Performance management practice of new energy projects in quasi high end market: a case study of syvash wind power project in Ukraine

The strategic goal of the world's first-class energy enterprises is to anchor high-quality development. For the objective needs of human sustainable development, new energy development has become the most important engine of economic growth in the future and the new economic pillar of the ability to create employment and wealth.
Ukraine is the second largest country in Europe after Russia in area. It is of great significance for Chinese enterprises to enter this market. Based on the implementation practice of Ukraine's syvash wind power project (hereinafter referred to as "syvash wind power project") undertaken by China Power Construction Group International Engineering Co., Ltd. (hereinafter referred to as "power construction international") as an example, this paper discusses how to build the core competitiveness of enterprises in the quasi high-end market and encourage with the same industry.

Gain new business growth pole in quasi high end market

Syvash wind power project of Ukraine is located in the southern Kherson region of Ukraine, with a total installed capacity of 250MW. The project includes: design, supply, construction, installation and commissioning of 64 sets of 3.9mw fans (including foundation); Design, supply, construction, installation and commissioning of 330kV substation; Design and construction of roads and fan lifting platform in the site; Design, supply and construction of collecting line. The fan is supplied by nordex, a German fan manufacturer designated by the owner, two 195mva transformers are supplied by ethos of Poland, and AIS equipment and cables are supplied by abb of China. In September 2018, power construction international signed the EPC contract of the project in the name of Power Construction Co., Ltd. and Fujian power construction (a subsidiary of China Power Construction), with the contract amount of about 292 million euros, the contract duration of 16 months and the warranty period of 24 months. The owners of the project are NBT (Norway) and todal Eren (France). The owners raise 30% of the funds by themselves, and the remaining 70% is financed by EBRD. JP Morgan, as the project financing consultant, provides syndicated loans with a number of European banks. The owner's engineer is from wood group.
According to Ukrainian law, foreign companies are required to set up "limited liability company" (subsidiary nature of independent legal person) or "operating representative office" (branch nature of non independent legal person) in Ukraine to carry out engineering projects. According to the previous performance experience, combined with the requirements of the owners, power construction international finally set up a representative office with business nature in Kiev in the name of Power Construction Co., Ltd., as the main body of the implementation of the syvash wind power project.
The syvash wind power project is the largest wind power project in Ukraine at present. When completed by the end of 2020, the project will become the largest subgrade wind farm in Europe, which will meet more than 1 / 3 of the power demand in the southern Kherson state of Ukraine, greatly improve the local power consumption and drive the regional economic development.
The syvash wind power project is also the first new energy project of power construction international in Ukraine. The successful implementation of the project has laid a good foundation for power construction international to maintain its position as the largest EPC contractor of new energy in Ukraine. So far, the company has signed a contract with new energy in Ukraine with a contract value of more than 1 billion US dollars and a cumulative installed capacity of nearly 1200 MW.

