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Technical Assistance Consultant’s Report

This consultant’s report does not necessarily reflect the views of ADB or the Government concerned, and ADB and the Government cannot be held liable for its contents. (For project preparatory technical assistance: All the views expressed herein may not be incorporated into the proposed project’s design.

Project Number: 44004-012 December 2014

Socialist Republic of Viet Nam: Increasing the Efficiency of the National Power Transmission Corporation through Targeted Capacity Building (Financed by the Technical Assistance Special Fund)

Prepared by PricewaterhouseCoopers Private Limited

Hyderabad, Telangana, India

For the National Power Transmission Corporation and the Asian Development Bank

Advisory-GRID-Energy

TA-7668 VIE: Increasing the Efficiency of the National Power Transmission Corporation through Targeted Capacity Building (44004-012) Final Report

3 December 2014

PricewaterhouseCoopers Private Limited, Plot no. 77/A, 8-624/A/1, 3rd Floor, Road No. 10, Banjara Hills, Hyderabad 500 034, T: +91 (40) 4424 6000, F: +91 (40) 4424 6300, www.pwc.com/in

Ms. Daniela Schmidt

Senior Project Officer (Energy)

Asian Development Bank

Units 701-706, Sun Red River Building

23 Phan Chu Trinh Street, Hanoi

Vietnam

3 December 2014

Our Reference: ADB/NPT-TCB/007

Your Reference: Consultant Services Contract No. 107364-S52267 dated 10 January 2014 for TA-7668 VIE:

Increasing the Efficiency of the National Power Transmission Corporation through Targeted Capacity Building

(44004-012)

Dear Daniela

Subject: Submission of the Final Report

During Feb’14-Jul’14, we studied prevailing external and internal regulations/guidelines, understood

organisation structure and roles of various entities/departments, mapped current processes, reviewed

technologies/tools used and studied framework/status of information exchange among entities/departments.

We submitted the findings of our study in form of inception report (21 April 2014), revised inception report (21

May 2014) and mid-term report (21 June 2014). Subsequently, we conducted a workshop (2 July 2014) to

discuss the findings and potential recommendations in each module.

As agreed with ADB and EVNNPT, we have submitted the recommendation report (21 July 2014) covering:

1. Investment planning : 7 recommendations

2. Project management : 6 recommendations

3. Transmission pricing : 4 recommendations

4. Public relations : 7 recommendations

EVNNPT provided its comments and suggestions on recommendations in August 2014 which were discussed

with ADB and PwC on 10 September and 15 September 2014. Based on these discussions, EVNNPT accepted

most of the recommendations (except three) and agreed in principle to implement them. The Memorandum of

Understanding (MoU) signed between ADB and EVNNPT is enclosed at Appendix 7 -.

Subsequently, we submitted the Draft Final Report on 3 November 2014 covering following:

1. Part-A: Updated Mid-term Report;

2. Part-B: Recommendation Report; and

3. Part-C: Approach Notes / Proposals / Training Materials (in accordance with the recommendation

report).

Note: In addition, Appendices are common to all three parts.

We understand that ADB and NPT are fine with the Draft Final Report as we did not receive any comments /

suggestions until 30 November 2014. Hence, we have finalised the Draft Final Report as the Final Report.

We trust this is in line with your expectations.

Best wishes,

Charudatta Palekar

[email protected]

T: +91 (40) 4424 6000

F: +91 (40) 4424 6300

M: +91 986 613 8089 (India)

M: +84 164 302 6242 (Vietnam)

Disclaimer

Private and Confidential

TA-7668 VIE: Increasing the Efficiency of the National Power Transmission Corporation through Targeted Capacity Building (44004-012) - Final Report

PwC 4

Disclaimer

This document has been prepared solely for Asian Development Bank (ADB), being the express addressee to

this document. PwC does not accept or assume any liability, responsibility or duty of care for any use of or

reliance on this document by anyone, other than (i) ADB, to the extent agreed in the relevant contract for the

matter to which this document relates (if any), or (ii) as expressly agreed by PwC in writing in advance.

This publication (and any extract from it) may not be copied, paraphrased, reproduced, or distributed in any

manner or form, whether by photocopying, electronically, by internet, within another document or otherwise,

without the prior written permission of PwC. Further, any quotation, citation, or attribution of this publication,

or any extract from it, is strictly prohibited without PwC’s prior written permission.

© 2014 PricewaterhouseCoopers Private Limited. All rights reserved. In this document, “PwC” refers to

PricewaterhouseCoopers Private Limited (a limited liability company in India), which is a member firm of

PricewaterhouseCoopers International Limited (PwCIL), each member firm of which is a separate legal entity.

List of abbreviation



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Abbreviations

AD Administration Department

ADB Asian Development Bank

ASEC ASEAN Development and Management Consulting Limited

BIDV Bank for Investment and Development of Vietnam

BOOT Build, Own, Operate and Transfer

CAPEX Capital Expenditure

CBN Central Bank of Nigeria

CDTA Capacity Development Technical Assistance

CEO Chief Executive Officer

CERC Central Electricity Regulatory Commission

CIF Cost, Insurance and Freight

CLPC Commune Level Peoples Committee (Level 1 Administrative Unit)

CMD Construction Management Department

CPD Corporate Planning Department

CPMB Central Power Projects Management Board

CSR Corporate Social Responsibility

DBFOT Design, Build, Finance, Operate and Transfer

DGE Directorate General of Energy

DLA Draft Loan Agreement

DLPC District Level Peoples Committee (Level 2 Administrative Unit)

DoNRE Department of Natural Resources and Environment

DoP Delegation of Powers

DSCR Debt Service Coverage Ratio

DTD Detailed Technical Design

E&F Economic & Finance

E&S Environmental & Social

ECA Economic Consulting Associates (UK)

Edelman Edelman India Private Limited

EIAR Environmental Impact Assessment Report

EPTC Electric Power Trading Company

ERAV Electricity Regulatory Authority of Vietnam

ERP Enterprise Resource Planning

EVN Vietnam Electricity

EVNNPT / NPT

National Power Transmission Corporation

F&A Finance & Accounting

FIMS Financial Information Management System

FS Feasibility Study

GIS Gas Insulated Sub-station

GoV Government of Vietnam (The Socialist Republic of Vietnam)

HCMC Ho Chi Minh City

ICD International Cooperation Department

IMD Investment Management Department

INR Indian Rupee

IRR Internal Rate of Return

IT Information Technology

JICA Japan International Co-operation Agency

kV kilo Volt




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MoF Ministry of Finance (Government of Vietnam)

MoIT Ministry of Industry and Trade (Government of Vietnam)

MoJ Ministry of Justice (Government of Vietnam)

MoM Minutes of Meeting

MoNRE Ministry of Natural Resources and Environment (Government of Vietnam)

MPI Ministry of Planning and Investment (Government of Vietnam)

NGCP National Grid Company of Philippines

NLDC National Load Despatch Centre

NPMB Northern Power Projects Management Board

NPV Net Present Value

O&I Operation & Investment

O&M Operation & Maintenance

ODA Official Development Assistance

OFC Optical Fibre Cable

OICB Other International Commercial Banks

OPEX Operating Expenditure

PAP Project Affected Persons

PCC Power Construction Company

PhP Philippine Peso

PI Profitability Index

PLPC Provincial Level Peoples Committee (Level 3 Administrative Unit)

PMB Power Projects Management Board

PMB Projects Management Board

PPE Personal Protective Equipment

PPP Public Private Partnership

PR Public Relations

PTC Power Transmission Company (subsidiary of EVNNPT)

PTC1 Power Transmission Company No. 1 (subsidiary of EVNNPT having head office in Hanoi)

PTC2 Power Transmission Company No. 2 (subsidiary of EVNNPT having head office in Danang)

PTC3 Power Transmission Company No. 3 (subsidiary of EVNNPT having head office in Nha Trang)

PTC4 Power Transmission Company No. 4 (subsidiary of EVNNPT having head office in HCMC)

PwC PricewaterhouseCoopers Private Limited

R&M Repair and Maintenance

R&R Rehabilitation & Resettlement

RoE Return on Equity

RoW Right of Way

SBV State Bank of Vietnam

SEA Social Impact Assessment

SFR Self-Financing Ratio

SLC Subordinate Local Company

SMO System and Market Operator

SPMB Southern Power Projects Management Board

TA Technical Assistance

TC Transmission Charge

TNB Tenaga Nasional Berhad

TPTR Total Power Transmission Revenue

USD United States Dollar

VAS Vietnam Accounting Standards

VND Vietnamese Dong

VP Vice President

Document control information



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Document control information

Authors:

Name of Expert

Produced by Charudatta P Palekar, Hitesh Chaniyara, Padam Prakash, Vivek Sengupta, Do Thi Minh Hien

Supported by Ravi Kiran Kuchi, Sai Dheeksha Charan, Sandeep Kumar Mohanty, Vu Thi Diu, Trinh Thu Hien, Smita Joshi, Anwesha Chatterjee, Smera Chawla

Verified by Kameswara Rao, Executive Director, PwC

Distribution List:

Recipient Title / Designation No. of hard copies

Asian Development Bank Ms. Daniela Schmidt, Senior Project Officer (Energy)

1


Mr. Vu Tran Nguyen, Vice President (Economics & Finance)

5

Executive summary



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Executive summary

Context of the TA

Power consumption in Vietnam has increased nearly fivefold since 2000 as Vietnam underwent a period of

strong economic growth. During 2008-12, EVNNPT's line length grew at 8.2% p.a. and capacity of transformers

increased at 15.8% p.a. In such fast growing power sector, the role of the transmission system has expanded

beyond the role of simply linking generation to the load centres. With the growing complexity and size of

transmission system, it is imperative to have a strong investment planning, agile project management to

minimise time and cost overruns, proactive and bidirectional public relations and recovery of full cost of service

with adequate returns to invest in new projects. The overview of the Vietnam power sector is presented at

Appendix 1 -. The organization structure of EVNNPT and its subsidiaries is illustrates at Appendix 2 -.

In February 2014, ADB has appointed PwC (in association with Edelman India and ASEC Vietnam) to provide

technical assistance (TA 7668-VIE) to EVNNPT for targeted capacity building. The main objective of the TA is

to support EVNNPT in emerging into a modern transmission company that can meet the challenges of a

growing network. The TA has focussed on four key areas viz. investment planning, project management,

transmission pricing and public relations and examined current status, identified key issues, recommended

improvements and imparted trainings. Detailed work plans of TA experts are enclosed in Appendix 3 -.

Approach & methodology

When examining the four different focus areas, we have looked at five dimensions of the organisation viz.

strategy (regulations), structure, processes, people, and technology. We have adopted our proprietary approach

“TRANSFORM” to deliver this engagement. The four phases namely Assess, Design, Construct and Implement

fit the phasing requirements of the engagement.

We had commenced the engagement with a kick-off meeting on 24 February 2014. From February to June, TA

team had held more than 50 meetings with all departments in the corporate office of EVNNPT, relevant

departments of NPMB, CPMB, SPMB, PTC1, PTC2, PTC4, ERAV, ECA and PECC1. Based on interactions and

documents made available to us, we have studied prevailing external and internal regulations/guidelines,

understood organisation structure and roles of various entities/departments, mapped current processes,

assessed current staffing and their capabilities, reviewed technologies/tools used and studied framework/status

of information exchange among entities/departments. Our findings were discussed in the workshop held on 2

July 2014.

In July 2014, we submitted the Recommendation Report outlining agreed recommendations and

implementation requirements. Subsequently, these recommendations were discussed in details with EVNNPT

and ADB. Based on the discussions, ADB and EVNNPT signed a Memorandum of Understanding (MoU) to

undertake implementation of agreed recommendations within stipulated time. Since then, PwC has been

supporting EVNNPT in implementing these recommendations.

Analysis and outcome

During February-July 2014, the TA consultants have studied prevailing external and internal regulations/

guidelines, understood organization structure and roles of various entities/ departments, mapped current

processes, reviewed technologies/ tools used and studied framework/ status of information exchange among

entities/ departments. The TA consultants also carried out a perceptions audit to do a qualitative study of

perceptions about EVNNPT among stakeholders. The TA consultants have submitted the findings of their entire

Executive summary



PwC 9

study in the form of an inception report (21 April 2014), revised inception report (21 May 2014) and mid-term

report (21 June 2014). The TA consultants conducted workshop (2 July 2014) to discuss the findings and

potential recommendations.

As discussed and agreed with ADB and EVNNPT, the TA consultants have submitted the recommendation

report (21 July 2014) covering 24 recommendations:

Module Number of recommendations

Investment planning 7

Project management 6

Transmission pricing 4

Public relations 7

Total: 24

EVNNPT has provided its comments and suggestions on recommendations in August 2014 which were

discussed with ADB and TA consultants on 10 September and 15 September 2014.

Based on these discussions, EVNNPT has accepted most of the recommendations (except three) and agreed in

principle to implement them as described in the recommendation report. The Memorandum of Understanding

(MoU) has been signed between ADB and EVNNPT which captures description of recommendations, timelines,

responsibilities and implementation strategy. The document is enclosed at Appendix 7 -.

Subsequently, we submitted the Draft Final Report on 3 November 2014.

We understand that ADB and NPT are fine with the Draft Final Report as we did not receive any comments /

suggestions until 30 November 2014. Hence, we have finalised the Draft Final Report as the Final Report.

Summary of recommendations and current status

The recommendations identified in each focus area and their implementation status are summarized below:

Investment planning

Recommendation Deliverable Status

Recommendation#1: Decentralisation in decision making and approval process pertaining to investment planning and revised delegation of powers

Approach Note (MS Word)

English version included in this report

Vietnamese version to be submitted by 5 November 2014

Recommendation#2: Utilisation of funds generated through accelerated depreciation




Recommendation#3: Strategy for risk management against foreign exchange variation




Recommendation#4: Prioritization of the investment projects

Report (MS Word)



Recommendation#5: Develop and implement (i) project financial models to assist in appraisal of investment projects and (ii) corporate level model to assist in fund identification along with necessary operating booklet for the use of financial

Project Model and Corporate Model (MS Excel); Note on Models (MS Word)



Executive summary



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model

Recommendation#6: Develop alternate modes of project funding




Recommendation#7: Process improvement in the investment planning process

Report (MS Word)



Project management


Recommendation#1: Standardization of designs, specifications and layouts




Recommendation#2: Adoption of full/part turnkey (supply cum erection) contracts



Vietnamese version NOT to be submitted as agreed with ADB

Recommendation#3: Develop a project risk management strategy

Strategy Note (MS Word)



Recommendation#4: Developing IT tools for project monitoring, inspection and online procurement

Not Applicable No deliverable as agreed with ADB/NPT

Recommendation#5: Merger of FS & DTD phases




Recommendation#6: Develop a strong and focused project management unit




Transmission pricing


Recommendation#1: Conduct training on principles of regulatory economics and international practices

Classroom Training and Training Material (MS Power Point)

Training conducted on 7 October 2014

English and Vietnamese versions of training material shared during the training session



Recommendation#2: Support EVNNPT in drafting a proposal to ERAV for specific modifications in the existing transmission pricing regulations

Proposal (MS Word)



Recommendation#3: Develop and implement integrated transmission pricing model (TPM) for compilation of data and calculation of revenue & charge

Pricing Model (MS Excel)



Recommendation#4: Prepare a transmission pricing procedure (TPP) for collection, compilation and validation of

Procedure (MS Word)



Executive summary



PwC 11

Recommendation Deliverable Status information needed for transmission pricing

Public relations


Recommendation#1: Plan, set-up and operationalise a dedicated PR department within EVNNPT and its subsidiaries

Proposal (MS Word)



Recommendation#2: Develop a Crisis Communications Manual

Manual (MS Word)



Recommendation#3: Develop uniform key messages for EVNNPT through a workshop

Workshop and Key Messages (MS Word)

Workshop conducted on 15 October 2014

English version of workshop outcome note included in this report


Recommendation#4: Leverage the social media for EVNNPT’s PR work




Recommendation#5: Plan, set-up and operationalise a dedicated CSR department within EVNNPT

Proposal (MS Word)



Recommendation#6: Impart training to EVNNPT spokespersons on media handling skills

Classroom training and Training material (MS Power Point)


English and Vietnamese versions of training material shared during the training session



Recommendation#7: Conduct a workshop on the fundamentals of effective public relations

Workshop and Training material (MS Power Point)


English and Vietnamese versions of training material shared during the workshop



Table of Contents


Table of contents

Part-A: Updated Mid-term Report 19


Strategy 20

Structure 21

Processes 25

People 39

Technology 39

Summary of key observations 42


Strategy 45

Structure 47

Processes 50

People 65

Technology 65



Strategy 69

Structure 82

Processes 82

People 89

Technology 90


Public relations 98

Strategy 98

Structure 101

Processes 110

People 115

Technology 116

Analysis of perceptions audit 120


Part-B: Recommendation Report 128


Recommendation#1: Decentralisation in decision making and approval process pertaining to investment

planning and revised delegation of powers 129

Recommendation#2: Utilisation of funds generated through accelerated depreciation 131

Table of Contents


Recommendation#3: Strategy for risk management against foreign exchange variation 133

Recommendation#4: Prioritization of the investment projects 135

Recommendation#5: Develop and implement (i) project financial models to assist in appraisal of investment projects and (ii) corporate level model to assist in fund identification along with necessary operating booklet for the use of financial model 136

Recommendation#6: Develop alternate modes of project funding 138

Recommendation#7: Process improvement in the investment planning process 140


Recommendation#1: Standardization of designs, specifications and layouts 143

Recommendation#2: Adoption of full/part turnkey (supply cum erection) contracts 145

Recommendation#3: Develop a project risk management strategy 148

Recommendation#4: Developing IT tools for project monitoring, inspection and online procurement 152

Recommendation#5: Merger of FS & DTD phases 154

Recommendation#6: Develop a strong and focused project management unit 156


Recommendation#1: Conduct training on principles of regulatory economics and international practices 158

Recommendation#2: Support EVNNPT in drafting a proposal to ERAV for specific modifications in the existing transmission pricing regulations 159

Recommendation#3: Develop and implement integrated transmission pricing model (TPM) for compilation of data and calculation of revenue & charge 161

Recommendation#4: Prepare a transmission pricing procedure (TPP) for collection, compilation and validation of information needed for transmission pricing 162

Public relations 165

Recommendation#1: Plan, set-up and operationalise a dedicated PR department within EVNNPT and its

subsidiaries 165

Recommendation#2: Develop a Crisis Communications Manual 167

Recommendation#3: Develop uniform key messages for EVNNPT through a workshop 169

Recommendation#4: Leverage the social media for EVNNPT’s PR work 170

Recommendation#5: Plan, set-up and operationalise a dedicated CSR department within EVNNPT 171

Recommendation#6: Impart training to EVNNPT spokespersons on media handling skills 173

Recommendation#7: Conduct a workshop on the fundamentals of effective public relations 174

Part-C: Approach Notes / Proposals / Training Materials (in accordance with the Recommendation Report)177

Part-C (i): Investment planning 178

Recommendation#1: Decentralisation in decision making and approval process pertaining to investment planning and revised delegation of powers 179

Overview 179

Key issues with existing delegation of powers 179

Select global practices 180

Suggested solution 182

Conclusion 184

Table of Contents


Recommendation#2: Utilisation of funds generated through accelerated depreciation 185

Overview 185


Possible solutions 190

Conclusion 193

Recommendation#3: Strategy for risk management against foreign exchange variation 194

Overview 194

Possible foreign exchange fluctuation hedging options 195


Recovery of hedging cost 201

Implementation challenges 202

Implementation road map 203

Conclusion 204

Recommendation#4: Prioritization of the investment projects 205

Overview 205

Existing practice 205

Key issues 206


Proposed framework for prioritization 211

Recommendation#5: Develop and implement (i) project financial models to assist in appraisal of investment

projects and (ii) corporate level model to assist in fund identification along with necessary operating booklet for the use of financial model 216

Project model & Corporate model 216

Description - Project model 216

Description - Corporate model 223

Recommendation#6: Develop alternate modes of project funding 228

Background 228

Alternate modes of financing 228

Recommendation#7: Process improvement in the investment planning process 242

Overview 242

Existing practice 242


Key issues based on the comparison with other transmission utilities 247

Proposed recommendations for the investment planning process 248

Conclusion 252

Part-C (ii): Project management 253

Recommendation#1: Standardization of designs, specifications and layouts 254

Table of Contents


Requirement of standardization of designs 254

Key aspects of standardization 255

Current status of standardization in EVNNPT 261

Approach for standardization of designs 261

Recommendation#2: Adoption of full/part turnkey (supply cum erection) contracts 264

Drivers for Turnkey execution 264

Key aspects of turnkey contracts and separate supply and erection contracts 265

Part-turnkey 266

Pre-requisites of turnkey mode of execution 267

Framework for designing turnkey contracts 267

Key aspects in turnkey procurement 269

Recommendation#3: Develop a project risk management strategy 272

Project risk management 272

Risk response strategies 273

Organization framework 274

Risk management matrix for a transmission project 275

Recommendation#4: Developing IT tools for project monitoring, inspection and online procurement 279

Recommendation#5: Merger of FS & DTD phases 280

Drivers for the recommendation 280

Current process 280

Proposed process 281

Implementation support 282

Recommendation#6: Develop a strong and focused project management unit 287

Requirement of a Project Management Unit 287

PMU at PMB/PTC level 288

PMU at EVNNPT level 289

Part-C (iii): Transmission pricing 294

Recommendation#1: Conduct training on principles of regulatory economics and international practices 295

Summary 295

List of participants 295

Recommendation#2: Support EVNNPT in drafting a proposal to ERAV for specific modifications in the existing transmission pricing regulations 296

Context 296

Issue#1: Inadequate Return on Equity 296

Issue#2: Depreciation charging methodology 300

Issue#3: Treatment of foreign exchange rate variation 303

Issue#4: Lack of proper cost norms 306

Table of Contents


Issue#5: True-up (adjustment) mechanism 309

Issue#6: Penalty framework for failed service quality 312

Issue#7: Structure of transmission charge 316

Issue#8: Transmission charge sharing mechanism 318

Issue#9: Impairment of regulatory independence 320

Recommendation#3: Develop and implement integrated transmission pricing model (TPM) for compilation of

data and calculation of revenue & charge 323

Recommendation#4: Prepare a transmission pricing procedure (TPP) for collection, compilation and validation of information needed for transmission pricing 324

Context 324

Provision#1: Streamlining the process of data preparation, collection, compilation and validation 324

Provision#2: Designing standard formats for furnishing all the relevant data in MS Excel formats 328

Provision#3: Defining data reconciliation and dispute resolution procedure 330

Part-C (iv): Public relations 331

Recommendation#1: Plan, set-up and operationalise a dedicated PR department within EVNNPT and its subsidiaries 332

Context 332

Benefits of an independent PR department 333

Approach 334

Other prominent functions of an independent PR department 339

Model structure in Vietnam 340

Model structure in India 341

European Union Prescription 344

Indicative timelines 344

Recommendation#2: Develop a Crisis Communications Manual 345

Introduction 345

Strategy 345

Indicative timeline 349

Recommendation#3: Develop uniform key messages for EVNNPT through a workshop 350

Summary 350


Introduction 351

Structure 351

Outcome and feedback 354

Slogans shared by EVNNPT 354

Recommendation#4: Leverage the social media for EVNNPT’s PR work 360

Context 360

Recommendations 360

Table of Contents


Strategy 361 Content Opportunities 362

Tactics 363


Recommendation#5: Plan, set-up and operationalise a dedicated CSR department within EVNNPT 365

Context 365

Benefits of a robust CSR programme 365

How EVNNPT can profit from organised CSR work at project sites 366

Approach 367

CSR Activities 369

Measurement of CSR Programme 369


Recommendation#6: Impart training to EVNNPT spokespersons on media handling skills 370

Summary 370


Tips for dealing with the media 371

Ten Commandments of media interaction 372

Body Language Do’s 373

Body Language Don’ts 374

Outcome and feedback 374

Recommendation#7: Conduct a workshop on the fundamentals of effective public relations 376

Summary 376


Exercise#1: EVNNPT's real press release (Task: To edit and comment) 378

Exercise#2: To prepare a communication plan for an EVNNPT project 379

Appendix 1 - Overview of Vietnam power sector 380

Industry structure 380

Demand-Supply scenario 382

Transmission & Distribution network 383

Retail tariffs 384

Power sector reforms & development of market structure 385

Overview of EVNNPT's performance and plan 385

Appendix 2 - Organisation structure of EVNNPT and its subsidiaries 387

Organisation structure - EVNNPT Head Office 387

Organisation structure - NPMB 389

Organisation structure - PTC1 390

Organisation structure - other PMBs and PTCs 392

Table of Contents


Appendix 3 - Work plans of TA Experts 393




Public relations 396

Appendix 4 - Questionnaires for perceptions audit 397

To EVN officials and public officials 397

To media 397

To affected people 397

Appendix 5 - Summary of laws / decisions / decrees / circulars 398

Relevant to investment planning 398

Relevant to project management 410

Relevant to transmission pricing 419

Relevant to public relations 428

Appendix 6 - Detailed process charts for investment planning 435

Process Chart 1: First stage approval 435

Process Chart 2: Approval of FS 436

Process Chart 3: Approval of DTD 438

Process Chart 4: Process for procuring loans from DCB 439

Process Chart 5: Process for procuring loans from OICB 440

Process Chart 6: Process for procuring loans from ODA 441

Appendix 7 - MoU signed between ADB and EVNNPT 445

Appendix 8 - Project level and corporate level financial model for EVNNPT (IP Reco#5) 454

Appendix 9 - Training on principles of regulatory economics and international practices (TP Reco#1) 455

Appendix 10 - Integrated transmission pricing model (TPM) (TP Reco#3) 456

Appendix 11 - Training to EVNNPT spokespersons on media handling skills (PR Reco#6) 457

Appendix 12 - Workshop on the fundamentals of effective public relations (PR Reco#7) 458

Appendix 13 - EVNNPT feedback on three workshops / trainings on public relations 459

Part-A: Updated Mid-term Report



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Part-A: Updated Mid-term Report

Investment planning



PwC 20

Investment planning

Strategy

We have reviewed the relevant laws/decisions/decrees/regulations/ circulars for the Investment Planning

function (Brief provided in Appendix 5 -). The table below summarizes our observations on the relevant laws/

decisions/ degrees/ regulations/ circulars:

Particulars PwC analysis and observations

Decision No. 1368/QD-EVNNPT, 2013

The majority of the powers from selection of consultants, approval to feasibility report, detailed technical design and subsequent modifications; for investment value even below 1000 billion VND lies with the President & CEO of EVNNPT. The investments with ticket sizes above 1000 billion VND requires approval from Management Board of EVNNPT for key processes such as approval of selection of consultants, approval of feasibility report/ detailed technical design and approval of unexpected works.

There is practically no financial/ administrative powers provided to PTC/ PMB/ vice presidents of various departments in EVNNPT.

There needs to be some decentralization of authority to the departments of EVNNPT/PTCs/ PMBs especially for projects of small value and critical nature. The PTCs and PMBs are responsible for identification of investment needs and execution of capital projects. In absence of such delegation of powers, projects of smaller ticket size and critical nature may be delayed. Such a centralized delegation of powers also lead to higher transaction costs in case of smaller projects which may not be beneficial for the company.

Empowering PMB and PTC will also allow the departments under EVNNPT and the President & CEO (NPT) to focus on investments of higher value and strategic nature.

We have compared the delegation of the power in EVNNPT with the delegation of powers for one of the world’s largest transmission companies, i.e. Power Grid Corporation of India Limited (POWERGRID) in India. We observed that the delegation of powers is decentralised in POWERGRID for small projects for quicker implementation. Hence, there could be some level of decentralization of all approvals which can be handled by the PTCs/ PMBs.

Decision No. 445 issued in 1994

The Decision No. 445 issued in 1994 provides for the assumptions and methodology for preparation of financial model to carry out the economic analysis of the proposed investment projects.

The assumption and methodology provided in the circular are outdated and of little relevance considering the current industry structure of Vietnam power sector and market dynamics. The norms for the determination of transmission charges, depreciation, O&M expenses, transmission charges, etc. are not in line with the norms prescribed by ERAV and the figures provided in the audited financial statements.

The prescribed outputs of the financial model are not adequate to provide the proper evaluation of the investment proposals. The circular should be updated in accordance with the latest norms prescribed by ERAV and with the latest industry structure of the Vietnam power sector.

No regulation/ guideline for identification of funding source for a proposed project

There is no prescribed guideline/ regulation for identification of funding sources for a proposed project. In the existing framework, it is the responsibility of CPD in EVNNPT. The CPD identifies the funding sources for a proposed project in consultation of F&A department. We believe that there is no robust framework under which the funding sources are

Investment planning



PwC 21


identified/ allocated by the CPD.

While selecting the funding source, the CPD is not preparing any detailed financial model to analyse that which source is beneficial and is aligned to the overall future cash flows of EVNNPT in future.

There should be a regulation/ guideline to mandate a detailed corporate financial model to assess the impact of selection of funding sources for each project on the overall cash flow of the EVNNPT. It is important to have such a guideline/ framework considering the following facts:

o There is a significant mismatch in the depreciable life of assets (8-12 years) allowed by ERAV for the recovery of transmission charges and the repayment tenure of loan (25-30 years)

o No equity infusion by the equity shareholders to finance the self-funding requirement

o No return on equity allowed by ERAV to finance the investment projects, and

o There is no certainty in the existing regime that the upward revaluation of assets will be considered by ERAV for the determination of transmission charges.

In the above-mentioned scenario, the entire loan portfolio should be balanced with short term, medium term and long term repayment options. It should be worked out with the help of a detailed financial model/ tool considering various scenarios.

No regulation/ guideline for the utilisation of funds generated through the depreciation allowed by ERAV - diversion of funds for capital projects

At present, there is no governing regulation/ guideline for the utilisation of funds generated through the depreciation allowed by ERAV as a part of the transmission charges

In the absence of the regulation/ guideline, the fund generated through the deprecation allowed by ERAV is being used to fund the capital investment requirements

In the absence of the equity infusion by the shareholders and inadequate allowance of return on equity, the EVNNPT is investing the depreciation fund to meet the self-funding ratio. This fund should ideally be utilised to repay the loan amount

No regulation/ framework for risk management in respect of foreign exchange variation- huge cost associated with foreign currency funding for capital projects

A significant portion of the total capital investment requirement is being met the foreign currency funds, i.e., ODA loans or loan from other International Commercial Banks. On the other hand, there is no framework available with EVNNPT under which it can hedge its foreign currency risk for repayment of loan and payment of interest charges.

The total loss from allocated exchange rate differences (as on Dec’12) is around 2013 billion VND (96 million USD). It is a significant amount. There should be regulation/ framework which should provide for mandatory hedging against the foreign currency debt service obligations.

Structure

The existing investment planning process has significant oversight from EVNNPT Management Board, EVN

and MoIT. The investment planning process is a pan organization process within the EVNNPT and requires

inputs from a number of departments and the subsidiary companies - PTCs and PMBs.

There are four departments within EVNNPT that have a critical role in the entire investment planning process,

which includes:

Corporate Planning Department (CPD);

Investment Management Department (IMD);

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PwC 22

Finance & Accounting Department (F&AD); and

International Cooperation Department (ICD).

In addition to the above mentioned departments of EVNNPT, other departments such as technical department,

procurement department, safety department and subsidiaries such as PMB and PTCs which are wholly owned

subsidiaries of EVNNPT, also have a critical role in the investment planning process.

The broad roles and responsibilities along with the organization structure of the four departments, PTC and

PMB from an investment planning perspective are summarized below.

Entity Department Officers involved Specific role in Investment Planning

NPT CPD Director (reporting to President & CEO, EVNNPT)

Deputy Directors

Experts

The CPD is responsible for overall transmission network planning based on inputs from the PTCs/ PMBs. It is responsible to provide inputs to the Master Plan and Five Year Transmission Plan. It also prepares the Annual Implementation Plan. It also identifies the sources of funds for various investment projects.

NPT F&A Chief Accountant (reporting to VP - Economics & Finance)

Deputy Directors

Experts

The role of the F&A department is to arrange funds for the approved projects based on the decision of the CPD in respect of identification of the sources of fund. The department is primarily responsible for the following activities in respect of investment planning function:

To raise funds for projects from pre-approved sources. However, in respect of the projects identified to be financed by the ODAs (such as ADB and World Bank)), it will work in association with ICD;

Representing EVNNPT as the signatory in loan agreements (domestic banks and international commercial banks such as HSBC);

Manage disbursement of funds; and

Repayments of loans and payment of interest

It is also responsible for the accounting of the expenses of the projects.

NPT IMD Director (reporting to VP (Operations & Investment)

Deputy Directors

Experts

The primary role of the department is to review the feasibility study reports and technical designs prepared by the external consultants in respect of the proposed investment projects.

The roles and responsibilities are divided into the following two parts:

Technical review of the proposed investment projects; and

Cost estimation & financial analysis of the proposed investment projects.

NPT ICD Director (reporting to President & CEO and three VPs)

Deputy Directors

Experts

The main function of ICD is to manage and oversee activities in respect of arranging funds from ODA- multilateral or bilateral funding sources. The department works in coordination of the F&A department to discharge its functions pertaining to procurement of ODA loans.

Investment planning



PwC 23

Entity Department Officers involved Specific role in Investment Planning It is also responsible for international cooperation and managing and developing the foreign relations of EVNNPT.

NPT Technical Department

Director (reporting to VP Operations & Investment)

Director (Technical)

Deputy Director

Experts

The Technical Department is responsible for conducting technical studies (load flow, short circuit, stability etc.) and reviewing investment proposal from O&M point of view.

PMB Planning Department

Experts directly reporting to Director (PMB)

The role of planning department of PMB in investment planning process includes:

Providing inputs to CPD for the preparation of Master Plan and Five year Transmission Plan

Developing annual implementation plan; and

Providing support to ICD in form of preparation of necessary documentation for procuring funds from ODAs.

PMB F&A Experts directly reporting to Director (PMB)

The broad roles and responsibilities of F&A department of PMB is as under:

To carry out the disbursement function in coordination with the F&A department of the EVNNPT

Making payments to vendors and contractors (within stipulated limits); and

Accounting of the project related expenses.

PMB Evaluation Department

Experts directly reporting to Director (PMB)

The Evaluation Department of PMB is responsible for the following:

Preparation of the Feasibility Study (FS) for the proposed investment projects in compliance with all related regulations / guidelines from a technical and financial perspective so as to ensure that the project gets approval of the management. However, the FS is actually prepared by the external consultant hired by PMB; and

Submitting projects to EVNNPT for approval and onwards submission to MoIT.

The table below summarizes our observations on the existing structure:

Observation PwC analysis and observations

CPD is responsible

for identifying the

funding sources for

capital projects

while F&A

department is

responsible for

raising funds from

domestic

commercial banks

or international

Identification of funding sources for capital projects is the responsibility of the

CPD in EVNNPT while the actual fund raising is coordinated by F&A department

(or ICD with help of F&A in case of ODA funds). Both the activities have a lot of

commonalities.

F&A Department is directly involved in fund raising activities and has better

market intelligence. The department also has better visibility on the overall

financial health of the company and may be in a better position to decide the

optimum funding source for the company.

In most of the transmission companies in developing/ developed countries, the

F&A department is responsible for identification of sources of funds since this

department in most cases is better equipped for the job.

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PwC 24


commercial banks.

Segregation of the

functions of F&A

department on the

basis of finance and

accounting activities

At present, the functions of F&A department are segregated on the basis of works

relating to projects (based on the source of funds) and operations.

In the existing structure, the Deputy Director#1 is responsible for the finance and

accounting activities for investment and construction of the projects funded by

the domestic source of funds and the Deputy Director#2 is responsible for the

finance and accounting activities for the operations irrespective of the source of

funds and for the investment and construction of the projects funded by ODAs.

The finance and accounting functions while in many countries/ companies are

regarded as similar functions but in reality they varied.

The roles & responsibility of F&A department should be on the basis of the three

broad functions of the department - finance, accounts and budget. The finance

function should primarily include economists and management graduates, the

accounting functions should have qualified accountants and the budgeting

function should ideally include mix of chartered accountants and cost

accountants.

F&A reports to the

VP (Finance and

Economics) which

also manages the

material handling

department

The finance and accounts is regarded as the critical non-core function in a

transmission company (core activities are investments and operations).

Experience in similar developing countries such as India, Nigeria, etc. indicates

F&A should have a separate reporting structure which should be independent of

non-related activities such as material handling.

In EVNNPT, the responsibility of the VP (Finance & Economics) is more critical

considering the following fact:

o NPT is in the transition phase;

o There is a shortage of fund to invest in the capital projects; and

o The ERAV is not allowing adequate return on equity to fund the

equity portion of the capital requirements.

Considering the importance of the finance and accounting functions in the

EVNNPT, the VP (Finance and Economics) should not be burdened with any

additional responsibility such as material handling department. In fact material

handling department has more similarity to areas such as investments/ projects

rather than F&A.

However, we will carry out a detailed study to analyse the work load on the Vice

President (Finance and Economics) with regard to functions related to material

handling department.

De-centralisation of

the key tasks/

activities such as

development of the

feasibility study and

detailed technical

design

The IMD, CMD, technical department, etc. are not directly involved in the

preparation of feasibility study and detailed technical design of the projects.

These departments are only responsible for reviewing, monitoring and issuance

of guidelines, establishing standards and design standards, etc. However, the

primary responsibility of preparation of feasibility study and detailed technical

design is with the respective PMBs and PTCs.

In other words, there is no centralised dedicated team to prepare the feasibility

study and detailed technical design of the capital projects. There are separate

teams located at each PMBs/PTCs. The centralised dedicated team would have

assisted the EVNNPT to reduce the efforts and duplicity of the man power.

We compared it with the process followed by POWERGRID in India. We

observed that the preparation of feasibility report / detailed project report

including cost estimates and project investment proposal for each and every

Investment planning



PwC 25


investment project are centralised at the corporate levels. The feasibility report

and detailed project report for the proposed transmission scheme consists of all

descriptions, technical details and cost estimation are prepared by the Cost

Engineering Department of POWERGRID at head quarter. The detailed

investment proposal is prepared by Corporate Planning Department of

POWERGRID, head quartered at the corporate office.

Processes

The investment planning process can be defined as the process of identification of capital projects, designing

the project structure, securing investment approval and tie up of resources (importantly financial resources).

The investment planning process is a crucial activity in a capital intensive industry such as power transmission.

The financial and human resource available would be limited and hence a transparent investment planning

process ensures selection of viable, critical and priority projects.

The investment planning process in EVNNPT can be divided into three stages:

Planning stage;

Approval stage; and

Funds identification and tie-up stage.

The exhibit below shows the macro level view of the investment planning process:

Planning stage

The planning process is the stage in which the projects are identified and a first level of approval is secured to

reflect that the projects are planned.

•Planned Investment (A) - Investment part of the Master Plan and Transmission Plan

•Unplanned Investment (B) - Investments based on critical need and not part of the macro plan

Planning

•All Investment (C) - All investments identified have to be approved for implementation

Approval

•Domestic Funding (D) - Funding from Domestic Banks

•International COmmercial Banks (E) - Funcing from OICB (US$)

•International Commercial Banks (F) - Funding from ODA (US$)

Identification& tie-up of funds

Investment planning



PwC 26

We observed that the entire framework of long term investment planning in EVNNPT is based on four levels of

plans. Our understanding of the planning process in given below:

The process for planning of an individual project will depend on the fact that whether the project is included in

the Annual Implementation Plan or not. The processes under each case are briefed below:

Projects included in the Annual Implementation Plan: Typically, the projects included in the

Annual Implementation Plan are related to long term planned investments to evacuate power from

upcoming power generation capacities, system strengthening to cater to growing demand and network

improvements to enhance quality and reliability of the supply. The entire planning process is described

below:

Master Plan

•It is a 10 years plan for the entire power sector. It is prepared by Institute of Energy (IE) and Directorate Generate of Energy (DGE) - both entities subordinated to MoIT. The Master Plan prepared by IE & DGE is reviewed by MoIT. The MoIT submits the draft Master Plan to Prime Master for approval. It is finally approved by Prime Minister.

• . The IE and DGE hold workshops to take inputs and discuss the master plan with various stakeholders including EVNNPT

Five year transmission plan

•It is an operation and business development plan for EVNNPT and forms part of the five year plan of EVN. It covers a period of 5 years

•The five year plan is based on 10 years master plan. This five year plan is for the entire EVN. It also covers the five year plan for the transmission sector prepared by EVNNPT and generation plan prepared by the generation corporations. The distribution sector is also covered at high level (total investment value but no list of projects). It is approved by MoIT

Five year rolling investment plan

•The five year plan will not change for the next 5 years but a five year rolling transmission investment plan is prepared by EVNNPT every year.

•The five year rolling transmission investment plan is a grid investment plan with a view to the next four years - the current year with four year perspective. This is to support the MoIT for monitoring of grid.

•It is approved by MoIT

Annual implementation

plan

•Apart from the five year rolling transmission investment plan, the EVNNPT also prepares an annual implementation plan.

•The five year rolling transmission investment plan is based on 10 years master plan, whereas the Annual Implementation Plan based on the capacity of the subsidiaries and departments.

•The annual implementation plan does not go to MoIT for approval. It is approved by the EVN.

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PwC 27

Projects not included in Annual Implementation Plan: On the other hand, critical projects

related to system strengthening and augmentation to the existing network to address network

overloading/ congestion issues/ voltage problems/ system inadequacy are projects not included in the

Annual Implementation Plan. These projects are identified on need basis by PTCs who are responsible

for operations of transmission infrastructure. The detailed planning process for the projects not

included in the Annual Implementation Plan is shown in Appendix 6 -. The summary of the process is

given below:

NPT

DGE[Preparation of 10 years Master Plan]

CPD [Preparation of five year transmission plan

]

EVN[Approval of five year transmission plan]

MOIT[Approval of five year transmission plan]

(1) President & CEO (NPT) (2) Management Board (NPT)

[Approval of five year transmission plan]

EVN[Preparation of rolling five year transmission

plan]

(1) President & CEO (NPT) (2) Management Board (NPT)

[Approval of rolling five year transmission plan]

MOIT[Approval of rolling five year transmission plan]

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PwC 28

The above mentioned process is known as “first stage approval” in the EVNNPT. At present, the first stage

approval of the proposed investment is required for each project irrespective of the size and nature of the

project. It is pertinent to mention that the first stage approval is also accorded for the projects which are

included in the Annual Implementation Plan.

Approval and funds identification & tie-up stage

The stages in the process of approval and funds identification & tie for the investment proposals are

summarised in the table given below:

Stages Approval process

First stage

approval

The first stage approval of the proposed investment is required for each project

irrespective of the size and nature of the project. It is pertinent to mention that the

first stage approval is also required for the projects which are included in the

Annual Implementation Plan.

It requires the approval of MoIT.

Approval of

feasibility study

(FS)

The FS is prepared by the PMBs/ PTCs (as the case may be) and submitted to the

IMD in EVNNPT for review. The IMD will review the FS with inputs from a variety

of departments in EVNNPT such as CPD, Technical department, safety

department, IT department and F&A department. The FS comprises of the

technical studies, impact assessment studies and financial and economic analysis.

NPT

PTC [Identification of proposed investment and preparation of Investment Proposal and

submission to IMD (NPT)

IMD[Validation and review of Investment

Proposal by IMD based on inputs from Technical Department]

President & CEO (NPT) [Approval of Investment Proposal]

Management Board (NPT)[Approval of Investment Proposal]

VP (Operations & Investments)[Approval of Investment Proposal]

MOIT[Approval of Investment Proposal]

3 levels of approval

within NPT

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PwC 29

Stages Approval process

After the review, the FS is submitted to President & CEO and Management

Board for review and approval

In case the project cost is more than 1,500 billion VND or the project is to be

funded by the ODAs, the approval of MoIT will be required

Approval of

detailed

technical design

Once the FS is approved by MoIT/ Management Board (NPT)/ President & CEO

(NPT), as the case may be, the detailed technical design (DTD) is prepared by an

external consultant (typically could be same consultant involved in preparation of

feasibility study).

The DTD is prepared with the inputs from all the relevant departments of PMB

and is submitted to IMD for the seeking approval from competent authority.

The DTD is submitted to the President & CEO and Management Board for review

and further submission to MoIT for the approval.

