strategy (SO,

ST, WO, WT), | cell always is blank and is the cell on the right top of the table The elements should be listed completely, exactly, and can express the strengths, weaknesses, threats that company has to face when they execute the strategy This is the important basis for choosing the strategy

Table 1.4: The SWOT matrix

Blank cell

O: The outside opportunities

List the opportunities

The S-O strategies

Using the strength to salvage the opportunities

List the weaknesses

(2) The W-O strategies

To limit the weaknesses to

salvage the opportunities

1.3.2 Choosing the strategy for company

House, Ho Chi Minh City)

The above steps are the main and fundamental content in building strategic process However, company can base on the real situation, their position in the market that they can skip some steps to build their strategy faster

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We can use the Quantitative Strategy Planning Matrix of Fred R David to analyze and select the best strategy for the business The QSPM uses information from IFE matrix, EFE matrix, competitive image matrix and SWOT matrix and main strategies for objective evaluation the best replacement strategy There are 6 essential steps to develop QSPM matrix

Step 1: List important opportunities/ risks and the strength/weaknesses on the left column of QSPM matrix This data is taken directly from IFE matrix and EFE matrix The QSPM matrix should include at least 10 internal important factors and 10 external important, successful factors

Step 2: Classify each of the successful, important factors (internal and external) This classification is exactly the same as the IFE matrix and EFE matrix

Step 3: Identify the strategies, which can be replaced (currently under consideration) Writing down these strategies on the top of the QSPM matrix Combine these strategies into groups if possible

Step 4: Define the attractive score of strategy (AS) The attractive score is distributed to each of strategy to show the relative attraction as compared to other strategies The attractive point is distributed from: | = unattractive, 2 = attractive a little bit 3 = fairly attractive and 4 = highly attractive If these important successful factors do not affect the selection of the strategies, we will not mark attractive point for this group of strategies

Step 5: Calculate the Total Attractive score of Strategy (TAS) Total Attractive score is the result of multiplying of the classification score (step 2) with the

attractive score (step 4) in each row

Step 6: Calculate the total, combined score This is the addition of the total attractive score in the strategic column of QSPM matrix Judge the inside and outside factors, which are suitable and may affect the strategies If the attractive score is high, the attractiveness of strategy will also be high

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CHAPTER 2 ANALYZING ACTUAL PRODUCTION AND BUSINESS

OPERATIONS OF PETROVIETNAM POWER NHON TRACH COMPANY

2.1 INTRODUCTION AND BUSINEES RESULTS

2.1.1 Establishment and Development

PetroVietnam Power Nhon Trach Company was established under Decision 594/QD/HDTV-DLDK dated 15/08/2008 by Council Member of PetroVietnam Power Corporation (PV Power)

Figure 2.1: View of Power Plant Nhon Trach 1 Opening Ceremony

(Source: Administrative Office and Safety and Technical Division — PVPower NT)

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- 24 March 2007: Commence construction of the Power Plant:

- 25 May 2008: Generators - Gas Turbine No.1 powered and synchronized to the National Power Grid;

- 28 August 2008: Group Generators - Gas Turbine No.2 powered and synchronized to National Power Grid;

- 22 April 2009: Power Plant Nhon Trach’s combined cycle (both gas turbine and steam turbine) powered and synchronized to National Power Grid, commercially operated as a whole

- 23 Aug 2009: Opening Ceremony of the Power Plant Nhon Trach |

The Power Plant Nhon Trach | uses natural gas as main fuel, which came from Cuu Long and Nam Con Son basin mines, the back-up fuel is DO diesel The Power Plant has its structure as 2 — 2 — | model (2 Gas Turbines — 2 Heat Recovery Steam Generators - | Steam Turbine) The Engineering Procurement Construction (EPC) main contractors of the project are the Consortium LILAMA Corporation and

Figure 2.2: Thermal Power Plant Nhon Trach | and 220kV Substation

(Source: Administrative Office and Safety and Technical Division — PVPower NT) During nearly three years of operation, Step by step, the entire company’s personnel was able to leverage technologies in their work, enhanced employee’s professional qualifications; gained more experiences in management to ensure the

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power plant is safely operated and always attain production quota planned by PV Power NT The company has been certified under the ISO 17025 system for chemical laboratory and continue to establish the quality management system, environment management systems under ISO 9001:2008, OSHAS 18001, ISO

14001 standards Currently, PVPower NT is supporting the Nhon Trach 2 Power Plant in implementing the task to connect to the power grid and commissioning the open cycle

The company always pays attention to employee’s income; the average income per person in the first nine months of 2010 is $US 985/month/person