The challenges of the project

Since the color revolution in 2014, the Ukrainian government has been fully de Russian and is accelerating the process of EU integration. Under such a background, it will inevitably bring certain impact on Ukraine's economy and overseas investment. Therefore, Chinese enterprises operating in Ukraine market are also facing many challenges and risks.
1、 Political risk
In 2018, affected by the general election and the situation in eastern Ukraine, the then president of Ukraine, boroshenko, announced that the country entered the war state for 30 days in October of that year. This decision had a great impact on the decision of investing overseas funds in Ukraine. The project was originally set to be closed in October 2018. The financing bank EBRD officially closed its financing on January 31st, 2019. Although the political situation of Ukraine is stable and the overall economy is also going out of the low point and recovering well, with Ukraine entering the EU integration process, the Russian Ukraine dispute will still exist for a long time, and the political risks in the future remain uncertain.
2、 Renewable energy policy risk
Since 2017, the new energy market represented by photovoltaic and wind power has developed rapidly, and high green price on-line subsidies have attracted large-scale overseas investment from Europe and the United States and other countries to Ukraine [currently, the latest benchmark price to december31,2020: solar energy is 13.50 euro / kWh, wind energy is 9.20 Euro)
Minute / kWh, no VAT. However, we should also note the consequences of high subsidies, the government financial burden is too heavy, and subsidies are difficult to continue for a long time. At present, the Ukrainian government is developing a new renewable energy development bill, the core content is to restructure the "green electricity price" by extending the period, and reduce the financial burden of the power market; Limit the grid connection period of new solar and wind farms to avoid uncontrolled growth of renewable energy. The goal is to accelerate the transition to competitive mode through the allocation of bidding quota, improve the balance and reliability of energy system, and ensure that sustainable development of renewable energy can be achieved in a cost-effective way in accordance with the best international practice. It can be confirmed that the new bill will have a strong inhibition effect on the fast-growing new energy market in the short term.
3、 Standardized risk
The project performance shall comply with international and local standards such as IEC (International Electrotechnical Commission), IFC (data exchange standard for Construction Engineering), Equator Principle, European standard, gost (Russian compulsory certification certificate), Ukrainian mandatory law, etc., and the standardization risk of project implementation is extremely challenging.
In this project, the performance team chooses to carry out joint design with local design partners, but there are differences in understanding and familiarity of European Union and Ukraine local design standards and specifications in the implementation. Meanwhile, local design standards and construction specifications of Ukraine can not respond well or meet the requirements of EU standards for the contract in this respect, The conflicts between the European supervision employed by the owner and the local representative of the owner in the implementation of EU standards and Ukrainian local standards, disputes in the project acceptance stage, etc., make the actual design cycle face the risk of exceeding the plan. How to make the design meet the mandatory requirements of local specifications and meet EU standards, tests the communication and coordination ability of EPC contractor on site.
4、 Control risk of purchase cost and product quality
The control of procurement cost and product quality is very important in EPC project. In the contract negotiation stage, there are many problems such as market situation, industry change, market supply demand, and internal competition of suppliers available for selection, etc., which often lacks corresponding investigation and analysis, neglects pre inquiry and other preliminary preparations, which leads to the rise of procurement cost and uncontrolled product quality in the implementation of actual projects.
In this project, in view of many factors such as secondary transportation of fan equipment and complexity of transportation road conditions, in order to control risks, electric power construction international and nordex sign the fan supply contract back to back according to EPC contract conditions, and nordex is responsible for the transportation, hoisting and commissioning of fans.
In addition, due to the strong domestic infrastructure demand in Ukraine since 2017, the price of raw materials has risen rapidly, and the actual effective construction period (outdoor) is less than 9 months each year. The purchase price of raw materials in the light peak season is very different. It is particularly important to investigate and master the market situation in advance. In the off-season construction, the production materials shall be purchased and stored, Only by ensuring the timely delivery of materials required on site before the arrival of construction peak season can favorable conditions be created for the overall commencement of the site.
5、 Local subcontract risk
The performance ability and financial risk of local subcontractors determine the success or failure of an EPC project to a certain extent. Due to the low seriousness of contract and low efficiency of local subcontractors in Ukraine, the project team selected different local subcontractors for civil engineering, electrical installation, commissioning and substation, and made plan B preparation for the selection of individual local subcontractors, which improved the management flexibility of the project site, The work efficiency and quality of subcontractors are improved, and the risk of delay of construction period is avoided.
6、 HSE (abbreviated as health, safety and environment management system) management risk
The HSE management of engineering project under EPC mode is a dynamic management process. During the construction process, the HSE management system should be improved continuously. It is necessary to embody the management thought of people-oriented, create a good safety culture atmosphere, improve the safety sensitivity of all personnel, and then form a HSE culture with humanistic care characteristics. In this project, in order to ensure the seriousness of loan, EBRD of financing bank regularly conducts performance inspection on the project site, focuses on the supervision of project construction progress and HSE, and needs to formulate scientific and reasonable HSE management plan, strictly regulate site management, take corresponding social responsibilities, comprehensively prevent HSE management risks and Improve HSE management level.