The MoIT review the DTD through an independent external consultant appointed

by it.

Fund

identification

and tie up of

funds

In case of funding from Other International Commercial Banks (OICB) and Official

Development Assistance (ODA), the funding proposal will go to MoIT, Ministry of

Finance, and Ministry of Justice for approval.

First stage approval

It has been already discussed in the previous section.

Approval of Feasibility Study (FS)

Generally, PTCs / PMBs hire an external consultant to prepare the Feasibility Study (FS) report. The feasibility

study typically includes the following components:

Technical studies:

o Line route survey,

o Load flow studies (system calculations),

o Basic design (PMB/PTC use standard designs and specifications prepared and approved by

EVNNPT),

o Fire prevention aspects,

o Telecommunication aspects, and

o Technical issues

Impact assessment studies:

o Environment Impact Assessment, and

o Social Impact Assessment and Resettlement (generally, consultant, with the help of PMB, goes

to commune to investigate social issues such as potential impact on land owners. This study is

done to minimise land needs and adverse impact on local people.

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PwC 30

Financial and economic:

o Financial analysis such as NPV, IRR, Benefit-to-Cost ratio

o Total investment cost

The detailed process for the approval of FS is provided as Appendix 6 -. The summary of the process is shown

below:

Approval of Detailed Technical Design (DTD)

Once the Feasibility Study (FS) report is approved by MoIT/ Management Board (NPT)/ President & CEO

(NPT), as the case may be, the Detailed Technical Design (DTD) is prepared by an external consultant, typically

could be same consultant involved in preparation of feasibility study. The DTD is prepared with the inputs from

all relevant departments of PMB and is submitted to IMD under the EVNNPT, for the approval from competent

authority. The DTD is also reviewed by the independent external consultant appointed by the MoIT in the

process of approval.

The detailed process for the approval of the DTD is provided in Appendix 6 -. The summary of the process is

provided below:

NPT

PTC /PPMB[Preparation of Feasibility Study (FS)

report]

IMD[Detailed review by IMD – technical

review, cost estimates, financial analysis with support from other departments]

Management Board[FS Approval]

President & CEO (NPT)[FS Approval]

MOIT[FS Approval]

If project cost > 800 billion VND and < 1500 billion VND and funding via domestic banks/ oversees commercial banks.

If project cost < 800 billion VND and project is funded using debt from domestic banks

If project cost > 1500 billion VND or the project is funded via Oversees Development Banks

Investment planning



PwC 31

Funds identification and tie-up stage

Currently there are three broad sources of funding the projects in EVNNPT: funding from ODAs, funding from

domestic commercial banks (DCB) and funding from other international commercial banks (OICB) such as

HSBC and Standard Chartered (commercial banks with head offices outside Vietnam and raise funds/ lend in

dollar currency).

In each case the process is varied and follows a different approval process. In case of funds raised from DCB and

OICB, the F&A department (NPT) is the nodal agency responsible for the entire process. However in case ODA

loans which are sovereign loans taken by EVNNPT, the Ministry of Finance (MoF) and Ministry of Planning and

Investment (MPI) are responsible for coordinating all activities at the Ministerial level related to ODA fund

raising. The activities at the company level are coordinated by ICD.

Domestic commercial banks (DCB)

The overall process is coordinated by the F&A Department (NPT). It acts as the representative of EVNNPT with

the domestic commercial banks. The identification of sources of funds for individual projects is however led by

CPD in consultation with the F&A Department (NPT). The detailed process for procuring loans from DCB is

provided in Appendix 6 -. The summary of the process is provided below:

NPT

PTC /PPMB[Preparation of Detailed Technical

Design (DTD)]

IMD[Detailed review of DTD by IMD with

support from other departments]

Management Board[DTD Approval]

President & CEO (NPT)[DTD Approval]

MOIT[Reviews DTD through an independent

consultant and provides approval]

IMD[Issues the Implementation Decision to

PTC/ PPMB]

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PwC 32

Other International Commercial Banks (OICB)

The overall process for procurement of fund from OICB is coordinated by the F&A Department (NPT) who

would act as the representative of EVNNPT before the OICB. The identification of sources of funds for

individual project is however led by CPD in consultation with the F&A Department (NPT).

The difference, compared to the process followed in case of domestic commercial banks, is that in case of OICB,

the Ministries of the Government of Vietnam are also involved in the entire process since the loans requires

Government guarantee. The detailed process for procuring loans from OICB is provided in Appendix 6 -. The

summary of the process is provided below:

NPT

CPD[Identification of sources of funds by CPD

in consultation with F&A department]

F&A[Invites offers from various domestic

commercial banks and negotiates]

Management Board[Loan approval]

President & CEO (NPT)[Loan approval]

PTC/ PPMB[Withdrawal of funds by Implementing

agency]

If project cost > 500 billion VND

If loan < 500 billion VND

F&A[Invites offers from various domestic

commercial banks and negotiates]

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PwC 33

Official Development Assistance (ODA)

The Prime Minister has the authority to approve the list of the projects to be funded with the ODA funds. The

primary responsibility of mobilization of ODA funds across sectors is with Ministry of Planning and Investment

in coordination with other Ministries such as Ministry of Finance.

All ODA loans are provided to the Government of Vietnam which is further extended on a mark-up on the

interest rate of EVNNPT. The detailed process for procuring loans from ODA is provided in Appendix 6 -. The

summary of the process is provided below:

NPTCPD

[Identification of sources of funds by CPD in consultation with F&A department]

F&A[Invites offers from various OICBs and

negotiates]

EVN[Loan approval]

Management Board[Submit the loan proposal to EVN for

approval]

OICB[Prepares the draft loan agreement and

submit to MOIT for approval]

F&A[Execution of loan agreement with OICB]

MOIT, MOF and MOJ[Negotiate the loan offer with OICB]

MOF[Issue of Government Guarantee]

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PwC 34

Select global practices

We have studied the planning and investment approval processes in the following two transmission companies

- One of the world’s largest transmission company -POWERGRID in India, and ElectraNet, one of the

Transmission Network Service Providers (TNSPs) in Australia]. Total 8 TNSPs are there in Australia.

At this stage we have analysed the entire investment planning process in two stages:

Planning phase; and

Detailed Design and Implementation Approval Phase.

POWERGRID (India) - Planning phase

There are three stages during the planning process:

NPT

ICD[It discusses with the ODAs to finalise

terms & conditions for project selection]

CPD[It identifies the projects based on the

finalised terms & conditions and submits to President & CEO and Management Board]

ICD[It prepare the Project Outline (PO) and

submits to President & CEO and Management Board]

MOIT[Forwards the PO to MOF, MOFA, MOJ &

SBV for approval]

The Prime Minister[After approval of MOF, MOFA, MOJ, SBV & MPI, it is submitted to Prime Minister]

EVN[Reviews and submits the PO to MOIT]

ICD[It prepares the project documents]

The President[After approval of the Prime Minster, it is

approved by the President of Vietnam]

MOIT & Other Ministries[It is submitted for approval to MOIT, MPI,

MOF, MOJ]

The Prime Minister[Negotiation Team formed by the PM comprises of MOIT, MOF & SBV to

negotiate jointly with ODA]

EVN[NPT submits to EVN for approval]

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PwC 35

Any non-planned activities which are necessary for transmission capacity addition or system strengthening are

included in the network plan on a rolling basis (with quarterly revisions, if needed) as per the latest data

available for the major inputs to the plan.

The MoP is involved only at one point as mentioned above. The decision of the EC is finally approved by the

MoP. It is pertinent to mention that the approval of MoIT (counterpart to MOP in India) is required for four

times in the entire planning and approval process.

POWERGRID (India) - Detailed design and implementation approval phase

There are four stages in this phase:

Advance preliminary expense: After the project is being allocated to POWERGRID by the EC, the

first step is approval of advance expenses to be spent at the project site. It is estimated by the corporate

planning department of POWERGRID. These expenses are approved as per the delegation of powers

and are primarily to be used in various preparatory activities (viz. surveys, soil investigation, wind

National Electricity Plan

•It is prepared by the Central Electricity Authority establised by the Ministry of Power (MoP) •The National Electricity Plan is prepared for a short-term framework of five years while

giving a 15 year perspective •The National Electricity Plan is prepared by CEA in two volumes namely, Generation

(Volume I) and Transmission (Volume II). •It is prepared on the basis of the year-wise forecasts of electricity demand for each state,

union territory, region and all India in detail for a period of 15 years

Network Plan

•It is prepared by the POWERGRID and is divided into two parts- technical plan and commercial plan

•The technical plan is approved by the Regional Standing Committees for Power System Planning (SCPSP), consisting of CEA, POWERGRID, State Transmission Utilities (STUs) of the constituent States, Regional Power Committee (RPC) of the concerned region and representatives of generating companies in the region.

•The commercial plan (broad level cost estimates) is approved by the RPCs consisting of generating companies, POWERGRID, STUs, distribution utilities, and State Load Dispatch Centres (SLDCs) of the particular region

Review by EC for selection of project to

implement via competitive bidding

route

•An Empowered Committee (EC) has been constituted by the MoP, with representatives from the MoP, CERC, planning commission, POWERGRID, CEA and two (2) experts from the field of power sector nominated by MoP.

•The EC, based on the network plan, identifies key projects to be implemented under competitive bidding route (through private player participation). The remaining projects are awarded to POWERGRID on nomination basis.

•The decisions of the EC are then approved by the Ministry of Power (MoP)

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PwC 36

analysis, rainfall data, local statutory and environmental clearances etc.) for the preparation of detailed

project report (DPR).

Preparation of feasibility report (FR)/ detailed project report (DPR) including cost

estimates: The DPR for the proposed transmission scheme consisting of all descriptions, technical

details and cost estimation is prepared by the cost engineering department of POWERGRID. The DPR

is prepared in coordination with other departments of POWERGRID like corporate planning, finance,

contracts & procurement, and engineering etc. in a time-period of around 8-10 weeks. In case the

estimated project cost is more than 10 billion INR (167 million USD / 3540 billion VND), POWERGRID

is required to take the technical approval for such project from CEA. The DPR is approved by either

Chairman (projects of value less than 50 million INR / 0.83 million USD) or by Board of Directors

(projects of value more than 50 million INR / 0.83 million USD / 17.6 billion VND) or by Board of

Directors (projects of value more than 50 million INR / 0.83 million USD / 17.6 billion VND). However,

the approval from CEA is required in case the project cost is more than 10 billion INR / 167 million

USD / 3540 billion VND).

Preparation of project investment proposal: Based on the detailed cost estimates in the DPR,

the corporate planning department of POWERGRID prepares the detailed investment proposal. In case

the estimated project cost is more than 10 billion INR (167 million USD / 3540 billion VND), third-

party agency is appointed by the POWERGRID for the financial appraisal of the project. The

preparation of investment proposal takes around 1 month. The investment proposal is sent to the Board

of Directors for approval.

Project financing: The capital structure for any project (debt equity ratio) is a part of the DPR.

However, the sources of financing for any particular transmission scheme/project are not defined on a

project-specific basis in POWERGRID. Based on the planned transmission schemes, ongoing works

and milestones achieved, a financing proposal on company-wide basis is prepared by the corporate

planning department.

ElectraNet (Australia) - Planning phase

The planning in ElectraNet in Australia is summarised below:

Annual implementation plan- The annual plan is the finalised list of annual investments approved by AEMO based on the five year plan submitted by TNSP

Five year plan -Each TNSP prepares a five year plan based on load forecast/generation plans/ inputs from TNDP and public consultations.

Transmission Network Development Plan (TNDP) -Australian Energy Market Operator (AEMO) prepares the 20 years TNDP to serve as guiding document for Transmission

Network Service Providers (TNSP)

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PwC 37

ElectraNet (Australia) - Detailed design and implementation approval phase

Based on the comparison with POWERGRID (India) and ElectraNet (Australia), the table below summarizes

our observations on the investment planning process of EVNNPT:


No approval for

annual

implementation

plan by MoIT

The annual implementation plan is prepared by the CPD in EVNNPT keeping

in view the availability of resources and capabilities of the subsidiaries and

departments of EVNNPT.

It is submitted to the President & CEO and management board of EVNNPT for

approval. The management board issues as resolution in this regard. After the

approval of management board, the annual implementation plan is submitted

to EVN for approval

The annual implementation plan does not go to MoIT for approval. As the

annual implementation plan is not approved by the MoIT, all the projects-

planned (forming part of the annual implementation plan) or non-planned

investment (not forming part of the annual implementation plan) are

submitted to the MoIT for the first stage approval

We analysed the planning process of the Indian transmission sector and

observed that once the project is allocated to POWERGRID by EC, there is no

requirement for going back to the MoP for the approval of each and every

individual projects. However, the approval of CEA (under the Ministry of

Power) is required in case the project cost is more than 167 million USD /

3540 billion VND.

Centralised

approval with MoIT

for first stage

approval

The first stage approval is simply an approval of the investment proposal

before the preparation of FS. Under the current process of approvals, there is

no distinction between critical projects and non-critical projects and projects

with smaller/ larger ticket size.

There could be some level of decentralization of the approvals for an

investment proposal which can be delegated to the EVNNPT. Such projects

could be critical in nature and of smaller ticket size.

In the entire

investment Each project will go to MoIT for approval for at least three times (four times in

Identification and tie up of funds- The commercial services department is responsible for identification and raising of funds for the proposed investment

Project assessment conclusion report- Finally collating all the discussions and consultations, the asset management department prepares project assessment conclusion report. It is submitted for

regulatory approval

Project assessment draft report- The asset management department summarizes comments, conducts economic viability analysis and submits it again for public consultation.

Project specific consultation report- The asset management department prepares the project specification consultation report and send it for public comments

Investment planning



PwC 38


planning process,

the approval of

MoIT is required

for at least three/

four (in case of

ODA/ OICB funded

projects) times.

case of ODA/ OICB funded projects) during the entire planning process.

The multiple rounds of approval while ensures greater oversight but may lead

to significant delays in implementing critical projects.

On the other hand, if compared with Indian transmission planning process, we

observed that there is no role of the MoP in the approval of individual projects.

Once the project is allocated to POWERGRID, there is no direct role of the

MoP in the planning process. All the approvals in respect of the feasibility

study, detailed project report, financing tie up are to be provided internally by

the authorities in the POWERGRID. However, the approval of CEA is required

in case the project cost is more than 167 million USD / 3540 billion VND.

DTD is reviewed by

the external

consultant on

behalf of MoIT in

all cases

irrespective of the

size and

importance of

project.

MoIT appoints an independent consultant to review the DTD which is

submitted to MoIT by EVN.

The entire process from hiring an external consultant, review and submission

of report is time consuming and is associated with costs and efforts. This level

of detailed review process may be required in case of technically complex

investment programme or projects of higher ticket size.

In case of smaller projects which are standard system strengthening /

replacement projects, hiring an external consultant may not be the efficient /

cost effective measure.

At the planning

stage, no

prioritization of

projects is done

based on financial

parameters

There is no tool/ system/ process/ regulation in place based on which the

decision in respect of prioritization of projects can be made. All projects which

are technically feasible are considered to be eligible for the implementation.

Considering the limited funds/ budgets in EVNNPT, the prioritization is

essential to determine which projects have to be immediately implemented

and which projects can be delayed.

The financial evaluation framework for selection of project should be more

robust. A more effective framework for cost benefit analysis should be

introduced.

Based on the various discussions held with various stakeholders, we observed

that the commercials of the projects are not discussed at the planning stage.

The cost estimation is determined at the time of approval of FS. On the other

hand, in the Indian transmission planning, the commercials (broad level

project cost) are also determined and approved at the time of the approval of

network plan.

In Australia, there is a well-established framework - RIT Test which ensures

selection of efficient projects.

In case of fund

raising from OICB,

MOF, MoIT and

MOJ are involved

for each and every

project

In case of borrowing from OICB, the involvement of so many ministries such

as MoF, MoIT and MoJ for each and every project may lead to delays in the

execution of the critical projects.

We also observed that no funding proposal has been rejected by MoF, MoIT

and MoJ in the recent past. Therefore, the process for involving the MoF,

MoIT and MoJ can be restricted to only high value projects. For the low value

projects a procedure similar to raising funds from domestic banks may be

adopted. However, broad level guidelines for OICB loan may be notified by the

MoF, MoIT and MoJ in respect of hedging against the foreign currency

variation.

Lack of self-

funding for the

The depreciation period is lower than the loan repayment period as elaborated

in the earlier point. This allows some surplus revenue for EVNNPT initially

Investment planning



PwC 39


proposed

investments and

innovative options

for meeting the

self-funding

requirements

due to the difference in accelerated depreciation and loan repayment.

EVNNPT currently is forced to utilize this surplus to fund its equity

contribution in capital expenditure due the following reasons:

- No equity infusion by the equity shareholders

- No adequate return on equity is allowed in the tariff order to

generate retained earning which can be used for self-financing

- No possibilities to raise fresh equity from capital markets to fund

its investment

Such a practice may be dangerous in long run. It’s against the basic finance

principles. It may lead to debt trap situation in future.

There is no innovative self-financing options being explored such as sweat

equity, PPP on Design, Build, Finance, Operate and Transfer (DBFOT),

Build Own Operate Transfer (BOOT), etc.

People

Some of our observations pertaining to people issues during the discussions with various departments are

summarised below.

Shortage of staff across various departments in EVNNPT: In various discussions, we observed that

there is a shortage in staff across multiple departments. However, the shortage in manpower can only

be estimated if we can get the inputs on department wise strength and expected number to perform the

job optimally.

No clerical staff: We observed that the departments in EVNNPT are not supported by the clerical staff.

Our experience in similar organizations (where information technology penetration is limited) indicates

that especially in case of F&A department where data and transactions are huge, clerical staff can be

leveraged. However the experience and qualification of such clerical staff needs to be carefully outlined

so that they are tech-savvy.

Technology

The EVNNPT currently does not use any integrated technological systems such as Enterprise Resource

Planning (ERP). The EVNNPT have an in house IT team to support the requirements of the organization as and

when required. The various departments and subsidiaries under EVNNPT use standalone IT packages and tools

(most of them locally developed) to meet their requirements. Some of the tools and packages being used during

the investment planning process are summarized in the table below:

Key software tools / MS Excel models / system used:

Name of software tools / MS Excel models / system

Brief description / features / functionalities

PwC analysis and observations

PSSE (Siemens) The tool is used to simulate the network and conduct load flow, short circuit and stability studies

Standalone system used by the technical

department of EVNNPT

Tool seems to be adequate for the current

requirements

MS Excel based

model

The models used to assess the financial and economic

Tool is currently used by IMD

Investment planning



PwC 40




feasibility of the proposed investments are outdated and computing only few key parameters.

The tool is not adequate and needs

significant improvement to correctly assess

the financial and economic feasibility of the

project (our detailed observations are

provided in the later part of the section.

E-office tool Tracking and managing investment process The tool provides the timelines for each activity or approval, across various levels and is capable of track the location of the document pending for approval.

Tool is currently used by IMD

The table below summarizes some of our observations pertaining to technology/ tools issues during the

discussions with various departments.

Areas PwC analysis and observations

ICD lacks a tool to

monitor the progress

of the capital

projects

ICD is dealing with all the foreign banks and ODAs for arranging funds for the

capital expenditure. It needs to submit the progress updates to the banks

related to the projects funded by them but it does not have any tool or

mechanism or database to effectively monitor the progress of the capital

projects executed by PMBs/ PTCs.

Due to this, ICD spends significant time in preparing various reports and

tracking the project status based on manual inputs from various departments.

The ICD should have a system like ERP to expedite their functioning.

No robust tool for

financial and

economic appraisal

of projects

The financial model being used by EVNNPT for the financial and economic

appraisals of projects is outdated. It is not adequate to evaluate an investment

proposal on all the economic and financial parameters. The model calculates

some key financial metrics such as NPV and IRR but is not flexible to offer a

variety of views for different stakeholders.

We have reviewed the financial model in detail and provided our comments in

the later part of the section.

No integrated

investment

management and

appraisal system

At present, there is no integrated investment management and appraisal

system in place. Such a system would enhance the efficiency, lead to a lower

lead time, greater transparency and accountability.

In absence of an integrated investment management and appraisal system,

the adherence of each and every circular/decree/decision which has an impact

on the investment planning process needs to be externally monitored. In an IT

enabled tool, such conditions can be programmed in so that no deviations are

possible.

An integrated investment management and appraisal system will reduce such

manual inputs/ efforts from the department. Such a tool is often accompanied

with MIS view which reduces effort on report writing.

No tool for assisting

CPD/ F&A in

In the existing framework, it is the responsibility of CPD in EVNNPT to

identify the funding source for the projects. The CPD identifies the funding

Investment planning



PwC 41

Areas PwC analysis and observations

identification of the

funding source for

the projects

sources for a proposed project in consultation of F&A department. While

selecting the funding source, the CPD is not preparing any detailed financial

model/ tool to analyse that which source is beneficial and is aligned to the

overall future cash flows of EVNNPT in future.

There should be a detailed corporate financial model to assess the impact of

selection of funding sources for each project on the overall cash flow of the

EVNNPT. The entire loan portfolio should be balanced with short term,

medium term and long term repayment options. It should be worked out with

the help of a detailed financial model/ tool considering various scenarios.

As mentioned above, we have reviewed the financial model, which is being used by EVNNPT to carry out the

financial and economic appraisals of the investment projects. Our observations in respect of the financial model

are given below:


Revenue

projections

In the financial model, the transmission projects are evaluated on the financial

and economical parameters. For the projection of revenue stream of a

transmission project, the financial model has considered the purchase and sale

of power, which is not relevant for a transmission project in the current industry

structure.

It should have considered the transmission charges determined by ERAV for the

projection of revenue. The reason explained by the Power Engineering

Construction Company (PECC), a consultant of EVNNPT (who prepared the

financial model) was that they are following the Decision No. 445, which is quite

old and at that point in time, the business was not segregated into generation,

transmission and distribution segment. After the Decision No. 445, no

additional circular was issued in this regard. Therefore, the method followed by

PECC is based on the Decision No. 445.

There is need to update the Decision No. 445 and revise the financial model for

evaluating the investment proposals

Assumption for

determination of

transmission

charges

In respect of determination of transmission charges, the consultant has

considered that 20-25% of the retail electricity price (REP) will be the

transmission charges. In the current situation, the transmission charges are

quite low in compare to the percentage assumed in the financial model. At

present, the ERAV provides a separate tariff for transmission business, which

should be considered as a part of revenue assumption for the financial model

In this regard, the consultant explained that as per the Decision No. 445, the

generation tariff is required to be assumed as 50% of the retail electricity price

(REP), transmission charges as 20-25% of the REP and distribution charges as

30-25% of the REP. It is completely irrelevant in the current context.

Transmission loss In the financial model, the transmission loss is considered to be 0.3%, which is

quite low in compare to the actual transmission loss, i.e., 2.59%. The output of

the financial model will not provide a true and fair view.

O&M expenses The O&M expenses projected in the financial model is based on the percentage

prescribed in the Decision No. 445, which is not line with the norms prescribed

by ERAV for the determination of the transmission charges and also with the

actual O&M expenses.

Investment planning



PwC 42


Depreciation The rate of depreciation is different from the rates used in the financial

statement and prescribed by ERAV for the determination of the transmission

charges. The output of the financial model will not provide a true and fair view.

No equity

component

In the financial model, the equity component or self-funding ratio is considered

to be zero. It will provide incorrect IRR and NPV.

Discounting rate The discounting rate used in the financial model is not the weighted average

cost of capital. The discounting rate is 8.1% based on the Decision No. 445. The

output of the financial model will not provide a true and fair view.

Summary of key observations

In the following section, we have summarised our key preliminary observations identified till date:

1. Centralised governance structure: The existing delegation of powers provides a highly centralised

governance structure. The majority of the powers for selection of consultants, approval of feasibility

study report, technical design and subsequent modifications lie with the President & CEO and the

Management Board of the EVNNPT. There are practically no financial/administrative powers provided

to PTC/ PMB/ departments in EVNNPT.

2. Outdated circulars: The Decision No. 445 issued in 1994 provides for the assumptions and

methodology for preparation of financial model to carry out the economic analysis of the proposed

investment projects. The assumption and methodology provided in the circular are outdated and of no

relevance considering the current structure of Vietnam power sector. The norms for the determination

of transmission charges, depreciation, O&M expenses, etc. are not in line with the norms prescribed by

ERAV and figures available in the audited financial statements.

3. Lack of appropriate policy framework/ regulations/ guidelines: We observed that there is a

lack of the policy framework/ regulations/ guidelines in respect of the following:

a. No regulation/ guideline for identification of funding source for a proposed project - There is

not regulation/ guideline to mandate a detailed corporate financial model to assess the impact

of selection of funding sources for each project on the overall cash flow of the EVNNPT. It is

important to have such a guideline/ framework considering the following facts:

i. There is a significant mismatch in the depreciable life of assets (8-12 years) allowed by

ERAV for the recovery of transmission charges and the repayment tenure of loan (25-

30 years)

ii. No equity infusion by the equity shareholders to finance the self- funding requirement

iii. No return on equity allowed by ERAV to finance the investment projects

iv. There is no certainty in the existing regime that the upward revaluation of assets will be

considered by ERAV for the determination of transmission charges and

v. In the above-mentioned scenario, the entire loan portfolio should be balanced with

short term, medium term and long term repayment options. It should be worked out

with the help of a detailed financial model/ tool considering various scenarios.

Investment planning



PwC 43

b. No regulation/ guideline for the utilisation of funds generated through the depreciation allowed

by ERAV - In the absence of the regulation/ guideline, the fund generated through the

deprecation allowed by ERAV is being used to fund the capital investment requirements. This

fund should ideally be utilised to repay the loan amount.

c. No regulation/ policy framework for risk management in respect of foreign exchange variation-

A significant portion of the total capital investment requirement is being met the foreign

currency funds, which is open to foreign currency variation risk. On the other hand, there is no

framework available with EVNNPT under which it can hedge its foreign currency risk for

repayment of loan and payment of interest charges.

4. Functional structure of F&A department: At present, the functions of F&A department are

segregated on the basis of works relating to projects (based on the source of funds) and operations. The

finance and accounting functions while in many countries/ companies are regarded as similar functions

but are actually very varied. The roles & responsibility of F&A department should be on the basis of the

broad functions- finance/budgeting and accounting.

5. De-centralisation of the key tasks/ activities such as development of the feasibility study

and detailed technical design: There is no centralised dedicated team to prepare the feasibility

study and detailed technical design of the capital projects. There are separate teams located at each

PMBs/ PTCs. The centralised dedicated team would have assisted the EVNNPT to reduce the efforts

and duplicity of the man power.

6. Long investment planning process due to multiple approvals: There is a requirement for

rationalisation of the process in respect of investment planning due to the following reasons:

a. No approval for annual implementation plan by MoIT - Since the annual

implementation plan is not approved by the MoIT, all the projects are submitted to the MoIT

for the first stage approval. We analysed the planning process of the Indian transmission sector

and observed that once the project is allocated to POWERGRID, there is no requirement for

going back to the MoP for the approval of each and every individual projects.

b. Centralised approval with MoIT for first stage approval - The first stage approval is

basically an approval of the investment proposal before the preparation of FS. Under the

current process of approvals, all the investment proposals require the approval the MoIT. There

could be some level of decentralization of the approvals for an investment proposal which can

be delegated to the EVNNPT.

c. In the entire investment planning process, the approval of MoIT is required for at

least three/ four (in case of ODA/ OICB funded projects) times - Each project will go

to MoIT for approval for at least three times (four times in case of ODA/ OICB funded projects)

during the entire planning process. The multiple rounds of approval while ensures greater

oversight but may lead to significant delays in implementing critical projects. On the other

hand, if compared with Indian transmission planning process, we observed that there is no role

of MoP in the approval of individual projects. Once the project is allocated to POWERGRID,

there is no direct role of the MoP in the planning process. All the approvals in respect of the

feasibility study, detailed project report, financing tie up are to be provided internally by the

authorities in the POWERGRID.

d. DTD is reviewed by the external consultant on behalf of MoIT in all cases

irrespective of the size and importance of project - The entire process from hiring an

external consultant, review and submission of report is time consuming and is associated with

Investment planning



PwC 44

costs and efforts. This level of detailed review process may be required in case of technically

complex investment programme or projects of higher ticket size. In case of smaller projects

which are standard system strengthening / replacement projects, hiring an external consultant

may not be the efficient / cost effective measure.

e. In case of fund raising from OICB, MOF, MoIT and MOJ are involved for each and

every project - In case of borrowing from OICB, the involvement of so many ministries such

as MoF, MoIT and MoJ for each and every project may lead to delays in the execution of the

critical projects.

7. No prioritization of projects: There is no tool/ system/ process/ regulation in place based on which

the decision in respect of prioritization of projects can be made. All projects which are technically

feasible are considered to be eligible for the implementation. However, with limited funds/ budget,

prioritization is essential to determine which projects have to be immediately implemented and which

projects can be delayed.

8. Lack of self-funding for the proposed investments and innovative options for meeting the

self-funding requirements: There is no innovative self-financing options being explored such as

sweat equity, PPP on Design, Build, Finance, Operate and Transfer (DBFOT), Build Own Operate

Transfer (BOOT), etc. in EVNNPT. It is currently forced to utilize this surplus to fund its equity

contribution in capital expenditure. Such a practice may be dangerous in long run. It's against the basic

finance principles. It may lead to debt trap situation in future.

9. No robust tool for financial and economic appraisal of projects: The financial model being

used by EVNNPT for the financial and economic appraisals of projects is outdated. It is not adequate to

evaluate an investment proposal on all the economic and financial parameters. The model calculates

some key financial metrics such as NPV and IRR but is not flexible to offer a variety of views for

different stakeholders.

10. No integrated investment management and appraisal system: At present, there are no

integrated investment management and appraisal system in place. Such a system would enhance the

efficiency, lead to a lower lead time, greater transparency and accountability. In absence of an

integrated investment management and appraisal system, the adherence of each and every

circular/decree/decision which has an impact on the investment planning process needs to be

externally monitored. In an IT enabled tool, such conditions can be programmed in so that no

deviations are possible.

Project management



PwC 45

Project management

Strategy

Key decrees

We have reviewed decrees relevant to project management. (Brief provided in Appendix 5 -). There is no change

in our understanding regarding the three Decrees, viz. Decree No. 12/2009/ND-CP, Decree No. 69/2008/ND-

CP and Decree No. 15/2013/ND-CP (Summary repeated for reference).

Regulation Summary

Decree No. 12/2009/ND-CP Applicable to all construction activities in infrastructure sectors

Details about various categories of infrastructure projects depending

on nature, size, source of funding etc. and mentions roles,

responsibilities and authorities of different “investment deciders” in

various stages of projects including formulation, funding, evaluation

and approval of feasibility studies, techno-economic studies,

monitoring of implementation.

Decree No. 69/2009/ND-CP Regulations on land use planning, land recovery, compensation,

support and resettlement, land prices, land allocation and lease, land

use rights and ownership of houses and other assets attached to land,

and land use duration extension

Decree No. 15/2013/ND-CP Regulations on quality management of construction works in survey,

design, construction execution and acceptance of construction works;

on safety management, handling of incidents during construction

execution, exploitation and use of construction works; and on

warranty of construction works

We have mentioned that the Decree No. 106/2005/ND-CP and Amendment Decree No. 81/2009/ND-CP have

expired on 15 April 2014. This is being replaced by Decree No. 14/2014/ND-CP. However, a brief comparison of

changes in both the decrees is provided below:

Regulation Summary

Decree No. 106/2005/ND-

CP and Amendment Decree

No. 81/2009/ND-CP

Safety corridors of transmission lines, electric field intensity limits,

safe distances and other clearances defined which are applicable for

both construction and operation phases

Different types of compensation and resettlement supports for trees,

fields, land inside safety corridors for different voltage levels defined

Replaced by Decree No. 14/2014/ND-CP

Decree No. 14/2014/ND-CP No change in majority of clearances and electric field intensity limits.

Certain clearances added to bring in more detail, e.g.: Safe distance

for electric discharge at 110 kV as 4 meters, Time period for fast

growing trees mentioned as 3 months etc.

There is more emphasis on safety aspects with articles on employee

training, frequency, contents etc. Also, responsibilities of different

ministries viz. Industry &trade, Science & technology, Construction in

Project management



PwC 46

Regulation Summary

terms of safety are detailed.

Better structured compensation clauses. One addition is that the

compensation/support for perennial crop land, production forest land

in a transmission line’s safety corridor is entitled to maximum 30% of

level of compensation for similar land acquisition

We have also reviewed the Law on bidding- Law No. 43/2013/QH13 dated 26 November 2013 has come into

effect recently (1 July’2014). It elaborates on all relevant aspects of procurement process- to provide advisory

services, non-advisory services, goods, construction and installation for investment projects of state-owned

enterprises. The law elaborated different types of bidding methods & processes, scheduled time lines for key

activities, eligibility criteria, selection process, types of contracts, responsibilities of various stakeholders etc.

The scheduled timelines, key activities, bidding methods and processes are in line with general international

practices.

New Land Law and changes in land acquisition

There are no major procedural changes in the process of land recovery (acquisition) in the old and new land law

(effective from 1 July 2014). However, some key differences that can have an impact on power transmission

projects are highlighted below:

Parameter New Land Law Old Land Law along

with relevant decrees

New Land database and

Information system

Articles 120 to 124 talk of land information

system, development and management of a

national land data base, online services and

identifies responsibilities of different ministries

in these tasks. When implemented, this will

help in a structured land recovery process

which benefits all stakeholders.

No such articles

Planning of land use 17 articles of Chapter 4 dedicated to different

aspects of master plan for 10 years and its

dependent annual plans- formulation, time

periods, responsibility of different authorities,

consultancy services for formulation, appraisal

of plans, adjustment of plans, publicity etc.

Land use planning is

mentioned in the law and

detailed in Decree No

69/2009/ND-CP there is

no master plan concept in

the old law.

Land pricing &

Compensation for land

recovery

Article 113 mandates Government to develop

Land price for every 5 years for different

regions, land types and amend them in case of

more than 20% fluctuation in market price

Article 74(2) mentions compensation will be

decided by Provincial People’s Committee at

the time of the recovery decision

Depending on the land

price brackets of Decree

188/2004/ND-CP,

amendment Decree 123/

2007 /ND-CP. Provincial

People’s committees have

power to provide

variation up to 20% on

both maximum &

minimum prices

Compensation for non-

agricultural land, with a

long remaining use

Entitled to higher compensation as per article

80(1) which states that in case equivalent land

cannot be provided, the land users shall be

Equal compensation for

all cases irrespective of

remaining land use term

Project management



PwC 47

Parameter New Land Law Old Land Law along

with relevant decrees

period at the time of the

recovery

compensated with money calculated based on

remaining land use term. Government is yet to

provide a detailed decree.

in the current regime

Time limit to pay

compensation

Article 93 (1) mentions compensation to be

paid once & directly to land owners within 30

days of land recovery.

No time limit mentioned

in either Law or decrees

Investors fail to use land

for 12 consecutive

months post allocation

Article 64 (i) provides extension of land use

term for another 24 months if investors pay the

total land use levy or land rental for the delayed

period. In case of further delay (except force

majeure cases), the land will be recovered by

the state

There is no provision of

extension for additional

24 months.

Also, the Government is yet to provide decrees for implementation provisions of various articles of the New

Land Law.

We understand that the land acquisition process along with subsequent R&R activities, designing compensation

plan etc. are time consuming. Many organizations are present and interactions between various departments

are increasing total time required for land acquisition. Although, it is required that entire site/ corridor

clearance should be obtained before start of construction; it is not being put in practice because of long time

required to get site clearance for all tower locations of a given line. We have requested for scheduled and actual

timelines for a sample transmission line and substation packages to understand the quantum of delay and

reasons thereof. We are yet to receive this information which will help us understand current practices for

project planning and monitoring. We made a visit to other PMBs and PTCs and have incorporated the

additional inputs in this report.

Structure

The key departments involved in the project management function and their respective roles are mentioned in

below.

Entity Department Officers involved Specific role in project management

NPT CPD Director (reporting to

President & CEO,

EVNNPT)

Deputy Directors

Experts

Obtains approval of FS consultants selected in

bidding process from appropriate authority

Review of fund requirement for a project and

provide inputs for FS approval

Approves detailed technical design (DTD)

consultants selected in bidding process

Approval of Procurement plan

Progress reporting to authorities as required

NPT CMD Director (reporting to

VP - Construction)

Deputy Directors

Experts

Obtains approval of EIAR from DoNRE

Approval of Project implementation plan


Issues warnings to contractor when their

performance is affected by delays

Conducts adhoc site testing & inspection

NPT IMD Director (reporting to Co-ordinates with all relevant departments for

Project management



PwC 48


VP - Operations &

Investment)

Deputy Directors

Experts

tracking the project progress throughout its life

cycle

Obtains first stage approval from MoIT for PTC

projects

Maintains all contracts

Obtain FS approval from competent authority


NPT International

Cooperation

Department

Director (reports to

President & CEO and

three VPs)

Deputy Directors

Experts

Progress monitoring and reporting to ODAs for

ODA funded projects

NPT F&A Chief Accountant

reporting to VP(E&F)

Deputy Directors

Experts

Processing of invoices of different consultants

and contractors as and when required

NPT Technical

Department Director (reporting to

VP Operations &

Investment)

Director (Technical)

Deputy Director

(Investment &

System calculation)

Experts

Review and approval of DTD

NPT Procurement

Department

Director (reports to

President & CEO)

Deputy Directors

Experts

Obtain Approval of procurement plan, bidding

documents from competent authority

PMB Materials

Department

Deputy Director

(reports to Director

PMB)

Experts

Review equipment drawings, designs with

support from Technical Department

Signs contracts for procurement of materials

from domestic and international vendors

Gives the sign-off to F&A Department of PMB

on payment processing of equipment suppliers

PMB Planning

Department

Experts directly

reporting to Director

(PMB)

Receipt of project allocation letter from IMD

(NPT) and intimates Procurement department

for consultant for preliminary cost estimation

Preparation of procurement plan (in

consultation with technical department,

procurement department, materials

department, resettlement department, etc.)

Signing contracts for civil works and

procurement of consulting/design services from

consultants

Support in processing of bills of contractors /

vendors

Project management



PwC 49


Consolidation of all weekly progress reports

received from various contractors/vendors

Support to technical department in project

progress monitoring

PMB Technical

Department

Deputy Director


PMB)

Experts

Prepare Project Implementation Plan (PIP)

Monitor quality with regular testing and

inspection

Review of construction drawings, designs

Monthly progress monitoring against PIP

Impose penalty on contractors repeatedly

failing to meet schedules/ performance

standards

PMB F&A

Department

Experts directly


(PMB)

Process payment of contractors / vendors and

either pay directly to contractor (if amount <

100 billion VND) or forward payment document

to F&A Department of EVNNPT

PMB Evaluation

Department

Experts directly


(PMB)

Reviews Feasibility Study prepared by FS

consultants (in consultation with relevant

department and sometimes with help of other

consultants) and sends to IMD (NPT) for

approval (Second stage approval)

Reviews detailed technical design prepared by

DTD consultants (in consultation with relevant

department and sometimes with help of other

consultants) and sends to IMD (NPT) for

approval

PMB Procurement

Department

Experts directly


(PMB)

Selection of consultant for preliminary cost

estimation on nomination basis (single source)

Selection of FS & DTD consultants, supply &

erection contractors through competitive

bidding process

Provide inputs in preparation of Procurement

Plan

Review of bidding documents prepared by DTD

consultants and submit to EVNNPT for

approval

Conduct bidding process (NIT, pre-bid, bid

receipt, evaluation etc.) with support from other

departments when required

Contract negotiations with support of Technical

Department

PMB Resettlement

Department

Deputy Director


PMB)

Experts

In-charge of assigning the site clearances / land

acquisition - ensuring that the clear site is made

available to the contractor

Addressing resettlement issues

Processing compensations and making

payments

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PwC 50


Responsible for construction coordination with

local authority to ensure the resettlement

happens

PTC Materials

Department

Deputy Director


PTC)

Experts

Plan requirements of augmentation/ repair of

failed equipment and compile list of material

and equipment needed

Manage, supply equipment and material,

transfer, dispose equipment and material

PTC Planning

Department

Not Available Develops plan on construction investment

Involved in bid evaluation process

Lead in negotiation, and signing contracts

Monitors implementation progress of projects

PTC Technical

Department Deputy Director


PTC)

Experts

Monitor, direct and inspect working status and

technical quality of equipment, substations and

transmission line

Support Material department in planning and

compiling requirements for related equipment

and materials

Monitor quality, inspect work for related

equipment and materials

Involved in procurement of new equipment &

materials and also in their regular maintenance

PTC F&A

Department

Not Available Process payment of contractors / vendors and

either pay directly to contractor (if amount < 30

billion VND) or forward payment document to

F&A Department of EVNNPT

PTC Construction

Investment

Department

Not Available Implement construction investment projects

from investment preparation till

commissioning.

Interact with consultants in procurement and

preparing cost estimates

Apart from these, multiple boards/ councils/ teams are created with a specific objective at different stages of

project life cycle.

Our observation on procurement process in PTCs is that there is no separate Procurement department and

Planning & Technical departments are performing this process which may be impacting the work load on these

departments.

Processes

The processes till issue of project approval letter are covered in the “Investment Management” section. Further,

it may be noted that this section focuses primarily on the PMBs/PTCs roles in the project management

function. Various sub-processes in project management function of typical projects of EVNNPT are grouped

into key processes as explained below:

Feasibility Study (FS),Detailed Technical Design (DTD) and Workshop Design (WD)

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Procurement; and

Project execution.

Feasibility Study (FS), Detailed Technical Design (DTD) and Workshop Design (WD)

The key processes at this stage for PTC and PMB are explained in Process Chart 1 and Process Chart 2 below.

These processes are elaborated under Investment Planning module with focus on role of IMD and other

corporate departments. They are repeated here (with focus on role of PMB/ PTC departments) to provide a

complete overview of a project life cycle from inception to commissioning. Some processes mentioned concisely

in the diagram and certain salient points are elaborated below:

The projects approved in annual implementation plan are allocated to a particular PMB depending on

geographic location and/or the number of projects being currently handled (to ensure equitable

distribution of work among PMBs). Further, the key criteria to select PMB or PTC for a specific project

is - if project is to be completed in shortest

possible time with minimal impact of power

supply, such projects are awarded to PTC (as

PTC can better co-ordinate with NLDC and

execute this in shortest possible time). So,

generally, minor augmentation or

strengthening works that require minimum

outage of the system are allotted to respective

PTCs. (e.g.: replacement of failed equipment -

transformers, circuit breakers, insulators;

extension of bays in a substation, civil works

etc.). The project allocation letter with list of

projects, tasks/responsibilities, milestones is

provided to respective PMB/PTC.

FS covers basic project design and detailed cost

estimates which may be different from

preliminary cost estimates. DTD covers the

detailed project design and detailed revised cost

estimates i.e. at current price levels. DTD consultants prepare the detailed designs and specifications.

WD is based on approved DTD and takes care of any changes needed at manufacturing/construction

stage (no cost estimates prepared / revised at this stage). In case DTD/WD is not required for certain

projects, the requisite drawings are prepared at FS stage only.

There are multiple approvals needed for a project and first stage approval from MoIT is needed for only

PTC projects since they are not part of the master plan and is not needed for PMB projects which are

already a part of the master plan. The second stage approval (FS approval) is a mandatory step for all

the projects. Further, the three steps process elaborated in Decree No. 12/2009/ND-CP corresponds to

FS, DTD and WD stages post project allotment. Decision to apply one, two or three step process rests

with the project owner depending upon the size and complexity - If Project value < 15 billion VND,

single step process is followed and for others, three step process is followed.

PTC hires the consultant for preliminary cost estimation along with a brief technical study to assess

value of the project, generally, on a nomination basis without competitive bidding because value of such

Typical components covered under FS:

System calculations like short circuit studies,

dynamic and transient stability studies

Line route survey with three options and suggest

optimal route

Tower spotting, layout and Estimate bill of

quantities of equipment and material needed

Basic design (standard designs and specifications

are prepared and approved by EVNNPT)

Total investment cost and financial analysis such

as NPV, IRR, Benefit-to-Cost ratio

Environment Impact Assessment (EIA) and

Social Impact Assessment and Resettlement to

minimise land needs and adverse impact on local

people and environment.