Following the Planning of Petroleum Field approved by the Government, PVPower NT is step-by-step developing sustainably, effectively and safely based on maximized promotion of advantages, thoroughly using of opportunities in order to run activities in several sectors and multi-profession with a purpose of maximum efficient and sustainable attainment

(Source: Administrative Office and Safety and Technical Division — PVPower NT) 2.1.2 Functional duty and Structural organization

2.1.2.1 Functional duty

The primary responsibility of the PVPower NT is to manage and safely operate Power Plant Nhon Trach | with maximum efficiency Besides the main function of generating power, the company is also responsible to develop services based on maximum usage of available resources in order to maximize the profit but not to affect to the primary function

2.1.2.2 Structural Organization

e Board of Directors: 01 General Director and 04 Deputy Directors

e 04 professional divisions: Division of Financial and Accounting, Division of Service Planning, Administrative Office and Safety and Technical Division

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Financial and Service «| Office and Division

| Accounting Planning Safety

| Operation

| Unit Chemistry Testing Unit

Figure 2.3: Organizational Chart of PetroVietnam Power Nhon Trach Co

(Source: Administrative Office — PVPower NT) 2.1.3 Characteristics of PetroVietnam Power Nhon Trach Company

supply gas and oil

(2) Products: the primary product is Power, a special commodity; the process of production — transmission — distribution must be simultaneously occurred Power cannot be stocked in inventory

electricity, several EVN’s power plants have been privatized In addition, investors in other industries have been investing in power plants to generate and sell power to EVN In term of power distribution, in accordance with the Power Act, investors of any industries, all have the right to participate in trading activities With the current condition, EVN still holds the exclusive right in power transmission and distribution

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(4) Customers: At present, the company is selling electricity to the only customer

— that is EVN In the future, after competitive market of power estimated in

2022 with a good place located in the Ong Keo Industrial Zone, the power plant will directly sell electricity to some big customers and participate in market

2.1.4 Investment model and business results in 3 years from 2008 to 2010 2.1.4.1 Investment Scale (As of 30 October 2010)

(1) Total assets (Distributed by assets structure)

- Short-term assets: 49,684,503 USD

- Long-term assets: 275,919,449 USD

(2) Total assets (Distributed by capital)

- Owner’s Equity: -179,050 USD

(3) Infrastructure

- Main Production: the Power Plant Nhon Trach | with output capacity of 4S50MW, composed of 2 gas turbines, the capacity of each turbine is ISOMW and | steam turbine with output capacity of 1SOMW (all turbines became commercially operational from August of 2009; 220kV Substation and plant facilities such as machines, equipment served for operation task, maintenance and minor repairs

transportation vehicles, means of travelling, land, etc

which:

+ Labor structure: direct is 101 employees, indirect is 67 employees; ratio 2/1 + Male: 148 men, ratio 88.09%, Female: 20 women; ratio 11.91%

+ Average age: 31 years-old;

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(Source: Division of Financial and Accounting, Administrative Office and Safety and Technical division)

2.1.4.2 Business Results in 3 years from 2008 to 2010

(1) Tasks of operation management, manufacture: The Power Plant Nhon Trach

| has been put into good operation The company reached operational and financial targets in 2008, 2009 and the first 9 months of 2010 were all in reasonable range approved by PV POWER, several specific targets listed in following Table 2.1

Table 2.1: Operational Management Key of 2008 — 2010

Rated Year Year | 9 months in

Power output (Million kWh) 625.38 | 2,090 2,692

Heat rate (BTU/k Wh) 7,348 | 7,450 7,329 7,329

as compared to 2009, up to 139%, reaching 109,247,795 USD Net income is

2,906,872 USD, compared to year 2009, increased 7,974,872 USD In 2008

and 2009, net income of the company was in minus number because these are commissioning periods The financial targets of the company gradually got better year after year Compared with revenues, input cost reduced from 138%

in 2008 to 104% in 2009: and in the first 9 months of 2010, is 93.5%

remaining Management costs and lending interests are also significantly decreased (from 3.0% down to 1.1% and 22.6% down to 2.7%) The results of company’s operations from 2008 to 2010 were reflected in the figures of table

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Table 2.2: Statement of income for the PVPower NT period 2008-2010

2.2, ANALYSIS AND SELECTION STRATEGY OF PVPOWER NT

2.2.1

2.2.1.1

(1) Economic environment

GDP growth rate: in 2008 and especially 2009, although highly dampened by

(Source: Accounting Department, PVPower NT)

Analysis of external environment

General Environment (macro)

the global economic recession, Vietnam’s GDP still growing at 6,18% and 5,32% respectively; it is one of the few countries with high and stable GDP growth; since