Good performance shows the power of PowerChina brand

1、 Corporate brand effect
Company brand is an important core competitiveness of an enterprise. On the premise of controllable risk and compliance, the project is participated in bidding by establishing electric construction shares and Fujian Electric Power Construction parent subsidiary joint venture, which provides comprehensive support from brand use, bank guarantee, bid evaluation, establishment of overseas institutions and performance planning. The owner will submit the joint venture as the EPC winning party to the financing bank EBRD for review, and soon cooperate with the owner to complete the comprehensive reconciliation review of the financing bank before the project is closed. The parent company directly participates in the project, which enhances the confidence of the owner and the financing bank EBRD in the successful performance of the project.
In addition, taking advantage of the global layout network, the international representative office of electric power construction will investigate in advance the legal requirements and customary practices of Ukraine local workers, various licensing / qualification, taxation, customs and so on, and understand the local policies, markets and social and cultural environment. Through effective preparation for preliminary work, after the project contract was officially signed, the preparation work of local registration, license / qualification handling and tax registration of the operating representative office was completed in a short time. It quickly and seamlessly entered the project implementation stage, and the efficient organization and planning ability also got the affirmation of the owner and engineer.
2、 International team
Most of the key members of the project management team are from different countries such as Europe and America, Turkey, Ukraine and China. They have young backbones familiar with international business, law and finance, as well as a group of middle-level management leaders who are familiar with international practices and have rich experience in field management, The international project management system of risk management is constructed. At the beginning of the bidding, professional lawyers were employed to participate in the project bidding, contract negotiation and performance management. In order to meet the local mandatory provisions, the conditions of EPC contract and subcontract were set up in accordance with FIDIC contract structure and international practice. The project owner and the financing bank EBRD pay great attention to the implementation of HSE management system on the project site. The project team successfully cooperated with the owner to complete the clarification and review of EPC Contractor by the financing bank EBRD through cooperation with the UK consulting company.
During the project implementation, the performance team pays attention to cooperating with European and Ukrainian companies with rich project management experience, and employs EBRD and local engineers from Europe and Ukraine recognized by the owner to join the management team; In order to connect with the European Union and Ukraine local design standards, the performance team has established the design localization concept, and accelerated the submission and approval of construction drawings through cooperation with local professional design companies; Establish contract management and performance tracking mechanism to correct the deviation in the performance process in time. The performance team from different countries brought more diverse international perspectives, improved the performance strength, and laid an important foundation for the smooth implementation of the project.
3、 Actively fulfill social responsibility and establish a good image of Chinese Enterprises
From the beginning of the mobilization construction, the project department has set up public relations coordination office in three villages near the site to listen to the opinions and suggestions of local community on the Contractor's work. So far, we have strengthened communication and contact with local residents by building roads for local villages, installing street lights, sponsoring local traditional festival activities and building amusement parks for children in the village, so as to obtain villagers' understanding and support for the project, and avoid artificial construction interference. In addition, the project department also signed an agreement with the Highway Bureau of the herzon state government where the project is located to repair and maintain the local 20km highway, fulfill the social responsibilities, display the PowerChina brand and establish a good image of civilized construction of Chinese enterprises.

Building core competitiveness to adapt to high end market

1、 To promote localized governance, fulfill social responsibility and integrate into local social development
As a strategic platform for the global development of China electric power construction, China Power Construction International has 373 overseas agencies in 116 countries and regions around the world, engaging in market development and business activities. One belt, one road leading to the development of international business, is going to take the lead in the "going out" road, closely following the national strategy of "one belt and one road", integrating international and domestic business resources, actively exploring the international market, vigorously promoting localization governance, adhering to the concept of sustainable rolling development, changing the business concept voluntarily, taking root in the local area and employing local staff. Purchasing local resources, actively cooperating with local governments and enterprises, fully integrating into local political, environmental and social ecological circle, actively fulfilling social responsibilities, promoting local economic and social development through good performance effect, and opening up mutually beneficial and win-win situation of both parties or parties as soon as possible.
2、 Leading brand, leading planning and technology, helping international competition
Relying on the strong technical strength and performance capability of China Electric Power Construction Co., Ltd., the power construction international has given full play to the professional and comparative advantages of the group company, especially in the fields of investment financing, planning and design, construction contracting, equipment manufacturing, management and operation of the whole industrial chain in the fields of power engineering, infrastructure and water ecology and environment, To help electric construction international win the first chance in expanding fierce international competition and be the leader of national open development strategy.
3、 Enhance EPC risk bearing capacity and achieve win-win cooperation
The power construction international takes advantage of the platform of electric construction international, continuously improves EPC risk bearing capacity, attaches importance to the professional knowledge in development, financing, management and operation, and the accumulation of relevant professionals, timely seeks the services of legal affairs, finance, consulting and other professional third-party organizations, and deeply studies the country where the project is located, and according to the needs of local economic and social development and enterprise characteristics, To make professional solutions by precise implementation of policies and local conditions. CETC international has strengthened cooperation with well-known enterprises in Europe, America, Japan and South Korea, insisted on "brand first, planning leading and technology leading", and put great efforts on promoting high-end marketing. Through advanced concepts, mechanisms and business models, it promoted the implementation of specific projects, created value added value for local governments and customers, and achieved win-win cooperation.