Other aspects like Fire prevention,

Telecommunication etc.

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PwC 52

consultancy contract is too low. (Procurement can be done on nomination basis if the value is less than

3 billion VND).

After procuring first stage approval based on tentative cost estimates PTC conducts a bidding process to

hire an FS consultant. PMB hires an FS consultant when the project allocation letter is received.

As mentioned above in many cases, DTD consultant is generally hired as WD consultant on nomination

basis. However, if the project is large or complex, they may be different consultants. Further, it has

been mandated recently (post 1 July 2014) that selection of all consultants is to be done through

competitive bidding process.

PECCs are in general hired as FS or DTD consultants since other private consultancy firms are not

technically and financially qualified and do not possess qualification certificate from the Government. If

the capability of these private firms increases in future, their chances of selection can increase. A

supervisory consultant can also be hired to monitor the project execution.

DTD consultants prepare the detailed designs and specifications based on the standard designs for

tower and foundation, switching schemes, standard technical specifications already available for all

equipment and materials with EVNNPT. Land acquisition process starts immediately after the approval

of FS. The process is already explained in this report.

Key issues

Long-time taken for approvals: Requirement of approvals from board of directors of EVNNPT or

top management of EVN or MoIT for every consultant’s appointment with virtually no power at PMB/

PTC level. Further, every project report (FS/DTD) has to be approved by MoIT which is increasing the

project time lines.

Standardisation of designs, specifications and layouts: There are standardised specifications

for some of substation equipment (as per IEC) and ratings of equipment for different voltage levels are

standardised (e.g.: transformers at 220 kV level - 250/125 MVA; 500 kV - 150/200/300 MVA).

However, many substation equipment and transmission tower designs are not standardised. FS/DTD

consultants select appropriate design depending upon the requirement. Further, substation layouts are

prepared based on site conditions and availability of land.

Procurement

The key processes in this stage for PTC and PMB are explained in Process Chart 3 and Process Chart 4

respectively. Some of the processes mentioned concisely in the diagram are elaborated below:

Law on bidding (Law No. 43/2013/QH13) regulates various procurement related processes (viz.

procurement plan preparation, tender documents, bid submission, opening & evaluation) along with

timelines for review and approval at various stages. This law has replaced Law on Tendering - Law No.

61/2005/QH11.

Ideally, procurement plan is to be prepared based on approved DTD. However, in most cases, it is

prepared based on approved FS since it is very detailed and provides 70-80% of details required for

preparing the procurement plan. It is revised after finalization of DTD. Key contents of procurement

plan are details like name and price of bidding package, funding sources, form and method of selection

of contractors, timelines for execution etc. The tender plan is submitted by PMBs/PTCs and evaluated

& approved by EVNNPT.

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PwC 53

Selection of bidder in open bidding has following steps - (a) Prepare for selection of bidder; (b) organize

selection of bidder; (c) Assess the bid dossiers and negotiate contract; (d) Submit, evaluate, approve

and publicise result of bidder selection; (e) Finalize and sign contract. In all these steps, relevant

outcomes have to be submitted by PMBs/PTCs for evaluation and approvals by EVNNPT. For special

cases, contractor can be appointed on a single source basis.

Turnkey contracts are not awarded in Vietnam for various reasons including capability issues of

contractors. Hence all the projects are split into multiple supply and erection contracts (refer Table

below). Although, this has increased competition among bidders, this resulted in issues like increased

coordination efforts and increased responsibilities for concerned EVNNPT officials.

Typical list of packages in EVNNPT's project management:

# Typical packages in transmission line projects

Typical packages in sub-station projects

1. Consultant for preliminary cost estimates Consultant for preliminary cost estimates

2. FS consultant FS consultant

3. DTD consultant DTD consultant

4. Resettlement / site clearance Resettlement / site clearance

5. Topographical survey Topographical survey

6. Mines survey Mines survey

7. Tower steel supply HV Equipment and material supply

8. Conductor supply LV equipment supply

9. Insulator supply Control equipment supply

10. Cable supply Installation/erection

11. OPGW supply Testing and calibration

12. Installation/erection and tower foundation SCADA

13. Insurance of asset Insurance of asset

14. Audit service Audit service

Note: The packages listed in italics are not common between line project and sub-station project

The common bid evaluation method is a “minimum technical score” with lowest price quote. This is

also used for selection of FS/DTD consultants.

In case of PMBs, the bid evaluation is performed by “Team of Bid Evaluators” which is headed by

Deputy Director or Head of Procurement Department of corresponding PMB. Other members of team

include experts from technical department (depending upon the technicality/speciality of the project),

officers from F&A department and DTD consultants. Each member of the team independently evaluates

the bid and provides formal comments.

PMB invites the successful bidder to negotiate the contract within 10 days of completion of bid

evaluation. During contract negotiation, Technical department of PMB supports Procurement

department in reviewing and finalising progress reporting milestones, environment impact and

mitigation plan, safety plan, quality control plan, detailed milestone for each item, site handover plan,

design and drawings etc.

Key issues

It was mentioned that there is long lead time in procurement of equipment, material and services. This

may be due to multiple layers of decision making and heavily centralized decision making process. For

example, Procurement Plan for each project is submitted individually for approval rather than clubbing

of multiple projects.

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PwC 54

Although, we have asked for scheduled and actual timelines of various procurement packages, we could

not get any information. Hence, we presume that such information systems are not available with

PMBs.

In the current piece-meal execution, the design consultants are responsible for basic and detailed

designs and multiple contractors are responsible for execution of different contracts. There are multiple

issues with this kind of execution:

o Each contractor will be responsible for its own supply/design / erection package and

coordination of multiple vendors has been a challenging task for the EVNNPT. The degree of

complexity in coordination increases with number of vendors/ contractors involvement.

o A delay in execution in one of the packages leads to concomitant delays in the entire project.

o Further, in the current structure, the design consultants will not be responsible for deficiencies

in construction /erection activities and erection /supply contractors will not be responsible for

design deficiencies and finding out the responsibility of any defect lies with EVNNPT which

decreases the accountability on the part of contractors/ consultants.

Project execution

The key processes in this stage are explained in Process Chart 5 below. The diagram is self-explanatory and all

key points are covered. We do not have sufficient information for a project execution under PTC. However,

considering that PMBs deal with bulk of the projects and PTCs generally execute small value upgrade and

retrofit projects, the project execution activities of PTCs will be a sub-set of the PMBs activities.

Approval of vendor / contractor drawings: Vendor submits equipment drawings based on DTD

drawings (wherever applicable) for approval of Materials Departments of PMB or PTC as applicable.

Possible strategy for procurement packaging: One of the possible way-outs is to execute a

turnkey contract for the entire project and if need be, excluding high value components such as

transformer, reactor, conductor etc. (following 80-20 rule). These high value items can be centrally

procured. This will ensure single point responsibility for contract execution and also reduce the

coordination efforts of the EVNNPT. Further, when design and construction activities are done by the

same contractor/ consortium, chances of early rectification of design issues are high and there will be a

decrease in construction and design risks. In certain cases, some construction related activities can

start even before completion of design activities which will reduce the overall project life cycle. In one

of the leading transmission utilities in the world, we have noticed that similar methodology is being

followed with centralized procurement for transformer, reactor, conductor, insulator and cable

packages; regional or site level procurement for small value contracts. Key advantages in this mode

are:

Single point responsibility for contract execution and avoid the coordination issues

Chances of early rectification of design issues and a decrease in construction and design risks

Reduction in project time through simultaneous design and construction related activities

Potential approach to vendor capacity development: Vendor capacity development activities

can be undertaken by allocating certain percentage of projects which are not very crucial to the new

vendors. In the same utility mentioned above, the company takes up vendor development programme

from time to time for specific item / equipment depending on the importance of project.

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PwC 55

Erection contractor submits construction drawings based on DTD drawings (wherever applicable) for

approval of Technical Department of PMB or Planning Department of PTC, as applicable.

Construction: The contractor can start the execution after PMB issues order for "construction start".

Contractor provides a list of supervisors to be posted on site to PMB and also agrees with PMBs about

methods of construction and system of quality control.

Quality Inspection & Testing: As mentioned earlier, a testing and quality plan for applicable

equipment/ packages is decided during contract negotiations. Generally quality inspection tests are

performed by Contractors and PMBs’ officials visit such tests occasionally (decided on a case-to-case

basis).

In case of domestic vendors, the suppliers are expected to perform requisite tests and then request the

PMB officials for inspection. The concerned officials conduct the performance acceptance testing as per

the quality plan and signs MoM of testing acceptance. Also, Supply contractor have to provide valid

type test certificates. In case of foreign vendors, PMB may or may not conduct site visits depending on

costs of visits.

In case of construction site visits, PMB officials are informed by contractor at pre-agreed stages of

construction and concerned officials perform the required inspection/ testing and certify the

construction activity.

Progress Monitoring: Different departments of EVNNPT and PMB/PTC monitor projects at

different frequencies. Contractors hired by PMB are responsible for executing different contracts. All

weekly progress reports from various contractors/vendors are consolidated by the planning department

of PMB. Every month, technical department of PMB verifies the actual progress vis-à-vis project

implementation plan. In case of slippages, PMB reminds and follows-up the contractors to expedite the

work. In case of repeated violation, penalty is imposed as per the provisions of the contract.

CMD is responsible for overall monitoring of all construction projects carried out by all PMBs/ PTCs

and ensuring compliance with the overall technical, environmental and social and R&R

framework/guidelines. CMD also conducts ad hoc visits at construction project sites to validate the

actual progress / quality with respect to reported progress / quality. If CMD finds any issues in progress

or quality of the project, it reports the same to PMB /Supervisors to address the issue. CMD also

periodically reports project progress to Vice Presidents / President& CEO/ Management Board by itself

or as inputs to the general progress reports prepared by CPD. Further, ICD also collects data from

PMBs or CMD to submit status reports to the ODAs for ODA funded projects.

We have requested for templates of progress review, testing & commissioning reports, delay in

arranging inspection, escalation reports on various issues from Technical Department and Planning

Departments so as to gain insights in to the issues in project management of EVNNPT.

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PwC 56

Payments to contractors: The key steps for processing of payments in PTC and PMB projects are

explained in Process Chart 6 and Process Chart 7 below. The diagram is self-explanatory and all key

points are covered. Payment milestones are linked to completion of certain activities /works/ supply

and vary from contract to contract. They are proposed by Contractor and revised or accepted by

concerned PMB/PTC departments. We are informed that the payment process for domestically funded

projects requires one-two weeks (i.e. from receipt of a “completed invoice” to disbursement); in this,

F&A department at PMB/PTC takes 2-3 days to process the completed invoices.

In one of the leading transmission utilities, we have observed that a web-based inspection

management system is being used. The salient features of the system are:

Registration Main contractor (turnkey contractor) can register its name as user by providing all

requisite details. All sub-vendors should be pre-approved by the utility

Raising a call: Only a main contractor can raise inspection calls (on behalf of even the sub-

vendors) by quoting details like Letter of Award No and other details

Tracking a call: After raising a call, each inspection call is given a unique 10 digit call-ID by the

system for further processing/ monitoring of call status. The call will be allotted to a particular

executive and the contractor can contact him/her.

Witness & Waiver: Witnessing requirement by the company’s representative is then either

waived off or the call is forwarded to the concerned regional inspection office for further action.

The waiver may be provided considering the available resources, criticality of the equipment and

project time schedule etc. In case of waiver, the turn-key contractor is supposed to witness the tests

and submit the results to the company for review and acceptance.

Blocking the call: Inspection call can be blocked if the information provided is found to be

inaccurate or incomplete or it is not closed within specified schedule. The calls can be reopened

only with proper explanation and confirmation that it shall not occur again in future.

Message Board: Messages are put on system on case to case basis for communicating to all

concerned. It is expected that the concerned inspection engineers / Contractors shall refer the

Message Board on regular basis and take the necessary action accordingly.

Other global practices for inspection management

Level of inspection: During post bid discussions, various supply equipment/ items are categorized in

different levels based on their criticality. Different levels of items require different involvement of

inspection by the company.

Process inspection: In a normal inspection process (product inspection), customer witnesses the

inspection in each offered lot or waives off witnessing in some intermittent lots. The acceptance or

rejection of offered lot depends on the inspection during final acceptance tests. However, in case of

process-inspection, the processes involved in various phases of manufacturing and testing are

inspected and efforts are made to enhance the process capabilities. It is expected that the final product

shall have built-in quality with better processes in place. This is in line towards achieving “Zero Product

Inspection”. Further, for improving quality during transportation, storage, erection and commissioning

activities during implementation of projects, Quality Audit on implementation of Field Quality Plans is

also carried out.

To initiate the process-inspection, process based MQPs are finalized with concerned manufacturer and

regular process-inspections are carried out at their manufacturer works to review the processes and to

optimize the inspection requirement.

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PwC 57

In case of ODA funded projects, process is to be completed in 51 days as per the regulations. However,

the actual time taken seems to be longer as whole process runs through several steps.

NPMB clarified that milestones are proposed by the contractors and reviewed/ accepted by PMB.

Number of milestones varies from contract to contract. PMB reviews the milestones, negotiates the

same and finalises for implementation monitoring. Payment is linked with the achievement of specific

milestone.

Commissioning activities & Contract closure: An acceptance board is constituted for each

project with representatives from all the

stakeholders. Testing of system is performed by

testing contractors and site engineers of PMB

witness/monitors the testing process. The

Acceptance Board holds meetings with site

engineers and offers comments on the different

parameters of testing performed. These

comments have to be resolved by the site

engineers working in tandem with the

contractors (if required). Acceptance board

issues approval of Project after all the

outstanding issues are resolved. PMB sends

report/ minutes of meeting to LDC (A0-NLDC/

A1-RLDC) for information and hands over to PTC

for operation.

Acceptance Board consists of

Vice President (Construction) - Head of Board

Director of PMB - Vice Head of Board

Member from EPTC

Company in-charge of fire prevention

PTC (operator of the project)

LDC

Representatives of all the contractors

Member from EVNNPT

PMB - officers from technical, materials and

safety departments

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Process Chart 1: Feasibility Study and Detailed Technical Design - PTC Projects

Feasibility Study & DTD – PTC Projects

NPT/ EVN & Ministries & DeptsPTCConsultants

FS consultants prepare implementation plan , basic

design, and other aspects required for an investment project proposal

Second stage approvalApproval of Feasibility study by EVN/ MoIT/ NPT board depending on value

through IMD

Construction investment dept reviews all inputs of FS by itself or with help of other

departments and submits to NPT

Consultant prepares tentative project cost estimates

First stage approval (Technical feasibility) by MoIT

through IMD of NPT

Planning dept reviews with help of Construction investment dept and sends for

approval

Land recovery process ( Rarely

required)

Requirement of project identified by

PTC

Procurement process for selection of FS Consultants

Is project urgent/ critical/

small valueNo

DTD Consultants to prepare detailed technical design

Approval of detailed design by Technical Dept of NPT;

Procurement process for selection of

equipment /erection contractor

Construction investment dept reviews with inputs from other

departments / other consultants

Procurement process for selection of DTD Consultants (Rarely required)

Procurement plan with package prices, schedule, funding source, bidding parameters by Planning dept

Yes

Approval of Procurement plan through CPD of NPT

Procurement process for selection of Cost Estimates Consultants

DTD Consultants to prepare bidding documents

Planning Department reviews and forwards for

approval

Approval of bid documents through

Procurement Dept of NPT


small valueNo

Planning Department prepares bid documents&

forwards for approval

Yes

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PwC 59

Process Chart 2: Feasibility Study and Detailed Technical Design - PMB Projects

Feasibility Study and Detailed Technical Design- PMB Projects

NPT/ EVN & Ministries & DeptsPMBConsultants

FS consultants prepare implementation plan , basic design,

conduct route survey ,system studies, EIA , SIA, resettlement issues & an

investment project proposal

Second stage approvalApproval of EIAR by DoNRE through CMD

Approval of Feasibility study by EVN/ MoIT/ NPT board depending on value through IMD

Evaluation dept reviews all inputs of FS by itself or with help of other consultants and submits to NPT

Land Acquisition / recovery process

Project allotment letter to PMB Procurement process for selection of FS

Consultants


small valueNo



bid documents by Procurement Dept of NPT

Evaluation dept reviews with inputs from other departments /

other consultants

Procurement process for selection of DTD Consultants






Procurement Department reviews and forwards for

approval




small valueNo

Procurement Department prepares bid documents&


Yes

Yes

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PwC 60

Process Chart 3: Procurement process - PTC projects

Procurement process - PTC Projects

NPT/ EVN & Ministries & DeptsPTCConsultants/ Contractors

Bid process (NIT, pre-bid, receipt of bids, evaluation) by Planning Dept and submits for Director’s approval

Is project ODA funded?

Post Director’s approval , Planning dept seeks approval from NPT board/ President & CEO

YesAuthority submits for ODA approval; Post ODA,

approval of bidder & bid process

Planning dept calls for Contract negotiations with successful bidder and signs contract ( Director)

No

IMD (NPT) maintains all contracts

Approval of FS consultants by President & CEO/ NPT board

through CPD

Planning dept calls for bids from FS consultants for feasibility study

Planning dept selects consultant for tentative project cost estimation on

single source basis ( nomination basis)

Project requirement finalized by PTC

Planning dept selects DTD consultants for feasibility study ( mostly FS consultants) or follows similar bidding process for selection

Approval of DTD consultants through CPD by competent authority

Selection of Cost Estimate Consultants

Selection of FS Consultants

Selection of DTD Consultants ( rarely required)

First stage approval from MoIT

Second stage approval from MoIT/NPT

Preparation & review of initial estimates

Preparation & review of FS

Selection of Supply /Erection Contractors

Approval on bid documents & DTD( as

applicable)

Preparation & review of bid documents& DTD (as applicable)

Panel of Consultants pre-selected

Consultants submit bids

Planning dept evaluates and selects successful bidder; sends for approval

Bidders submit bids

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PwC 61

Process Chart 4: Procurement process - PMB projects

Procurement process – PMB Projects

NPT/ EVN & Ministries & DeptsPMBConsultants/ Contractors

Bid process(NIT, pre-bid, receipt of bids, evaluation) by Procurement Dept(supported by Technical Dept and submits for Director’s approval

Is project ODA funded?

Post Director’s approval , Procurement dept seeks approval from Authority (NPT board/ President & CEO)

YesAuthority submits for ODA approval; Post ODA,

approval of bidder & bid process

Procurement dept (supported by Technical Dept) calls for Contract negotiations with successful bidder and signs contract ( Director)

IMD (NPT) maintains all contracts

Approval of FS consultants by President & CEO/ NPT board

through CPD

Planning dept calls for bids from FS consultants for feasibility study

Procurement dept selects DTD consultants for feasibility study ( mostly FS consultants) or follows similar bidding process for selection

Approval of DTD consultants through CPD by competent authority

Selection of FS Consultants

Selection of DTD Consultants

Project allotment letter

Second stage approval from MoIT/NPT

Preparation & review of FS

Selection of Supply /Erection Contractors Approval on bid

documents & DTD( as applicable)

Preparation & review of bid documents& DTD



Bidders submit bids

No

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PwC 62

Process Chart 5: Project execution - PMB projects

Project execution- PMB Projects

NPTPMBContractor/ Supplier

Material& Technical depts review& approve equipment and construction drawings respectively with support of consultants

Post approval, supplier starts manufacturing of equipment, Contractor starts construction

activities as per schedule

Technical Dept monitors quality regular testing and inspection

Supplier prepares equipment drawings. Contractor prepares Construction drawings

CMD conducts adhoc testing & Inspection on quality and reports findings to supervisor consultants/PMB and senior management

Contractor to take necessary remedial measures based on inputs and achieve

completion of milestones

CMD directly or via Technical dept issues upto 3 formal warnings; If un- resolved, penalty

measures based on type & severity of issue

Payment Process

Completion of all Project activities, install , commission the equipment and obtain sign-

off from concerned departments

Acceptance board constituted. Different tests conducted as per regulations, contract and approval of

commissioning given

Supply/ Erection Contract executed

Technical dept prepares project implementation plan (PIP) and gets reviewed by Director (approval from CMD-NPT)

On site work commenced by contractor

Project team set up – 1 expert from Technical dept for monitoring, 1-2 site engineers for site level progress &

Select supervision consultants( if required)

Weekly, Monthly and Periodic Progress reports to CMD/ IMD/ ICD/ CPD etc as required; CMD

primarily monitors from NPT

Planning dept monitors weekly progress & Technical dept monitors

monthly progress.

In case of delay and repeat issues in performance , Technical dept can

impose penalty.

Report to LDC(Ao, A1) about commissioning of project

Hand over project to respective PTC and costs verified by an auditor

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Process Chart 6: Payment process for Domestic & ODA funded projects - PTC

Payment processes for Domestic and ODA funded projects- PTC

NPT/ ODAPTCContractor/ Supplier

Contractor raises invoices after successful completion of milestone

Officials from Planning, Technical Depts and legal representative verify the bill and send to F&A Dept for

payment

Is payment > prescribed limits of PTC?

Proposal reviewed at different levels in F&A Dept of NPT and approved after getting any clarifications as required

No

Yes

Document for fund disbursement certified by F&A dept and sent to bank

Bank electronically pays to contractor

Domestic funded Projects

ODA funded ProjectsContractor raises invoices after successful

completion of milestone

Document for fund disbursement certified by F&A dept and sent to bank designated by ODA; Bank

sends it to NPT



payment

F&A of NPT reviews and sends to bank which notifies MoF and also ODA head

office for payment

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PwC 64

Process Chart 7: Payment process for Domestic & ODA funded projects - PMB

Payment processes for Domestic and ODA funded projects-PMB

NPT/ ODAPMBContractor/ Supplier

Contractor raises invoices after successful completion of milestone


payment

Is payment > prescribed limits of PMB?

Proposal reviewed at different levels in F&A Dept of NPT and approved after getting any clarifications as required

No

Yes

Document for fund disbursement certified by F&A dept and sent to bank


Domestic funded Projects

ODA funded ProjectsContractor raises invoices after successful

completion of milestone

Document for fund disbursement certified by F&A dept and sent to bank designated by ODA; Bank

sends it to NPT



payment

F&A of NPT reviews and sends to bank which notifies MoF and also ODA head

office for payment

Project management



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People

A staff manual with roles and responsibilities at different levels and clear job description helps brings in clarity

to the officials and guides the new employees to assimilate into the organization with relative ease. In our

interactions, we have been provided with staff manual from International Cooperation Department only. Most

of the other departments mentioned that there are no staff manuals and this is a significant issue that can

hamper the employees from performing optimally.

It is estimated that around 200 projects are executed every year that are spread across geography of Vietnam in

different terrains. To execute these projects within stipulated timelines, EVNNPT and its subsidiaries require

qualified staff at corporate and field levels across the hierarchy. In our interaction, multiple departments have

mentioned shortage in staff vis-à-vis number of projects being executed hampering their quality of the work

and slippage in deadlines. Although, the number of staff in different departments/ subsidiaries is provided, we

could not estimate the requisite number of staff required to perform the tasks optimally as the inputs are not

available.

Technology

Different departments of EVNNPT and their subsidiaries use stand-alone IT tools with different forms/ report

templates for project monitoring. For example, PTC uses Microsoft Project, Microsoft Excel, Contracts

management application, FIMS for project management. However, lack of comprehensive project monitoring

tool as well as disparate methodologies prevailing in different entities/departments is hindering effective

project monitoring by the top management. The proposed project management software is intended to resolve

the gap. However, preliminary stakeholder interaction suggests that the software may be more of a project

information repository and status reporting tool rather than project monitoring and management tool

We could not garner business blue print/ manual of the proposed project management software in spite of

repeated requests and hence our understanding of this aspect is limited to our interactions with IT department

of EVNNPT and the same has already been presented in this report.

NPT or its subsidiaries do not have any integrated project management system and some departments in

EVNNPT are using stand-alone packages/software developed by IT department of EVNNPT along with MS

office tools like MS Excel and MS Project for project progress monitoring. In our interactions with multiple

departments, need for a project monitoring tool has been highlighted repeatedly for various reasons. This lack

of visibility at corporate level / senior management level is hindering effective project monitoring causing

severe delays in project execution. To cater to this need, EVNNPT is now in the process of developing "Project

Management Software" which is being developed by EVNNPT's IT Department with the help of a consultant.

After the successful roll-out of this software, it is expected that the authorized users at different locations/

departments viz. site execution teams at PMBs, PTCs as well as key departments at EVNNPT (viz. CMD, IMD,

CPD, Procurement department, Materials Department, F&A department etc.) can both update their activities in

various projects and know about the status of different projects through internet.

An investment project management module is only expected to be complete by the year-end considering the

urgency for the same. Other modules of the software are expected to be developed in a phased manner. Main

functions of the investment project management software as follows:

Management of project information

o Project information: Name, project type, start time, scheduled finish time, fund source, owner

o Information on tender packages

Project management



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o Information on consultants, contractors

o Information on decisions for projects

Management of progress

o Progress management over project phases from investment project report until payment

o Challenges faced and solutions being adopted (if any) during project implementation

o Visual display of actual progress and scheduled progress (Gantt diagram or any similar model)

Reporting system

o Filter information in different ways (by project type, fund source, finish time, implementation

contractor, owner, a time period, actual implementation level, delay etc.)

o Produce reports with different templates to meet the requirements of CPD, CMD, IMD, F&A

Department etc.

Key software tools / MS Excel models / system used:

Name of software

tools / MS Excel

models / system

Brief description / features /

functionalities


Project

Management

Software

Web-based online application

developed using "SharePoint"

technology

Developed by an external

software development

company named Harmony

Software Technologies JSC

It will be installed in a central

server of EVNNPT and will be

accessed by all PMBs and PTCs

through internet

Seven modules: Project

management, Project

planning, Investment

preparation, Investment

implementation, Investment

completion, Searching,

Administration

We have been provided a brief overview of

the software by IT department. We have

requested for a detailed demonstration of

various functionalities and also for the

process manual being used for

development of the software. We are yet to

receive EVNNPT’s response on the same.

Prima facie, software appears to be more

of a project information repository and

status reporting tool rather than project

monitoring and management tool

Software is under development and it

needs review and refinement by various

stakeholders/users to make it more

effective

Software is currently in Vietnamese and it

is planned to be made available in English

to users


In the following section, we have summarised our key preliminary observations identified during inception /

process review phase:

1. Resource constraint and lack of focus in managing projects: It is estimated that around 200

projects are executed every year that are spread across geography of Vietnam in different terrains. To

Project management



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execute these projects within stipulated timelines, EVNNPT and its subsidiaries require qualified staff

at corporate and field levels across the hierarchy. In our interaction, multiple departments have

mentioned shortage in staff vis-à-vis number of projects being executed hampering their quality of the

work and slippage in deadlines. The number of staff currently in different departments/ subsidiaries

and the expected number of staff required to perform the tasks optimally are not available currently.

There is a need for organization level resource requirement study to assess the requirement at different

positions and check under-utilization /over utilization of personnel in different departments. This will

also help in clearly identifying roles and responsibilities for different positions in EVNNPT and its

subsidiaries (preparation of staff manuals wherever required). Although different departments are

performing the activities in line with the tasks delegated, no integrated project- management is in

place.

2. Long lead time: It is mentioned that there is long lead time in procurement of equipment, material

and services. This is due to multiple layers of decision making and heavily centralized decision making

process. There is a recent change in the investment proposal approval requirement and now all the

project documents in FS & DTD stages should be approved by MoIT which is significantly increasing

the lead time. There is a significant time spent for review of documents at each stage (PMB/ EVNNPT/

EVN/ MoIT). An estimate for different steps in a typical project (based on our interactions) is given

below:

Sl.

No.

Key Activity Time duration from project allotment (in months)

Minimum Maximum

1. Project Allocation letter 0 0

2. FS consultant hired 6 8

3. FS approved 12 24

4. Hiring of DTD consultant & approval 30 42

5. Supply /erection contractor selection 37 50

6. Procurement plan, bidding documents, contractor selection approval (for ODA projects)

40 56

7. Commissioning of project 60 96

3. Delay in land acquisition (recovery) and R&R: The land acquisition process along with

subsequent R&R activities, designing compensation plan etc. are cumbersome and time consuming due

to the prevailing regulatory scenario in the country. Many organizations are present and interactions

between various departments seem to increase total time required for land acquisition. Further, it is

required that entire site/ corridor clearance should be obtained before start of construction; it is not

being put in practice because of long time required to get site clearance for all tower locations of a given

line.

New Land Law has come into effect on 1 July’14. Although there are some changes there is no mention

of reducing the organizations involved in the process.

4. Limited capabilities of local contractors and consultants: It has also been mentioned that the

financial, technical and project management capabilities of existing contractors/ vendors and design

consultants are limited and none of the existing contractors / bidders could meet the desired

qualification criteria for turnkey contracts. Hence, all the projects have to be split into small erection

and supply packages which are resulting in complex coordination issues for EVNNPT. It has been

observed that there is very less participation from international bidders. Further, the FS and DTD

Project management



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consultants are generally PECCs and private players are not selected because they do not meet financial

and technical criteria and do not have Government Certificate.

5. Lack of proper tool to monitor and manage projects: Different departments of EVNNPT and

their subsidiaries use stand-alone IT tools with different forms/ report templates for project

monitoring. For example, PTC uses Microsoft Project, Microsoft Excel, Contracts management

application, FIMS for project management. However, lack of comprehensive project monitoring tool as

well as disparate methodologies prevailing in different entities/departments is hindering effective

project monitoring by the top management. The proposed project management software is intended to

resolve the gap. However, preliminary stakeholder interaction suggests that the software may be more

of a project information repository and status reporting tool rather than project monitoring and

management tool. In spite of repeated requests, we could not get the manual related to this tool and

hence we have only limited understanding of the tool which has been presented in the report.

6. Standardization: There are standardised specifications for some of substation equipment (as per

IEC) and ratings of equipment for different voltage levels have been standardised However, many

substation equipment and transmission tower designs are not standardised. FS/DTD consultants select

appropriate design depending upon the requirement. Further, substation layouts are prepared based on

site conditions and availability of land.




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Strategy

The MoIT and MoF have promulgated regulations which guide the process and method of determining the

transmission charge payable to the EVNNPT by the users of the transmission system. The primary regulation

that governs the determination of transmission charge is Circular No. 14/2010/TT-BCT dated 15 April 2010

(amended by Circular No. 3/2012/TT-BCT dated 19 January 2012). It sets out the detailed methodology for

calculating the transmission charge along with procedures and timelines to be followed for the submission,

calculation, review and approval of the transmission revenue and charge by stakeholders namely EVNNPT,

EVN, EPTC, NLDC, ERAV and payers of transmission charge.

This section briefly captures some of the key observations on the existing laws/decisions/decrees/regulations in

Vietnam (Brief provided in Appendix 5 -) and presents select global practices followed with respect to such

specific areas in South East Asian countries such as India, Malaysia and Philippines. It aims at providing an

indication towards the recommendations to be made.

Circular No. 14/2010/TT-BCT dated 15 April 2010 on method of elaboration, procedures for formulation, promulgation and management of power transmission charge

Based on our understanding of the above regulations, key areas of concern are listed below and

select global practices addressing those areas have also been presented.

True up mechanism:

The regulation specifies true-up / adjustment mechanism as part of transmission charge determination

methodology, but in reality, ERAV has not yet undertaken any such adjustment in determining the

transmission charge in the past, to take care of variation between approved tariff and actual expenses during

the previous year.

The formula for transmission charge of year N = Permitted capital cost + Permitted O&M expenses + Difference

between transmission costs and revenues of year N-1


For effectively truing up the costs allowed for previous years, the regulation should firstly define what the

controllable and uncontrollable cost parameters are. Based on such categorisation alone there can be a scientific

approach to allowance or disallowance of true and reasonable costs. This will also send a clear signal to the

utility about being prudent and efficient in their capital and operating expenditure.

In India

The Central Electricity Regulatory Commission (CERC), in its regulation named CERC (Terms and Conditions

of Tariff) Regulations, 2014 has defined controllable and uncontrollable factors as below.

The ‘controllable factors’ shall include but shall not be limited to the following:

1. Variation in capital expenditure on account of time and/ or cost over-runs on account of land

acquisition issues;




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2. Efficiency in the implementation of the project not involving approved changes in scope, change in

statutory levies or force majeure events; and

3. Delay in execution of the project on account of contractor, supplier or agency of the transmission

licensee.

The ‘uncontrollable factors’ shall include but shall not be limited to the following:

1. Force majeure events; and

2. Change in Law.

The below example from the tariff order of the Northern Region System Strengthening Scheme-V of Power Grid

Corporation of India (POWERGRID) shows the disallowance of controllable cost items by the CERC. This

assessment sends clear indication to the licensee (here, POWERGRID) that expenditure which is controllable

and not prudent will not be allowed as a pass through.

As per the investment approval, the project was scheduled to be commissioned within 36 months from the date

of investment approval i.e. by 01.07.2009. The transmission asset was put under commercial operation on

01.01.2011, after a delay of 18 months. The transmission licensee had submitted, that the progress of work of

bus reactor at Bhiwadi sub-station was hampered mainly due to poor mobilization of supply and erection by the

contractor. Upon scrutiny of the reasons and relevant documents, the CERC was not convinced that the

construction activity around Bhiwadi could delay the commissioning of the transmission asset. Therefore in the

absence of any justifiable documentary evidence, the CERC was unable to accept the claims made by the

licensee. They were also of the view that the beneficiaries should not be burdened with the cost of time over-run

and accordingly impact on cost of the delay of 18 months was disallowed as a pass through.

Details of disallowed Interest During Construction (IDC) and Incidental Expenditure During Construction

(IEDC) are as follows:

As per Management Certificate submitted vide affidavit dated 06.12.2013 (million INR) Particular IDC IEDC

Expenditure up to 31.12.2010 13.284 3.605

Total IDC and IEDC claimed 13.284 3.605

Details of IDC & IEDC Disallowed for 18 months

Disallowed IDC and IEDC for 18 months 4.428 1.202

Total allowed 8.856 2.403

The true up process is undertaken once in 5 years at the end of the MYT control period by CERC for the

National Transmission utility (PGCIL) in India, based on the defined controllable and uncontrollable

parameters vis-à-vis the actual performance of the utility. These defined parameters set a clear standard of

performance to the utility, which will be allowed to enjoy incentive on efficient performance and will be

penalised for inefficiencies.

In Philippines

The Energy Regulatory Commission of Philippines in its Rules for setting Transmission Wheeling Rate, 2009

has defined the various guiding principles for determination of transmission revenue and wheeling rate. The

method followed is a Revenue Cap method, and is based on the below price control formula.

MARt = [MARt-1 x {1 + CWIt - X}] - Kt - RBRt

Where:




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MARt-1 = Maximum allowed revenue for Regulatory Year t-1, where Regulatory Year t commences on 1

January 2004, MARt-1 equals PhP 24,591 million;

CWIt = Change in Weighted Index for Regulatory Year t;

X = A productivity or efficiency factor for Regulatory Year t. X equals 0 (zero) for each Regulatory Year

occurring during the First Regulatory Period;

Kt = Correction Factor to adjust for over or under recovery of revenue in Regulatory Year t-1. Where

Regulatory Year t commences on 1 January 2004, Kt equals 0 (zero); and

RBRt = A portion of the net income derived, during the 12 month period ending on 30 September in

Regulatory Year t-1, from each related business engaged in by the regulated entity, which business

utilizes assets that form part of the regulatory asset base, being a portion that is determined by the ERC

pursuant to Section 20 of the EPIRA and that may vary as between such businesses but which, for each

such business, does not exceed 50% of the net income that is so derived from that business.

The Kt approved by the Commission in its order dated December 2, 2013 on Maximum Allowable revenue for

FY 2013 of National Grid Company of Philippines (NGCP) was (1811.45) million PhP. The over/under-recovery

is calculated based on the actual amount billed to consumer along with the net payments receivable by NGCP as

a network service provider or system operator over the previous year less the maximum allowable revenue for

the previous year.

In Malaysia

The Energy Commission of Malaysia - Suruhanjaya Tenaga in its regulation namely Electricity Tariff Regulatory

Implementation Guidelines 2012, for the bundled utility TNB, provides the formula for Revenue Requirement

as follows.

AAR = Return on regulated assets (Return * RAB) + Forecast annual depreciation + Forecast annual operating

costs + Forecast annual tax payments + Efficiency carryover amount

The Efficiency carryover amounts will be determined based on the base incentive and the efficiency carryover

scheme. Base Incentive enables the business entities to retain any variances between actual operating and

capital expenditure amounts relative to forecasts within the regulatory term. This will encourage the pursuit of

efficiencies in both operating and capital expenditures, as reductions in any expenditure as a result of

efficiencies will result in higher return for shareholders.

Also, the efficiency carryover scheme provides the business entities a continuous and sustained incentive to

pursue cost efficiencies during every year of the Regulatory Term. This is important as under the base incentive

regime, the business entities incentive to pursue efficiencies weaken as they approach the end of the Regulatory

Term. This is because cost efficiencies will result in a lower cost base for the subsequent Regulatory Term and

the time to retain efficiencies during the current Regulatory Term reduces with every passing year of the

Regulatory term. This is done by adding 50% of the Cost Efficiency Amount to the annual revenue requirement

projected for the next Regulatory Term in a phased manner.

It can be seen that the methods followed on Philippines and Malaysia are efficiency-based revenue correction

mechanism where all cost parameters are open for being efficiently managed.

Penalty for failed service quality:

The above regulation lays down the procedure for calculating penalty for failed service quality, where EVNNPT

is fined for failing to guarantee quality of service in cases where outages of transmission lines and transformers




PwC 72

of the transmission system in the year exceeds regulated limits for each voltage level, except for incidents

caused by force majeure or problems not caused by EVNNPT. But even this guideline is merely on paper and is

not actually implemented. The cause for seems to be inadequate data availability as well as lack of clearly

defined quality parameters for assessing performance.

Information required and not accurately or fully captured as well as penalty norms which are not clearly

defined are:

1. Time of outage of transmission line or transformer

2. Number of outages of transmission line or transformer

3. Penalty norms for outage of transmission line at 110 kV, 220kV, 500kV

4. Penalty norms for outage of transformer at 110kV, 220kV, 500kV

Also the mechanism for penalising EVNNPT for any such failure is by deducting the penalty amount from the

welfare fund which is created for all staff members. This approach seems to be penalising all staff members who

might not be in any way related to the process of managing the service quality of the transmission system.


Specification of operating norms and performance parameters is essential to measure efficient performance of

the transmission system. To develop a suitable mechanism of incentive and disincentive is important to drive

the performance of the licensee. The approach followed usually for specifying operation norms is based on

historical data analysis and consideration of efficiencies, technological advantage, vintage etc. The performance

norms are also designed to be practical and implementable allowing the utility a fair chance to achieve the set

standards.

In India

The Tariff Policy, 2006 has set a principle for specifying operational norms. It provides that, “Suitable

performance norms of operations together with incentives and disincentives would need to be evolved along

with appropriate arrangement for sharing the gains of efficient operations with the consumers. This is essential

to encourage better operating performance. The norms should be efficient, relatable to past performance,

capable of achievement and progressively reflecting increased efficiencies and may also take into consideration

the latest technological advancements, fuel, vintage of equipment, nature of operations, level of service to be

provided to consumers etc. Continued and proven inefficiency must be controlled and penalized.’

For example the norms specified by CERC in its regulation named CERC (Terms and Conditions of Tariff)

Regulations, 2014 are as below.

Norms of operation for transmission system: The Normative Annual Transmission System Availability Factor

(NATAF) shall be as under:

1. For recovery of Annual Fixed Charges:

a. AC system: 98%;

b. HVDC bi-pole links and HVDC back-to-back stations: 95%.

2. For incentive consideration:

a. AC system: 98.50%;




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b. HVDC bi-pole links and HVDC back-to-back stations: 96%.

For new HVDC stations, NATAF shall be considered as 95% for first three years of operations for the purpose of

incentive. Provided further that no incentive shall be payable for availability beyond 99.75%.

For AC system, two trippings per year shall be allowed. After two trippings in a year, additional 12 hours outage

shall be considered in addition to the actual outage.

In case of outage of a transmission element affecting evacuation of power from a generating station, outage

hour shall be multiplied by a factor of 2.

Further the penalty or incentive as applicable is adjusted in the Annual revenue requirement of the utility thus

allowing it higher recovery for better performance or lower recovery for failed service quality. This approach

ensures that the people responsible to ensure service quality will be directly answerable to the management and

also will not penalise staff members who are not responsible to maintain the service quality of the transmission

system.

In Malaysia


Implementation Guidelines 2012, for the bundled utility TNB, clearly lays down the Incentive framework for

operational performance. The regulation provides as under;

“The Commission considers it prudent and indeed part of its overall design of a holistic incentive-based

regulatory system to set standards and incentives to improve operating performance. This is because the

Commission does not want cost and financial efficiencies to be achieved at the expense of lowering

operational performance.

The Commission considers that operational performance primarily consists of network performance and

customer service. Therefore the Commission will consider establishing standards, benchmarks and incentives

(and disincentives) for network performance and customer service (where relevant) for the TNB business

entities.”

The Commission proposes to adopt the following criteria in setting the operational performance indicators:

relates closely to the business activities of the TNB business entities;

highly valued by electricity customers;

can be objectively measured; and

can be independently audited.

The Commission proposes that each of the TNB business entities recommend a list of 3 operational

performance indicators and demonstrate that they comply with the criteria as outlined above. For example, the

Commission notes that:

Circuit and plant availability, supply interruption and losses are common indicators adopted for the

electricity transmission businesses in Australia, UK and Singapore. In addition power quality indicators

(voltage dip incidents) have been used in Singapore for electricity transmission.”

The Commission for setting performance targets has in its draft recommendations adopted a model

where an upper bound and a lower bound target for each performance indicator will be set. The




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Commission will review at least 3 years of historical data in setting both the lower bound and upper

bound performance targets.

Return on Equity:

The regulation allows for recovery of return on equity as part of the permitted capital cost, as a means to plough

back into further investment activities. But the same is not being mandatorily allowed as part of transmission

charge by the ERAV. Also, regulation does not specify fixed % of equity as return on equity (profit) because of

which EVNNPT is unable to assess absolute amount of RoE in a particular year impacting its ability to plan self-

financing for its upcoming investments.

Total permitted capital costs of year N = Total depreciation costs + Total long-term loan interest expenses +

Eligible power transmission profit of year N (RoE).


Regulated utilities are allowed to recover their cost to do business and earn a return on invested capital. This

return can be ploughed back into the business to enable further investment for improving performance

efficiency. The rate of return on equity is fixed such that it will not only attract investment and generate

sufficient resources for further growth in the sector but also to take care of the consumers’ interest. The

interests of the consumers are taken care of in the real sense only when quality power is made available

throughout the year. This could be achieved only through large capacity additions which in turn will require

huge investment. Further a higher investment in the form of equity also helps the utility in negotiating and

availing debt at competitive terms and conditions.

In India

Section 61 (d) of the Electricity Act, 2003 provides that the Regulatory Commission, while specifying the terms

and conditions for the determination of tariff, shall be guided by the principle of ‘safeguarding of consumers

interest and at the same time, recovery of cost of electricity in a reasonable manner’.

Para 5(3)(a) of the Tariff Policy stipulates that: ‘Balance needs to be maintained between the interests of

consumers and the need for investments while laying down rate of return. Return should attract investments at

par with, if not in preference to, other sectors so that the electricity sector is able to create adequate capacity.

The rate of return should be such that it allows generation of reasonable surplus for growth of the sector’.

The Central Electricity Regulatory Commission (CERC) of India, in its regulation named CERC (Terms and

Conditions of Tariff) Regulations, 2014 has provided that, Return on equity shall be computed at the base rate

of 15.50% for transmission systems.

In Malaysia and Philippines

Regulators in Malaysia and Philippines allow reasonable and fair return (termed as weighted average cost of

capital or WACC) on the regulatory asset base (RAB).

Structure of the transmission charges:

Currently the transmission charges payable by payer i in year N (TCi) is calculated by employing the following

formula.

Total transmission cost = Capacity-linked transmission charge + Energy-linked transmission charge + Total

adjustment for year N-1




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The ratio of capacity and energy volume components in the power transmission charge is regulated by ERAV

each year, with α + β = 1; regulated α = 0 currently. This means that the transmission charge is only energy

based and not capacity based.