2005 to 2007, the growth rate has been steady around 8%

Inflation rate in 2007 and 2008 in Vietnam was very high In 2008, inflation

rate in Vietnam was 23% Events in 2009 — 2010 indicated that inflation is under

control: case in point is that inflation has significantly reduced, in 2009 it is only

6.9% and in October/2010 it is at 7.58% relative to December/2009 Therefore,

there are favorable conditions for enterprises of Vietnam in general and

PVPower NT to secure investment in business activities

Unit: millions USD

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ec Target 2005 | 2006 | 2007 | 2008 | 2009

Capital growth rate

Table 2.3: Macro-economic data of Vietnam for the period of 2005-2009

(Source: Bureau of Statistics) (2) Environment of culture-society

In the past, Vietnam is an agricultural-based economy (especially rice farming) Vietnamese respects tradition, family values, orders and does not welcome change Vietnamese lifestyle used to be frugal and anti-materialistic The rural areas are developing and are urbanized quickly — which leads to a significant demand for electricity With respect to power industry, selling power has an

“essential service” aspect — especially for the rural areas The government requires a fixed number of 100% power for villages towards 2015 Together with the process

to industrialize the country, mechanizing the agricultural tasks is also a priority The cultural aspects altogether has increased the demand for electricity in Vietnam, especially in the big cities and the Southern provinces with strong economic development This is an opportunity as well as a challenge for the power industry in order to guarantee minimum power availability in terms of quantity and quality, meeting the customer’s demand (Source: /itp://\www.evn.com.vn; and

http://www.pv-power.vn)

(3) Political — Legal environment

Vietnam is assessed as a country with stable political climate; the Vietnamese

judicial system is continuously enhanced and updated With the advantage of being

a Stable country, Vietnam continues to attract many FDI projects Investment scopes are also expanded across many industries, services as well as power generation

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With respect to the power industry, the Power Act, effective from 01/07/2005 The content of the above Act created a number of advantageous for PVPower NT — including the transparency in the investment and business activities of power selling moving away from corruption Vietnam continues to make progress on its political and administrative reforms, continues to commit to free trade agreements, increasing productivity and competitiveness bilaterally increasing management quality within the public sector (Source: /ilip:www-.chinlphu.vn; and

Attp://www.pv-power vi)

(4) Technological environment

Thanks to technological advancements, we are living witnesses of amazing technological breakthroughs, especially at the end of the 20” century New technologies, products, services are constantly and steadily introduced in the Vietnamese market including the power industry Much technological equipment, with high quality, is being utilized in Vietnam For example, the main EPC contractor for the company, which is LILAMA CORPORATION, had completed the construction (counting from 24/03/2007 to the national grid power linking of

Turbine 1 on 22/05/2008) in 14 months This is a new record in terms of

establishing a big power plant in Vietnam

In addition, Information Technology (IT) is being leveraged widely in operations management, administration and financial management This had resulted in cost-effective solutions for the company (Source: /iitp://www-.pv-

power.vn)

2.2.1.2 Sector Environment (micro)

Vietnam has a big resource of hydropower and natural gas Currently power production comes largely from hydropower (about 34.2%), the rest are thermal power (based on natural gas and diesel); and thermal power from coal Gas thermal power comes from Phu My Thermal Power Center, Ba Ria Thermal Power plant,

Ca Mau power plant and Nhon Trach power Plant The primary hydro power is Hoa

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MW -~ including 6 units; providing on average 9.4 billion kWh per year

The elements of weather and nature greatly affect the power production from hydroelectric sources The dry and sunny season leads to lower water level and will decrease the hydropower supply Power companies and authorities have to regulate and reduce power supply — which will negatively impact business In the current years, EVN attempted to provide power from various sources — including thermal power from natural gas; building more power plants and had significantly shortened the gap between power supply and power demand

(Source: http://www.evn.com.vn) (1) Customer

Power industry is monopolistic by nature but pricing is regulated Power consumer does not have a choice; no real competition in the selling of power and everything is regulated by EVN However, power industry in general faces big pressures from society in terms of pricing, meeting both in terms of quality and quantity The delay in price increase in the past several years reflected the pressure from consumers (Source: /ittp://www.chinhphu.vn; and http://;www.pv-power.vn)

(2) Suppliers

The spare parts suppliers for main equipment in the most power plants in Viet Nam are Original Equipment Manufacturer (OEM) The fuel gas resource for the power generation is supplied from Vietnam Gas Corporation (PV Gas) and backup fuel oil is supplied by PV Oil — Companies belong to PVN and some importers and distributors like Vietnam national petroleum coloration (Petrolimex), Vietnam air petrol company (Vinapco)

On the market today there are many companies can offer repair services for power plants in the form associated with OEM manufacturers, but for the power plant industry in the PetroVietnam only two companies providing this type of

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