This may not the ideal way to recover transmission revenue, as the system is built to cater to the maximum

available generation capacity and thus should entail recovery from long term (committed) customers on

capacity basis as well. Also if the recovery is only energy based, there is no certainty to revenue recovery, as the

actual energy transmitted may vary from the projected energy to be transmitted.


The standard method of recovering transmission cost from long term customers is based on the system

capacity. Only for short term transactions, the transmission charge is based on the energy transacted. The

rational being that the entire revenue requirement for a transmission system comprises of fixed cost

components and thus do not vary with the volume of energy transacted. Hence irrespective of the volume of

energy transacted, this cost has to be fully recovered by the transmission licensee.

In India

The recoverable transmission charges from the long term customers are always denominated as

Charge/MW/time unit for e.g. 100,000 INR/MW/month.

In Philippines

The transmission charge is levied on contracted capacity in kW.

Cost norms:

It is also seen that the cost norms set as the basis for calculating the material costs and major repair costs

(which are components of the transmission revenue) are outdated and there is no mechanism to adjust these

existing cost norms to reflect inflation, technological advancement or substitution between capital and variable

costs. Further, since the list of cost norms is outdated, it also does not contain certain cost items which today

form part of the overall cost list.

The cost norms used by EVNNPT are the ones that were developed by EVN in 2006. Many cost items like

environment impact assessment study, engineering / management software, fire prevision systems, propaganda

systems, telecommunication systems etc. are completely missing in the list.


The usual practice should be one where the cost norms are reviewed and revised in a timely fashion to be

reflective of price movement in the current market. This is of utmost importance to be able to allow the utility to

correctly gauge impending costs and recover rightful revenue through tariff. Further changes in terms of

additions/ deletions to this list are necessary to be able to incorporate any new elements or do away with

redundancy.

In India

For regulated transmission licensees, the CERC has defined the consolidated O&M norms covering employee

costs, repair and maintenance costs and administrative and general costs. These norms are defined in terms of:

For transmission lines: INR/route km/year for each conductor configuration, tower configuration and

voltage level; and




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For sub-stations: INR/bay/year for each voltage level (separate norms for HVDC systems).

In addition to O&M norms, regulations also define norms for working capital, auxiliary consumption in sub-

stations, initial spares to be capitalised (with total project cost), etc.

Transmission pricing methodology:

On the overall method adopted for pricing transmission service, it is observed that the current methodology

followed is nationally uniform, flat energy-based charge (also called the postage stamp method) where no

distinction is made between the transactions with regard to the power flow path, distance of power flow,

direction of power flow, supply or delivery points, the time when it takes place etc. Though this methodology is

reasonable in the existing context, further development of the transmission network, electricity markets and

competition will call for a more efficient pricing mechanism.


An efficient transmission pricing regulation should ensure following factors:

Reasonable revenue to the transmission system owners to enable repayment of loans, payment of

interest, return on equity, reimbursement of O&M cost, contingencies, etc.;

Encourage investment in the network and determine optimal location of generation and demand;

Transmission constraints and congestion in the network are properly assessed and addressed;

Proper accounting and allocation of transmission losses; and

Rational sharing of transmission charges and losses among the users.

For developing new mechanism for transmission pricing, ADB has already hired consultants under TA 8203-

VIE who are supporting ERAV in this area.

In India

Since 2011, India has moved from regional postage stamp methodology to simplified nodal pricing (called as the

Point of Connection (PoC) methodology). PoC methodology is used for computation and sharing of the Inter

State Transmission System (ISTS) Charges and Losses among Designated ISTS Customers (DICs) which

depends on quantum of the power flow and location of the node (injection/drawal) in the grid and is sensitive

to distance and direction. Charges would be computed for each node of DICs based on hybrid method. The

hybrid method employs both the average participation method as well as the marginal participation method.

Therefore the existing tariff norms may have to be reviewed by keeping in view the developments in the sector,

current and perceived challenges in the sector and duly recognizing the need for sustainable market

development. Though it is important to maintain regulatory certainty in tariff approach, the tariff should reflect

the changing market conditions as well.

Circular No. 203/2009/TT-BTC dated 20 October 2009 - Guiding the regime of management, use and depreciation of fixed assets






PwC 77

Depreciation:

The regulation allows for depreciation on re-valued asset base. In this case depreciation is allowed on assets

which have already been fully depreciated once, and thus amounts to abnormal recovery through double

charging of the depreciation. The same also is not in line with the repayment schedule of loans taken.

For e.g. useful life of transmission lines is typically 25-30 years, but for tariff purpose it is taken as 10 years. If

revaluation is allowed, depreciation is charged on the re-valued base for say, another 10 years. This in effect

leads to double recovery of the depreciation for such assets.

The second area of concern is for assets which are not re-valued. The typical life of any fixed asset is considered

to be between 8-12 years while the loan repayment tenure varies between 12-30 years. On the completion of the

life of the asset there will be no revenue (in terms of depreciation payment) to repay the loans for which

repayment of principal component for another 0-18 years is outstanding.


Depreciation is a major component of annual fixed cost (~ 30% in India, ~ 57% in Vietnam) and it is accepted

understanding that the depreciation represents service to capital subscribed and is considered as available cash

flow for repayment of loan (i.e. principal component).

In India

Para 5.8.2 of the National Electricity Policy, provides that “depreciation reserve is created so as to fully meet the

debt service obligation”. The regulatory meaning of depreciation is that there should be enough cash flow

available to meet the repayment obligations of the transmission licensee during the average long term loan

repayment tenure. For example, as per the CERC, the depreciation rate has been considered based on

normative repayment period of 12 years to repay the normative loan (70% of the capital cost). Residual

depreciation payment is spread over the balance life of the asset.

The norms specified by CERC in its tariff regulations, 2014 are as below:

1. Useful life of AC and DC sub-station - 25 years; Transmission line (including HVAC & HVDC) - 35

years; Communication system - 15 years.

2. The value base for the purpose of depreciation shall be the capital cost of the asset admitted by the

Commission. In case of multiple elements of transmission system, weighted average life of the

transmission system shall be applied. Depreciation shall be chargeable from the first year of

commercial operation. In case of commercial operation of the asset for part of the year,

depreciation shall be charged on pro rata basis.

3. The salvage value of the asset shall be considered as 10% and depreciation shall be allowed up to

maximum of 90% of the capital cost of the asset.

4. Depreciation shall be calculated annually based on Straight Line Method and at rates specified.

5. Provided that the remaining depreciable value as on 31st March of the year closing after a period of

12 years from the effective date of commercial operation of the station shall be spread over the

balance useful life of the assets.

6. The transmission license, shall submit the details of proposed capital expenditure during the fag

end of the project (five years before the useful life) along with justification and proposed life




PwC 78

extension. The Commission based on prudence check of such submissions shall approve the

depreciation on capital expenditure during the fag end of the project.

7. In case of de-capitalization of assets in respect of transmission system or element thereof, the

cumulative depreciation shall be adjusted by taking into account the depreciation recovered in tariff

by the de-capitalized asset during its useful services.

Hence depreciation rates are prescribed is such a manner as to allow repayment of the debt component

during the average long term loan tenure and in general practice depreciation is not permitted on revalued

asset base.

In Malaysia


Implementation Guidelines 2012, for the bundled utility TNB, clearly lays down the norms to be followed in

calculating depreciation. The relevant extract from the regulation is as follows:

“Annual depreciation will be based on the efficient economic life of assets. In determining the efficient

economic life for various asset classes (such as transformers, poles, sub stations, switchgear etc.), the

Commission will benchmark with other utilities to ensure that the useful life assumptions are consistent with

best practice. The Commission will also consider obtaining an independent engineering estimate of useful life

for the various asset categories.”

Hence the efficient economic life of the asset is to be based on best practices/engineering estimates.

In Philippines

Depreciation is calculated using the straight line method based on either of the following:

RegDepnj,t = ORCj,t / RegLj,t or ODRCj,t / RemLj,t

Where:

ORCj,t = the optimised replacement cost

RegLj,t = the Regulatory Life of Asset Category

(Is when the economic life of an asset is taken to expire when the costs of maintenance and repair of

that asset exceed the efficient replacement cost)

ODRCj,t = the optimised depreciated replacement cost

RemLj,t = (RegLj,t - Agej,t); and

Agej,t = the weighted average age of the assets

This approach ensures that the asset is fully depreciated at the time its replacement becomes imperative.

The Decision No. 69/2013/QD-TTg of the Prime Minister dated 19 November 2013 - Regulates mechanism for changing of average retail power price.






PwC 79

TC adjustment mechanism:

Article 4 of the regulation lays down the mechanism for adjustment of electricity retail price. This regulation is

relevant as it has an indirect bearing on the allowable transmission charge, which forms a part of the electricity

retail price.

In case the mechanism of true-up was being systematically followed, the justly allowable cost/ revenue would

have been adjusted to arrive at the true transmission charge. The range specified in this regulation causes

unwarranted reductions in the transmission charge which is not based on the intended regulations specified in

Circular 14.

It is also observed that at present, electricity prices are subsidised for specific categories of consumers by the

Government, but no direct financial support in the form of subsidy is provided to EVN by the Government.


It may not be prudent to link recovery of the transmission revenue through tariff to the allowable recovery of

retail tariff. Based on the various fixed cost parameters, legitimate costs to the utility should be allowed. Only

when the normative and prudent costs are recovered, the transmission licensee will be able to operate more

efficiently. Allowing a sudden increase in transmission tariff may lead to tariff shock, so a separate mechanism

should be designed to allow the remainder of the justified increase in the costs within say, next three years.

The Electricity Law dated 3 December 2004 (amended by Law No. 24/2012/QH13 dated 20 November 2012) - Rules and regulations by which all entities that operate in the electricity sector shall abide by



Regulatory independence - Article 31 of the Law stipulates guidelines for determination of electricity prices and

associated charges and the bodies who are responsible for its verification and approval. It identifies the

regulating body as a separate entity to that of the concerned ministry namely MoIT. But as on today the ERAV

is an integral part of the Ministry and does not wield any decision making of its own. The lack of an

independent regulating body might cause the price determination process to be driven by factors other than as

stipulated in Circular 14.


The very purpose of a regulator is to be able to undertake an independent evaluation of the tariff petition. The

Regulatory Commission is responsible to balance out the interests of both the transmission licensee as well as

the consumer. It is bound to function without any political influences.

In India

The Central Electricity Regulatory Commission (CERC) and the State Electricity Regulatory Commissions

(SERCs) are independent quasi-judicial regulatory bodies that are promulgated under the Electricity Act 2003.

They are separate legal entities and are not part of the Ministry of Energy / Power. This separation is very

crucial to ensure least amount of direct political influence as well as to ensure independent fulfilment of their

powers and duties.

In Thailand




PwC 80

The Energy Regulatory Commission of Thailand (ERC) is appointed by the King of Thailand as the independent

regulatory agency. State-owned utility, EGAT files the transmission pricing petition directly to ERC.

In Malaysia

The Malaysian Government established the Energy Commission (Suruhanjaya Tenaga) as autonomous body

under the Energy Commission Act 2001. Integrated utility, TNB files the transmission pricing petition directly

to Energy Commission of Malaysia.

In Philippines

Enactment of the Republic Act No. 9136, otherwise known as the Electric Power Industry Reform Act (EPIRA)

of 2001 saw the creation of the Energy Regulatory Commission (ERC) which is a purely independent regulatory

body performing the combined quasi-judicial, quasi-legislative and administrative functions in the electric

industry. The TRANSCO must directly submit to the ERC, its proposal for the maximum transmission wheeling

rates that may be charged by it for the relevant year.

Practice followed in Vietnam

The following table captures the various capital costs and operating costs which form the basis for arriving at

the Total Power Transmission Revenue of the EVNNPT. The contribution of each of these items towards the

TPTR and their treatment is as follows.

Sr. No.

Cost element PwC analysis and observations

A Capital cost items

1. Depreciation Asset life considered is too short causing excess revenue recovery through depreciation

Mismatch in depreciation and loan repayment structure

Assets re-valued once initial life term is over and allowed another full term for depreciation

Full depreciation allowed on revaluated assets causing over recovery through depreciation

ERAV having no control over investment approvals has limited or no control over this cost element

2. Interest charges There is no standard stipulated for the debt:equity ratio. But the attempt is to move towards a 70:30 scenario

3. Return on equity There is no standard norm for allowing RoE

For 2013, no RoE was approved, but the attempt is to move towards a 4%-6% rate of return

RoE is very essential to enable self-financing of projects

Equity base taken by ERAV, for the purpose of allowing RoE, includes increase in equity on account of revaluation of assets. In other countries (including India), RoE is not permitted on such additional equity from revaluation

B Operating cost items

4. Material costs NPT, being relatively new entity, lacks historical cost data which are needed for framing norms

Cost norm used to setting material costs are based on norms issued by EVN in 2006

These norms do not reflect the trends in the current prices, nor is the list comprehensive covering all relevant items

5. Salary costs Salaries are determined in accordance with MOLISA regulations and ERAV / EVNNPT has very little control over it




PwC 81

Sr. No.

Cost element PwC analysis and observations

Salaries are linked to labour productivity (kWh/employee/year) which may not be a fair indicator of performance. As this rate can vary with reduction in labour size it does not necessarily translate to increased productivity

Salary increase is constrained at (0.8 x productivity growth + 0.3 x profit growth); In FY13, it was calculated at (0.8 x productivity growth) since profit allowed was nil

6. Major repairs costs

NPT, being relatively new entity, lacks historical cost data which are needed for framing norms

Cost norm used to setting major repair costs are based on norms issued by EVN in 2006

These norms do not reflect the trends in the current prices, nor is the list comprehensive covering all relevant items

Allowed costs of major repairs is capped at 0.8% x asset value in year N-3; Basis for this provision needs to be re-evaluated

7. Outsourced service costs

No standard methodology adopted for appraising these costs, they are taken as per the audited accounts of previous year adjusted for the present year

8. Other expenses in cash

There is no hedging done to safeguard against foreign exchange losses

NPT can recover its realised foreign exchange losses

Part of the accumulated losses has been allowed to be recovered whereas balance is carried forward over future years to avoid tariff spike

The capital cost items comprise about 75-80% of the total revenue requirement, but ERAV has no control over

the approval of investments which may lead to allowing costs of unnecessary or inefficient investments. In

addition, there are several areas in the regulations as well and their interpretation which need considerable

thought and improvisation. These changes are imminent and will ensure better performance of the utility and

will also be an indicator of the direction in which the electricity market and overall power sector is heading to.

Comparison of Transmission costs as per the petition submitted by EVN for 2013 vis-à-vis costs as per the

audited financial statements (VAS) of EVNNPT throws light on the variations in the actual costs versus the

quantum passed onto consumers as part of the TPTR.

Comparison of Transmission costs as per the EVN petition vis-à-vis costs as per audited

financial statements (VAS) of EVNNPT for 2013 (million VND)

Particulars As per petition As per Audited accounts (VAS)

Capital costs

Depreciation 4,914,304.00 49.2% 5,885,723.03 62.3%

Interest 1,816,054.00 18.2% 1,305,140.12 13.8%

Profit (RoE) 120,341.00 1.2% 134,998.89 1.4%

Capital cost Total 6,850,699.00 68.6% 7,325,862.04 77.5%

Operating costs

Salary 1,247,079.00 12.5% 1,239,093.95 13.1%

Major Repairs 331,212.00 3.3% 277,242.19 2.9%

Materials 135,114.00 1.4% 148,496.39 1.6%

Outsourced Services 149,659.00 1.5% 146,068.53 1.5%

Other (incl. forex loss) 1,284,128.00 12.8% 312,780.65 3.3%

Operating cost Total 3,147,192.00 31.4% 2,123,681.71 22.5%

Total cost 9,997,891.00 100% 9,449,543.75 100% Note: Excludes interest income and unrealised forex loss




PwC 82

The above table clearly reflects the variances in the various cost components as incurred by EVNNPT and as

claimed in the TPTR petition. Huge variance is observed in Depreciation as well as under the other costs head

which includes forex losses. Depreciation on revalued assets has not been included in the calculation of TPTR

for FY13 which is why the total depreciation value is lower than that as stated in the annual audited accounts.

Similarly the other costs which includes forex losses of previous years to be recovered over a term of 5 years is

included in the cost for FY13 in the TPTR calculation as against such expenses stated in the annual audited

accounts.

Structure

Following are the key departments involved in the transmission pricing process:

1. Corporate Planning Department (CPD): Responsible for preparation of the transmission

pricing petition and submission to EVN for approval. CPD takes support from other departments

for procuring the relevant information to develop the petition.

2. Finance and Accounting Department (F&AD): This department is responsible for

supporting the CPD in the transmission tariff determination process by providing necessary

financial information based on the method of calculation stipulated in Circular 14

3. Technical Department (TD): The Technical Department is responsible to provide support to

CPD in the preparation of transmission pricing petition by providing technical information relevant

for calculation the penalty for failed service quality.

4. Organisation, Personnel & Labour Department (OPLD): This department provides

information about employees and associated expenses and cash expenses to the F&AD.

5. Power Transmission Company 1 (PTC1): The Planning Department and F&A Departments

are responsible for providing information to EVNNPT upon request.

The overall alignment of departments for undertaking the process of preparation of the transmission pricing

petition appears to be reasonable. However given an understanding on the nature of data / information to be

submitted by each department to CPD and the average time taken by CPD for preparation and submission of

the petition, it would be useful to determine internal timelines to be followed for submission of data by various

departments to CPD.

Also information to calculate failed service quality is not being provided by the TD, as relevant data is not

adequately captured and the standards of performance to determine penalty has also not yet been decided. This

is a key aspect that drives performance of the transmission licensee and it should be a mandatory requirement

to undertake determination of service quality. An incentive mechanism parallel to the existing penalty

mechanism might help in motivating the licensee towards recording of relevant information. The ERAV as the

regulator of the sector should also promulgate relevant regulations that stipulate the required service quality,

the measure of penalty for various points of system failure etc.

Processes

The transmission pricing function consists of three key processes namely (a) Submission of petition; (b)

Approval of petition; and (c) Billing & payment. Sub-processes (a) and (b) are divided in to two parts viz.

procedure for determination of total power transmission revenue and procedure for determination of

transmission charge. In addition, the process stipulated for determining penalty for failure to maintain service

quality is also detailed owing to its importance, but is not currently being followed by EVNNPT.




PwC 83

Procedure for determination of Total Power Transmission Revenue (TPTR)

The process to be followed for submission, review and approval of the Total Power Transmission Revenue

(TPTR) is as below:

1. Step 1: The National Power Transmission Corporation (NPT) prepares the appraisal document of

Total Power Transmission Revenue for year N and submits it to the Vietnam Electricity (EVN) for

consensus.

2. Step 2: EVN undertakes a preliminary scrutiny of the submission made and incorporate

alterations that it deems fit. It then forwards the document to the Electricity Regulatory Authority

of Vietnam (ERAV) for assessment and final approval in writing before the fifteenth day of every

May (of the year N). In case of necessity, the ERAV can utilize consultants for assessment of the

submissions for total transmission revenue of the EVNNPT.

3. Step 3 (a): Based on the assessment of the ERAV if the submission is not eligible in accordance

with the Article 17 of the Circular No. 14 (as amended), the submission is remanded back to the

EVNNPT for revision;

4. Step 3 (b): The EVNNPT then supplements and finalizes the document within five (05) days upon

receiving the request of the ERAV and resubmits the same.

5. Step 4: Based on the assessment of the ERAV if the submission is eligible then, before the tenth

day of every June (year N) the final written approval authorizing the permitted Total Power

Transmission Revenue of year N of the EVNNPT is issued.

NPT EVN

1. Submission of appraisal doc

of Total Power Transmission Revenue for year N

ERAV

3a. Submission Not eligible, remand back

to NPT

3b. Supplement and finalize

the submission

Assessment of the (revised)

submission

Assessment of the submission

(alteration possible)

2. Forward for final assessment

and approval in writing

Consultant

4. Submission eligible

Written approval of the permitted Total Power Transmission Revenue of year N of

NPT




PwC 84

Documents to be submitted for approval of Total Power Transmission Revenue

The following submissions along with detailed assessment of the Total Power Transmission Revenue for year N

are submitted by the EVNNPT for approval.

1. Petition of Total Power Transmission Revenue of year N from EVNNPT.

2. Explanations and calculation sheets of Total Power Transmission Revenue of year N, including:

a. Analysis and assessment of the implementation of the assigned targets for power output, the

rate of transmission loss, faults of transmission line and transformers at various voltage levels;

b. The actual revenue and expenses incurred as at March 31st of year N;

c. Assessment of the profit, equity and financial indicators such as the ratio of return on equity,

debt equity ratio, self-financing ratio as at 31 December of year N-1;

d. Explanations and calculations of total capital expenses including calculation of depreciation

costs, long-term loan interest expenses, Equity as at the end of year N-1 and estimated equity

by end of year N and estimation of profit for year N;

e. Explanation and calculations of total permitted operating cost of year N including calculation of

material costs, salary costs, costs of repairs and overhaul, cost of outsourcing services and other

monetary costs of year N;

f. Explanation and calculation sheets of the difference in transmission cost and revenue of year

N-1; report on increase/decrease of the difference between transmission cost and revenue.

3. Supporting documents include:

a. List of investment projects which have been completed and put into operation until the report

time and estimated in year N in accordance with the National Power Development Master Plan

and approved annual grid expansion plan of the National Power Transmission Corporation;

b. List of items and values of fixed transmission assets which have been increased, decreased as of

December 31st of year N-1 and until March 31st of year N and estimated amount by month for

year N. For the assets which have not been put into operation, there shall be details of the

networks and other assets which include values of the assets;

c. Summary table indicating the change of regular labour in the payroll of the EVNNPT and

relevant units in year N-1 and schedule of this item for year N;

d. Summary of standby materials available and supplemented in year N-1 and expected in year N;

e. List of major repair items of fixed asset of year N-1 and estimated list of year N;

f. Financial Statement of year N-1: balance sheets, report on production and business results,

report on cash flows and financial disclosures;

4. Cost norms for expense items used in the documents approved by relevant authorities.

Key timelines specified for this procedure and actual adherence:

Activity As per Circular Actual (last cycle)

Submission of TPTR doc to EVN by EVNNPT Not defined 1 Nov’13




PwC 85

Activity As per Circular Actual (last cycle) Submission of TPTR doc to ERAV by EVN 15 May 14 Jan’14

Issuance of decision by ERAV 10 Jun 19 Mar’14

Procedure for determination of Transmission Charge (TC)

The process to be followed for submission, review and approval of the Transmission Charge (TC) to be in force

between July 1st of year N and June 30th of the following year, for each unit subject to pay transmission charge

is depicted below. The latest transmission charge petition dated 14th January 2014, filed by EVN to ERAV

indicates the change in the tariff cycle hence forth to be from 1st January to 31st December of any given year.

Also, as of now, EVNNPT computes transmission charge just dividing total revenue (in VND) by output energy

(in kWh) and does not follow the below mentioned elaborate process due to lack of adequate data.

1. Step 1: Before the fifth day of every January (year N), payers of transmission charge are

responsible for sending data of actual maximum capacity and actual delivered energy at each

delivery points of year N-1 to the EVNNPT.

2. Step 2: Before the first day of every April (year N), payers of transmission charges are responsible

for preparing and sending the forecast of energy delivery and total maximum capacity at all delivery

points of year N to the EVNNPT.

3. Step 3: The EVNNPT is responsible for consolidating and calculating the forecast of total energy

delivery and total maximum capacity of each unit subject to pay transmission charge and sending

the forecast results to the System and Market Operator for its comments.

In case a payer of transmission charge fails to send the forecast data, the EVNNPT can use the data

of year N-1 as the basis for calculating transmission charge for year N.

4. Step 4: Before the first day of every June (year N), the System and Market Operator is responsible

for sending its comments in writing on the forecast of energy delivery and total maximum capacity

of year N of each unit subject to pay transmission charge to the EVNNPT, to enable it to form the

basis for calculating price and transmission charge of year N for each such unit.

5. Step 5: Before the fifteenth day of every June (year N), the EVNNPT is responsible for determining

the transmission charge to be applied between July 1st of year N and June 30th of the following

year (N+1) for each unit subject to pay transmission charge (based on the approved transmission

revenue of year N and adjustment amount of year N-1), and submit the same to the EVN for

consensus.

6. Step 6: EVN upon scrutiny of the submission will forward the same to the ERAV for final scrutiny

and approval.

7. Step 7 (a): Based on the assessment of the ERAV if the submission is not eligible in accordance

with Article 19 of the Circular No. 14/2010/TT-BCT (as amended), the submission is remanded

back to the EVNNPT for revision.

8. Step 7 (b): The EVNNPT then supplements and finalizes the document within five (05) days upon

receiving the request of the ERAV and resubmits the same.

9. Step 8: Based on the assessment of the ERAV if the submission is eligible then the final written

approval authorizing the permitted Transmission charge of year N to be applied between July 1st of




PwC 86

year N and June 30th of the following year, for each unit subject to pay transmission charge to the

EVNNPT is issued.

NPTEVN

5. Submission of calculation of

transmission chargefor year N

ERAV

7a. Submission Not eligible, remand back

to NPT

7b. Supplement and finalize

the submission

Assessment of the submission

6. Forward for final assessment

and approval in writing

8. Submission eligible

Approval of the transmission charge (July 1st of year N and June 30th of the following year) for each payer of transmission

charges

Payers of Transmission

charge

1. Data on max capacity and actual delivered energy (N-1)

2. Forecast on max capacity and delivered energy (N)

SMO3. Consolidation and submission

of forecast of energy delivery and total maximum capacity of each payer of TC

4. Comments on the forecast of energy delivery

and total maximum capacity of year N

Documents to be submitted for approval of Transmission Charge

The following submissions along with detailed analysis and assessment are submitted by the EVNNPT for

approval of the Transmission Charge for year N:

1. A petition requesting for approval of transmission charge.

2. Explanation and calculation sheets of transmission charge of each unit subject to pay transmission

charge, including:

a. Capacity transmission charge, energy transmission charge;

b. Total maximum delivery capacity, total forecasted energy output of each unit subject to pay

transmission charge at all delivery points of year N;

c. Total adjusted amount of transmission cost of the unit subject to pay transmission charge in

year N-1 (detailed calculation sheets).

3. Supporting documents, including:

a. Forecasted energy output and total maximum capacity of year N of each unit subject to pay

transmission charge prepared by the System and Market Operator;

b. Data of total actual maximum capacity and actual energy delivery at each delivery point of year

N-1 of each unit subject to pay transmission charge.




PwC 87

Key timelines specified for this procedure and actual adherence:

Activity As per Circular Actual (last cycle)

TC payers to send actual for (N-1) to EVNNPT 5 Jan Not in practice

TC payers to send MW / MWh forecasts (N) to EVNNPT 1 Apr Not in practice

SMO to send comments to EVNNPT on MW/MWh 1 Jun Not in practice

NPT to determine TC 15 Jun 1 Nov’13

NPT to finalise TC In 5 days NA

In practice the above two processes (viz. determination of total power transmission revenue and determination

of transmission charge) are not undertaken separately but as a single submission and ERAV issues a

consolidated decision (tariff order) covering both components.

It is observed that, in the process of filing the TPTR and TC petition the EVNNPT submits the petition to EVN

which then forwards the revised petition to ERAV for scrutiny and approval. This process of submitting the

petition to EVN in the process of tariff determination is not ideal and compromises the independence of

EVNNPT. EVN to balance out the interests of the transmission and distribution utility undertakes reduction of

some of the cost components in a non-scientific manner. Thus it seems redundant and non-beneficial to submit

the petition to EVN for approval before forwarding it to ERAV for approval. This existing mechanism might also

lead to inflating of the cost components by the EVNNPT to provide some buffer in the event of reduction by

EVN, thus making the entire regulatory process not accurate and counterproductive.

Procedure for Billing and Payment of Transmission Charge

The process to be followed for billing by the EVNNPT and payment by the users of transmission system is as

follows. However, in practice, this process is not being strictly followed. As per the current practice, EPTC pays

transmission charges to EVNNPT and distribution companies are not paying the transmission charges to

EPTC/NPT.

The Electric Power Trading Company (EPTC) is responsible for paying the total power transmission charge to

EVNNPT. Payers of power transmission charge are responsible for paying transmission charges to EPTC.

1. Step 1: Prior to the 10th day of each month (month T), the EVNNPT is responsible for sending to

the EPTC, the documentation for payment of transmission charges for the previous month (month

T-1 of each payer of transmission charge and total monthly transmission charge of month T-1 of all

payers).

In case any mistakes are detected or the document is incomplete, within ten (10) days from the date

of receipt of such payment documents, the EPTC must notify the EVNNPT in writing for

rectification of mistake or addition of missing information.

2. Step 2: Prior to the 15th day of each month (month T), the EPTC is responsible for making

advance payment of transmission charge of month T-1 to EVNNPT of an amount equal to 50% of

the total transmission charge defined in the payment documents of month T-1.

3. Step 3: Prior to 20th day of each month (month T), the EVNNPT sends bills for total transmission

charge of month T-1 to the EPTC (in attachment with complete payment documents in case of

additions or rectification).

4. Step 4: Prior to 5th day of next month (T+1), the EPTC needs to make payment of the outstanding

transmission charge of month T-1 to EVNNPT as per issued bills.




PwC 88

Where data in the bills are different from the data notified by EVNNPT, the EPTC is responsible for

paying the value billed by EVNNPT. Payment for the difference is agreed by both parties in their

contract.

NPT

Payers of Transmission charge

(power companies, bulk users)

Electric Power Trading Company

(EPTC)

1. Documentation for payment of transmission charge for the

previous month (T-1)Payment of

monthly transmission

charge

2. Advance payment of 50% for month T-1

3. Invoice for payment oftotal transmission charge

for the month of T-1

4. Payment of balance amount for month T-1

At this point in time, only the distribution utilities pay transmission charges and generators are not liable to pay

any charges. This charging principle has to be relooked at. A change in the billing and payment process is

suggested from 2014 onwards. It is indicated that EPTC might request and receive money from EVN to make

payment to EVNNPT and then undertake a settlement with EVN for the same.

In India the EPTC does not have any role in the billing and payment cycle between the transmission utility and

its customers. The long term beneficiaries of the system like the distribution utilities pay their monthly dues to

the transmission utility based on long term capacity charges determined and in turn recovers the same from the

retail tariff it charges to its consumers. The short term consumers of the system pay as per usage in terms of

energy.

Procedure for actualisation of penalty for failed service quality

The process to be followed by EVNNPT for reporting statistics on incidents of faults/outages in the

transmission lines and transformers, to the Operator of the power network and the national electricity market is

as follows:

1. Step 1: Prior to first day of October, each year (year N), the EVNNPT must report statistics of to

the Operator of the power network and the national electricity market, on incidents of transmission

lines (power failure time ti and length of troubled line Li,N for each incident) and incidents of

transformers (power failure time ti and total MVA capacity of the troubled transformer Si,N for

each incident) of the transmission grid from September 1st in N-1 to 31st August of year N.

2. Step 2: Prior to first day of November each year (year N), the Operator of the power network and

the national electricity market is responsible for examining and authenticating the statistical report

on incidents of transmission lines and transformers and submits a report on the same to ERAV.

3. Step 3: Operator of the power network and the national electricity market also send a copy of the

report to EVNNPT to have a basis for calculating penalties for failed service quality in year N.

4. Step 4: Prior to first day of December each year (year N), the EVNNPT is responsible for providing

justification of statistics to ERAV on incidents of transmission lines and transformers from 1

September of year N-1 to 31 August of year N.




PwC 89

5. Step 5: EVNNPT is required to calculate penalties for failed service quality of year N and submit

them to EVN for review.

6. Step 6: Post review, EVN will submit the final penalty calculations to ERAV for approval.

NPT SMO1. Report statistics

on incidents of system failure

ERAV

4. Providing valid justification for

the statistics

Examination & Authentication of the

statistical report

2. Report the statistics

3. Send final copy to have a basis for calculation

of penalty for year N

EVN

5. Submission of final penalty

calculations

6. Submission of penalty calculation for final approval

In practice the above process relating to calculation of penalty for failed service quality is not being undertaken

by EVNNPT as specified by the regulations. The above is an illustration of the process laid down in the

regulation. This is a key aspect that drives performance of the transmission licensee and it should be a

mandatory requirement to undertake determination of service quality. An incentive mechanism parallel to the

existing penalty mechanism might help in motivating the licensee towards recording of relevant information.

The ERAV as the regulator of the sector should promulgate relevant regulations that stipulate the required

service quality standards, the measure of penalty for various points of system failure etc.

People

CPD does not have adequate manpower with necessary skills to undertake the task of preparing the

transmission charge petition. As of now, 2 staff members have been assigned the task of preparing the

transmission charge petition. There is also the need for enhancing understanding on regulatory & tariff

economics among staff. Because of the non-allocation of sufficient staff with necessary skills the quality of the

petition has significant scope for improvement. The same is the case with the MS Excel based formats which

accompanies the petition.

Department / Entity No. of staff assigned Designation of staff

CPD (NPT) 2 1 - Deputy Director Business Operations 1 - Expert

Finance (NPT) No specific staff assigned -

Technical (NPT) No specific staff assigned -

Organisation, Personnel & Labour (NPT)

3 1 - Deputy Director 2 - Experts

PTCs No specific staff assigned -

PMBs Not involved in the process -




PwC 90

Technology

The review of existing data sources, IT tools, information etc. has shed light on the method of filing of the

transmission pricing petition by the EVNNPT. Based on the information studied so far, the EVNNPT files single

petition for approval of total power transmission revenue and transmission charge. The petition which is a

written submission to EVN/ERAV is accompanied by MS Excel formats supporting the calculations made.

Key software tools / MS Excel models / system used




MS Excel Formats Workbook containing detailed calculations of the various financial and other parameters supporting the determination of the transmission revenue and charge. For the future years it also captures scenarios based on target SFR and target DSCR.

Based on a thorough assessment it can be said that the formats are not as comprehensive and easy to understand as it ought to be in terms of capturing information about all major annual revenue components involved in the determination of the transmission charge and inter-linkages among components.

o For example: details about asset wise major repairs or information on outsourced expenses are not detailed.

Some discrepancies have also been identified in calculations in the formats, for which detailed clarification from the F&AD and OPLD is still awaited.


In India, the regulatory commissions design the standard formats in MS Excel that the licensees have to

populate with relevant information and submit along with the written petition. This method ensures that the

Regulator gets all the relevant information and in the detail that it seeks. This enables through prudence check

as well as clear case for allowance or disallowance depending on the expenditure proposed.

Key information / data received from various departments/entities:

Description of information / data Source department and entity


Financing cost - Total long-term loan interests and charges for borrowing capital defined in accordance with loan agreements for transmission assets.

F&A Department, EVNNPT

The data is being provided to the CPD but further detailed break up of each cost item should be given. Scrutiny of costs in terms of them being justly incurred, details on time and cost overruns etc. should be the basis for allowing or disallowing cost rather than total disallowance of RoE or other components to keep the charge within a desirable limit

On assessment of data provided by other departments to CPD, it was gathered that

Depreciation cost - Determined according to the life time and method of depreciation of fixed assets stipulated in Circular No. 203/2009/TT-BTC dated 20 October 2009 of the MoF guiding the management, use and depreciation of fixed assets and the subsequent replacement





PwC 91

Description of information / data Source

department and entity


Eligible profit - Determined based on the average equity capital of the present (N) and previous year (N-1) multiplied by the Return on Equity rate


there was no issue with regards to quality and availability of data. It was also observed that the basis for computing some data needed immediate updating. For example: the cost list used by EVNNPT for assessment of various cost items is very outdated and is lacking with new additions. This needs immediate attention as it definitely will cause skewed assessment of cost parameters

Estimation of the Operations & Maintenance costs


Data for calculation of the penalty for failed service quality

Technical Department, EVNNPT

As of now, no penalty is being calculated as the relevant information is not being provided by the Technical Department.

Information on maximum transmission capacity and actual energy received at each delivery point of the previous year and forecast for the current year is provided to CPD by the payers of transmission charge

Payers of transmission charge

As of now historic information validated by the NLDC is used for forecasting maximum transmission capacity and actual energy received at each delivery point for the current year.

The quality of data provided by other departments to CPD is adequate as long as information being provided is

historic data which lacks ambiguity. The challenge arises when the data to be provided is futuristic and that

which involves forecasting. Different departments have been following different methods to arrive at such data,

for example - CPI, future growth rates, forecasted volume of work after commissioning of asset, forecasted data

on line and sub-station outages etc. Hence multiple departments have different values of the same parameter.

Even though these differences are reconciled by the departments through a meeting, a better approach would

be to standardise the approach to be followed by all departments for calculation of such parameters. This would

not only bring clarity but would also ensure ease of calculations and avoid corrections.


In the following section, we have summarised our key observations:

Strategy related

Inadequate recovery of expenses and negligible Return on Equity

1. The cost coverage in FY13 is 1.01 times

and RoE allowed was zero, which

impairs generation of adequate

internal resources which are needed

for self (equity) funding of future

projects. This seems inadequate as

compared to 15.5% post tax returns in

India. In 2014, allowed RoE was just

1% converting to a post-tax RoE of

0.75%.

0.2

9%

0.5

9%

4.0

0%

0.2

9%

0.0

0%

1.0

0%

0%

2%

4%

6%

8%

10%

2012 2013 2014

RoE (Proposed) RoE (Approved)




PwC 92

2. Even Self Financing Ratio (SFR) and

DSCR were not favourable during

2009-11, although they improved in

2012 due to revaluation of assets

(increase of 15,277 billion VND in

asset value). Regulation stipulates,

RoE should be allowed to achieve

SFR>25% & DSCR>1.5.

3. NPT is eligible to claims RoE in its

transmission charge petition, but it

may or may not be allowed by the

ERAV in the final tariff order. The

concept of including RoE as an element in the overall estimation of transmission revenue is to allow

a viable return to the utility beyond the actual costs incurred. For the current year (FY14) tariff,

ERAV has approved a 1% RoE to be recovered through transmission charge.

4. The current transmission charge recovers a very negligible rate of return on equity typically causing

the retained earnings of the EVNNPT to be zero. Without retained earnings, the EVNNPT would

find it difficult to undertake self-financing of projects. As per the requirement of domestic banks in

respect of funding of any investment project, the debt:equity ratio should be around 60:40 to

80:20. EVNNPT through revaluation of assets is attempting to project a higher equity composition

in its capital structure.

5. There is no support from the Government to EVNNPT by way of grant or subsidy. There is no

equity infusion in the EVNNPT from the parent company (EVN) to meet its fund requirement for

funding capital expenditure. A book adjustment in the equity head is done when at the end of the

financial year there is some profit booked and a portion of that is required to be transferred to the

parent company (EVN). This transferred amount is adjusted against the increase in equity fund.

True-up (adjustment) mechanism

1. The formula for calculating total transmission revenue allows for adjustment true-up of cost and

revenue of year N-1 to be considered in year N. But this provision is merely on paper and ERAV has

not undertaken adjustment of such past expenses and costs till date. Further, regulation does not

specify controllable and uncontrollable expense items, which would be good indicators to EVNNPT

to be prudent and efficient in expenses. Thus there is no mechanism which enforces the need to be

prudent and efficient in incurring capex and opex as well as adjustment for over/under recovery of

revenue. Timely true-up will help EVNNPT recover justifiable revenue and retain efficiency gain

(positive difference between allowed cost and actual cost).

2. The mechanism of allowance and disallowance of cost items should be based on the principles of

controllable and uncontrollable costs rather than arbitrary judgement based on the final retail tariff

to be imposed. On one hand, elements like RoE are completely disallowed and on the other hand,

over-recovery through depreciation on re-valued asset is allowed. This imbalanced approach will

not give the utility any incentive to improve its functioning efficiency and may create financial

imbalances in the future.

3. Further even such adjustments would not guarantee full true-up of justifiable increase in costs.

Decision No. 69/2013/QD-TTg dated 19 November 2013, lays down certain range of increase in

average electricity selling price due to similar adjustments in the retail electricity selling price and

the process for its approval. An increase in average electricity selling prices by 10% or more calls for

9.82%

18.04%

9.40% 10.56%

1.47

1.90 2.36

1.58

0.0

0.5

1.0

1.5

2.0

2.5

0%

5%

10%

15%

20%

25%

30%

2012 2013 2014

SFR (Proposed) SFR (Actual)

DSCR (Proposed) DSCR (Actual)




PwC 93

the EVN to seek approval from the Prime Minister. This decision might have a direct impact on the

increase allowed in the transmission charge.

Depreciation charge

1. Depreciation is a major component of revenue (~62% in Vietnam, ~30% in India). Investments

drive the depreciation costs; ERAV, which has very limited or no control over EVNNPT investment

approvals, seems to have no control over this cost item. Regulation allows for depreciation on

revaluation reserve, although it was not allowed by EVN / ERAV while approving the revenue

requirement for 2014. As per audited VAS 2012, ~ 2,000 billion VND (95 million USD) was

recognised. Such approach may result in mismatch between depreciation revenue and loan

repayment as average asset life is 8-12 years but loan repayment tenure varies 12-30 years. First 12

years if the depreciation revenue is greater than Loan (principal) repayment then this generates

surplus cash, which seems to be deployed in capital projects as ‘equity’. After 12 years the loan

repayment continues but no depreciation revenue is accrued, which will affect the loan repayment

capacity of EVNNPT. A study of future depreciation revenue v/s loan repayments is crucial to

ascertain the impact of this mismatch.

Composition of transmission charge

1. As per the regulation, the TC is currently a completely “energy-based charge”. It is pertinent to note

that any transmission system is built to cater to the maximum demand and evacuate available

generation and thus should entail full recovery irrespective of actual energy flow. In case of

“energy-based charge”, there is no certainty to recover full approved revenue, as the actual energy

transmitted may vary from the projected energy. Setting positive value of ‘α’ will reduce revenue

recovery risk to EVNNPT.

Loss due to forex variation

1. At present, EVNNPT does not have hedging against the risk of foreign exchange fluctuations which

causes huge losses to EVNNPT. As per the balance sheet of EVNNPT, there is no loss in past years

despite the fact that EVNNPT is not allowed to recover RoE. The reason being that EVNNPT is not

charging the entire foreign exchange fluctuation loss/ expenses in one year. They are allowed to

carry forward the loss/ expenses over the next 5 years. Due to the flexibility allowed to EVNNPT in

respect of not showing the forex fluctuation losses/ expenses in one year, they are able to show

profit in their financial statement and are paying income tax on this book profit. This is a further

erosion of funds which is not available in reality.

2. Forex loss is a real loss and must be allowed to be claimed in respective year’s revenue. ERAV

allows recovery of only realised forex loss but not the unrealised forex loss. There is no clear

mechanism/timelines for recovery of accumulated forex loss. Total loss from allocated exchange

rate differences (as on December 2012) was around 2,013 billion VND (96 million USD). This was

proposed to be liquidated in equal instalments in 2013, 2014 and 2015 (i.e. 671 billion VND per

annum). However, in 2014, ERAV has allowed only 241 billion VND of forex loss. EVNNPT

currently does not have any hedging mechanism against the risk of forex loss. If EVNNPT opts for

any such mechanism in future, the cost of procuring such instrument(s) shall be allowed in the

revenue requirement.




PwC 94

Penalty for failed service quality

1. Regulation specifies mechanism of imposing penalty for failed service quality but it is not in

practice. This is because of inadequate data about outages and lack of penalty norms. For example -

Timing of outage and restoration of lines and transformers with precise reasons. Penalty norms for

outage of line and transformers at 110 kV, 220kV, 500Kv need to be clearly defined. Further

penalty is levied through deduction of equivalent from the EVNNPT’s Welfare Fund. Welfare Fund

has been created to take care of employee welfare needs such as bonus, social benefits to

employees, recreation and entertainment, etc. This approach seems to be penalizing all staff

members who might not be in any way related to the process of managing the service quality.

Regulation does not also provide for any specific incentive in case of efficient performance by

EVNNPT.

Cost norms

1. Cost norms are the basis for calculating the material costs and major repair costs (which are

components of the operating costs in the total transmission revenue). The cost norms currently

used by EVNNPT were developed by EVN in 2006. There is no mechanism to adjust existing cost

norms to reflect inflation, technological improvement etc. Further, it also does not contain certain

cost items which today form part of the overall cost. For example: EIA study, engineering /

management software, fire prevention systems, propaganda systems, communication systems etc.

Cost of major repairs is capped at 0.8% of asset value in Year N-3, which needs review. Once norms

are implemented, EVNNPT should be allowed to retain any savings on account of difference

between allowed cost (normative) and actual cost (audited). Scientifically developed norms will

drive reduction in operating costs.

Transmission pricing methodology

1. The current methodology followed is nationally uniform, flat energy-based charge. It does not

reflect power flow path, distance, direction, delivery points, time of usage. Though this

methodology appears to be reasonable in the current context, it may not be adequate in light of;

a. Massive growth of the transmission network in coming years

b. Emergence of wholesale and retail competitive electricity markets

c. Probable private sector participation

2. An efficient yet simple methodology will help promote market development.

Process related

Delay in filing of the transmission tariff petition

1. It was derived that there have been time lags at EVN’s end and/or at EVAR/MoIT end in processing

of the petition for transmission charge submitted by EVNNPT. Such delays may cause unnecessary

complexity in terms of delayed recovery of new charge by EVNNPT and would trigger adjustment

in the next cycle. Delay in notification of retail prices impacts transmission price finalisation.

2. There have been instances when the Government has decided to postpone the processing of the

petition for the electricity retail charge to the next year instead of the current year based on

prevailing macro-economic environment. For example, MoIT Decision No. 38/2012/TT-BCT dated




PwC 95

20 December 2012 (retail electricity tariff effective December 2012) was issued after a gap of almost

22 months from the Prime Minister's Decision No. 268/QD-TTg dated 23 February 2011 (retail

electricity tariff effective February 2011). This approach causes undue strain to EVNNPT as it would

be unable to recover any additional costs incurred/ to be incurred in the current year.

3. The process of filing TPTR and TC should be synchronised in the regulations. The process of

payment of transmission charges is currently not as stipulated in the regulation; this provision

should be updated in the regulation as per the revised practice proposed.

Powers of EVN in transmission pricing determination process

1. It has been observed that EVNNPT does not have full autonomy to determine its revenue

requirement; it has to be channelled through EVN. It seems EVN significantly modifies

revenue/price proposed by EVNNPT before its submission to ERAV. In 2014, EVN curtailed

EVNNPT’s proposed revenue by 22% and allowed only 1% RoE (instead of 4% as proposed by

EVNNPT). It appears ERAV also does not have powers to review investments proposed by

EVNNPT.

2. The table below captures the disallowance of revenue and expenses by EVN for 2014.

Item Power transmission tariff in 2014 (petitioned by EVNNPT)

Power transmission tariff in 2014 (reviewed by EVN)

Disallowance in %

Million VND

Power transmission output (Million kWh)

123,345 122,200 0.9%

Power transmission tariff 109.9 86.4 21.4%

Revenue 13,556,849 10,552,297 22.2%

Expenses 12,670,971 10,342,306 18.4%

Materials 166,133 140,148 15.6%

Salary and social insurance 1,390,407 1,356,838 2.4%

Depreciation of fixed assets (excl. revaluation of fixed assets)

6,506,645 6,004,235 7.7%

Outsourced services 202,188 50,360 75.1%

Major repair expenses 381,060 381,060 0.0%

Cash expenses 2,486,621 2,387,101 4.0%

Increases and impairments in electricity price

1,537,917 22,564 98.5%

Profit from power production and trading (1% of state capital)

885,878 220,000 75.2%

EVN made considerable changes in the numbers submitted by EVNNPT. Overall reduction was to the tune of

22% in the revenues and 18% in the total expenses. Major reductions were made in RoE and Forex loss

allowance.

Limited autonomy to EVNNPT and ERAV

1. It has been observed that EVNNPT does not have full authority to determine its revenue

requirement; it has to be channelled through EVN. EVN can exercise powers to curtail the revenue

requirement as it deems fit and submit the same to MoIT / ERAV for review and approval. Hence




PwC 96

there exists dependency of EVNNPT on EVN and the Government to seek revision in the

transmission charge.

2. Further, ERAV being integral part of MoIT lacks autonomy while approving the transmission

revenue and charge. ERAV does not have any specific powers to review proposed investments as

part of the transmission pricing calculation. Instead, the five-year network development plan and

annual investment plan as approved by MoIT and EVN are used to calculate the costs of

investments in the coming year.

3. As per Decision No. 69/2013/QD-TTg, ERAV shall mandatorily seek approval of MoIT for all

increases in retail tariff beyond 7% (w.r.t. prevailing prices).

Structure related

Coordination between concerned departments

1. Given the nature of data to be submitted by each department to CPD and the average time taken by

CPD for preparation and submission of the petition, internal timelines should be followed for

submission of data by various departments to CPD. It appears the information to calculate failed

service quality is not being captured. Also, the standards / norms have not been defined yet. An

incentive mechanism might help motivate EVNNPT employees towards accurate recording of

relevant information and computation of penalty.

Technology related

Scope for improvement in petition for transmission charge

1. It is also observed that the transmission revenue/charge petition filed by the EVNNPT does not

provide sufficient details (data, analysis, justification etc.) on the various expenses (both, actual and

planned), on the basis of which a sound decision for allowing or disallowing such expenses can be

made. There are no scientifically determined norms for computing materials costs and major repair

costs. ERAV is unable to implement penalty provisions on failure to meet quality standards in

absence of adequate data on incidents and norms.

2. Further, petition uses rudimentary MS Excel workbook for computation of costs and it is difficult to

understand the data flows, inter-linkages and analysis. The petition should also be supported by a

more detailed calculation (MS Excel model) which provides historic information as well as

projections for the future. This will enable a trend to emerge and will be useful in assessing if the

expenses are in line with the regulations and what can be justly allowed. For e.g. further details on

item wise repairs and maintenance expenses, details on outsourced expenses etc.

3. There is also ambiguity about the tariff cycle, which according to regulation is from 1 July of a given

year to the 3o June of next year. But there have been several orders which have called for extension

of tariff from 1 January of a given year. Also the latest transmission charge petition dated 14

January 2014, filed by EVN to ERAV indicates the change in the tariff cycle hence forth to be from 1

January to 31 December of any given year. This calls for a revision in the Regulation which specifies

cut off dates by which EVNNPT/ EVN have to review and submit the TPTR/ TC petition to ERAV

for final approval.

4. There is scope for strengthening the existing framework of EVNNPT even though it is a state owned

enterprise. Areas of improvement include the regulations guiding the filing of petition for

transmission charge and its approval process, classification of costs as controllable and




PwC 97

uncontrollable elements allowing for better recovery of justifiable expenses of EVNNPT,

comprehensive and accurate data to support the expense claims etc. Also, EVNNPT as well as

ERAV should be allowed to operate with certain level of independence while undertaking the

activity of submitting and approving the transmission charge petition.

Public relations



PwC 98

Public relations

Strategy

We have reviewed the relevant laws/decisions/decrees/regulations/ circulars for the Public relations function

(Brief provided in Appendix 5 -). The table below summarizes our observations on the relevant laws/ decisions/

degrees/ regulations/ circulars:

Regulations Objectives PwC analysis and observations

Regulation on Communication of EVNNPT, 2011

The regulation lays down that EVNNPT

has to ensure communication of

information to partners, customers of

EVNNPT and social community

NPT communicates with media,

directly. But PMB takes the active role

in the case of addressing the people

being affected by the project - who are

one of the most important

stakeholders

Thus those who are directly impacted

by EVNNPT projects do not have any

direct interaction with EVNNPT

directly on issues like land

acquisition, but are dealt with by PMB

Mentions ‘ad-hoc’ requirements,

indicating the need for crisis

communication or issue-based

communication

Though the need for crisis

communication is mentioned, no

definite plan or process appears to be

mandated or documented

The ad-hoc situation confuses the

prioritisation of issues

The regulation lays out the need for

fulltime communication staff at

EVNNPT

For PTCs, one fulltime staff and one

part time staff

PMBs one full time staff is

recommended

There is no full time head for the

communication team at EVNNPT

The Deputy Director No. 2 and three

experts from the Administration

Department look after

communication

For PTC, there are two part time staff

from the Administration Department

For PMBs too, there are no full time

staff. Communication is handled on a

case by case by whoever is a part of

the project and is assigned the task by

the management

The regulation lays down the staff

should have professional capacity and

knowledge of communication and have

the ability to work independently

The communication staff which are

currently carrying out the PR work

are not professionally trained. They

are mostly people from operations

who have earlier done some

communications work

Public relations



PwC 99

Regulations Objectives PwC analysis and observations

The communication team shall have

responsibility to review contents,

organize editorial works, posts

information into News site; website and

means of mass media

Subsidiaries shall prepare press releases

on important events of itself and report

to Administration Department

Other departments. need to coordinate

with Administration Department in

term of information, event to

coordinate in implementation of

communication task

The consultant’s interviews with the

Administration Department show

that the other departments of

EVNNPT do not understand the role

of communication. Also they do not

appreciate or actively cooperate with

communication team in

communication activities

The communications team in the

Administration Department tends to

ignore many tasks assigned to it in the

annual plan

The Administration Department shall

work in coordination with press

agencies to organize working teams to

meet with EVNNPT’s subsidiaries to

collect material, take video, take photos

communication on press publications,

on channels of radio and TV stations

The 2014 communication plan of

EVNNPT reduced the number of

targeted online channels from six to

two

The two that have been retained are

the Party's website and the

Government Portal. The other four

are top prestigious online newspapers

in Vietnam

Meet with responsible people of the

press agencies, radio agencies to

implement procedures of news posting

and TV and radio broadcasting

The communication team from the

Administration Department does not

engage with the media on a regular

basis

The above is evident from the

perceptions audit of the media

The Administration Department shall

organise and advise on communication

to EVNNPT’s leaders to interact with

press agencies.

All requests for interviews, shall be

addressed by the Administration

Department. Other departments and

subsidiaries have the responsibility to

coordinate with the Administration

Department on dealing with media

The Administration Department

coordinates with all media and

organises press meets with EVNNPT’s

spokespersons

All requests for interviews are routed

through the Administration

Department

Decision No. 1428/QD-EVNNPT and amendment

It lays out the functions and

responsibilities of the various

departments of EVNNPT

The role and relevance of these

departments with regard to

communication have been outlined in

the section on Structure

Other relevant regulations:

Regulation PwC analysis and observations

Decision No. 1208/QD- Objective: To develop the roadmap for the power sector in line with the

Public relations



PwC 100

Regulation PwC analysis and observations

TTg

National Master Plan

national socio-economic development strategy, ensuring adequate supply

of electricity for the national economy & social life

- To apply market mechanism

- To preserve the monopoly of the state in transmission

- To step up rural electrification

Communication related: The Decision states that communication is

necessary

- For people to understand about co-contributions of both

Government and People in power development in rural and

mountainous areas

- To raise awareness about market mechanism (needs, tariff,

investment etc.)

- For people to reasonably use power resources to protect the

environment

- To raise awareness about the Law relating to using power

economically and efficiently

- To support land acquisition activities and call for investment

in power projects

The Decision can be considered as a background and basic reference

document for EVNNPT, as a subsidiary in the power sector, to follow and

then develop its own strategy

Land Law No.

13/2003/QH11

Land management and

use

The land law prescribes land management and use.

The State is the sole owner of the land. It gives land use rights to the

citizens and withdraws this right for a greater purpose like development

Compensation and Land Acquisition are the two issues that EVNNPT

faces in project implementation. The process of land acquisition can be

much smoother if EVNNPT pays enough attention to communication

strategies with regard to stakeholders, especially the affected people

The objectives and messaging in this law can form the key messages for

stakeholders with regards to land acquisition and compensation

Decree 15/2013/ND-CP

Quality Management of

Construction Works

This decree gives regulations regarding the quality management in

survey, design, construction execution and acceptance of construction

works; on safety management, handling of incidents during construction

execution, exploitation and on warranty of construction works

There is an emphasis on crisis communication. The Decree mentions

- The process of communication of crisis, from commune level

to higher levels

- Within 24 hours investors have to send a written report

about the crisis to District Committee, Provincial Committee,

Ministry of Construction and to relevant bodies in case of

death of people

Despite the emphasis on the need for crisis communication, there does

not appear to be any crisis communication plan in place

As a company with many projects where mishaps can occur, EVNNPT

should consider this Decree as a basic guide for crisis communication

Public relations



PwC 101

Structure

The companies and key departments involved in the public relations:

Entity Depart-

ment

Officers involved Stakeholders Specific role in public

relations

ERAV Mr. Tran Tue Quang MoIT

EVN

NPT

EPTC

Generating

Companies

Distribution

Companies

Reviews transmission price

proposals and seeks approval of

Minister / Vice Minister of

MoIT

Interacts with EVNNPT on two

key matters: (i) review and

approval of transmission price

petition; (ii) review and

approval of EVNNPT's

investment plan (both the

documents are submitted after

review by EVN)

Can initiate Suo-Motu revision

of electricity price (in case

utility fails to submit the tariff

proposal on time or does not

submit the proposal at all)

No consultation with public,

discoms and generating

companies yet during the

process of determination of

transmission tariff

EVN PR Cao Quang Quynh -

Acting Deputy

Director

Nguyen Van Binh -

Deputy Director

Bui Viet Ha - Expert

Nguyen Thi Thai Ha -

Expert

Dinh Ngan Ha -

Expert

Do Hoang Ha - Expert

Tran Tri Trung -

Expert

Nguyen Quynh Anh -

Expert

Nguyen Thi Diem

Huong - Expert

Nguyen Hoang Anh -

Expert

Nguyen Bich Lien -

Expert

EVN employees

All subsidiaries of

EVN

All departments

of EVNNPT

Local people at

project sites

Local Authorities

Media

MoIT

ERAV

Dictates strategy to all

subsidiaries, based on which

they develop communication

plans

Communication relating to

major issues and pressing

matters of the subsidiaries are

controlled by this department

NPT Administ Mr. Bui Duy Hung EVN Instructs, plans and

Public relations



PwC 102

Entity Depart-

ment


relations

ration -

for

communi

cation

Director

Vu Quang Huy -

Expert

Le Xuan Hoan -

Expert

Tran Anh Son - Expert

MoIT

ERAV

NPT employees

Affected people

(for proposed

transmission

corridor and

substations) and

local people

where there are

transmission lines

and substations

Leaders at all

levels (communes

to provinces)

where projects

are implemented

Media

implements all the

communication related tasks

for EVNNPT, PMBs and PTCs

Manages

o Internal

Communication

(website,

newsletters,

quarterly

magazines)

o External

Communication

(publicity, mass

event management,

media relations)

Promote the image of EVNNPT

in public and to provide

information to the stakeholders

NPT Inspectio

n

Hoang Van Luoc -

Deputy Director

Local Authorities

Government

bodies

Regulators

Residents

Land owners

Inspection, monitoring and

compliance during construction

phase

Working with local authorities

to prepare the plans for safety,

protection & prevention of theft

of power

Encourage people living around

the transmission lines to sign a

commitment not to violate

safety corridor for transmission

lines

Raising people’s awareness

about the protection of

transmission lines

Carrying out CSR activities,

such as building houses, giving

students & poor families gifts

on special occasions; &

organising events

Issues/crisis management

during project construction and

operation

NPT Legal Dinh The Minh -

Deputy Director

Government

regulator

Other EVNNPT

departments

Arbitrators

Acts as the key contact point to

manage internal regulations to

ensure consistent application

throughout EVNNPT, reports to

the Management Board on six-

month and annual basis its

Public relations



PwC 103

Entity Depart-

ment


relations

findings of review of internal

management regulations to

ensure compliance with existing

regulations on management

issued by EVN

Pronounce list of internal

management regulations that

are no longer valid.

Update, review and codify latest

regulations

Disseminate legal regulations,

internal management

regulations to EVN’s staff

NPT Construc

tion

Manage

ment

Hoang Van Tuyen -

Deputy Director Affected people

(for proposed

transmission

corridor and

substations) and

local people

where there are

transmission lines

and substations

Domestic funding

agencies

International

funding agencies

MoNRE/ DoNRE

Contractors

Workmen

Land acquisition, resettlement,

compensation, and

environment issues around

construction

Follows the government’s

master compensation plan,

consisting of size of land, unit

price and resettlement plan,

employment opportunities,

support for poor households

and ethnic minorities etc.

Works with the Voice of

Vietnam (VoV) and Vietnam

Television (VTV) to carry out

communication activities,

including those relating to

environmental and social

issues, while PTCs work with

provincial broadcasting stations

NPT Technical Tran The Khanh -

Expert

Domestic and

international

technical partners

Employees

Other EVNNPT

divisions

People living near

transmission

corridor

Workmen

Disseminates information on

environmental issues based on

documents from MoNRE and

EVN

All documents relating to

environment operation are sent

to the Technical Department for

review

All 7 subsidiaries of EVNNPT

prepare reports on environment

protection and send them to the

Technical Department which

prepares an overall report on

the issue

If PTCs do not understand the

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PwC 104

Entity Depart-

ment


relations

guiding documents, they can

call the Technical Department

to ask or they can send a

written feedback as well. In case

the Technical or Construction

Management Departments

cannot answer, they ask

MoNRE to get answers for PTCs

Northern Power Projects Management Board (NPMB)

No full time staff for

communication

Local people

District

Resettlement

Council and other

local authorities

International

Funding Agencies

MoNRE

DoNRE

Employees

Workmen

Works closely with local

authorities (the District

Resettlement Council) to

publicize project information,

such as project policy, acquired

land area, and compensation

Prepare an Environment

Impact Assessment Report for

domestically funded projects

NPMB Resettle

ment

Mr. Do Duc Manh

Mr Vu Thanh Ha

Local people at

project sites

Provincial

People’s

Committee (PPC)

International

Funding Agencies

Resettlement activities are the

responsibility of the PPC,

NPMB gets involved where

necessary, like deciding on how

many and which households are

necessary to be displaced for a

particular project

PPCs are responsible for

announcements for land

acquisition; and can decide on

acquiring paddy land less than

10 hectares without the

approval of the Prime Minister

of Vietnam

Compensation plan is

developed

Indigenous people are paid

higher compensation price and

more employment

opportunities where alternate

cultivable land is not available

The authorities also support

such people in setting up small

businesses

NPMB Assessment Department

Mr. Nguyen Huu

Chanh

Affected people

MoNRE

Domestic

Funding Agencies

Sends written documents to

relevant communes and

commune residents. If

commune people agree with the

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PwC 105

Entity Depart-

ment


relations

contents of the documents then

the commune can send

feedback to PMB about the

agreement on behalf of its

people.

In case there are

disagreements, PMB organises

direct meetings. In this

meeting, PMB listens to and

answers all the queries of the

commune people. MoMs are

developed and signature

obtained from all participants

All EIA reports prepared by

external consulting agencies are

approved by the Assessment

Department

Social Impact Assessment (SIA)

and Impact on Indigenous

Peoples reports are required for

internationally funded projects,

whereas for projects funded

domestically, preparation of

Indigenous Peoples reports is

not mandatory

NPMB Planning Department

Mr. Vu Xuan An Affected people

MoNRE

International

Funding Agencies

Hires external consulting

agencies which prepare EIAs

that are approved by the

Assessment Department

For internationally funded

projects, there are two EIA

reports: one, as per the laws of

Vietnam is prepared by the

Assessment Department of

PMB and the other, following

the donor’s regulations is

prepared by external consulting

agency hired by the Planning

Department

The Social Impact Assessment

(SIA) is also done by the

Planning Department as

required by donors

There is a special plan for

addressing the indigenous

people called the Ethnic

Minorities Development Plan

(EMDP)

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PwC 106

Entity Depart-

ment


relations

CPMB No full time staff for communication

Local people

District

Resettlement

Council and other

local authorities

International

Funding Agencies

MoNRE

DoNRE

Employees

Workmen

There is no dedicated

department for PR. Each

department communicates with

external parties as required

In matters relating to

compensation & resettlement,

the task belongs to the

Resettlement Department.

The Technical department

communicates about

construction work and progress

of project

The Administration

Department communicates

about social issues (i.e. the

benefits and importance of a

project)

The Appraisal Department

communicates about the

environmental issues

The Resettlement Department

prepares a project

communication document that

contains information about the

scope of the project, the kind of

impact, the time to start

construction and the

completion timeline

The Appraisal Department

conducts the Environment and

Social Impact Assessment (EIA

& SIA / ESIA) studies. These

are mandatory and are

prepared by external

consultants

For ODA funded projects, the

report is evaluated by CPMB

and, after review, is submitted

to the donor. For domestically

funded projects, the report is

evaluated by CPMB and

submitted to the environment

authorities in the government

Social Impact Assessment (SIA)

study is not undertaken

separately but is a part of the

Environment and Social Impact

Experts, during the process of

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PwC 107

Entity Depart-

ment


relations

working out compensation

rates, interact with the local

people and communicate about

the project

The Resettlement Department

prepares weekly, monthly,

annual plans on resettlement

issues, including those related

to communication

SPMB Nguyễn Thế Mỹ -

Manager of

Procurement

Department

Dương Anh Tuấn -

Manager of

Resettlement

Department

Trần Thị Tuyết

Lan - Deputy

Manager of

Appraisal

Department

Lê Thị Thanh

Nhàn - Expert of

Appraisal

Department

Phạm Văn Tranh -

Expert of

Resettlement

Department

Lưu Nguyễn

Hương Lan -

Expert in-charge

of Environment,

Resettlement

Department

Nguyễn Bích Ngọc

- Expert from

Procurement

Department

Local people

District

Resettlement

Council and other

local authorities

International

Funding Agencies

MoNRE

DoNRE

Employees

Workmen

SPMB visits the province,

district and commune to

communicate about the project

after investment in a project is

approved

The District Resettlement

Committee prepares the list of

affected people, rate schedule

for compensation and is made

available to the public for

comments

These comments are taken into

account and adjustments are

duly made

SPMB coordinates as a member

of the Resettlement Committee

and seeks resolution of complex

problems

Reports major problem if any to

EVNNPT and seeks advice and

conveys the council to the

Resettlement Committee. It is

then communicated to the

public

Does not communicate directly

with the commune officials

Everything is routed through

the Resettlement Committee

SPMB has a manual for

communication. The ISO

Manual on Resettlement &

Compensation covers “public

communication”. Crisis

communication is covered in

the manual

The rules, process, etc. for EIA

and Social IA are similar to

NPMB

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PwC 108

Entity Depart-

ment


relations

SPMB Communicates internally

with employees through emails

and internal website

Power

Transmis

sion

Company

1 (PTC1)

Le The Huy -

Deputy Director

Nguyen Manhjj

Hung - Expert

Power generation

companies

Power

distribution

companies

Other customers

Local people

around

transmission

corridors and

substations

Local authorities

Promoting PTC1’s image by

providing information about

PTC1. Raising awareness about

role and importance of

transmission lines so that the

public understands the need to

safeguard transmission lines’

corridors

Power Transmission Company 2 (PTC2)

Trần Thanh Phong - Deputy Director -chairman of the meeting

Nguyễn Tiến Dũng - Deputy Director

Nguyễn Hải - Manager of Investment & Construction Department

Lê Hữu Hùng - Manager of Technical Department

Nguyễn Thanh Hải - Deputy Manager of Finance & Accounting Department

Đoàn Hữu Thanh - Deputy Manager of Planning Department

Phan Hồng Phương - Deputy Manager of Administration Department

Phan Anh - Deputy Manager of Inspection & Legal Department

Trương Thế Phong - Deputy Manager of Technical Safety - Labour Safety Department

Power generation

companies

Power

distribution

companies

Other customers

Local people

around

transmission

corridors and

substations

Local authorities

The expert in-charge of

communication has experience

in journalism and is a member

of the Vietnam Journalists

Association, and is a technical

staff

The focus of communication is

on protection of safety corridors

Land acquisition is not critical

for PTC2 as the projects are in

remote areas

There is no official regulation

mandating the use of social

media. But the staff does use

social media like Facebook to

communicate on projects

PTC does provide special help

to indigenous peoples primarily

in the recruitment of workers;

alongside support for workers

from such background when

their families face difficulties

There is the intranet and the

internal website for internal

communication where

information is posted regularly.

It also carries personal

information like birthday

celebrations, etc. Employees

post ideas about work on the

intranet and internal website

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PwC 109

Entity Depart-

ment


relations

Lê Quốc Thắng - Expert from Administration Department

Trần Thị Hương - Expert from Planning Department

Nguyễn Anh Tuấn - Expert from Technical Department

Nguyễn Thị Thuỳ Trang - Expert from Finance & Accounting Department

Power Transmission Company 4 (PTC4)

Trần Thái Dũng - Manager of Planning Department

Nguyễn Phương Nam - Deputy Manager of Planning Department

Hà Công Minh - Manager of Load Dispatch Department

Phan Thái Bình - Manager of IT Department

Võ Thanh Cường - Manager of Investment & Construction Department

Dương Thất Đúng - Deputy Manager of Finance & Accounting Department.

Dương Văn Tâm - Deputy Manager of Personnel & Labour Department.

Mr. Đạt - Expert of Technical Department.

Power generation

companies

Power

distribution

companies

Other customers

Local people

around

transmission

corridors and

substations

Local authorities

The Deputy Director

Technical is responsible for

communication. The

Manager of the Safety

Department reports to him

Technical staff are assigned

the task of communication

since they have experience

and good knowledge of

safety. They do not have

specialised communication

skills

Communication on land

acquisition is handled by

the concerned Resettlement

Committee. Sometimes, a

member of the PTC4

Management Board is a

member of the

Resettlement Committee

Construction and O&M personnel also communicate with local people

Some members of trade

union and youth union also

help in communication.

The trade unions maintain

a safety officers’ network

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PwC 110

Processes

The diagram represents the process of communication between EVN, EVNNPT, its subsidiaries and

stakeholders.

The Administration Department of EVNNPT is responsible for strategy, planning and implementation of all

communication related tasks for EVNNPT, PMBs and PTCs. Any communication with the media is through the

Administration Department.

Local authorities play the key role in communicating with the affected people for land acquisition, with PMBs

liaising with them. Thus the communication with affected people for is only through PMBs and EVNNPT plays

more of indirect observational role. EVNNPT gets involved only when there is a crisis. The people affected by

transmission projects around the region are mostly not aware of EVNNPT. They only know about PMB which

directly interacts with them.

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The PPC informs the DC about land acquisition and the DC informs the commune, which include leaders from a

cluster of villages. The village leaders then communicate the plan to the villagers and other ethnic minorities/

indigenous peoples. The village leaders usually communicate the issue in the local language of the indigenous

peoples, announcing through loud speakers or through one and one meetings with these people:

The tariff revision process is an internal exercise that involves only EVNNPT, EVN, ERAV and MoIT. Neither

EVNNPT’s petition for tariff revision is shared with any stakeholders, nor are the comments of stakeholders

invited before finalisation of the new tariffs.

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Aspect Thailand India

About the transmission sector

Electricity Generating Authority of Thailand (EGAT) owns most of the country’s power production units and is responsible for the country’s transmission system

There are two distributing utilities in the Thai electricity system, namely the Metropolitan Electricity Authority (MEA) and the Provincial Electricity Authority (PEA)

India is one of the few countries where the Transmission Sector has been opened up for private participation & this has attracted significant interest from private players

Private participation is mainly in BOO (Build Own Operate) format and is small & growing

Power Grid Corporation of India (POWERGRID), the government-owned Central Transmission Utility (CTU), is responsible for wheeling power of central generating utilities and inter-state mega independent power producers

State Transmission Utilities (STUs: managed by respective state governments) are responsible for wheeling of power from state generating units and state level independent power producers

As per the Electricity Act, 2003 the functions of the Central Transmission Utility are:

o Undertake transmission of energy through the inter-state transmission system

o Discharge all functions of planning & co-ordination for inter-state transmission system

o Ensure development of an efficient, coordinated and economical system

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of inter-state transmission lines for smooth flow of electricity from generating stations to load centres

o Ensure integrated operation of the regional grids through RLDCs (Regional Load Despatch Centres)

Similarly, the State Transmission Utilities are responsible for the development of transmission networks at the state level

For communication on land acquisition

EGAT informs the owner or possessor of the property concerned in writing about the proposed acquisition

The owner or possessor of the property may make a submission to the EGAT Board, giving reasons why it would be inappropriate to acquire his land. The Board is obliged to give its decision on the petition within 30 days from the date of receipt of the request

A meeting is called by EGAT to explain the salient features of the transmission project as well as to listen to the points raised by the people whose land is to be acquired

There are cases in which citizens have voiced the need to have a joint action committee to study the impact of an EGAT project. The committee comprises external consultants, experts and leaders of the affected community. It undertakes an impact assessment study and submits its report to the public and the government.

Finally, high ranking officials from EGAT are expected to meet the residents in person, listen to their point of view and seek their cooperation

An initial environment and social assessment is conducted to study the impact of the land loss

Over and above the mandatory requirements of the land acquisition law, POWERGRID is committed to assessment of probable impacts associated with land acquisition through its social assessment and management process which includes a socio-economic survey of the proposed substation sites

The socio-economic survey assesses both adverse and positive impacts of the project on aspects such as the natural resource base, developmental potential of the area, economy of the affected area, social structure, norms and traditions.

The socio-economic survey also includes a complete household census recording members, property with legal rights and resources which are in possession or in use

Appropriate methods such as participatory rural appraisal and questionnaires are utilized.

Public is informed about the project at every stage of execution. During the survey, the site officials, along with consultants, meet people and inform them about the RoW requirement / land acquisition details.

The Environmental and Social Policy and Procedures (ESPP) spells out its commitment to ensure total transparency through a well-defined public consultation process as well as dissemination of relevant information about the project at every stage of its implementation.

It is also ensured that such consultations are based on the principle/concept of “Free, Prior Informed Consultation”.

The site selection by POWERGRID is planned on the basis of avoiding irrigated land, homestead land/houses, religious structures, cultural property or public infrastructure

POWERGRID aim to locate sub-stations on government/waste land as far as possible

For communication on resettlement

Under section 30 of the EGAT Act, EGAT decides on the compensation value and pays fair compensation to

In India land acquisition, resettlement and compensation are governed by the brand new Right to Fair Compensation and Transparency

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& compensation

the owner or possessor of the property or another holder of a right for the following cases:

Use of land to set up posts for transmission or distribution lines

Use of land to set up sub-stations or other accessories

Use of land which is declared as electric line laying zone

In cases the compensation amount is not agreed upon between the owner/possessor or rightful holder of the property and EGAT, or

If the owner or possessor/ rightful holder of the property could not be found

EGAT deposits such compensation to the Court/ the Deposit Office, or deposits it in the Government Savings Bank in the name of the owner/possessor/ rightful holder of the property

If there is any interest accrued on such deposit, it is also vested to the owner/ possessor/ rightful holder of the property

in Land Acquisition, Rehabilitation and Resettlement Act, 1913 which came into effect on January 1, 2014

This new land law replaces the old colonial-era law, the 1894 Land Acquisition Act, which was seen as one-sided and weighted against land owners and land users.

The new law notably makes “fair compensation and transparency” in land acquisition a right of the people

It makes up for the earlier absence of a national law to provide for rehabilitation & resettlement (R&R) and also compensation for loss of livelihood of those affected and displaced. The old law did not do this and R&R suffered badly

POWERGRID assess the social impact of land acquisition based on the socio-economic survey and design compensation packages in consultation with the people.

The mode / technique of public consultation involves public meetings, informal small group meetings, information brochures and pamphlets, operating field offices, local planning visits and site visits by staff, response to public enquires, press releases inviting comments, project coordination committees, ombudsman or representative and public displays

For communication with affected people

EGAT's corporate plan explicitly requires public participation and seeks public acceptance of the development project

EGAT's objectives in public consultation include seeking the opinion of the public and understanding their needs, assessing the objections of the communities living in the operational area, and disseminating accurate information about the project

EGAT’s operations have always been closely related to rural communities and their livelihood from the construction survey to the construction of power plants and transmission lines as well the electricity generating activities. It is EGAT’s policy to become part of the community wherever they operate

POWERGRID involves affected people from inception stage to operation and maintenance

They consult affected people in issues of RoW, land acquisition or loss of livelihood

POWERGRID organises meetings with the Project Affected Persons (PAPs) in order to evolve the Rehabilitation Action Plan (RAP)

Meetings with the State authorities, PAFs and well-reputed persons in the area are also consulted during the preparation and implementation of the RAP

The company guarantee entitlements and compensation to affected people as per its R&R policy

For communicating with public officials

Local communities, leaders, and government and non-governmental groups are canvassed and requested for recommendations

Several public meetings are held at each of the project sites to discuss

Public hearings are mandatory step in the process of environmental clearance for most infrastructural projects in India. This provides a legal space for public officials and people of an area to come face-to-face with the project proponent and the government and express

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concerns, mitigation measures and seek resolutions

Alternatives to the projects are discussed with the local communities, as appropriate for each site and as detailed in the project specific environmental executive summaries

their concerns

For communication with indigenous peoples

EGAT continues to monitor positive as well as negative developmental outcomes of its projects, after the completion of the power plants and transmission line projects, by promoting the establishment of local cooperatives and providing assistance funds for people affected by its operations. Such social investment has made significant improvement of the well-being of local people

POWERGRID pays special attention to marginalized and vulnerable groups and secure their inclusion in overall public participation.

Their Rehabilitation Action Plan (RAP) is designed to offset the trauma of economic and cultural disruption to these communities and to develop and implement programs which are meaningful and workable such that they do not become worse off economically than before

People

1. EVN has supervisory control over EVNNPT’s communication activities. In EVNNPT,

communication is undertaken by various departments and subsidiaries. EVNNPT does not have a

separate communication or PR department. While communication is formally the responsibility of

the Administration Department, its leadership maintains several other responsibilities

simultaneously and communication is one of them.

2. The Deputy Director#2 of the Administration Department is part-time in-charge of communication

in EVNNPT. The communication team of EVNNPT has three experts who do full- time PR work.

The expert who plays the key role in the department, and often acts independently, is a power

system engineer by training and has over 15 years’ of experience. But he has no professional

qualification in PR or communication and has worked in this field only since 2012. The senior

management apprehends that a communication expert may not understand the operational

processes or issues. Therefore it does not make professional qualification and experience a pre-

requisite for those assigned communication roles. EVNNPT communication officials do attend brief

training programs, but those do not appear to be comprehensive.

3. For EVNNPT, the communication team does both planning and implementation. For the

subsidiaries of EVNNPT, the team makes only the master plan and develops strategy.

Implementation is carried out by the subsidiaries themselves through officials that do

communication work in addition to their other work.

4. In NPMB, too, there is no full-time expert dedicated to communication. Communication is handled

on case by case basis by a management appointee based on his or her project responsibilities. The

Deputy Director-Technical serves as spokesperson and is in-charge of making all announcements.

NPMB implements communication strategies laid down by EVNNPT and EVN.

5. In PTC1, the Administration Department handles communication. There is a team of two people

that works part time in communication. One of them is the Deputy Director and the other is an

expert who is a business graduate and does not possess any professional qualification in PR. This

individual has been in the current position for just over a year. He handles both internal and

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external communication. Items of internal news are sent from subsidiaries and then edited and

published on the company website. For carrying out external communication, he coordinates with

the Inspection Department of PTC. He makes the plans and is also responsible for the execution of

the activities mentioned therein. The communication expert has also developed a 5-year

communication strategy with inputs of the local offices. The strategy is yet to be approved. The plan

is submitted to his supervisor in the Administration Department. From there, it goes to the PTC1

Deputy Director and then to EVNNPT for final approval.

6. For PTC2, the Deputy Director is in-charge of communication. There is one full-time expert in the

team in-charge of communication. The team prepares the material for communication. There are

experts who are in-charge of communication. The expert has no professional communication

qualification, but is a technical staff. He has experience in journalism and is a member of the

Vietnam Journalists Association.

7. In the case of PTC4, there is no dedicated staff for PR. But there are many experts who do

communication work. They are from the Safety Department and are experts responsible for

ensuring safety. The Deputy Director (Technical) is responsible for communication. The Manager

of the Safety Department reports to him.

8. Experts are assigned the task of communication. These are technical staff. They have experience

and good knowledge of safety. They meet basic requirements. They do not have specialized

communication skills.

9. Workers employed in construction and O&M also communicate with local people.

10. Some members of trade union and youth union are also helping in communication. The trade

unions maintain a safety officers’ network. They receive training in the form of short term courses

in communication.

11. The PMB officials sometimes find themselves ill equipped to communicate directly with certain

stakeholder groups. For instance, during interaction with the ethnic minorities, the major

challenges faced are language barrier, low education and differences in customs/cultures. PMB has

to depend heavily on the communes for communication.

12. At CPMB there is neither any dedicated department for PR nor is any person in-charge of

communication. Each department communicates with external parties if it has to. In the case of

Compensation & Resettlement, the task belongs to the Resettlement Department. Technical

department communicates about construction work and progress of project. The Administration

Department communicates about social issues (i.e. the benefits and importance of a project). The

Appraisal Department communicates about the environmental issues. No guidance has ever been

received from EVNNPT or EVN on communication. All communication activities are linked to

projects. If need be, the Deputy Director in-charge of a project communicates with EVNNPT or

EVN.

Technology

Key communication plans being followed:

Major plans used Topics Prescribed Tasks PwC analysis and observations

EVN Communication Plan for 2014

Communication work of the subsidiaries of EVN

Develop detailed

communication plan of

Each subsidiary

develops a

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the Group, defining the

communication theme

for each quarter

Provide written

guidance to unit

members on performing

communication

activities driven by

content

communication plan

based on the strategy

provided by EVN and

then submits it to EVN

for approval

EVN then supervises all

communication

activities through

monthly reports (from

the subsidiaries) to

ensure everything is on

track

Media management and orientation

Manage information

flow to media

organisations

EVN is not active in

regular media

engagement regarding

announcement of new

projects etc.

Media sees EVN as

monopolist and

unresponsive

Community Relations Issuing the Regulation

on organizing

community relations

activities and

management model of

community relations

work within the Group

EVN has recently started

communicating with

stakeholders, especially

the ordinary public, to

publicise EVN’s

activities and to secure

support for EVN’s work.

They are now using the

slogan “Light up trust”,

which stems from the

thought that its purpose

now is to win back trust

from stakeholders

NPT Propagation Plan 2014

Propagate the role, position, importance and achievements of EVNNPT and its subsidiaries

Coordinate with local

and central media

agencies to update news

of EVNNPT

Writing articles on

electronic portal of

EVNNPT

Power Transmission

Newsletter

Organize charitable

activities

Media engagement is a

major part of EVNNPT’s

communication work

Articles about

EVNNPT’s projects,

events, business etc. are

posted on the electronic

portal, i.e. the website of

EVNNPT

Newsletters are sent

internally within

EVNNPT and its

subsidiaries. Thus, while

the Plan requires

EVNNPT to use the

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PwC 118


Power Transmission

Newsletter to

communicate with all

stakeholders, in fact the

newsletter is consumed

internally

NPT organises various

CSR activities through

the workers union and

youth union

Internal propagation Writing articles on the

website, newsletter of

every units, newsletter

of Transmission and

electronic portal of

EVNNPT

Use of websites,

newsletters and

magazines for internal

communication is

common

Propagate the protection of power grid safety corridors

Distribute brochures

Hang posters, paintings

Write articles, reports

Disseminate

information in the mass

media about the

incidents where there

was a threat to life and

property

Through organizations,

schools

Other forms suitable for

specific units

NPT does not directly

deal with the people

affected by transmission

projects

PTC is in-charge of

direct interaction

PTC disseminates

information through

posters, fliers about the

protection of safety

corridor. However these

are localised and not all

of the people are aware

of this activity

Propagate site clearance compensation

Dialogues and meeting

Coordinate with media

agencies to submit

articles, reportage and

propaganda

Site clearance and

compensation again is

not directly handled by

EVNNPT.

The PPC prepares the

compensation plan and

sends it to PMB for

budgeting

Media is not used

optimally for

communication with

regard to site clearance

Engaging with media for communication

To perform activities in

coordination with press

agencies to organize

working teams to meet

with EVNNPT’s

subsidiaries to collect

One of the objectives of

communication work of

EVNNPT is to

communicate about

EVNNPT with entire

society and this is also

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PwC 119


material, take video,

take photos,

communication on

press publications, on

channels of radio and

TV stations

mentioned in the plans

of 2013 and 2014 but in

fact, since its

establishment (about 5

years so far) EVNNPT is

rarely reported in the

mass media

The interviews with

media and MoIT shows

that EVNNPT does not

work well with the

media and its target

audiences exclude mass

public as it mentions in

both Regulation and

Communications Plans

Besides, the number of

newspapers (both online

and print) used in

EVNNPT

communication work is

quite limited

The EVNNPT communication plan for 2013 (analysed here vis-à-vis 2014 plan)

There has been no change in terms of objectives, target audiences and

communication tools to be used

However, there are differences as listed below:

o The 2014 plan identifies clearly the activities to be performed by

EVNNPT and its subsidiaries. The target media are identified

o Newspapers: The 2013 plan selects six online channels for

communication (including the Party’s website, the Government

Portal, Prestigious online newspapers like Dantri, VnExpress,

Vietnamnet, and the Power sector’s websites) while the 2014 keeps

only two channels as targets the Party’s website and the Government

Portal

o In term of print newspapers, the 2013 and 2014 plans keep the same

number of newspapers. Four newspapers (Nhan dan (People),

Vietnam News Agency, Lao dong (Labour), Hanoimoi (New Hanoi))

are same and two are different

o In 2013 plan, the Power Magazine and Industry & Trade newspaper

were selected but in 2014 plan they are replaced by Dau tu

(Investment) and Nguoi dai bieu nhan dan (People’s representatives)

newspapers

o The 2014 plan mentions the cooperation with other communication

institutions like the Centre for Power Information, Energy Magazine,

and Power and Life Magazine, whereas, the 2013 did not have this.

PTC1 Communication Implementation Plan 2014

Communication with local authorities: Provincial Peoples Committee, District

Sending out official

letters, fliers according

to form

PMB send s official

letters to PPC and DC on

land acquisition and

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PwC 120


Councils etc. Report on status of

violation cases of

transmission line

corridor

Working directly with

People Committee /

Steering Committee at

provincial level

work closely with them

to ensure smoother

process.

Reporting of status of

cases of violation of

transmission line

corridor is yet to be

explored

Communication with Affected People

Use Panels, posters at

Public places (CPC,

schools, cultural houses

etc.)

Provide tapes or articles

to broadcast on

loudspeaker system to

CPC (Hamlets/Mountain

villages)

The communication with

affected people is

localized

In some areas PTC

addresses the people, in

some other areas it does

not

This is evident from the

perceptions audit, where

many affected people

were not aware of any

briefings on land

acquisition as well as

protection of the safety

corridors

Communication with individuals on protection of safety corridor

Sign agreements with

farmers living near the

transmission line

Sending out official

letters, fliers according

to form, and signing of

commitment by owners,

household heads and

individuals having

property in or near the

corridor

PTC is carrying out the

requisite tasks under the

supervision of and in

coordination with

EVNNPT

However, from

interactions with

individuals, it appears

that there is inadequate

communication on land

acquisition or briefing

on the safety of the

transmission corridors

Analysis of perceptions audit

A perceptions audit was undertaken to gauge and analyse the perception of the stakeholders about EVNNPT

and its subsidiaries. This was qualitative study insofar as it did not use a “statistically significant” sample size.

In other words, it was a dipstick study designated to gauge their perceptions about EVNNPT and its activities

and the satisfaction quotient on the communication process that it follows. Representatives from four major

stakeholder groups were chosen. These people were administered questionnaires specific to their group. The

interview was conducted over a period of three weeks in Hanoi as well as at an EVNNPT project site at Hoa

Binh. Representatives of the following stakeholder groups were quizzed:

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PwC 121

Negative

20%

Positive

33%

Neutral

27%

Never Heard

of 20%

Media;

General public;

Public officials; and

EVN officials.

The feedback was analysed and used to map the satisfaction quotient. The questionnaire used is attached in

Appendix 4 -.

Response

The responses of fifteen people have been collated and analysed.

The media respondents comprised senior to top

level representatives of both print and electronic

media. These media persons were very responsive

and were more willing to share their views than

some of the other stakeholders groups. Around

40% of the respondents were from the media.

The general public also responded well. Around

27% of the respondents comprised general public

who conveyed their perceptions on the

organisation. The general public included the

affected people whose land had been acquired and

who had been compensated and rehabilitated.

People living around the safety corridors and

substations and representatives of ethnic minorities/ indigenous peoples were also part of this group.

Public officials and EVN officials were less forthcoming with their responses. They were either sceptical about

the exercise or hesitant about commenting on their internal systems.

Outcome

General perception

The general perception about EVNNPT as an organisation was mapped.

The group of respondents that had a positive perception about EVNNPT

was the largest, followed by those who had a neutral perception. However

those who had a positive perception about EVNNPT were not more than

33% of the total number of people quizzed. In contrast, 40% of the

respondents had a negative perception, or had not heard of EVNNPT.

Conclusion: EVNNPT has a long way to go before it could be said that it

enjoys a positive reputation among the majority of the stakeholders.

27%

40%

20%

13%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

GeneralPublic

Media PublicOfficials

EVN

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Communicatio

n 25% No

communicat

ion 75%

Part of EVN

NPT is a subsidiary of EVN and EVN is added as a prefix to EVNNPT and the

names of all its subsidiaries. To understand whether EVNNPT is viewed as an

autonomous organisation, respondents were questioned as to whether they

saw EVNNPT as an entity distinct from EVN. It was found that EVNNPT was

seen as a part of EVN by all respondents who were aware of both

organisations.

Conclusion: It is unmistakable that EVNNPT’s image and reputation are

intertwined with those of EVN.

Perception on communication/information flow to different stakeholder groups

The stakeholders were asked on their satisfaction quotient

with EVNNPT in terms of information flow and

communication on various issues. The issues included land

acquisition, resettlement, inviolability of the transmission

corridors and communicating with the indigenous peoples/

ethnic minorities. Nearly half of the respondents did not

warm up to EVNNPT’s communication efforts. 53% believe

the communication process is good and adequate. More

than 20% perceive the efforts as inadequate.

Conclusion: Taking all stakeholder groups into account,

EVNNPTs communication score leaves a lot to be desired.

Communication with the general public

The general public was questioned if they received information about issues

through loud speakers, leaflets and so on, as was claimed by the EVNNPT

officials. No more than one fourth of the respondents conceded that there

was some form of communication. The bulk of the respondents said there

was no intimation on any of the issues.

Conclusion: EVNNPT needs to communicate a lot more than it is now

doing with the general public.

Feedback on the CSR activities undertaken by EVNNPT

NPT was rated on the basis of the CSR work that they undertake for the

affected people. Most of the respondents thought that the CSR work was

inadequate and were unhappy about it. A major part of the respondent group

was not aware of the initiatives undertaken by EVNNPT.

Conclusion: EVNNPT has to do much more on CSR. Additionally they

should make stakeholders aware of such CSR work as they are doing.

Independen

t Entity

0%

Part of

EVN 100%

20%

33%

27%

20%

0%

5%

10%

15%

20%

25%

30%

35%

Good Adequate Poor NoResponse

Happy,

37%

Unhappy, 38%

Not Awar

e, 25%

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Communicat

e 40%

No communicati

on 20%

No comments 40%

Perception of the general public on Rehabilitation and Compensation

The questionnaire sought feedback from the affected people on

rehabilitation and compensation. Most of the people quizzed

were unhappy about the rehabilitation, as they had to

surrender their homestead and relocate. Some people were

happy as their new home was better. The compensation

offered evoked mixed feelings: the respondents were both

happy and unhappy.

Conclusion: Land acquisition remains a very sensitive issue.

Communication about the imperatives of maintaining safety in and around the transmission corridor

The general public was asked about being briefed on the need to ensure

safety around the transmission corridor. 40% said that there was

communication on this issue. An equal number of respondents had no

comments to offer. The remaining 20% said that there is no

communication on the subject.

Conclusion: The communication on transmission corridor inviolability,

such as it is, is localised and inadequate.


Strategy related issues

1. Communication or PR so far has not been a priority or focus area for the EVNNPT leadership. The

need for PR is recognized though not adequately. It is critical for the leadership to recognise the

efficacy of PR /communication as an essential strategic tool for achieving business objectives.

Focus on communication is an absolute necessity. There is a clear need for EVNNPT, and all its

departments and subsidiaries, to regard communication as a vital function that is central to the

running of the organization. At this time, all departments and subsidiaries do not have

communication as an important activity. Most departments appear to see communication as

primarily the responsibility of the Administration Department.

2. A key perception issue that EVNNPT faces is the view that EVN - the parent company - is a

monopolistic organization, which is not responsive. EVNNPT and all its subsidiaries are bound to

have the EVN as prefix to their names in all public communication. For example, it is EVNNPT and

EVNNPT NPMB. This prefix and the resultant association with EVN affects the image of the

concerned organization.

3. Common citizens sometimes compare EVN with the telecommunication companies. Competition in

the telecom sector makes the telecommunication companies more responsive to public opinion.

38%

50%

63%

50%

0%

10%

20%

30%

40%

50%

60%

70%

Rehabilitation Compensation

Happy Not Happy

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PwC 124

EVN has ventured into some areas that are not its core competency. This has affected its

reputation.

4. Crisis communication strategy is also an issue with EVNNPT. While EVNNPT officials are aware of

the possibility of accidents and breakdowns being caused by the breaching of the safety corridor for

transmission lines, and are also aware of the possibility of a land acquisition dispute getting out of

hand, not enough attention appears to be paid to crisis preparedness from a communication

perspective. This is a dichotomy because there is near unanimity among EVNNPT officials that land

acquisition is a highly sensitive issue, which severely affects EVNNPT’s reputation and also hurts its

business because, as one official informed us, as much 80 per cent of all projects are delayed -

mostly on account of site clearance and compensation issues. Many in EVNNPT do not feel that it is

directly responsible for communication relating to land acquisition. Such communication is seen as

either EVN’s responsibility or that of PMB and the local authorities. It is a fact that PMB and EVN

works with local authorities on communicating with the local people before the commencement of a

project. One EVNNPT expert said that when the peasants are aggrieved they blame EVN or PMB-

not EVNNPT. And once the lines are up, many village people associate the transmission lines with

the distribution companies - again not EVNNPT. However, another expert said many of the

residents in the interiors of the country do associate EVNNPT with the transmission lines and

harbour positive feelings about EVNNPT.

5. There is a need to pay greater attention to messaging. This will lead to consistency in

communication and adoption of more talk points for EVNNPT and its various subordinate units

and subsidiaries.

6. The EVNNPT communication plan does not pay attention to the need for ensuring environmental

norms are followed and/or highlighting the environmental norms that are being followed. A formal

social impact assessment is not always undertaken except where it is mandatory as part of the

norms of the donor organization financing a particular project.

7. The EVN and EVNNPT communication plan does not seem to reflect the goals and priorities set by

the National Master Plan for Power.

8. The budget for communication (for manpower, for equipment and tools, and for activities) appears

to be insufficient. At least the staff thinks it so.

9. Social impact assessment reporting is not mandatory as per Vietnamese regulations. It is

undertaken as per regulation of the donor agency. According to Vietnamese policy, the criterion for

SIA is only compensation; whereas donors’ regulations also consider gender, development of

indigenous peoples and vulnerable households. The differences in regulations create confusion and

so there is a need to harmonize the policies.

10. For projects funded domestically, preparation of reports for Indigenous Peoples reports is also not

a requirement at the initial stage.

Structure related issues

1. Neither EVNNPT nor any of its subsidiaries has a dedicated PR department. There is also a

shortage of qualified communications staff.

2. Last year, EVNNPT proposed to have a separate communications department. This proposal is yet

to be approved by EVN. EVN maintains that it would like all its subsidiaries to have separate

communication department. The distribution companies tend to have their own communication /

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PwC 125

PR departments. This is attributed by some to the fact that these subsidiaries have a long history

(and so have evolved over time) and have optimal direct customer interface. For EVNNPT

executives handling communication, there is too much to do, too many issues to address and too

little time for them to be able to do justice to the tasks.

3. NPT focuses a lot on CSR. But the impact is only on a few people and is inadequate to alter

perceptions about EVN and EVNNPT if that is the objective. From the point of view of EVNNPT,

these activities are not seen as “CSR” because of the simple reason that the concept of CSR is not

widely or adequately understood. Tariff cross-subsidy and providing breaks to those living in areas

affected by natural calamities are seen by some in EVN as CSR activities. There is no department in

EVNNPT that is in-charge of CSR. Activities relating to CSR are carried out by different

departments, mainly by the Workers Union and the Youth Union and also by the Administration

Department in the subsidiaries. Which department will undertake any particular CSR activity

depends on the specific context of the activity.

4. NPMB is responsible for land acquisition and compensation. So the affected people do not know

about EVNNPT. They know of only NPMB.

5. The transmission pricing petition is reviewed by EVN, which changes the content based on

expenses, return on equity etc. which has significant impact on ultimate transmission price,

financial viability and independence of EVNNPT. Thus, it would be better if EVNNPT is made

independent of EVN in this matter and it is able to directly petition ERAV.

People related issues

1. Lack of professionally qualified personnel manning PR positions is an issue. Thus, human

resources need to be improved both in terms of quality (professional qualifications and experience)

and quantity. There is an apprehension in a section of the leadership that a professionally trained

person may not have any knowledge or experience of operational matters. But such misgivings are

unfounded. Such a person can be extensively briefed on operational matters.

2. NPT is aware of the worth of training—both of those who carry out communication functions as

well as those who are only periodically called to play the communicator’s role. However, the

training programmes, such as they are, are grossly inadequate and are no substitute for recruiting

professionally qualified personnel. EVN organises two training courses every year. The first is for

the communication staff of EVN and all subsidiaries, and the second is for spokesman training for

the top leaders (including directors, vice directors, managers’ in-charge of communication and

other authorised spokespersons). Besides, the subsidiaries may have their own training courses.

There is a need to impart training in soft skills, writing, logistics in communication activities, and

IT, including a wider and deeper use of the Net and New Media.

3. The communication plans do not identify the spokespersons. However, EVNNPT and its

subsidiaries have their own designated spokespersons which are normally vice president or vice

director. While there are training programmes for these spokespersons, it would be useful to have

such training programmes also for lower levels of the officials.

4. The PMB officials sometimes find themselves ill equipped to communicate directly with certain

stakeholder groups, say ethnic minorities due to language barrier, low education and differences in

customs/cultures. PMB has to depend heavily on the communes for communication.

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PwC 126

Process related issues

1. Frequent changes in the staff doing PR work dilute the commitment that executives have towards

their job.

2. The stakeholders are not listed, far less prioritized.

3. There is no use of third party advocacy (content/ research/statement). Highlighting of positive

aspects (propagation) is better accepted when done by a third party. Otherwise, it runs the risk of

being taken less seriously because it is perceived as no more than “propaganda”, the term widely

used to describe communication work.

4. It would be useful to put in place a system for receiving and assessing feedback from stakeholders.

Little stress is placed on systematic feedback and two-way communication between EVNNPT and

stakeholders.

5. There is a need to introduce measurement in the plans.

6. For domestically funded projects, the focus is on compensation. It is important to have a separate

resettlement plan also.

Perception related issues

1. The positive perception about EVNNPT is apparently overridden by negative and neutral feelings.

One of the reasons for this is that EVNNPT is perceived as being a part of EVN, which is perceived

as a monopolist and unresponsive.

2. A major chunk of the stakeholders think that EVNNPT does not communicate with them on issues

like land acquisition, resettlement and compensation.

3. The communication/ briefing on maintaining safety around transmission corridor is also

inadequate.

4. Most people think that the CSR activities that EVNNPT undertakes are inadequate. A lot of people

are even unaware of the fact that they undertake CSR work. It would be useful if EVNNPT develops

a plan and strategy for CSR activities and also involves media for visibility.

5. Most of those who are affected by EVNNPT projects are not happy with the rehabilitation and

resettlement initiatives. Even on compensation, opinion is equally divided with as much as one half

of the affected people being unhappy with what they have received.

Technology related issues

1. NPT is not active on social media. Platforms like Facebook are very popular in the country, but this

popularity is not being leveraged by EVNNPT. It would be useful to leverage the high education

level of common people and the high internet penetration.

2. There is no evidence that the electronic media is being used to its fullest advantage by EVNNPT.

Training of EVNNPT spokespersons on how best to handle the electronic media would be helpful.

The other aspect of this would be to work with the producers of electronic media channels to

produce programming content that would highlight the key messages of EVNNPT in the most

palatable and persuasive manner.

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PwC 127

3. Though the agenda of the department is to use mass media along with the company website and

direct communication, there appears to be insufficient use of local mass media (publications,

televisions) for disseminating information.

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PwC 128

Part-B: Recommendation Report

Investment planning



PwC 129

Investment planning


Overview

Title Decentralisation in decision making and approval process pertaining to investment planning and revised delegation of powers

Dimension Strategy

Category Medium-term (6-18 months)

Timelines (indicative)

Submission of draft approach note along with the revised delegation of powers pertaining to the investment planning: Four weeks from signing of MoU between ADB and EVNNPT

Presentation to EVNNPT: One week from the finalisation of the approach note

Rationale

1. The Decision No. 1368/QD-EVNNPT, 2013 governs the delegation of powers for undertaking

investment decision in EVNNPT. The existing framework is about more centralisation in decision

making to the President & CEO or Management Board of EVNNPT. There is a requirement of

decentralization of powers in respect of investment planning due to the following reasons:

a. The majority of the powers from selection of consultants, approval to feasibility report,

detailed technical design and subsequent modifications; for investment value even below

800 billion VND lies with the President & CEO of EVNNPT. The Investments with ticket

sizes above 800 billion VND require approval from Management Board of EVNNPT;

b. There is practically no financial/ administrative powers provided to PTCs/ PMBs/ vice

presidents of EVNNPT;

c. The PTCs and PMBs are responsible for identification of investment needs and execution

of capital projects. In absence of such delegation of powers, projects of smaller ticket size

and critical nature may be delayed. Such a centralized delegation of powers also lead to

higher transaction costs in case of smaller projects which may not be beneficial for the

company;

d. Empowering PMBs and PTCs will also allow the departments under EVNNPT and the

President & CEO of EVNNPT to focus on investments of higher value and strategic nature;

and

e. It will empower PTCs/ PMBs to undertake financial and administrative decisions quickly

based on the ground realities which will also ensure greater accountability from the

PTC/PMB employees.

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PwC 130

2. The proposed approach note shall assist EVNNPT and MoIT to understand, assess and refine the

existing Delegation of Powers in line with the widely accepted industry practices which could be

rolled out in a short time period.

3. The revised Delegation of Powers to be provided in the proposed approach note shall reduce the

time required for planning and approval of the investment projects of small and critical in nature.

Description

1. The approach note shall contain the following:

a. Brief of the existing delegation of powers as per Decision No. 1368/QD-EVNNPT, 2013;

b. Key issues with the existing delegation of powers in context of investment planning and

approval. This section shall also highlight experiences in other countries;

c. Framework for clearly outlining the parameters based on which upcoming projects can be

segregated into different clusters. It shall also identify the clusters where the financial and

administrative powers may be decentralised to PTCs/PMBs/departments of EVNNPT;

d. Revised delegation of power;

e. Key benefits of the revised delegation of powers especially in respect of the issues

highlighted above; and

f. Roadmap for implementation of revised delegation of power. This section shall also

highlight key challenges in implementation and our suggestion (in any) to overcome these

challenges in an efficient manner.

Implementation steps

1. PwC will submit the draft approach note to EVNNPT for discussions and inputs. If required, PwC

will conduct detailed discussions and presentation to ADB/ EVNNPT team on the salient features

of the revised delegation of power, benefits arising out of it and manner of implementation for

discussion with MoIT.

2. PwC will revise the draft approach note after incorporating the comments and suggestions from

EVNNPT/ ADB and submit the final approach note to EVNNPT.

3. NPT will discuss the approach note with EVN and MoIT for their approval; and MoIT in

consultation with EVNNPT and other stakeholders formulate a new circular notifying the new

delegation of powers.

Pre-requisites for implementation

1. The approval of EVN and MoIT will be required for the implementation of the revised delegation of

power.

2. The implementation of revised delegation of powers shall be a policy level change and all related

circulars/ decisions/ decrees which refers/relies on the Decision No. 1368/QD-EVNNPT, 2013

needs to be revised to reflect the changes in the delegation of power.

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PwC 131

Potential barriers in implementation

1. The decentralization of powers especially pertaining to financial decisions is often encountered

with resistance from the top levels of management.

2. The staff on positions where the additional financial and administrative powers will be conferred

upon may not be mentally ready to assume additional responsibility due to legacy issues. Thus

Change Management becomes imperative in this case.


Overview

Title Utilisation of funds generated through accelerated depreciation

Dimension Strategy



Submission of draft approach note: Four weeks from signing of MoU between ADB and EVNNPT

Rationale

1. At present, there is no governing regulation/ guideline for the utilisation of funds generated

through the depreciation allowed by ERAV as a part of the transmission charges. In the absence of

the regulation/ guideline, the fund generated through the deprecation is being used to fund the

capital investment requirements. This fund should ideally be utilised to repay the loan amount. It is

important to have a guideline/ framework for the utilisation of depreciation funds considering the

following facts:

a. There is a significant mismatch in the depreciable life of assets (8-12 years) allowed by

ERAV for the recovery of transmission charges and the repayment tenure of loan (25-30

years);

b. The actual useful life of the fixed assets is significantly different from the useful life

considered for the determination of depreciation by ERAV;

c. No equity infusion by the equity shareholders to finance the self-funding requirement;

d. No return on equity allowed by ERAV to finance the investment projects; and

e. There is no certainty in the existing regime that the upward revaluation of assets will be

considered by ERAV for the determination of depreciation forming part of the

transmission charges.

2. The approach note will provide a platform to discuss the importance of allowance of return on

equity for the financial sustainability of the EVNNPT on long-term basis. It will assist the

management of EVNNPT, EVN and MoIT to understand the long-term consequences of

inappropriate utilisation of the depreciation fund.

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PwC 132

Description

1. The approach note shall contain the followings:

a. Brief of the existing arrangement for utilisation of depreciation funds;

b. Need for monitoring the utilisation of depreciation funds. It will highlight the potential

risk issues which may arise due to the existing arrangement in future;

c. Comparison of the following two methodologies for funding the capital investment

projects:

i. Continue with the existing arrangement to fund the capital projects by charging the

accelerated depreciation fund; and

ii. Increase the return on equity for funding the capital investment requirement.

d. Comparison with the global industry practice for the utilisation of depreciation fund. We

will also provide the comparison of the depreciation rates across asset classes being

allowed/ charged in other countries for transmission assets;

e. Benchmark the return on equity being allowed under similar regulated framework in other

countries for power transmission sector;

f. Propose a framework to establish adequate return on equity to fund the capital investment

requirement without any significant increase in the transmission charges. In other words,

the approach note shall propose that the accelerated depreciation will be replaced with

adequate return on equity without having any significant impact on the consumer prices;

and

g. Highlight key challenges in implementation and our suggestion (in any) to overcome these

challenges in an efficient manner.



will conduct detailed discussions and presentation to ADB/ EVNNPT team on the salient features

of the approach note, benefits arising out of it and manner of implementation for discussion with

MoIT.



3. NPT and ADB will discuss the approach note with EVN and MoIT for their approval.

4. NPT, MoIT and ADB will conduct discussions on the approach note with MoF (if required) for

review and implementation.

5. After the approval of MoIT and MoF, ERAV will formulate and issue required decisions/circulars

on the new depreciation rates and return on equity to be allowed for transmission investments.

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PwC 133


1. Prior to implementation, a clear understanding is required among various stakeholders- EVNNPT,

EVN, ERAV, MoIT, and MoF that the change in the methodology is essential for the long-term

financial sustainability of the EVNNPT and it will not have any significant impact on tariff.

2. The actual implementation will require change in the regulatory policy/ decision/ circular for the

determination of depreciation.


1. The implementation will require approval from various stakeholders such as management of

EVNNPT, EVN, ERAV, MoIT and MoF. Obtaining approval from various stakeholders might be a

potential barrier in the implementation of the recommendation.

2. The increase in return on equity might face resistance from public. The public might misinterpret

the increase in return on equity with the increase in profitability. An appropriate communication

strategy will be required to convey the fact that there is no increase in overall tariff along with the

reason of increasing the return on equity.


Overview

Title Strategy for risk management against foreign exchange variation

Dimension Strategy




Rationale

1. A significant portion of the total capital investment requirement is being met by the foreign

currency funds, i.e., ODA or loan from other International Commercial Banks. On the other hand,

there is no framework available with EVNNPT under which it can hedge its foreign currency

variation for repayment of loan and payment of interest charges. There have been significant losses

in the past on account of foreign exchange variation. The approach note shall propose hedging

structure and principles to reduce such losses in future.

2. Due to the flexibility allowed to EVNNPT in respect of not showing the forex fluctuation losses/

expenses in one year, they are able to show profit in their financial statement and are paying

income tax on this book profit causing further erosion of funds which in reality does not exist. The

approach note shall also discuss in depth such anomaly and propose changes with an objective to

optimise the cash flow of the EVNNPT.

Description

1. The approach note shall include the following components:

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PwC 134

a. Risks arising of the un-hedged foreign exchange exposure;

b. Framework existing in other countries to manage foreign exchange exposure;

c. Hedging process that may be adopted by EVNNPT;

d. Possible instruments and markets for hedging;

e. Organizational requirements to manage the hedging process; and

f. Highlight the changes required in the existing framework.


1. PwC will submit the draft approach note to EVNNPT for review and inputs.


EVNNPT and submit the final approach note to EVNNPT.


4. NPT, MoIT and ADB will conduct discussions on the approach note with MoF (if required) for


5. After the approval of MoIT and MoF, the MoF will formulate and issue required decisions/circulars

in respect of establishment of framework for risk management against foreign exchange variation.


1. It is pertinent for the EVNNPT, EVN, MoIT and MOF to understand the need for establishment of

the hedging mechanism.

2. NPT would need a small team of professionals with good exposure to hedging process.

3. The historical movements of VND vis-à-vis USD is an important parameter in ascertaining the cost

of hedging. In case the VND has been very fluctuating currency, the cost of hedging may actually

outstretch the benefits of hedging. Hence it is pertinent to assess the potential cost of hedging

through discussions with multinational/ global banks.

4. Hedging is dependent on the liquidity of the currency in global market and hence it would be ideal

to understand the liquidity scenario through discussions with various multinational/ global banks

with large trading desk.

5. The cost of hedging needs to be treated as a cost of financing and has to be a pass through

component in the tariff. Thus the transmission pricing framework would also need to be revised to

incorporate this.


1. The liquidity position, i.e., demand-supply scenario of VND vis-à-vis free market currencies such as

USD and Euro is an important aspect in the establishment of hedging mechanism. In case the

demand for VND is very low compared to the supply, the hedging might be difficult.

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PwC 135

2. The implementation will require the approval from various stakeholders such as management of

EVNNPT, EVN, ERAV, MoIT and MoF. Obtaining approval from various stakeholders might be a

potential barrier in the implementation of the recommendation.


Overview

Title Prioritization of the investment projects

Dimension Process

Category Short-term (0-6 months)


Submission of draft report: Four weeks from signing of MoU between ADB and EVNNPT

Rationale

1. At present, there is no tool/ system/ process/ regulation in place based on which the decision in

respect of prioritization of projects can be made. All projects which are technically feasible are

considered to be eligible for the implementation.

2. Considering the limited funds/ budgets in EVNNPT, the prioritization is essential to determine

which projects have to be immediately implemented and which projects can be delayed.

3. There is a requirement of a robust framework to assist EVNNPT in undertaking investment

decision particularly in respect of prioritization of projects which will be based on the technical

importance (reliability) and the commercial and financial viability of the project.

4. The evaluation framework for selection of project shall be more robust and effective to carry out a

cost benefit analysis of the proposed capital investment.

Description

1. The framework shall identify key technical, commercial and financial parameters to be considered

for prioritisation of the investment projects along with typical cut-off and qualification levels.

2. The framework shall also highlight the importance/ weightage of each of the parameters (technical,

commercial and financial) so as to enable informed decision making from EVNNPT.

3. It shall also outline the process to be adopted while prioritization of the proposed investment

projects.


1. PwC will submit the draft framework to invite suggestions from EVNNPT.


EVNNPT and submit the final approach note to EVNNPT.

3. NPT will discuss the framework with EVN and MoIT for their approval.

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4. After the approval of EVN and MoIT, the MoIT will formulate and issue required

decisions/circulars in respect of establishment of framework for prioritisation of the investment

projects.

5. PwC will also help the staff to get acquainted with the mechanism of project prioritisation by

providing training in this regard.


1. The existing evaluation framework followed by various departments, PTC and PMB needs to be

scrutinized in depth to ensure that no critical parameter is left out.

2. If any integrated IT/ MIS tool is being developed, this framework should also be incorporated into

the integrated IT/ MIS tool. However, in this case staff will require training to get them familiarised

with the basic level IT system knowledge.


1. This entire exercise of prioritising the projects will make some of the projects as low priority; there

might be resistance from the offices/ teams who are sponsors of the projects.

2. There is a possibility that at the time of evaluation of proposed capital investment projects using

this framework, a project of strategic nature such as cross border transmission project may get

rejected. Hence the rejected projects should be reviewed by a dedicated committee to ascertain if

the project can be delayed.

Recommendation#5: Develop and implement (i) project financial models to assist in appraisal of investment projects and (ii) corporate level model to assist in fund identification along with necessary operating booklet for the use of financial model

Overview

Title Develop and implement (i) project financial models to assist in appraisal of investment projects and (ii) corporate level model to assist in fund identification along with necessary operating booklet for the use of financial model

Dimension Technology



Submission of draft financial models: Eight weeks from signing of MoU between ADB and EVNNPT

Rationale

1. The existing financial model being used by EVNNPT for the financial and economic appraisal of

projects is outdated. It is not adequate to evaluate an investment proposal on all the economic and

financial parameters. The model calculates some key financial metrics such as NPV and IRR but is

not flexible to offer a variety of views for different stakeholders. This model is based on the

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assumptions and guidelines provided in the Decision No. 445, which is quite outdated and doesn’t

fit in the present context.

2. The project financial model shall facilitate EVNNPT in taking prudent and informed decisions on

capital investments which are really required from commercial point of view. The project financial

model shall bring about standardization and transparency in investment decisions. It shall provide

credible information to various stakeholders such banks/ financial institutes/ donors to enable

them in taking a prudent decisions on the tenure and amount of the loans.

3. In the existing framework, it is the responsibility of CPD in EVNNPT to identify the funding source

for the projects. The CPD identifies the funding sources for a proposed project in consultation of

F&A department. While selecting the funding source, the CPD does not prepare any detailed

financial model/ tool to analyse that which source is beneficial and is aligned to the overall future

cash flows of EVNNPT in future.

4. There should be a detailed corporate financial model to assess the impact of selection of funding

sources for each project on the overall cash flow of the EVNNPT. The entire loan portfolio should

be balanced with short-term, medium-term and long-term repayment options. It should be worked

out with the help of a detailed financial model/ tool considering various scenarios.

Description

1. Both the financial models (project financial model and corporate financial model) shall be

developed using MS Excel spreadsheets which shall have inputs sheets, working / calculations

sheets and output sheet. The output sheets will be determined in consultation with EVNNPT.

2. The financial models shall have self-checks and balances to identify any error.

3. The financial models shall provide facility of scenario analysis by adjusting specific inputs

parameters. The financial models shall provide scenarios for various key leverage ratios such as

debt service coverage ratio, interest coverage ratio, debt/equity ratio under different funding

models for the project.

4. The financial models shall incorporate prevailing statutory guidelines of EVN, EVNNPT, MoIT and

MOF.

5. Various aspects of the project financial model such as transmission losses, depreciation, O&M costs

and discounting rates shall be aligned to the transmission pricing principles/ regulatory guidelines/

actuals so that the model would be a true reflection of future expectations.

6. The corporate financial model shall take in inputs from the existing annual financial statements,

individual project financial models, loan repayment schedule, future capital investment plan,

funding options, projection of transmission pricing, etc.

7. PwC shall also prepare operating guidelines for both the financial models and make a presentation

thereof to the users in EVNNPT.


1. PwC will submit the draft financial models along with the operating guidelines to EVNNPT for their

comments and suggestions. If required, PwC will also make a presentation to EVNNPT in respect of

the key features of the financial models and benefits of the financial models.

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2. PwC will revise the draft financial model after incorporating the comments and suggestions from

EVNNPT and submit the final financial model to EVNNPT; and

3. PwC will also conduct training for identified EVNNPT staff.


1. The users shall need to have basic understanding of MS Excel and finance parameters including

description and use of key financial ratios.

2. The new appraisal and fund identification process may now entail greater analysis prior to decision

making and hence staff will have to invest more time and effort to get accustomed to the new

process/ financial models.

3. The Decision No. 445, 1994 shall also need to be revised in lines with the new industry structure

and regulatory regime in place.


1. The existing financial model based on the Decision No. 445, 1994 is being used by EVNNPT/ EVN

for a long time. Therefore, the change in the financial models might be resisted from the users/

staff from EVNNPT.


Overview

Title Develop alternate modes of project funding

Dimension Process

Category Long-term (18-36 months)



Presentation to EVNNPT: One week from the finalisation of the approach note

Rationale

1. At present, EVNNPT is facing challenges to fund its capital expenditure requirement due to the

following reasons:

a. No equity infusion by the equity shareholders;

b. No adequate return on equity is allowed in the tariff order to generate retained earning

which can be used for self-financing; and

c. No possibilities to raise fresh equity from capital markets to fund its investment.

2. NPT currently is forced to utilize the surplus depreciation fund to finance its equity contribution in

capital expenditure. The depreciation period is lower than the loan repayment period as elaborated

in the earlier section. This allows some surplus revenue for EVNNPT to invest into the capital

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projects. However, such a practice may be dangerous in long run. It’s against the basic finance


3. There appears to be no innovative self- financing options such as sweat equity, Public Private

Partnership (PPP) on Design, Build, Finance, Operate and Transfer (DBFOT), Build Own Operate

Transfer (BOOT) like used in India, Brazil, etc. These alternative routes of financing projects shall

reduce the financing and execution burden on EVNNPT.

4. Most of the financing routes are implemented through competitive bidding process and hence

would lead to higher efficiency in terms of project development and may also lead to lower prices.

5. Implementing such routes of financing will significantly enhance the financing and execution

bandwidth of EVNNPT and company can focus on strategic projects.

Description

1. The approach note shall detail out select experience of other countries in implementing alternate

modes of financing.

2. The approach note shall identify practical modes of financing that may be adopted by EVNNPT to

execute projects. It shall highlight the following:

a. Brief of the alternative options;

b. Name of countries where these options have been implemented;

c. Benefits and weaknesses of the alternative routes;

d. Implementation challenges; and

e. Implementation roadmap.

3. The approach note shall also indicate possible entry routes such as tariff based bidding, bidding

based on requirement of capital subsidy/grant, bidding based on technical experience, nomination

etc.



will conduct detailed discussions and presentation for ADB/ EVNNPT team on the salient features

of the approach note, benefits arising out of it and manner of implementation for discussion with

MoIT.




4. NPT, MoIT and ADB will conduct discussions on the approach note with MoF (if required) for its


5. After the approval of MoIT and MoF, MoIT may initiate preparation of guidelines and standard

transaction (or bidding) documents along with issuance of necessary circulars/ decrees/ decisions.

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1. The alternative financing options might require a policy and legal framework in place to get them

implemented. It will require preparation of standard bidding documents, guidelines for selection of

private players and also appointment of a nodal agency/ department to take care of alternate

financing routes.

2. Prior to implementation, a clear understanding is required among various stakeholders- EVNNPT,

EVN, ERAV, MoIT, Ministry of Justice and MoF that the alternative financing options are essential

for the long-term financial sustainability and efficient functioning of the EVNNPT.

3. Support shall be required from IDAs to fund the complete process of preparation of guidelines and

bidding documents.


1. Implementing alternative routes of financing is a key strategic change and requires convincing the

highest levels of Government which may, sometimes, be difficult and time consuming.

2. Often the sponsoring company (in this case EVNNPT) is too engrossed on carving out its role in the

entire process due to which the primary objective is lost during the process.

3. Alternate routes of financing are often looked upon as a radical shift in the policy, and they may be

met with opposition at early stages.


Overview

Title Process improvement in the investment planning process

Dimension Process



Submission of draft report on process improvement: Eight weeks from signing of MoU between ADB and EVNNPT

Rationale

1. There is a requirement of re-engineering of investment planning process due to the following

reasons:

a. The investment planning process in EVNNPT requires a period of 24 months to 36 months,

whereas in other countries the time taken is 6-8 months;

b. All projects, planned/ unplanned go to MoIT for first stage approval because the annual

implementation plan is not approved by MoIT. It results into significant delay;

c. Under the current process of approvals, there is no distinction between critical projects vs

non-critical projects and small projects v/s large projects;

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d. The multiple rounds of approval from MoIT (3-4 times) while ensures greater oversight but

may lead to significant delays in implementing critical projects;

e. The detailed technical design for all projects, irrespective of the size and importance, are

screened by external consultants on behalf of MoIT. This is a time consuming process. In

case of smaller projects which are standard system strengthening / replacement projects, it

may be cost and time effective to rely on the evaluation of technical department in

EVNNPT; and

f. In case of fund raising from ODAs/OICB, various MOF, MoIT and MOJ are involved for

each and every project. In case of ODAs, the approvals from prime minister and president

are also required. It results into significant delay.

2. Considering the huge capital investment plan, there is a need of a long-term IT enabled business

process improvement initiatives which will bring in greater efficiency, transparency and control.

Description

1. The report shall:

a. Contain the complete activity level details of the existing process along with key process

related information such as lead time, inputs/ outputs/ mode of implementation;

b. Highlight the key issues/redundancies at the activity level. It shall help identifying the key

lacunas in the existing process including in depth analysis of the lead time, approvals,

input/output, mode of implementation etc.;

c. Benchmark the process on broad level with the processes followed in other countries; and

d. Suggest the re-engineered process for investment planning.

2. The report shall outline the restructured process intended to achieve two key objectives:

a. Reducing the lead time by cutting out the unnecessary redundancies in the process; and

b. Reducing costs through leveraging strengths in internal departments for projects of lower

ticket size.


1. PwC will submit the draft report to EVNNPT for discussions and inputs. If required, PwC will

conduct detailed discussions and presentation for ADB/ EVNNPT team on the proposed re-

engineered process, benefits arising out of it and manner of implementation for discussion with

MoIT.

2. PwC will revise the draft report after incorporating the comments and suggestions from EVNNPT/

ADB and submit the final approach note to EVNNPT.

3. NPT and ADB will discuss the report with EVN and MoIT for their approval.

4. After the approval of MoIT, EVNNPT may initiate preparation of relevant Circulars/Decisions/

Decrees to implement/ operationalise the process improvement initiatives for the submission to

MoIT for approval.

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1. It will require a policy level change at MoIT level, therefore it is pertinent for the EVNNPT, EVN,

and MoIT to understand the need of re-engineering of the investment planning process.

2. The implementation of re-engineered investment planning process will require changes in all the

related circulars/ decisions/ decrees which refer to investment planning process.


1. Similar to organization change, process change initiatives may entail significant change

management effort. It is often seen that staff and management are resistant to any process change

which may disturb the inertia of the organization.

2. The implementation will require the approval from various stakeholders such as management of

EVNNPT, EVN, and MoIT. Obtaining approval from various stakeholders might be a potential

barrier in the implementation of the recommendation.

3. Process change is often a long and tedious process and hence continuous involvement of dynamic

champions at every point is desirable.

4. Process change often fails due to initial difficulties faced by the staff. They often move back to the

original way of doing things. It is a slow process but highly beneficial in long run.

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Project management


Overview

Title Standardization of designs, specifications and layouts

Dimension Strategy

Category Long-term (18-36 months)


Submission of draft approach: Four weeks from signing of MoU between ADB and EVNNPT

Discussion & submission of final approach: Two weeks after submission of draft approach

Rationale

1. Standardization of designs, specifications and layouts will reduce engineering design and detailed

engineering time and hence reduces project development period (pre project preparatory

activities):

a. Standardization of equipment design and technical specifications offer multiple benefits;

b. Type tests, unlike routine tests, are done on first prototype of an equipment to confirm

that the equipment meets design specifications and are not repeated on every unit

manufactured or fabricated. Hence, if equipment design is standardised, type testing can

be avoided since a type test certificate can be accepted for an agreed validity period (say 5

years for a transformer). This will help in reduction of project time. In case of towers, its

testing is generally a time consuming process and it will further increase in case of

different wind zones / voltage levels. Also, any failure of testing will delay the process

further;

c. Design standardization will help increase the pace of concomitant activities. For example,

Standardization of tower design will hasten up the tower foundation design since the tower

designs are available beforehand. Further, steel procurement can also start without waiting

for design finalization;

d. Standardization reduces requirement of spares (For example tower parts can be used

interchangeably); and

e. Increased acquaintance with standard designs for field supervisors as well as construction

contractors will help them speed up different activities.

2. Standardization of design and technical specifications for different power equipment is followed in

multiple developed and developing countries of Europe and Asia.

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Description

1. Our approach will identify various equipment whose design needs to be standardised and standard

technical specifications need to be developed along with possible parameters that affect them:

a. Design of transmission line towers and Specifications: The design of transmission line

towers (including foundation design) will be impacted by wind conditions, number of

turnings in the surveyed route (types of angle towers), various crossings, proposed voltage

level, soil conditions and resistivity. For example, in India, there are generally two types of

towers- Suspension and angle towers and angle towers are further classified depending on

angle of turn or crossing. The different tower foundations need to be standardised based

on soil conditions, tower type, height and structure;

b. Design of transmission line equipment and Specifications: Key transmission line

equipment consists of conductors and insulators. Number of sub-conductors in one phase/

circuit along with conductor type can be pre-determined (e.g.: ACSR twin moose, ACSR

Bersimis, AAAC conductor etc.) depending on line length, voltage level, climatic conditions

etc. Similarly, type of insulators viz. suspension, double suspension, tension strings etc.

and material for insulation (porcelain or glass or polymer) can be standardised depending

on voltage level and climatic conditions;

c. Design of substation switching schemes and layouts: Different switching schemes may be

adopted for different voltage levels. For example, in India it’s a common practice to adopt

different switching schemes for different voltage levels- One & Half breaker scheme or

Double Main and Transfer bus bar scheme at 400 kV level and Double Main & Transfer

scheme or Double Main with breaker by pass scheme at 220 kV level. Further, based on

the switching schemes, the substation layouts may be standardised; and

d. Design and Specifications of Substation equipment: Standardisation in design of

substation equipment like power transformer, reactor, current transformer, potential

transformer, surge arrestor, bus bars, relays, circuit breakers, insulators, fittings and

accessories clamps and connectors, substation structures with beams and columns, control

room layout, wiring and cable connectors, fire protection system can reduce the time

during execution. All these equipment and layout design drawings can be standardised to

the extent possible to avoid repetitive design process. Also, standardizing technical

specifications for this equipment will help avoid repetitive testing and approval process.

2. We will discuss and finalize with EVNNPT about the extent of standardization possible in

transmission lines and substations and will prepare an approach as follows:

a. Process to be followed for standardization; and

b. Roles and responsibilities of the team involved in the standardization and frequency of

team meetings.


1. We will prepare an approach on standardization to EVNNPT.

2. We will discuss the approach with relevant teams/ departments/ subsidiaries of EVNNPT and

finalize it.

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1. None.


1. This is an ongoing process and based on implementation experience additional equipment and

materials design /specifications may have to be standardised or removed from the standardization

list. Experience need to be reviewed with the feedback from PMB/PTC and contractors.

2. Continuous monitoring and support is needed from top management.

3. Concerned teams/ departments/ subsidiaries of EVNNPT should be convinced of the need and

benefits of standardization.


Overview

Title Adoption of full/part turnkey (supply cum erection) contracts

Dimension Process




Discussion & Submission of final approach: Two weeks after submission of draft approach

Rationale

While executing the individual supply and erection contracts, the organization faces following issues:

1. Lack of single point responsibility: Each contractor will be responsible for its own supply/design /

erection package and coordination of multiple vendors has been a challenging task for the

EVNNPT. Degree of complexity in coordination increases with number of vendors/ contractors.

2. Completion risk with EVNNPT: The PMB Deputy Directors carry the responsibility and risk of

timely execution of projects while coordinating with multiple vendors, contractors and consultants.

Design consultants will not be responsible for deficiencies in construction /erection activities and

vice-versa; Finding out the responsibility of any defect lies with EVNNPT which decreases the

accountability on the part of contractors/ consultants.

3. Difficulty in matching of procurement & erection schedules: Matching of schedule of procurement

of equipment/ material with the requirement at site for erection contractors is a challenging task.

The supply of equipment to erection contractor can be delayed due to reasons like delay in

procurement by the concerned department, delay in transport of equipment from stores, diversion

of material to any other site due to an emergency etc. and this leads to delay in project execution.

On the contrary, if the equipment lies idle in stores of EVNNPT, and there is a delay on part of

erection contractor mobilization, it leads to quicker expiry of guarantee periods which is also a loss

to EVNNPT.

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4. Probable low response from contractors: The erection contracts are limited to only electrical and

civil erection works and hence the value of such contracts will be low. This will not be commercially

interesting option for established contractor. This leads to sub-optimal response rate from

established and reputed contractors.

The turnkey or part-turnkey execution can be used to resolve these issues.

Description

1. Single Point Responsibility: In Turnkey execution, all the activities from detailed engineering,

procurement of stipulated equipment and materials, arranging for testing and inspection,

interactions with various sub-vendors, timely erection, testing & commissioning will be the

responsibility of the main turnkey contractor.

2. Reduction of workload & risk of EVNNPT: This will reduce significantly the risk and thus work load

of EVNNPT since the coordination efforts will be reduced and the supply-cum-erection contractor

will bear major responsibility of timely execution of contracts. Also, the above mentioned issues like

wastage of guarantee period while the equipment lies idle in store, possibility of disputes with

erection contractors for delay in providing equipment/ materials etc. will be addressed.

3. Value addition by EVNNPT: EVNNPT can enhance value by timely interventions, monitoring and

focus on enhancing quality of the execution by any procedural changes and new initiatives.

4. Packaging Concept in turnkey projects: A transmission system project should be divided into

clearly defined packages in such a way that the packages can be executed without any coordination

and interfacing issues and at same time attract competitive bids. So, Package list is prepared based

on cost of the package, location, availability of equipment and/or materials, completion schedule

etc. In Indian 400 kV transmission lines, it has been observed that foundations, tower supply &

erection, conductor & stringing and insulators constitute about 15-20 %, 35-40%, 40-45%, 5-7%

respectively of total cost. As separation of supply of towers and related works like foundations,

erection & stringing leads to interfacing and coordination issues, conductor and insulator packages

are separately bid out depending on value and all other associated supply and erection works of

transmission line are bid out as single package. Similarly, in case of substations supply and

installation of transformer and reactor packages are separately bid out where as all supply -cum

erection including civil works are bid out as a turnkey package. So, some of the possible packaging

concepts that can be considered for turnkey execution are:

a. In case of multiple lines and substations of a project, transformer, reactor, conductor and

insulators can be centrally procured as they are high value items and procurement of

remaining line equipment can be clubbed with the erection contract(s) of lines;

b. In case of a single substation package, the entire substation can be awarded to a single

contractor including transformer or reactor;

c. In case of a single transmission line package, both conductor and insulator packages can

be included in the single supply-cum-erection contract; and

d. In case of long transmission lines that need urgent execution, the total line supply-cum -

erection packages can be split according to distance and awarded to two or more

contractors.

5. Reduced Time & Cost over runs: A properly planned turnkey project will reduce time and cost over

runs since the main contractor can plan certain design and execution activities in parallel and can

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match its procurement schedule of required equipment with overall erection schedule. A timely

execution of project will avoid additional costs like interest during construction that would have

been incurred if there is delay in projects due to mismatch in schedules of erection and supply

contractors.


1. We will prepare an approach which will contain the following:

a. Identify the real barriers for turnkey execution of contracts as per EVNNPT and suggest

approach to overcome the barriers; and

b. Possible supply cum erection packages viz. supply-cum-erection package of transmission

towers including foundation and stringing, supply packages of conductor and insulator,

supply-cum-installation packages for transformer and reactor, supply-cum-erection

package of substation.

2. We will discuss the approach with relevant teams/ departments/ subsidiaries of EVNNPT and

finalize the responsibilities for development of standard bidding documents for turnkey projects,

changes in procurement policy and procedures and delegation of powers.


1. Changes in procurement policy, procedures and packaging policies or norms in EVNNPT to

incorporate turnkey execution model.

2. Appropriate qualifying requirements with criteria on technical and financial capabilities of bidders,

similar past experience, clear conditions for joint venture /consortium of supply and erection

contractors.

3. Technical specifications have to be defined for different equipment and a list of approved sub-

vendors/ suppliers is made available so that time for testing can be reduced. Standardization of

designs and specifications will not only help in reducing the time for pre-construction activities but

also reduce the chance of disputes in future.

4. Adequate time is to be given for bid submission since contractors need time for tying up with

various supply vendors. Also, appropriate type of bid process (single-stage or two-stage) has to be

chosen depending on nature and complexity of projects.

5. Comprehensive bid documents with clear scope of contractor, identification of responsibilities of

contractors and EVNNPT, proper price variation indexing, adequately defined payment milestones,

guaranteed performance & technical parameters, penalties for delay or faulty equipment, issue

escalation and dispute redressal mechanism etc.

6. Effective project monitoring system / tool for timely interventions by EVNNPT.

7. Efficient payment mechanism to contractors for completed milestones.

8. Vendor capacity development initiatives are needed since this will be a new regime for contractors

as well. Also, vendor development initiatives are needed to develop domestic vendors’ capabilities

as turnkey contractors (reserving a certain percentage of packages that meet certain criteria to new

contractors).

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1. Continuous monitoring and support is needed from top management and sustained interest to be

inculcated in concerned team members. Concerned teams/ departments/ subsidiaries of EVNNPT

should be convinced of the need and benefits of standardization.

2. Any delay in meeting prerequisites or non-implementation of pre-requisites may result in a delayed

project execution and which may set a bad precedent even for future efforts on implementation of

the turnkey regime.

3. Capabilities of contractors/ vendors in understanding and adapting to the turnkey regime.


Overview

Title Develop a project risk management strategy

Dimension Process

Category Short term (0-6 months)


Submission of draft risk management strategy: Three weeks from signing of MoU between ADB and EVNNPT

Discussion & submission of final strategy: Two weeks after submission of draft approach

Rationale

1. Every project faces risks. Risk is an uncertain event or condition which, if occurs, has negative

effect on the envisaged project outputs and results in issues like time over run, cost over-run, poor

quality execution resulting in increased O&M or poor system availability etc.

2. Risk assessment is an integral part of effective project management. Identifying risks and

incorporating possible mitigation measures in the project planning phase will help in smooth

execution.

Type of Risks Can be mitigated Cannot be mitigated

Can be envisaged

Risk mitigation measures using qualitative or quantitative tools (prioritize based on impact and possibility)

Force majeure conditions; Risks to be absorbed by respective parties

Unknown risks No mitigation possible (Prepare a contingency plan based on past experiences)

Description

1. An integrated Project Risk Management Plan has to be prepared along with detailed design/

Project feasibility study. This should identify all possible risks, their probability of occurrence,

impact on project outcomes viz. technical performance, cost, completion schedule, execution,

safety, security and environment impact. This plan also addresses the extent of risk carried by all

the stakeholders and whether risk can be transferred between stakeholders so that the stakeholder

who is most capable to manage a risk will bear the particular risk. Also, adequate risk-return

balance has to be maintained among stakeholders.

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2. The risk management plan addresses risks in all phases of the project - viz., design, approvals,

financing, contractual, procurement, construction, completion and have mitigation strategies for

various risks.

3. The risk management strategy provides a holistic view of risks, challenges and potential problems

and builds processes that help mitigate the risks and reduce the “risk premium costs”. This also

gives a clear picture of project risks and strengths to the top management.

4. Project risk management helps the top management and monitoring teams/ authorities to validate

and communicate project progress and risks, evaluate and quantify project processes against

benchmarks and ensure project accountability and stakeholder management.

5. A sample risk management strategy is defined below. Only a sample set of risks are identified and

detailed risk management strategy will be developed subsequently.


1. We will develop a risk management strategy and finalize it based on discussion with concerned

team/departments. This will be a dynamic and living document, and has to be updated and

modified in the light of the experiences gained with implementation of projects.


1. None.


1. Support from top management needed in making it a mandatory practice in project planning

phase.

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Sample Risk Management Strategy

Risk Description Probability of occurrence

Potential impact

Risk score

Risk mitigation strategies

Design Risks

Wrong design Wrong design of equipment, unsuitable technical specifications for equipment, inappropriate design scheme or layout etc.

Low High Standardization of designs and technical specifications will reduce the need for designing equipment or formulating specifications for every project.

XXXX

Bidding Risks

Time over run Time over run in bid document preparation, conduct of bid process, contract negotiations etc.

Medium High Could be reduced by efficient project management coupled with strong knowledgeable project team. Seeking proactive bidder co-operation will reduce time overruns

XXXXX

Commercial Risks

Increase in costs of materials

Construction cost estimate may change due to changes in underlying cost of materials

Medium High The risk is less for short duration projects. However, in case of longer duration projects, the risk is high as steel, copper, aluminium, labour costs can increase which impacts tower parts, conductor, civil foundation and erection services etc. Price variation clauses with proper indexing will result in contractor not padding up the bid. However any profit or loss due to increase or decrease in costs has to be borne by EVNNPT.

XXXXX

Financing Risks

Increase in interest costs, forex risk

Construction cost estimates may change because of increase in interest rates and forex rate (in case of foreign loan)

Low Medium The risk is less for short duration projects. However, in case of longer duration projects, the risk is high. The risk can be mitigated by hedging the loan value with the financial institution

XXXXX

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Risk Description Probability of occurrence

Potential impact

Risk score

Risk mitigation strategies

Construction Risks

Delay in construction Construction activity delayed due to issues like Right of way clearance, land acquisition issues, delay in mobilization of labour, climatic conditions

High High Following stipulated procedures for acquiring Right of way and regular communication to general public at various phase of project Also, selecting experienced contractors and monitoring the project performance regularly by concerned EVNNPT officials will lessen the probability of occurrence of these events

Commissioning Risks

Delay in testing Delay in testing and commissioning due to reasons

xxxx xxxx xxxxxxx

XXXXX

There are many other risks like delay in approval, force majeure conditions, accidents, government regulation etc. which will be elaborated subsequently

Notes:

Probability of occurrence

Potential impact Overall score Risk

Low Low 1 Low Risk

Low Medium 2

Low High 3 Moderate Risk

Medium Medium 4

Medium High 6 High Risk

High High 9

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Overview

Title Developing IT tools for project monitoring, inspection and online procurement


Category Long term (18 months- 36 months)


Not Applicable (To be performed by EVNNPT)

Rationale

1. NPT or its subsidiaries do not have any integrated Project management system and some

departments in EVNNPT are using stand-alone packages/software developed by IT department of

EVNNPT along with MS office tools like MS Excel and MS Project for project progress monitoring.

In our interactions with multiple departments, need for a project monitoring tool has been

highlighted repeatedly for various reasons. This lack of visibility at corporate level / senior

management level is hindering effective project monitoring causing severe delays in project

execution.

2. NPT is now in the process of developing "Project Management Software" which is being developed

by EVNNPT's IT Department with the help of a consultant/contractor. However, stakeholder

interaction suggests that the software is more of a project information repository and status

reporting tool rather than project monitoring and management tool.

3. NPT or its subsidiaries do not currently have any online procurement system or inspection

management systems which can reduce the time taken for these processes, increase transparency

and streamline the process further.

4. An inspection management system will help in increasing the efficiency of the inspection process as

it will help both vendors and EVNNPT employees to plan their schedule well ahead and all call log

details can be easily retrieved by management for monitoring the loading of employees and success

rate of various calls which determines the vendor efficiency.

Description

1. Key features of the “Project Management Software” being developed by EVNNPT:

a. Web-based online application developed using "SharePoint" technology;

b. Developed by an external software development company named Harmony Software

Technologies JSC;

c. It will be installed in a central server of EVNNPT and will be accessed by all PMBs and

PTCs through internet; and

d. Seven modules: Project management, project planning, investment preparation,

investment implementation, investment completion, searching, administration.

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2. Ideally project management software for a transmission project should capture all the activities and

their dependencies, scheduling with timelines; estimate resourcing requirements for various

activities, monitor all the outputs; provide complete visibility to top management about physical

progress of project, funding and financing status and different issues hindering the project progress

w.r.t. schedule.

3. The software should be able to perform a scenario analysis considering at least best and worst case

scenarios. For example, what will be the delay in completion schedule if detailed engineering design

phase gets delayed by say, “x” days and what will be the increase in project cost (due to Interest

During Construction). Similarly, what will be impact on project cost due to change in interest rates,

foreign currency variation risk etc.?

4. Inspection management system:

a. The inspection management system will provide opportunity for contractors to register

themselves with the relevant work order details and log-in calls for inspection by EVNNPT

officials; and

b. Post successful completion of inspection, the contractors will provide a summary of

reports which are duly signed by the inspecting officer and the equipment’s acceptance is

provided for contractor.

5. An online procurement system should allow vendors/contractors to register themselves, apply for

bids, get notified of the amendments, pre-bid meeting etc.; upload technical, financial bids in the

system securely and access the final results of the bidding process.


1. NPT needs to undertake a holistic review of its IT infrastructure, decide on requirement of an

integrated IT solution or disparate IT tools (for online procurement, inspection management

system, project management software) and prepare an IT strategy.

2. Since it is a long term process and there is a need for exhaustive study of prevailing IT tools and

there is ongoing project management software under development, there are no short term

measures.


1. Basic computer knowledge for the employees involved in operation of the systems as well as

availability of IT infrastructure (computers, internet connection, Local Area Network, routers etc.).

2. Selection of a competent IT vendor who understands the requirements clearly and can design the

IT tools accordingly.


1. Reluctance of employees (if any) in adopting the systems.

2. Any glitches in implementation or delay in implementation may result in loss of interest of

employees.

3. Support needed from top management in ensuring that the employees adopt these IT tools and that

the teething problems, if any, are addressed speedily.

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Overview

Title Merger of FS & DTD phases

Dimension Process





Rationale

1. On an average, it takes around three years from project allotment letter to approval of Detailed

Technical Design (DTD) which is definitely very high and needs to be reduced for speedy

implementation of projects. This long time for design activities is due to heavily centralized

decision making process viz. no power with PMBs/ PTCs in approval and multiple rounds of

approval from MoIT; design verification by MoIT consultants; lack of standardization in technical

specifications and bid documents etc.

2. Among other things, merger of Feasibility Study (FS) and DTD phases can reduce this time

significantly.

3. Preparation of a part of detailed technical design, preparation of construction/ working drawings

should be the responsibility of supply cum erection contractor.

Description

1. In the current process, typical components covered under FS are:

a. System calculations like short circuit studies, dynamic and transient stability studies;

b. Line route survey with three options and suggest optimal route;

c. Tower spotting, layout and Estimate bill of quantities of equipment and material needed;

d. Basic design (standard designs and specifications are prepared and approved by

EVNNPT);

e. Total investment cost and financial analysis such as NPV, IRR, Benefit-to-Cost ratio;

f. Environment Impact Assessment (EIA) and Social Impact Assessment (SIA) and

Resettlement to minimise land needs and adverse impact on local people and

environment; and

g. Other aspects like fire prevention, telecommunication etc.

2. After FS approval, DTD consultants are selected and they prepare the detailed engineering/

technical designs and specifications along with bidding documents.

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3. In our suggested process, Feasibility Report or Detailed project report of a transmission line will

include the following:

a. Design, Technical Specifications and Construction standards for foundations, towers,

cables and insulators;

b. Quantities/numbers of different types of tower structures/poles, length of cables,

conductors etc., indicated as the BOQ schedule;

c. Project Packaging to attract suitable competition facilitating cost effective procurement.

The size & scope of the different packages depends on magnitude & location of project;

d. Cost estimation as per BOQ prepared of the various system elements (such as cables,

conductors, transformers, switchgears, capacitors, lightning arrestors and insulators, the

control and communication system, engineering and project management, supervision

and contingencies);

e. Project Implementation plan and schedule for the Project taking into account, system

constraints and other relevant factors;

f. Financial Analysis including proposed capital structure for the project;

g. Statutory and environmental clearances for project, if procured at this stage;

h. System operation requirements, based on applicable laws and grid code;

i. Operation and Maintenance Plan include facilities such as protection, communication,

measurement, telemetry and interface equipment etc.; and

j. Bid documents.

4. The final detailed technical design and further working/construction drawings vendor/suppliers

drawings will be prepared by the selected contractor.

5. In case, design and drawings are standardised and a list of pre-approved vendors is provided, the

contractor can start the procurement process without type tests and submit the construction

drawings to the EVNNPT.


1. PwC will develop an approach with process before and after merger of FS & DTD phases. We expect

to receive written feedback or comments on the note and finalize it based on feedback.


1. No specific pre-requisites, but standardization of design and technical specifications will help in the

new process.


1. Approval needed from top management of EVNNPT and MoIT as well which can delay the process.

2. Changes in regulations/ decrees may be a long drawn process.

Project management



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Overview

Title Develop a strong and focused project management unit

Dimension Structure

Category Medium term (6-18 months)




Rationale

1. There is a significant growth in the transmission network of Vietnam since 2008 as lines increased

by 40% & substation capacity increased by 62%. Further, EVNNPT is planning to augment its

transmission assets significantly during 2016-30:

a. 500 kV system - ~9500km lines, 71000 MVA transformer capacity

b. 220 kV system - ~16000 km lines,135000 MVA transformer capacity

2. At present, EVNNPT is facing issues in project completion in terms of time and cost overruns. The

factors contributing to the delay are a combination of uncontrollable and controllable reasons such

as delays in land acquisition, resistance from general public, lack of proper monitoring

methodology (IT tool), long time for various approvals and pre-construction activities etc.

3. Among other things, lack of an effective and integrated project management to ensure effective

monitoring and quick resolution of issues seems to be a critical gap.

Description

1. A dedicated PMU would efficiently coordinate with other stakeholders to ensure timely completion

of projects; in-turn optimises the project cost and effectively manages quality of projects.

2. The tentative roles of PMU can be:

a. Managing shared resources across different departments of EVNNPT and its subsidiaries;

b. Identifying and developing project management methodology, best practices;

c. Developing and managing project policies, procedures, templates and coordinating

communication between different departments, vendors/contractors;

d. Exception report to top management on various delays in project execution; and

e. Monitoring the quality management of projects.

3. Detailed Master Network: Preparation of this network for each project for completion of the project

on schedule will be a key role of PMU. The network should incorporate all the activities involved

and the time for completion of each activity. Methods such as Critical Part Method (CPM), Program

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PwC 157

Evaluation & Review Technique (PERT) can be adopted by the PMO for planning and scheduling

the master network. For example, steps in CPM method are:

a. Activity identification: Identify activities in different phases of the project from inception

to commissioning;

b. Activity precedence identification: Identify the dependent activities i.e. activities that

cannot start until the completion of another activity (say, Bill of quantities and costing of

projects cannot start until the completion of survey activity or Notice inviting tender

cannot be floated till approval of bid documents);

c. Network construction: The master network can be prepared using tools like Gantt chart,

MS project. Subsequently, time, cost and resource implications of a various activities in the

plan are decided; and

d. Critical path: Critical path determines the shortest possible time to complete the project. It

is the sequence of activities that add up to the longest overall duration. PMU can prepare a

detailed list of activities with help of concerned departments with their early and latest

start and finish times. Dependencies between different activities are already identified.

This will help in identification of critical path.

4. The contractor is also required to prepare a detailed network schedule of activities for completion

of work within time frame. After approval of EVNNPT, the PMU can check this based on the master

network prepared.

5. Project monitoring is to be regularly carried out by this PMU through review meetings and status

report is to be put up to the management. The monitoring parameters include financial as well as

physical progress parameters. In the review meetings various issues impeding project progress

have to be discussed and resolved.


1. We will develop an approach identifying PMU cell members along with their responsibilities,

timelines for meeting. We will also interact with EVNNPT to understand whether a separate PMU

cell is beneficial or existing organization and manpower can be utilized or not.

2. We will finalize the approach based on inputs from EVNNPT officials.


1. Availability of Project management tools (IT tools) and corresponding infrastructure.

2. Adequate resource allocation and availability of skilled personnel who can effectively utilize the IT

tools.


1. Lack of proper IT tools and hardware.

2. Lack of adequate and skilled resources.




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Overview

Title Conduct training on principles of regulatory economics and international practices

Dimension People



Submission of training material: Two weeks from signing of MoU between ADB and EVNNPT

Conduct the training: Two weeks from submission of training material

Rationale

1. To fully be able to appreciate all the suggested modifications to regulations and processes, it is

necessary that all relevant staff is conversant with primary principles of regulatory economics.

2. The understanding of practices and principles applied in other countries to compute transmission

revenue and charge and handle associated issues will enable the staff to be more open to change as

well as understand the long standing benefits to such modifications.

3. Successful implementation of any recommended modifications depends largely on the skills and

competency levels of the stakeholders.

Description

1. PwC will develop suitable training material in form of MS Power Point and MS Word. The material

shall also include select international practices and case studies.

2. PwC will keep in mind framework and issues specific to Vietnam while developing the training

material.


1. PwC will submit the training material to EVNNPT.

2. PwC will conduct the training for EVNNPT team and seek feedback of participants after training.


1. Identified participants of the training shall have basic understanding of technical and financial

aspects of transmission sector.


1. No specific barriers identified.




PwC 159


Overview

Title Support EVNNPT in drafting a proposal to ERAV for specific modifications in the existing transmission pricing regulations

Dimension Strategy



Submission of draft proposal: Two weeks from signing of MoU between ADB and EVNNPT

Discussion on draft proposal: Two weeks from submission of draft proposal

Submission of revised draft proposal: Two weeks from discussion on draft proposal with EVNNPT

Rationale

1. At present Circular No. 14 & 3 ("regulations") guide the overall process for determination of Total

Power Transmission Revenue (TPTR) and Transmission Charge (TC) along with procedure to be

followed for submission of the application (petition) by EVNNPT, review by EVN and approval by

ERAV. The current methodology followed is nationally uniform, flat energy-based charge. It does

not reflect power flow path, distance, direction, delivery points, and time of usage. Though this

methodology appears to be reasonable in the current context, it may not be adequate in light of

massive growth of the transmission network in coming years, emergence of wholesale and retail

competitive electricity markets, probable private sector participation and other reasons.

2. The proposal to modify the existing regulations shall help EVNNPT put forth important

modifications in the regulations regarding principles of computing revenue and charge along with

rationale. The underlying objectives of modifications are to reflect fair economic principles, current

market environment, prevailing principles of financial accounting and at the same time ensure

balancing of interests of various stakeholders (viz. EVNNPT, EVN, ERAV, Government). The

proposal shall be in line with the prudent global practices. Some of the areas of improvement are

described below:

a. Depreciation: Circular No. 203/2009 deals with treatment of depreciation on assets. As

per this regulation, full depreciation is allowable on a revalued asset considering useful life

between 8-12 years. This in essence allows over-recovery of depreciation as the commonly

accepted useful life of transmission lines is 30-40 years and substations is 25-35 years;

b. Return on Equity: Circular No. 14 & 3 allows Return on Equity, as part of the permitted

capital cost, to cover the cash (equity) costs of new investments. But it does not specify

specific % of RoE, leaving it completely at the discretion of the ERAV. For example, ERAV

has allowed only 1% pre-tax RoE in 2014;

c. Charge structure: Circular No. 14 & 3 deal with the structure of the transmission

charge. The proportion of the total revenue linked with capacity (α) and energy (β) is

regulated by ERAV each year, with α + β = 1. Currently, α is set at zero. It is obvious that

any transmission system is built to cater to the maximum demand and evacuate available

generation and thus should entail full recovery of revenue irrespective of actual energy




PwC 160

flow. In case of “energy-based charge”, there is no certainty to recover full approved

revenue, as the actual energy transmitted may vary from the projected energy;

d. Prudence check of opex and capex: For the true-up (adjustment) of expenses,

regulation does not specify controllable and uncontrollable expense items for the purpose

of allowing/disallowing expense in excess of approved expense. There is no clear

mechanism which enforces the prudency and efficiency in incurring capital and

operational expenses;

e. Treatment of forex loss: Forex loss is a real loss and must be allowed to be claimed in

respective year’s revenue. ERAV has been allowing recovery of only realised forex loss but

not the unrealised forex loss. Also, there is no clear mechanism/timelines for recovery of

accumulated forex loss; and

f. Penalty for failure service quality: The regulation does not specify penalty norms for

outage of line and transformers at different voltage level. In addition, penalty is levied

through deduction of equivalent amount from the EVNNPT’s Welfare Fund. This approach

seems to be penalizing all staff members who might not be in any way related to the

process of managing the service quality. Further, regulation does not have provision for

any specific incentive to employees involved in maintaining service quality.

3. The existing regulation mandates review of application by EVN before its submission to ERAV. It

seems EVN significantly modifies revenue/price proposed by EVNNPT before its submission to

ERAV. For example: In 2014, EVN curtailed EVNNPT’s proposed revenue by 22%, expenses by 18%

and allowed RoE of 1% in place of 4-6%. This mechanism compromises the interest of EVNNPT as

well as undermines the role of ERAV.

Description

1. The draft proposal shall be prepared in MS Word and shall include analysis of key provisions,

associated issues, review of select global practices, proposed modifications, rationale for the

modifications and its implications on EVNNPT.


1. PwC will submit the draft proposal to EVNNPT for their comments and suggestions.

2. PwC will discuss the draft proposal with EVNNPT.

3. PwC will submit the revised draft proposal to EVNNPT after incorporating their comments and

suggestions.


1. NPT shall seek authorisation from management board of EVNNPT and EVN to submit such

proposal to ERAV.

2. NPT shall provide necessary data to PwC to analyse various components of revenue, expenses and

penalty.




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1. EVN may not permit EVNNPT to submit this proposal to ERAV.


Overview

Title Develop and implement integrated transmission pricing model (TPM) for compilation of data and calculation of revenue & charge




Submission of draft TPM: Four weeks from signing of MoU between ADB and EVNNPT

Discussion on draft TPM: One week from submission of draft TPM

Submission of final TPM: One week from discussion on draft TPM with EVNNPT

Conduct the training: One week from submission of final TPM

Rationale

1. The present spreadsheets used by EVNNPT for determining the transmission revenue and charge

are rudimentary and fragmented. It does not capture all the elements needed for determining the

transmission charge in sufficient detail. It also lacks provisions to incorporate some of the

components that have been specified in the transmission pricing computation methodology in

Circular No. 14/2010 and Circular No. 3/2012. For example: It does not capture truing-up

(adjustment) to take care of legitimate differences between approved revenue and expenses and

actual revenue and expenses of the last year.

2. The proposed transmission pricing model (TPM) covering computation of Total Power

Transmission Revenue (TPTR) and Transmission Charge (TC) shall help EVNNPT improve

compliance with the relevant circulars and decisions by providing for all components specified in

Circular No. 14 & 3.

3. The TPM shall streamline the process of data compilation and calculation of TPTR and TC and

provides an integrated view of inputs, calculations and outputs.

4. The TPM shall provide credible and key information to the management enabling them to take

prudent decisions on requirement of transmission revenue and charges. It will clearly demonstrate

the revenue gap (if any) that will emerge if recovery of prudent costs are not allowed.

5. Use of such model is prevalent in several transmission utilities globally such as POWERGRID

(India).

Description

1. The TPM will be developed using single MS Excel workbook as a platform. The design of the TPM

will be user-friendly, easy to operate, flexible and aesthetically appealing. We will follow PwC's

standard guidelines to create such a model.




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2. The TPM will have a set of input sheets, a set of calculation sheets and a set of output sheets - all of

which will have dynamic linkage to reflect the impact of any manual change across the model.

3. The TPM will also facilitate scenario analysis by adjusting specific input variables or expected

output parameters. For example to achieve a desired DSCR what is the revenue realisation that is

necessary. These key parameters will be agreed upon in consultation with EVNNPT.

4. The TPM will derive all its inputs from the data collection formats that all relevant departments in

EVNNPT shall use to capture and share relevant information.


1. PwC will submit the draft TPM to EVNNPT for their comments and suggestions.

2. PwC will discuss the draft TPM with EVNNPT.

3. PwC will submit the final TPM to EVNNPT after incorporating their comments and suggestions.

4. PwC will conduct training for EVNNPT team on how to operate and maintain the TPM.


1. Users shall have basic understanding of MS Excel, technical and financial parameters used in

determining TPTR and TC.

2. After a pre-defined transition (overlapping) period, users shall not be permitted to use legacy

spreadsheets in parallel to new TPM.

3. The Circular No. 14 & 3 should ideally be revised so as to take care of specific issues related to

pricing principles and process.


1. NPT may face resistance to adopt the new TPM in place of legacy spreadsheets.

2. Notification of any revisions in the existing circulars and decisions may require updating of the

TPM.

Recommendation#4: Prepare a transmission pricing procedure (TPP) for collection, compilation and validation of information needed for transmission pricing

Overview

Title Prepare a transmission pricing procedure (TPP) for collection, compilation and validation of information needed for transmission pricing

Dimension Process and Structure



Submission of draft TPP: Four weeks from signing of MoU between ADB and EVNNPT

Discussion on draft TPP: One week from submission of draft TPP

Submission of final TPP: One week from discussion on draft TPP with EVNNPT




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Rationale

1. Circular No. 14 & 3 deal with the procedure for data collection, review and filing of the application

(petition) for review and approval of Total Power Transmission Revenue and Transmission Charge

by EVN and ERAV. The proposed transmission pricing procedure (TPP), with an underlying

objective of streamlining and standardising the entire process, shall help EVNNPT improve its

compliance to the relevant circulars and decisions.

2. The TPP shall streamline the process of preparation, collection, compilation and validation of

various information and data needed for transmission pricing. At present even though there are no

considerable delays on the part of any department in filing information, there is no standard

procedure and timeline being followed.

3. The TPP shall ensure timely, complete and credible information to be used in the TPM. At present

there are standalone MS Excel sheets that are being used by individual departments to capture

necessary data. This causes disparities in the way data is provided to CPD to be incorporated into

the transmission revenue and charge calculation spreadsheet being presently used.

4. Several transmission utilities across the globe (e.g. POWERGRID) use such standard procedures.

Description

1. The TPP will be developed using single MS Word file. The design of the TPP will be user-friendly,

easy to read & comprehend and aesthetically appealing. We will follow PwC's standard guidelines to

create such models.

2. The TPP will define the detailed process flow along with responsibilities (department level /

individual level) and time frame, taking into cognisance the cut-off dates as specified in the Circular

No. 14 & 3 and other relevant regulations. It will assign responsibilities for data preparation,

submission, collection, compilation and validation. It will also factor in time for prudence check of

such data by CPD and seeking revised/additional data (if needed) before finalisation of the petition.

3. The TPP will contain the standard formats for furnishing all the relevant data in MS Excel formats

in a single workbook. These formats will enable accurate and detailed data collection from all

relevant departments of EVNNPT. It will clearly mention the nature of data and the level of detailed

break up of such data required.

4. The formats will be designed in such a way to allow easy transitioning into maintaining regulatory

accounts in the future.

5. The TPP will also define the data reconciliation and dispute resolution procedure to take care of

issues such as mismatch in same parameter used by two different departments.


1. PwC will submit the draft TPP to EVNNPT for their comments and suggestions.

2. PwC will discuss the draft TPP with EVNNPT.

3. PwC will submit the final TPP to EVNNPT after incorporating their comments and suggestions.




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1. Users shall have basic understanding of MS Word and MS Excel.

2. The Circular No. 14 & 3 should ideally be revised so as to take care of specific issues related to

pricing principles and process.


1. NPT may face resistance to adopt the new TPP.

2. Notification of any revisions in the existing circulars and decisions may require updating of the

TPP.

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Public relations


Overview

Title Plan, set-up and operationalize a dedicated PR department within EVNNPT and its subsidiaries

Dimension Strategy and Structure



Submission of draft proposal: Four weeks from signing of MoU between ADB and EVNNPT

Rationale

1. The communication activities of EVNNPT are inadequate as compared to current needs. So far,

communication or PR has not been a focus or priority area for EVNNPT. Our Perceptions Audit

revealed that EVNNPT needs to communicate very much more with all its stakeholders, including

the ordinary public and those affected by its projects, than what it does now.

2. There is a clear need for PR or communication to be a critical function for EVNNPT in order to

achieve its business objectives. This can be accomplished by a separate department that is

adequately staffed as well as fully empowered and is led full-time by a senior executive who is part

of the leadership team.

3. The PR department should be the central point for strategy, planning and implementation of all

communication initiatives and external stakeholder engagement undertaken by EVNNPT through

its own departments and/or its subsidiaries. It will drive all PR/communication work, including

message development, in EVNNPT and its subsidiaries.

4. A separate PR department will work towards positioning EVNNPT as an independent entity

functionally separate from EVN. Currently, in communication matters, EVNNPT is under the

influence of EVN and many stakeholders are often unaware of EVNNPT’s role and responsibility.

EVN gets the credit for EVNNPT’s role and EVN’s negative attributes (“unresponsive” and

“monopolistic”) often get transferred to EVNNPT in the perception of the ordinary people. While

an independent PR department would function autonomously, it would still keep EVN informed

and updated and would not work at cross purposes with EVN’s PR department.

5. A separate PR department will help EVNNPT break free of the present mode of insufficient

communication and reach out directly, intensively and regularly to the media, the community and

other stakeholders.

6. A full-fledged PR department that actively fulfils all its responsibilities will ensure that, from a

communications perspective, EVNNPT does not keep its subsidiaries at an arm’s length and

distance itself from their work.

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7. Such a department will also ensure that EVNNPT drives communication relating to such vital areas

as land acquisition, resettlement and compensation as well as transmission corridor protection,

working in partnership with public officials (local authorities).

Description

1. Communication requirements are central to its functioning for an organisation like EVNNPT.

Therefore, the proposed PR department should be fully empowered. It should be led by a senior

executive who reports directly to the CEO. The CEO should take personal interest in the running of

the communications function. This will ensure primacy for the communications function.

2. The proposed PR department in EVNNPT should directly supervise and lead the work of the PR

departments to be set up in the subsidiaries.

3. This department should work towards creating a separate brand identity for EVNNPT.

4. The proposed communications department of EVNNPT should be adequately staffed and

sufficiently funded so that, in terms of both manpower and budget, the department can fulfil all its

responsibilities.


1. The consultants will prepare and submit a draft proposal to EVNNPT outlining the need for a

dedicated PR department in EVNNPT and its subsidiaries. It will also outline the steps involved in

setting up such departments. The consultant will invite comments and suggestions from EVNNPT.

2. The consultants will submit the final proposal after modifying the draft proposal on the basis of

EVNNPT’s comments and suggestions.

3. The consultants will support EVNNPT in implementing activities needed to immediately kick start

the process of giving due importance to the PR function. These have been detailed later in this

document as separate recommendations and include the following:

a. An Effective Communications Workshop to optimise the job worthiness of the existing

staff handling communication;

b. A Message Development Workshop for the leadership team of EVNNPT; and

c. A Media Training Workshop for Spokespersons.


1. Full support from the top leadership of EVNNPT.

2. Full support from the EVN leadership.


1. Possible reservations in sections of the top leadership team about the need for according primacy to

PR and providing the wherewithal to do so.

2. Reluctance on the part of EVN to let go of its total control over EVNNPT’s PR work.

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3. Absence of skilled staff and qualified personnel to implement the PR plans of EVNNPT.

4. Budgetary support is insufficient at this time. A full-fledged PR department will require a

significant financial commitment on both manpower and resources as well as on implementation of

PR activities.


Overview

Title Develop a Crisis Communications Manual

Dimension Strategy and Process




Rationale

1. Crisis communication strategy is an issue with EVNNPT. The probability of having a crisis is high

due to disputes relating to land acquisition. There is a strong likelihood of an incident or a minor

crisis turning into a major situation that threatens to get out of hand.

2. There can also be a crisis arising out of accidents and breakdowns caused by the breaching of the

safety corridor for transmission lines.

3. The potential consequences of a crisis include:

a. Loss of reputation;

b. Loss of stakeholder confidence or support;

c. Loss of public approval;

d. Loss of Government /political leadership approval;

e. Loss of employee commitment;

f. Project delay;

g. Financial loss; and

h. Lawsuits.

4. There is near unanimity among EVNNPT officials that land is a highly sensitive issue and projects

get routinely delayed due to disputes. Yet, not enough attention appears to be paid to crisis

preparedness from a communications perspective. This is possibly because land acquisition related

communication is not yet seen to be the direct responsibility of EVNNPT.

5. However, this situation will change once EVNNPT drives PR relating to land acquisition and, on the

whole, has a full-fledged and a highly proactive PR programme.

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6. Seamless communication of a high order is critical during a crisis. But smooth handling can come

only from preparedness. Thus, crisis preparedness will have to be central to EVNNPT’s PR

programme.

Description

1. There are two aspects to crisis communications - crisis preparedness and the actual handling of a

crisis situation. An organisation can successfully handle a crisis situation only if it is fully prepared

for such an exigency. Therefore, organisations such as EVNNPT that are particularly vulnerable to

crisis must have crisis preparedness as an integral part of their communications programme

because the danger of project delays due to a crisis, and along with that a loss of reputation, cannot

be overemphasised.

2. Crisis preparedness means having a crisis manual or a crisis plan in place. At a basic level, this

document lists who will do what in the event of a crisis. On a more complex plane, it anticipates

every potential situation and lists ways and means of ensuring that there are no surprises, no

fumbling and no false steps. It lists the steps to be taken in meeting a crisis situation head-on in

order to defuse it quickly with minimal loss of reputation and the least possible delay (and the

consequent financial loss).


1. Consultants shall prepare and submit an introductory Approach Note on Crisis Preparedness to

EVNNPT for its comments and suggestions.

2. Consultants will finalise and submit the introductory Approach Note after incorporating the

feedback from EVNNPT.


1. NPT must fully acknowledge the role of communication in its functioning and in its efforts to attain

its business objectives. EVNNPT must set-up a separate PR department that shall drive the

communication efforts of the entire organisation, including its subsidiaries.

2. NPT must appreciate that effective PR is vital for anticipating and containing crisis situations.


1. NPT’s reluctance to set-up a separate vertical for PR in itself and in its subsidiaries.

2. Delays caused due to any other reason in setting up a separate PR department.

3. NPT continuing to down play both crisis and crisis communications.

4. NPT continuing to not playing a leading and proactive role in communication relating to such

issues as land acquisition.

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Overview

Title Develop uniform key messages for EVNNPT through a workshop

Dimension Strategy



Preparation for the workshop: Three weeks from signing of MoU between ADB and EVNNPT

Conduct the workshop: One day

Rationale

1. It is imperative for every organisation, division, and brand or business initiative to have a set of two

to four all-encompassing key messages. These key messages must form the bedrock of the

spokespersons' statements. Regardless of whatever else they may say, they must deliver these

messages--either verbatim or by paraphrasing them.

2. Articulated repeatedly and consistently, these key messages will help audiences /stakeholders know

exactly what the organisation, division, brand, or business initiative stands for just the way the

spokespersons want them to—nothing more, nothing less.

3. The key messages must stand the test of time in the medium-term. But they are not permanent.

They must be re-viewed after a reasonable length of time for re-validation or revision.

4. Since, EVNNPT does not appear to have any key messages; it cannot carry out effective

communication without them. The key messages will provide a base or an underpinning to all other

PR statements or messages delivered by EVNNPT. They will reinforce EVNNPT’s PR, including the

delivery of all other messages.

5. It is, therefore, necessary for EVNNPT to forthwith develop a set of key messages for itself.

Description

1. The key messages will not be foisted by the consultants on EVNNPT. Instead, the development of a

set of key messages will be facilitated by us through a Message Development Workshop.

2. The participants in the proposed workshop will be the entire leadership team of EVNNPT.

3. In the workshop, the participants shall engage in a brainstorming session moderated by a senior

consultant. This brainstorming session shall be neither open-ended nor freewheeling. There shall

be a structure to it and the moderator shall ensure that the discussion remains within the ambit of

that structure. The participants shall indulge in honest soul-searching as they examine facts and

perceptions, both positive and negative, about their organisation. At the end of the session, they

shall distil the all-important two or three key messages.


1. The consultants shall submit the proposal for the Message Development Workshop to EVNNPT

and request the participation of the entire leadership team on the designated day.

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2. NPT shall confirm the date, time and venue of the workshop as well as the participation of the

entire leadership team.

3. The consultants shall do preparatory work in terms of preparing the workshop document and

workbook.

4. The workshop shall be held on the designated day. It shall be conducted by a senior consultant.

5. The consultants shall finalise the workshop document and circulate it among the participants.


1. Participation by the entire leadership team of EVNNPT by committing time for the workshop.


1. The belief that EVNNPT does not need to have a separate identity and key messages of its own.

2. Delegation of the task of developing messages, through participation in the message development

session, to officials other than the leadership.


Overview

Title Leverage the social media for EVNNPT’s PR work





Rationale

1. According to one estimate, Internet penetration in Vietnam is 34%, which is more than the global

average. Internet access is available in every commune in the rural areas of the country.

2. It has been reported that over 8.5 million Vietnamese people use social networking.

3. It has been seen that platforms like Facebook are very popular in the country.

4. However, EVNNPT is not active in the social media arena.

5. While social media may not be the best option for reaching out to target audiences in rural areas

(direct communication with opinion leaders may be the best way to reach out to audiences in

matters of land acquisition), it is certainly a credible and effective way to spread the message.

6. Social media is also an effective means of receiving feedback from target audiences.

7. It is important to leverage social media platforms to reach out to various stakeholders and engage

with them on a continuous basis.

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Description

1. NPT is active on online media but does not actively engage in social media platforms like Facebook,

Twitter and online blogs.

2. Information, pictures and videos about various proactive initiatives of EVNNPT can be posted on

these platforms and these stories can reach a greater mass of people in real time.

3. NPT does not have a credible two way communication process yet. Social media is an effective way

to have two-way communications with various stakeholders. EVNNPT can connect with members

of various stakeholder groups and receive communication from them.

4. Other tools like online blogs can also be designed to purvey information and receive comments

from stakeholders.

5. Social media can be the best platform to reach out to the informed public who spend a lot of their

time on it.


1. Consultants shall prepare and submit an introductory Approach Note on Leveraging Social Media

to EVNNPT for its comments and suggestions.




1. Preparation and implementation of an Approach Note on leveraging social media pre-supposes an

acknowledgement by EVNNPT’s leadership that social media will be an effective tool for the

organisation to use.


1. Social media and networking is a 24/7 pursuit and needs constant monitoring of the Internet and

continuous engagement and interaction.

2. In the absence of a dedicated staff, both monitoring and real-time or near real-time engagement

may be hindered.

3. Constant content creation is challenging job and EVNNPT will need to keep a long list of content in

the pipeline.

4. NPT must also be prepared to receive criticism, and sometimes unpleasantly worded criticism,

through social media. Such criticism will have to be dealt with in a mature and sensitive manner.


Overview

Title Plan, set-up and operationalise a dedicated CSR department within EVNNPT

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Dimension Strategy and Structure



Submission of draft proposal: Four weeks from signing of MoU between ADB and EVNNPT

Rationale

1. NPT focuses on a lot of corporate social responsibility (CSR) initiatives, but the impact is

inadequate to alter perceptions about EVNNPT in the public domain.

2. Organised and focused CSR activities will contribute significantly in EVNNPT’s effort to gain

goodwill of not only those who are directly affected by its projects, but also those who might be

affected by them at a future date.

3. Our Perceptions Audit revealed that most stakeholders feel that the quantum of CSR activity that

EVNNPT undertakes is unsatisfactory. Additionally, a significant chunk of the respondents were

not aware of the CSR activities undertaken by EVNNPT.

4. Currently there is no department in EVNNPT that is in-charge of CSR Activities related to CSR are

carried out by different departments and different unions.

5. Overall, the CSR effort appears to be somewhat disjointed and in need of focus.

Description

1. CSR activities should be dealt with strategically, with innovation, focus and the utmost priority.

2. A separate CSR function in EVNNPT will help bring focus and give direction to CSR activities,

especially with regard to engagement with the communities at the project sites.

3. It will also ensure that such initiatives get optimum publicity mileage for EVNNPT.

4. The overall purpose of CSR activities will be to help improve, in a sustainable manner, the quality

of life of the communities affected by EVNNPT projects, both at the construction stage and at

operation & maintenance stage.

5. The overall objective will be to win trust and gain goodwill for EVNNPT.


1. Consultants shall prepare and submit a draft introductory Approach Note on CSR to EVNNPT for

its comments and suggestions.




1. The preparation and implementation of the proposal on CSR presupposes an agreement on the part

of EVNNPT that organised CSR activities are worth pursuing.

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2. It also presupposes that EVNNPT will make available the wherewithal (staff and budgetary

resources) to carry out meaningful CSR activities.


1. CSR as a concept is relatively unknown in the country. It is not widely or sufficiently understood.

CSR is often confused with charity or giving jobs to the jobless. Sometimes, tariff cross-subsidy or

giving breaks to those affected by natural calamities are confused with CSR.

2. This insufficient understanding may pose to be a challenge.


Overview

Title Impart training to EVNNPT spokespersons on media handling skills

Dimension People



Preparation for the workshop: Two weeks from signing of MoU between ADB and EVNNPT


Rationale

1. Once EVNNPT sets up a separate PR department and it begins to implement a planned

communications programme, it will be important for it to speak to the media in an organised

manner on a regular basis.

2. Equally, EVNNPT will have to respond to media queries and other overtures from the media.

3. In either case, EVNNPT spokespersons will have to give interviews to the media or make press

statements.

4. It is important for EVNNPT spokespersons to understand how the media functions, how it is

structured and how news is reported in the media. This will help them understand how the mind of

a media-person works.

5. It is equally important for them to know how to handle questions from the media in order to

control the flow of information in a manner that furthers the communications objectives of the

EVNNPT.

Description

1. It is difficult to have a commanding position in a media interaction if the media and the journalist

are mysterious and forbidding entities.

2. When they cease to be a mystery, the spokesperson is better placed to handle the interaction in

such a manner that he is able to tell the media only what he wants to tell.

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3. It also helps him to know the difference between print and electronic and Net-based media and the

different ways of handling them.

4. Finally, it is critical for the spokesperson to know the dos and don’ts of handling the media.


1. The consultants shall submit the proposal for the workshop on “Media Handling Skills” to EVNNPT

and request the participation of designated spokespersons and potential spokespersons on the

agreed day.

2. NPT shall confirm the date, time and venue of the workshop as well as the participation of an

agreed minimum number of senior executives.

3. The consultants shall do preparatory work in terms of preparing the workshop presentation and

hand-outs as well as arranging for a camera crew and other technical support.

4. The workshop shall be held on the designated day.


1. The workshop can be held only if EVNNPT accepts the consultants’ recommendation about setting

up a separate PR department and to adopt a highly proactive PR programme.

2. The workshop can be held only if EVNNPT feels that its spokespersons and potential spokespersons

will gain from undergoing training in media handling skills.


1. NPT does not accept the consultants’ recommendation about setting up a PR department and

adopting an aggressive media strategy.

2. NPT feels that there is nothing significant to be gained by its spokespersons and potential

spokespersons from a media training workshop.


Overview

Title Conduct a workshop on the fundamentals of effective public relations

Dimension People



Preparation for the workshop: Two weeks from signing of MoU between ADB and EVNNPT


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Rationale

1. Once EVNNPT accepts the consultants’ recommendation on adopting an organised and highly

proactive PR programme, it will need human resources that have basic familiarity with effective

communication and what it can achieve.

2. The functional as well as supervisory staff who will man the newly set-up PR department will gain

immensely from knowing the fundamentals of effective communication. This is with regard to

those who do not have any formal training or even experience of PR.

3. A PR primer or an introduction to communication will add immense value to those who will be

expected to take up PR work immediately.

Description

1. It would help those who are beginners in professional PR to be exposed to definitions of common

PR terms and activities; the tools of PR; the fundamentals of media relations; and the basics of PR

writing.

2. They would also gain from being told about communication management, media monitoring, the

value of PR plans and the way to make one.

3. It would also help them to know the difference between print and electronic and Net-based media

and the different ways of handling them.

4. Finally, it is important for them to learn about non-media PR activities.


1. The consultants shall submit the proposal for the workshop on the “Fundamentals of effective PR”

to EVNNPT and request the participation of communication executives or those likely to be

deputed to work in the proposed new PR department.

2. NPT shall confirm the date, time and venue of the workshop as well as the participation of an

agreed minimum number of executives.

3. The consultants shall do preparatory work in terms of preparing the workshop presentation and

hand-outs.

4. The workshop shall be held on the designated day.


1. The workshop can be held only if EVNNPT accepts the consultants’ recommendation about setting

up a separate PR department and to adopt a highly proactive PR programme.

2. The workshop can be held only if EVNNPT feels that its personnel will gain from senior and veteran

professionals taking them through the rudiments of effective PR.


1. NPT does not accept the consultants’ recommendation about setting up a PR department and

adopting a proactive PR strategy.

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2. NPT feels that there is nothing significant to be gained by its personnel attending such a workshop.

Part-C: Approach Notes / Proposals / Training Materials (in accordance with the Recommendation Report)



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Part-C: Approach Notes / Proposals / Training Materials (in accordance with the Recommendation Report)

Part-C (i): Investment planning



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Part-C (i): Investment planning




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Overview

NPT is currently owned by EVN and ultimately by Government of Vietnam. The Government being the majority

of shareholder as well as stakeholder in the power sector which has large scale implications on public should

maintain a certain degree of control on investment decisions of the Company. However, in the fast paced

business environment, decentralisation is the key to having effective management and responding better to the

changing business requirements. Hence, it is imperative to strike a balance between the keeping effective

control over the management of the company as well as delegating powers lower down the order to effective

performance.

Decision No. 1368/QD-EVNNPT, 2013 governs the delegation of powers for undertaking investment decision in

EVNNPT. The existing framework is about more centralisation in decision making to President & CEO or

Management Board of EVNNPT. This decision is in fact an amendment of the original Decision No. 496/QD-

NPT dated 16 June 2010. A brief reading of the changes suggests that the new decision has brought about more

centralisation in decision making to the President & CEO or Management Board.

This decision is important not only from a process efficiency perspective but also from a governance

perspective. The authority for investment decision and implementation in EVNNPT is based on the value of the

investment proposed. The investment is categorised into three broad categories (based on its value) which

includes:

1. Investment value less than 500 billion VND;

2. Investment value from 500 billion VND (in some cases it is 800 billion) to 1000 billion VND;

3. Investment value from 1000 billion VND to 50% of the total asset value.

Key issues with existing delegation of powers

The existing framework is about more centralisation in decision making to the President & CEO or

Management Board of EVNNPT. There is a requirement of decentralization of powers in respect of investment

planning due to the following reasons:

1. The majority of the powers from selection of consultants, approval to feasibility report, detailed

technical design and subsequent modifications; for investment value below 800 billion VND lies with

the President & CEO of EVNNPT. The Investments with ticket sizes above 800 billion VND require

approval from Management Board of EVNNPT;




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2. The PMBs operating in different regions have different investment and quality needs and it becomes

difficult under a centralised model to expedite the decision making process;

3. There are some investment requirements which require immediate execution. Such projects under

regular channels lead to delay and may lead to significant opportunity loss. There is practically no

financial/ administrative powers provided to PTCs/ PMBs/ vice presidents of EVNNPT; and

4. The PTCs and PMBs are responsible for identification of investment needs and execution of capital

projects. In absence of such delegation of powers, projects of smaller ticket size and critical nature may

be delayed. Such a centralized delegation of powers also lead to higher transaction costs in case of

smaller projects which may not be beneficial for the company.

The concept note is focussed on reviewing delegation of power in similar developing countries and proposes a

framework based on which the existing circular may be amended to achieve higher levels of efficiency and

centralisation in authority.

The proposed framework suggested in the concept note will be associated with the following benefits:

1. Efficient manner of empowering PMBs and PTCs without losing control of top management, will allow

the core departments under EVNNPT along with the President & CEO and Management Board of

EVNNPT to focus on investments of higher value and strategic nature; and

2. Ensuring a greater accountability of the PTCs/ PMBs along with adequate powers to undertake

financial and administrative decisions quickly based on the ground realities;


India

POWERGRID is one the leading power transmission companies in the world. The company operates over one

hundred thousand circuit kilometres of transmission lines and has impeccable performance record achieving an

availability of 99.9% consistently. POWERGRID features in the top 25o power utilities in the world and is

ranked among the top five in terms of growth.

As a top performing and profit making company, POWERGRID is bestowed with special status of “Navratna

Company” and is eligible for enhanced delegation of powers including:

1. Board of Directors (BoD) have full powers to make capital expenditure without any approval from the

Government;

2. BoD has authority to enter into mergers and acquisitions/ disposals; and

3. BoD has the full power to enter into joint ventures amounting to 15% of the net worth of the company

(ceiling limit of VND 3.47 trillion in a single project).

POWERGRID follows a simple delegation of authority. The delegation of authority is summarized in the table

below:

Powers Position (Approving authority - Approval of indent of items to be purchased)

Up to VND 0.347 billion Manager

Up to VND 1.735 billion Chief Manager

Up to VND 3.47 billion Deputy General Manager




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Powers Position (Approving authority - Approval of indent of items to be purchased)

Up to VND 10.410 billion General Manager (head of work-stream within a single department)

Up to VND 52 billion Executive Directors

Up to VND 69.40 billion (Works contract) / Up to VND 1.735 billion (Consulting contract)

Chairman and Managing Director (CMD)

VND 69.40 billion to 260 billion (Works contract)

The same powers is also delegated two Committee of Directors (i) Committee for Works contract and (ii) Committee for Consulting contracts

Over VND 260 billion Board of Directors

South Africa

Eskom is the Government owned vertically integrated utility of South Africa. The company controls majority of

the power assets in the country. Eskom with its significant asset base is stated as one of the well performing

vertically integrated utility companies in the world.

The company is divided into generation, transmission and distribution divisions and each division has

autonomous functions. Eskom Delegation of Authority (DOA) forms a part of the procurement framework and

is reviewed and published from time to time. The DOA and its subsequent amendments are approved by Board

of Directors of Eskom.

In this DOP, the Eskom Board of Directors has assigned the powers for procurement/ disposal of goods and

services to chief executive, finance director, group executives and divisional executives, and further delegated to

other appointed general and senior managers, procurement managers and / or to tender committees. It covers

the power in respect of approval of the purchase, disposal and/or leasing of assets, goods and services for and

on behalf of Eskom.

The powers delegated to various authorities are given below:

Procurement Managers

Eskom divisions and regions (based on geography) have designated procurement managers (PM). The PMs are

trained in the powers/ responsibilities and process of procurement. The PMs are responsible for judiciously

expedite any procurement which comes up from the end users through a SAP based system. The PM is also

responsible to monitor the turnaround time, consolidation of requests to achieve better economies,

optimization in savings, liaising with the end users and quality assurance. The procurement approval powers of

PMs are summarized in the table below:

Contractual value Process of approval

Contract value < = R 1 million (VND 1.925 billion)

1. The buyer/ user of the product recommends the proposed purchase

2. The PM seconds / approves the purchase

Senior Managers

A Senior Manager is a position designated three positions below the Chief Executive of Eskom (Chief Executive

Eskom manages all the transmission related activities). General Managers followed by Senior Managers report

to Divisional Executive Transmission, who reports to Chief Executive). A procurement approval, approved by




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PM but exceeding the value of R 1 million (VND 1.925 billion) but lower than R 5 million (VND 9.625 billion)

can be approved by a Senior Manager and above. The powers are summarized below:


Contract value > R 1 million (VND 1.925 billion) and Contract value <= R 5 million (VND 9.625 billion)



3. Senior Manager approves the purchase

Tender Committee

All the procurement exceeding the delegations applicable to Senior Manager is delegated by the Chief

Commercial Officer or the Group Commercial Executive Committee to the tender committee. The Chief

Commercial Officer, by the powers vested by Board of Directors, can set out the financial limit for the tender

committee and the Chairman of tender committee.


Contract value > R 5 million (VND 9.625 billion) and Contract value <= Limit set out by Chief Commercial Officer



3. Tender committee approval for the project

Executive Committee (EXCO)

All tenders which exceed in value/ term with the limits defined by Chief Commercial Officer for tender

committee comes to Executive Committee. EXCO is the body to which the Chief Executive has delegated

procurement authority and EXCO may also in turn delegate part of its powers to EXCO Procurement Sub-

committee (EXCOPS) to approve procurement/ disposal of goods and services which exceed the expenditure

limits of Procurement/ Tender Committee delegations. Generally strategic and high value investment approvals

comes the EXCO committee. The EXCO comprises of Group Executive (Commercial and Technology). The

delegation of power is as below:


Contract value > Limit set out by Chief Commercial Officer



3. EXCO committee approval for the project

Suggested solution

Decentralization of powers

Our review into the leading practices with select power transmission companies, indicate that financial and

administrative powers are delegated to individual employee level. This system is aimed at not only improving

the efficiency of decision making but also increase accountability.




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Setting up financial limits

As a first step towards effective decentralization of powers, is to conduct a historical study to set financial

powers at individual levels. The process of setting the financial limits would have to done through focused

group discussions including representatives from PTC, PMB, Board of Directors and representatives from EVN

and MOIT.

The financial limits should further be ratified by Board of Directors of EVNNPT. The financial limits and

ceilings should be subject to periodic review by a Board appointed committee. The results of the review should

be represented to the Board of Directors (NPT) for consideration and ceiling limits may be altered depending of

the decision of the Board of Directors.

Guiding principle

The guiding principle for decentralization of authority should be “need and efficiency based.” As the PTCs/

PMBs clearly have better local knowledge of the investment requirements of the system, hence the lowest level

of decentralization may be PTC and PMB. This implies that within specified limits, PTC/ PMB should be able to

have complete control over the investment which implies origination, packaging, tending, and selection of

suppliers/contractors/service providers, quality monitoring and payments.

Broadly the delegation of power may be rationalized as below:

Contract value Authority of power

Projects valued less than VND 200 billion and project is critical and immediate in nature

PMB and PTC/ Vice President equivalent [Complete autonomy to PMB/ PTC management to approve, raise funds, select consultant / contractors and manage quality]

Projects valued between VND 200 billion to VND 500 billion

Regional tender committees [should comprise of representatives from PMB, PTC, EVNNPT Corporate and other representatives. Chairman of the Committee should be Vice President (Operations & Investment), EVNNPT.


President & CEO should have power to approve investment valued between VND 500 billion to VND 1 trillion. However, before the project comes to President & CEO, it should be approved by the Regional tender committee.


NPT Tender Committee [The Board of Directors should appoint a EVNNPT Tender Committee as an authorized representative of the BOD in terms of complete financial powers. The Committee should include members of the BOD of EVNNPT, executive members such as Vice President (Operations & Investment) and President & CEO (NPT).

Projects above VND 2000 billion Board of Directors or management board

Maintaining controls

The revised delegation of power will bestow greater financial powers with the employees of EVNNPT and its

divisions. The increase in decentralisation will also likely to give rise to the number of commercial transactions

during the year and hence it becomes imperative to also monitor and manage the risk pertaining to delegation

of powers.

Formation of Risk Management Committee

The management board of EVNNPT may look to form a Risk Management Committee (RMC). The RMC may

comprise of executive members such as Vice President (Finance and Economics) and Vice President

(Construction) along with select members of the Board.




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The Risk Management Committee may conduct annual risk review of the contracts executed during the year by

all levels under the revised delegation of powers policy.

The findings of the RMC should be reported to the Board of Directors and MOIT for review.

Formation of DOP Review Committee

The management board of EVNNPT may form a DOP Review Committee which should conduct an annual

review of the changing business requirements and the ceiling limits in the existing Delegation of Power. The

DOP Review Committee should henceforth submit its review report and recommendations to the Board of

Directors of EVNNPT for further perusal and the BOD may revise the ceiling limit for investments based on the

recommendations of the committee.

Conclusion

1. Providing autonomy to the employees and empowering them with greater responsibility and powers is

seen to bear significant fruit. Leading companies around the world follow a decentralized model for

investment approval.

2. The exact limit / ceiling for investment approval should depend on the existing business environment,

historical trend of contract sizes and future requirements. The setting up of financial limits should be

done through a consultative process and the views of the individual stakeholders should be considered.

3. Training and business intelligence: It is imperative in the changing business environment to train the

employees from PTC/ PMB and above to make then procurement specialist. The procurement specialist

will bring in the technical and market knowledge and insights into packaging, contracting, tendering

and negotiations. The procurement specialist may be selected from the existing manpower available

with the company but they should be provided with effective training.

4. Delegation of powers should not be used to simply break down larger contracts into smaller

components or for undue advantage/ favours. This is where the role of Risk Management Committee

becomes crucial to review the use of the DOP during the year and whether the use has been within the

intended framework and objectives.

5. NPT should respond quickly to the needs of the business and tend to survive well. Maintaining a

balance between decentralization of authority and effective controls over the process is paramount to

ensuring smooth functioning. In the current business context, there should be focus to reduce the

construction period by using technological developments and modern project management techniques.

In certain Latin American countries, transmission lines of hundreds of kilometres are being constructed

in less than a year’s time. In such a scenario, it is unreasonable to have project identification to

approval period of more than one year, and in fact effort should be concentrated to reduce the time

further.




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Overview

NPT operates under a regulated regime, which implies that the transmission pricing is set by an independent

electricity regulator (ERAV) based on certain upfront prescribed norms.

In Vietnam, the transmission pricing norms are issued by MOIT and MOF vide circular number 14/2010/TT-

BCT dated 15 April 2010 (amended by Circular No. 3/2012/TT-BCT dated 19 January 2012). This circular

clearly outlines the procedure and timelines to be followed for submission, calculation, review and approval of

transmission pricing. The circular also provides for the method of determination of transmission pricing, as

mentioned below:

Annual transmission revenue for the year = permitted capital cost + permitted O&M expenses +

revenue deficit / (Surplus) in the previous year

The most significant component of the transmission revenue is permitted capital cost which is summation of

depreciation costs + interest on long term loans + eligible transmission profit.

The depreciation cost, which is essentially a non-cash item, in above formula of permitted capital costs, is

meant as a surrogate for principal repayment of the debt employed. This mechanism of using allowable

depreciation cost for principal repayment is practiced in a majority of developing and developed countries such

as India, Germany, Italy and Nigeria.

The Dilemma

In other countries, where depreciation cost forms a part of transmission pricing, the depreciation rates used for

the purpose of determination of transmission charges are calculated on the basis of the economic useful life of

the assets. However, In Vietnam, EVNNPT is allowed depreciation on the assets at accelerated rates. The useful

life of the fixed assets for the purpose of the determination of depreciation is pegged at 8-12 years in Vietnam

which is significantly low compared to the economic useful life of transmission assets which is 25-35 years.

The use of proceeds from depreciation should be used for the repayment of the loan in line with global practice.

However, contrary to the depreciation period of 10 years, the tenure of repayment of majority of term loans is

between 20 to 25 years. Hence, there is a mismatch between the recovery of revenue in form of depreciation

and the actual repayment of loan. This leads to generation of surplus fund in the initial 8-12 years period due to

accelerated depreciation. This surplus depreciation fund is invested into the capital investment projects since

there is a lack of equity funding. The reasons for lack of equity funding are given below:

1. No fresh equity infusion from shareholders: There have been no fresh equity infusion from the EVN

(shareholder) or government (the ultimate shareholder) of EVNNPT to invest in capital expenditure

projects.

2. Lack of adequate Return on Equity invested: No RoE is being allowed to EVNNPT on the equity

employed. Although EVNNPT is claiming a return on equity at the rate of 4%-6% rate of return, which




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is not being allowed to EVNNPT. However, the return claimed by EVNNPT is significantly lower

compared to the required rate of return on equity. Ideally, the return on equity should be higher than

return on debt.

In the absence of fresh infusion of equity and negligible return on equity, EVNNPT is left with only one option

which is utilising the surplus depreciation funds to meet the equity infusion obligations. This may lead to fund

deficit situation for EVNNPT.

NPT had already faced a fund deficit scenario in the past. In FY 11, such a situation occurred because the

repayment tenure of bonds was 5 years, against the recovery period of 10 years through the depreciation. Due to

the mismatch in depreciation period and tenure of loan, the EVNNPT faced a fund deficit situation in FY11.

EVN (the holding company of EVNNPT) had to support EVNNPT to meet the fund deficit incurred due the

significant repayment of bonds (1,250 billion VND) in a year. The mismatch in depreciation period and tenure

of loan may lead to significant financial risk (fund deficit scenario) in future for EVNNPT as discussed in the

next section.

The future risk

If a single capital project is being analysed, it can be observed that the entire cost will be recovered in first 8-12

years, whereas the loan (raised for constructing the capital project) will be required to be paid till 2oth or 25th

year. As mentioned above, the surplus depreciation funds recovered during first 8-12 years are being invested in

long term capital projects in the same year. Therefore, there will be no recovery against the repayment of loan

during the period starting from 13th year to 20th or 25th (as the case may be) of the project lifecycle. EVNNPT

has to rely on the depreciation allowed on other capital projects which are still operating under first 8-12 years

of their lifecycle. In case the future capital investment requirement goes down after 10-15 years, which seems to

be a logical assumption, the depreciation allowed on other capital projects will also goes down. In such a

situation, there will be cash deficit situation for repay the long term loan obligations. This is not a healthy

practice to be adopted. EVNNPT may land up a debt trap scenario, where the company would have to borrow in

order to fund its debt repayment.

In order to illustrate the gravity of the risk, we have conducted a short cash flow assessment for EVNNPT using

a suitable example.

For the purpose of above-mentioned cash flow assessment, we have considered certain assumptions as

mentioned below:

1. The balance of fixed assets as on 31st Dec 2012 is VND 47 trillion (as per the audited accounts of

EVNNPT - December 2012);

2. The assets are depreciable over a period of 10 years (average of 8-12 years considered by ERAV for the

purpose of determination of transmission charges);

3. The Debt to Equity ratio for the project is 90:10 (close to the existing gearing ratio);

4. The Debt borrowed is to be repaid in 20 equal instalments;

5. The capital investment expenditure for 2013, 2014 and 2015 has been taken from the tariff petition

prepared by EVNNPT. Post 2015, it has been considered on the basis of discussion with various

departments of EVNNPT (till 2020) and on the basis of an assumption that after 10-12 years, the

capital investment requirement might go down. The rationale behind a reducing trajectory of

investments is that as the infrastructure in Vietnam grows, a certain level of saturation will be reached




PwC 187

post which new investments would be lower. The capital investment over the next 30 years is

summarized in the graph below:

The cash flow graph below clearly indicates that in case the existing scenario persists, i.e. the surplus

depreciation fund being funnelled towards meeting equity commitments with minimal ROE, EVNNPT will not

be able to meet its future cash requirements.

Sound financial principles state that funds from depreciation fund should be utilised to meet the debt

repayment obligation. Equity as a source of fund should be either from available free reserves/ fresh equity

infusion.

In this concept note, there is a comparison of the depreciation rates (or useful life of assets) considered for the

determination of tariff and allowed return on equity across various countries. The concept note also provides

for suitable alternatives keeping in mind the impact on final consumer tariff.

-

2

4

6

8

10

12

14

16

18

20

Capital Investment (in VND Trillion)

-

5

10

15

20

Depreciation vs repayment of loans (VND trillion)

Total Repayment Total Depreciation




PwC 188


Depreciation

Depreciation represents “Return of Capital” which implies that capital invested in assets are returned back to

the investors over the useful life of the assets while return on equity and interest expenses represent “Return on

Capital”. It is an accepted understanding that the depreciation represents service to capital subscribed and is

considered as available cash flow for repayment of loan (i.e. principal component).

Accelerated depreciation

According to the discussion paper on depreciation norms issued by CERC (Central Electricity Regulatory

Commission, India), nearly 97 percent of the utilities around the world apply a straight-line recovery method

for the purpose of tariff determination, and only a small percentage of them use the accelerated depreciation

methodology.

Upon careful review of the depreciation norms used for the purpose of accounting, tariff determination and

taxation policies, it has been observed that accelerated depreciation around the world is typically adopted for

the purpose of taxation (where the Government intends to attract investors) and hence for tax saving purposes

and not for tariff or accounting purpose. Typically, accelerated depreciation has been used to promote eco-

friendly technologies such as wind, solar, geothermal projects. In USA, the qualified solar energy property

follows the Modified Accelerated Cost Recovery System [MACRS] - 5-year depreciation schedule using a 200

percent declining balance method. Similarly in Netherlands the wind energy projects are allowed accelerated

depreciation. In India accelerated depreciation is used for tax computation only for wind and solar power

projects.

Depreciation for the purpose of tariff determination

In a majority of countries across the globe, normal straight line depreciation rates are used for the purposes of

tariff determination. A comparison of the average depreciation rates for transmission assets for a few countries

is given below:

Country Depreciation rates

POWERGRID, India Transmission lines and towers (35 years life): 5.28% (for first 12 years) and 1.16% (for next 23 years). Substation (25 years life): 5.28% (for first 12 years) and 2.05% (for next 13 years) The residual value is pegged at 10%

National Grid, United Kingdom

The regulator, Ofgem has launched a new price control regulation called as RIIO (Revenue = Incentives+ Innovation+ Outputs). Depreciation rates for assets existing pre RIIO is 5% and depreciation rates for new assets is 2.22%

Australia Transmission substations (40 years): 2.50% of the asset value and Transmission lines (45 years): 2.22% of the asset life

Transmission Company of Nigeria (TCN), Nigeria

Plant and machinery (35 years): 2.8%, Land and buildings (50 years): 2.00%, Furniture and fittings (15 years): 6.67%, Motor vehicles (5 years): 20%

South Africa (NERSA) Depreciation rates is linked to actual service life of the assets based on the historical depreciation charged by the company

The above table indicates that across the globe the life of transmission assets is more than 25-35 years and in

some cases (in developed countries) as high as 50 years. The use of normal depreciation rates for the purpose of




PwC 189

tariff computation represents the true useful / service life of the assets over which the assets are put to use and

thereby generate revenues.

It can be concluded that the depreciation rates or useful life of assets considered in Vietnam are considerably

higher compared to other countries.

Return on equity

Under a cost plus regime, where the prices are regulated by external independent electricity regulator, the tariff

/ price setting principles allows the power sector companies a reasonable return on the equity invested. This

reasonable return on equity invested depends on a number of factors such as inflation in the country, currency

fluctuations, risk of the industry in that country and return expectations of the investors in similar business.

The return on equity truly represents the profit the company is able to generate during a year and this profit can

then be ploughed back in form of equity for further investments.

In Vietnam, as per the existing circular on transmission, the regulation allows for recovery of reasonable return

on equity as part of the permitted capital cost. However the return on equity is not mandatorily allowed as part

of transmission charge by the ERAV. Additionally, the regulation also does not specify the quantum of return on

equity which will be allowed in subsequent years. In absence of specific guideline on the quantum of return on

equity (ROE) to be allowed, EVNNPT is not allowed to recover an adequate amount of ROE in a particular year.

This impacts the Company’s ability to plan self-financing for its upcoming investments.

Country Allowed ROE Typical cost of debt

Vietnam 1% 11%

India 15.50% (after tax) 11%-13.5%

Germany 9.29% 3.54%

Canada 8.76% 5.32%

Montenegro 10.90% 6.81%

US 10.57% 3%

Nigeria 25.00% 17%

Croatia 4.91% 4.01%

Kosovo 6.10%

Macedonia 8.53% 2.33%

Turkey 9.93% (WACC) Source: Bloomberg, CERC and ECRB Report (2013) and Comparable companies (India)

The most notable conclusion that one can draw from the above table is that the cost of equity in all the countries

(except Vietnam) is higher compared to the cost of debt. The degree of premium may vary but equity in all cases

carries a higher premium compared to debt.

In case of EVNNPT, the allowance of reasonable return on the equity will benefit the company immensely.

Some of the key benefits are summarized below:

1. Cash generated from the ROE may serve as a long term source of fund for meeting the equity

commitments of the Company; and

2. Reasonable ROE will also help EVNNPT to improve its gearing ratio. Currently the Company borrows

over 90% of the asset value which is good for the company but in future, over leveraged companies find

hard to raise capital especially at times of global economic turmoil.




PwC 190

Possible solutions

There can be two possible solutions:

1. Continue with existing arrangement and allowance of depreciation on revaluation of assets; and

2. Allowance of reasonable Return on Equity (ROE) with normal depreciation.

Continue with existing arrangement and allowance of depreciation on revaluation of assets

Accordingly to the VAS, EVNNPT has the flexibility to revalue their fixed assets. EVNNPT is also eligible to

charge additional depreciation on the revalued amount. The pricing regulation allows for depreciation on the

revalued assets which have already been fully depreciated once. EVNNPT can use this method of recovering

additional depreciation on revalued fixed assets for meeting its equity funding requirement. The additional

depreciation to be charged in the annual revenue requirements of EVNNPT may be used to repay the residual

loan.

Considering these facts, EVNNPT can continue with existing arrangement and rely upon the additional

depreciation allowed on revaluation of assets

For the purpose of analysis, it has been assumed that the fixed assets will be revalued after every 10 years.

Hence in FY29 and FY39 (i.e. with a gap of 10 years), the assets based will increase with the revalued amount of

VND 60 trillion for FY29 and VND 70 trillion for FY39. It will reset the depreciation curve over the repayment

curve. However, this mechanism will have a significant impact on the tariff.

The graph below indicates the use of revaluation of assets to fund the repayment of loan:

However, there is not much clarity on the allowance of depreciation on the revalued value in the existing pricing

regulation. It is not certain that how much depreciation will be allowed in the revalued fixed assets. This option

is also not based on a prudent pricing principle because this in effect leads to double recovery of the

depreciation for such assets, i.e. 200% of asset value is recovered over 20 years. It might not be feasible to

charge depreciation on revalued assets considering the fact the awareness in public will increase in future.

-

5

10

15

20

25


Total Repayment Total Depreciation




PwC 191

The net increase in annual revenue requirement of transmission tariff is shown in the graph below:

Allowance of reasonable Return on Equity (ROE) with normal depreciation

The previous scenario discussed above leads to higher transmission revenue requirements which will be

difficult to find acceptability among ERAV and other stakeholders.

It is observed that accelerated depreciation as a tool is not widely acceptable for the purpose of tariff

determination and use of excess cash generated from accelerated depreciation may lead to future debt trap.

Therefore, alternative options are required to be evaluated. Another option can be claiming return of equity

instead of claiming the accelerated depreciation. This approach is followed globally in the power sector.

There is a provision of allowing return on equity in the circular for determination of transmission pricing.

However the rate of return is not prescribed in the circular but as discussed above typically it is higher than

return on debt. In case of EVNNPT, the return on equity should be 13% which is 2% over and above the typical

domestic cost of debt.

The proceeds from return on equity can be used up for meeting the equity funding requirements. This will also

ensure widening of the net worth and improve the credit worthiness of the EVNNPT.

The graph below indicates the scenario an ROE of 13% is allowed by ERAV and EVNNPT claims a depreciation

rate of 5% (rather than 10%).

-

1

2

3

4

5

6

7

8

Increase in transmission ARR (VND trillion)

The Net Present Value of the net increase in Annual Revenue Requirement (ARR) for

EVNNPT is VND 9.48 trillion till FY42 (using a discounting rate of 10%).




PwC 192

It is evident that in such a scenario, the depreciation generated would be able to cater to the repayment

requirement. The ROE would allow the company to generate additional funds which may be used to fund

EVNNPT’s equity commitment

The net impact on the transmission annual revenue requirement is summarized in the graph below:

The above illustration clearly indicates that not only Scenario 3 beneficial for EVNNPT in reducing its future

risk but also beneficial for the consumers in long run. Moreover this is also in line with accepted norms in

similar developing and developed countries.

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2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

20.00


Repayment Depreciation ROE

(8)

(6)

(4)

(2)

-

2

4

6

8

10

Net increase/ (decrease) in ARR in VND Trillion

Increase/ (Decrease) in ARR

Net Present Value for net increase in Annual Revenue Requirement (ARR) for EVNNPT is -

VND 13.76 trillion till FY42 (using a discounting rate of 10%).




PwC 193

Conclusion

Sound financial and cash management principles are essential pillars of the reform process for electricity

industry. Similar to banking industry, infrastructure companies deal with significant quantum of cash and it is

essential to match the quantum and timing of assets and liabilities. In case of a regulated industry, it is

pertinent to have in place pricing regulations which inherently promote such behaviour among companies.

In case of EVNNPT the timing and quantum mismatch between funds generated from depreciation and

liabilities from debt repayment may lead to significant cash flow risk, as evident in FY11. Once the investment

quantum plateaus with the passage of time and transmission infrastructure reaching a certain level of maturity

similar to developed countries this risk will most likely peak.

The concept note discussed the global practices followed in similar developing or developed nations pertaining

to ROE and Depreciation rates. In most countries, the depreciation rates are linked to the useful life of the

assets while ROE is typically higher than the cost of debt. These two criteria form the basic building blocks of

regulatory pricing mechanism.

With an aim to reduce the perceived risk on future cash flows owing to existing practice, it is advisable that

EVNNPT should focus on the allowance of the return on equity instead of accelerated depreciation. In this

option, the depreciation rates can be lowered to match the loan amortization schedule while a reasonable ROE

is allowed which can be funnelled to meet the equity commitments. This approach will in fact lead to a lower

tariff and benefit the consumers in long run as well as help the EVNNPT to operate efficiently. This is also in

line with the regulatory environment prevalent in most countries. Such a practice will also help EVNNPT

manage cash better.




PwC 194


Overview

A foreign exchange risk arises when a financial transaction is denominated in a currency other than the base

currency of a country. The risk is that there may be an adverse movement in the exchange rate of the

denomination currency in relation to the base currency before the date when the transaction is completed. This

means that a company might have to pay more than they signed the contract for. This is known as currency

fluctuation risk. It affects the value of the firm’s operating cash flows, profit and loss statements, and

competitive position, hence market share and stock price.

NPT has raised a significant amount of loan in foreign currency from the international banks or ODAs. As on

December 2012, the outstanding loan amount was 31.32 trillion VND out of which 74% was in foreign currency,

precisely 59% in USD (US Dollar), 5% in EUR (Euro) and 10% in JPY (Japanese Yen). The following graph

shows the variation of VND against USD, JPY and EUR historically (in VND).

As evident from above, all the three currencies have appreciated against the VND during last 10 years, especially

USD in which there has been no depression in any given year and EVNNPT has the maximum foreign loan

amount i.e. 59% in USD. Due to this, there have been significant foreign exchange fluctuation losses in the past.

In FY 2012, the realised foreign exchange loss was 195.67 billion VND and the unrealised foreign exchange loss

is 743.93 billion VND.

NPT is suffering huge financial losses due to foreign exchange fluctuation. Further, it is not able to recover the

foreign exchange fluctuation losses in the transmission pricing. There is no clear mechanism/timelines for

recovery of accumulated foreign exchange fluctuation losses prescribed by the ERAV. At present, ERAV allows

recovery of only realised forex losses but not the unrealised forex losses. The total accumulated loss on account

0

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2

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3

0

100

200

300

400

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

VN

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ag

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JPY EUR USD




PwC 195

of allocated foreign exchange fluctuation, as on December 2012, was around 2.01 trillion VND (96 million

USD). This was proposed to be recovered in three equal instalments in 2013, 2014 and 2015 (i.e. 671 billion

VND per annum). However, in 2014, ERAV has allowed only 241 billion VND of forex loss. This is deteriorating

the financial position of EVNNPT.

Based on the existing accounting framework in Vietnam, EVNNPT has flexibility in respect of not showing the

foreign exchange fluctuation losses/ expenses in one year. Due to this, they are able to show profit in their

financial statement and are paying income tax on this book profit which in reality does not exist. It is causing

further erosion of funds. This financial practice will have negative impact on the financial health of the

EVNNPT.

Based on the above facts, it can be concluded that the magnitude of impact on account of foreign exchange

fluctuation is quite significant in past. In future also, there is a high probability of increase in foreign exchange

losses due to the trend of USD appreciating against the VND. EVNNPT might have to pay an incremental

amount to repay the outstanding foreign currency loan. It is pertinent to mention that the tenure of the foreign

currency loan in EVNNPT varies between 20 to 30 years, which is significantly high in compare to other

countries.

At present EVNNPT does not hedge its risks on account of foreign currency fluctuation. However, the exact

reason for not hedging the foreign currency fluctuation risk has not been identified due to the fact that the

consultant did not get an opportunity to meet the Ministry of Finance and State Bank of Vietnam to understand

the existing framework in Vietnam and reasons for not hedging the foreign currency fluctuation risk by the

government enterprises. It might be because of non-availability of an appropriate hedging framework or

mechanism against the risk of foreign exchange fluctuation or hedging instruments in Vietnam.

Considering the huge foreign currency fluctuation risk, EVNNPT is in acute need to have a regulatory

framework that allows hedging against foreign currency fluctuation risk. It should be allowed to recover the

hedging cost in the transmission pricing. This concept note discusses about the various hedging options

available for foreign currency fluctuation risk globally along with the experiences across various other countries.

It broadly covers the existing options for foreign currency fluctuation hedging available in Vietnam. It will also

provide a strategy which can be followed by EVNNPT while hedging against foreign currency fluctuation risk.

Possible foreign exchange fluctuation hedging options

The foreign exchange fluctuation hedging refers to the activities to reduce or eliminate the exposure to foreign

exchange fluctuation arising from transactions or existing assets and liabilities denominated in foreign

currencies. It is basically a process of risk management with an objective to bring about certainty on cost of

foreign exchange fluctuation. It is done purely to manage the risk and not for the profit.

Globally, there are two methods that are being used to manage foreign exchange fluctuation risk:

1. Natural hedging; and

2. Financial hedging.

Natural hedging

The natural hedging means reducing the difference between receipts and payments in a given foreign currency.

The firms/ companies involved in international trade often attempt to ‘match’ the currency denomination of

their receipts and payments in order to limit foreign exchange exposure. Similarly, this principle is employed by

firms by taking on foreign currency assets or liabilities to net out existing exposures.




PwC 196

Similar to the technique of matching, multinational firms often use a strategy called ‘leading and lagging’. This

strategy essentially involves a parent company bringing forward or delaying payments or receipts of foreign

currency with its subsidiaries to offset the currency risks associated with other foreign currency transactions.

This strategy is one of managing cash flows across the consolidated group by the parent company.

Unfortunately, the option of natural hedging is not available with EVNNPT because the preliminary

requirement for opting natural hedging is that there should be some receipts and payments or assets and

liabilities in a given foreign currency. In case of EVNNPT, it has only payments and liabilities in USD - no assets

and receipts in USD, hence it cannot go with natural hedging option.

Financial hedging

The other method involves buying foreign exchange hedging instruments that are typically sold by banks and

foreign exchange brokers. The various options available for financial hedging are as follows:

Foreign exchange forward contracts

The forward contract is a contract between two parties, which allow a firm/ company to set the exchange rate at

which it will buy or sell a given quantity of foreign currency in the future (on either a fixed date or during a fixed

period of time). The firm/ company can use foreign exchange forward contracts to sell or purchase foreign

currencies at a future date and a given exchange rate. Since the forward rate would be agreed upon entering the

contract, subsequent exchange rate movements become irrelevant. The settlement takes place at the time and

the exchange rate mentioned in the contract, regardless of any fluctuations of the exchange rate on the foreign

exchange market.

They are flexible instruments that can easily match future transaction exposures (generally up to one year). The

forward contracts are easy to use and carry no purchase price - which makes them very popular.

Strengths associated with the option

The benefits associated with foreign exchange forwards are as follows:

1. There is no initial outlay required;

Fin

an

cia

l h

edg

ing

in

stru

men

ts Foreign exchange forward

contracts

Foreign exchange future contracts

Foreign exchange option contracts

Foreign exchange swaps Currency Swaps




PwC 197

2. While foreign exchange futures are standardised in amount and maturity, the foreign exchange

forwards can be tailored to suit an individual firm’s needs. The forward contracts are easy to use and

are flexible in terms of the contract amount and maturity;

3. The company is protected against unfavourable exchange rate fluctuations;

4. The cost of hedging is known upfront, hence it helps companies manage their profit margins and plan

cash flows. The budgeting and costing are accurate;

5. The forward contracts are cheaper than options and swaps, and easier to manage internally; and

6. It is easy to acquire a forward contract.

Weaknesses associated with the option

The weaknesses associated with this option are as follows:

1. Once a firm/ company has covered a transaction with a forward foreign exchange contract, it cannot

take advantage of preferential exchange rate movements;

2. All parties are exposed to counterparty default risk - It is an agreement between two parties, therefore

there is a risk of not making required delivery or payment by the other party; and

3. These contracts are not marketable, they can’t be sold to another party when they are no longer

required and are binding.

Foreign exchange future contracts

A foreign currency future contract is the contract specifying a standard volume of a particular currency to be

exchanged on a specific settlement date. A foreign exchange future contract is similar to the forward contract

but is more liquid because it is traded in an organized exchange i.e. the futures market. The depreciation of a

currency can be hedged by selling futures and appreciation can be hedged by buying futures. The important

differences between the foreign exchange future contracts and foreign exchange forward contracts instruments

are as follows:

1. The forward contracts are traded over-the-counter (OTC), means directly between counterparties, while

futures are exchange-traded instruments settled with a central counterparty;

2. The forward contracts are private agreements between two parties and are not as rigid in their stated

terms and conditions, while futures are less flexible; and

3. The specific details concerning settlement and delivery are quite distinct. For forward contracts,

settlement of the contract occurs at the end of the contract. Future contracts are marked-to-market

daily, which means that daily changes are settled day by day until the end of the contract. Furthermore,

settlement for future contracts can occur over a range of dates. Forward contracts, on the other hand,

only possess one settlement date.

The future contracts require a small initial outlay (a proportion of the value of the future) with which significant

amounts of money can be gained or lost with the actual price fluctuations.


The future contracts offer the following advantages:




PwC 198

1. There is a central market for futures. Since future contracts are traded on a central market, this

increases the liquidity. There are many market participants and one may easily buy or sell futures;

2. The company is protected against unfavourable exchange rate fluctuations;

3. A firm/ company who has taken a position in the futures market can easily make an opposite

transaction and close its position; and

4. Leverage is another key advantage of future contracts. This feature is brought about by the margin

system, where a trader takes on a large position with only a small initial deposit. Leverage allows the

trader to hedge big amounts with much smaller outlays.



1. Standardized features: As mentioned earlier, the future contracts have standardized features with

respect to some characteristics like contract size, expiry date etc. It does not provide for flexibility in

terms and conditions of the contract;

2. Initial and daily variation margins: This is a unique feature of the futures contract. A firm/ company/

trader who wish to take a position in the futures market must first pay an initial margin or deposit. This

deposit will be returned when the trader closes his or her position. The initial and daily variation

margins can cause cash flow burden on small firm/ company/ trader; and

3. The markets for futures in many currencies either do not exist, or are relatively illiquid.

Foreign exchange option contracts

The firm/ company can hedge against foreign currency risk by purchasing a currency option- put or call. A

contract that grants the holder the right, but not the obligation, to buy or sell currency at a specified exchange

rate during a specified period of time is called foreign exchange option. For this right, a premium is paid to the

broker, which will vary depending on the number of contracts purchased. There are two types of foreign

exchange option contracts:

1. Call option contracts- A contract or agreement that gives a firm/ company the right (but not the

obligation) to buy a foreign currency at a specified price within a specific time period; and

2. Put option contracts-A contract or agreement giving the holder the right, but not the obligation, to sell a

specified amount of foreign currency at a specified price within a specified time. This is the opposite of

a call option, which gives the holder the right to buy a foreign currency.

The foreign exchange option contracts allow firm/ company to benefit from favourable movements in exchange

rates at the cost of upfront premium. For example, a company has purchased an option giving it the right to

purchase USD at an exchange rate of 21,500 USD/VND six months from now. In case, the exchange rate is

21,000 USD/VND at that time, the company won’t exercise its right to purchase the USD at 21,500 USD/ VND.

In case, the exchange rate is 22,000 USD/VND, then the company will exercise its right to purchase U.S. dollars

at a rate of 21,500 USD/VND.

The option contracts are also called as Exercise Price or Strike Price contracts. The fixed nature of the exercise

price reduces the uncertainty of exchange rate changes and limits the losses of open currency positions. The

foreign exchange option contract is particularly suited as a hedging tool for contingent cash flows, as is the case

in bidding processes.




PwC 199


The foreign exchange option contracts offer the following advantages:

1. Risk is limited for the buyer of options contract, i.e., it will at the most lose the contracts premium;

2. The company is protected against unfavourable exchange rate fluctuations; and

3. Helps to lock-in the price but without the compulsion to honour the contract, especially to benefit from

favourable price movements.


The weaknesses associated with foreign exchange option contracts are as follows:

1. As the foreign exchange option contracts are much more flexible compared to foreign exchange

forwards or futures, they are more expensive;

2. Not too easy to operate. It will require a team with specific skill set to deal in foreign exchange option

contracts; and

3. The perceived complexity of currency options and the fact that most of them carry a purchase price has

limited their use across various countries, in particular smaller or medium sized companies.

Foreign currency swaps

The foreign currency swaps means a contract in which the simultaneous selling and buying (or buying and

selling) of a foreign currency takes place. It helps firms to match receipts and payments in a foreign currency.

For example, if a company receives a US$250,000 payment today and knows it will have to make a payment of

US$250,000 in 45 days, it could enter into a swap arrangement whereby it sells US$250,000 today (for VND)

and commits to purchase the same amount of U.S. dollars in 45 days at an exchange rate that is pre-

determined. Entering into a swap allows the company to have access to the VND equivalent of US$250,000 for

the next 45 days. It also eliminates foreign exchange exposure during this period. However, the company now

has a contractual commitment to purchase U.S. dollars in 45 days and will need to pay for these with VND at

that time.

A foreign exchange swap consists of two legs:

1. a spot foreign exchange transaction; and

2. a forward foreign exchange transaction.

These two legs are executed simultaneously for the same quantity, and therefore offset each other.

As the foreign exchange swap contracts are simply a combination of a “spot” transaction and a forward contract,

there are no significant direct costs associated with the purchase of swaps (some collateral may need to be

posted).


The swap contracts offer the following advantages:

1. Customised transactions, perfectly suiting hedging needs;




PwC 200

2. Provides a choice to set the currency which the firm/ company requires;

3. Not very expensive; and

4. Very long time period hedge possible. Beneficial for long term contract.



1. The disadvantage of a currency swap for the parties is that if one of them does not fulfil its obligations,

the other party leaves exposed;

2. There are credit risk issues that tend to be more complex than other types of transactions; and

3. Time consuming process due to the long negotiations process.


The foreign currency fluctuation hedging options used in other countries are listed in the table given below:

Country Forwards and futures Options Currency Swaps

Bangladesh √ √ √

China √ √ √

Hong Kong √ √ √

India √ √ √

Indonesia √ √ √

Malaysia √ √ ×

Philippine √ √ √

Singapore √ √ √

Sri Lanka √ √ ×

Chile √ √ √

Colombia √ √ √

Costa Rica √ × √

Mexico √ √ √

Uruguay √ × ×

Croatia √ × ×

Czech republic √ √ ×

Israel √ √ √

Poland √ √ √

Romania √ √ ×

Russia √ √ √

South Africa √ √ √

Turkey √ √ ×

Australia √ √ √

Japan √ √ √

Thailand √ √ √ Source: HSBC’s Emerging Markets Currency Guide 2012 and public domain information




PwC 201

Recovery of hedging cost

There is a cost associated with the hedging options, known as hedging cost. In general, the cost of hedging is

lower that foreign exchange fluctuation losses. The cost of hedging in the foreign exchange fluctuation losses

should be allowed by ERAV to EVNNPT while determining the transmission pricing. However, there is no

clarity in the transmission pricing regulation issued by ERAV. It is allowed in various countries, for example in

India, Nigeria, etc.

In India, the Central Electricity Regulatory Commission (CERC) provides for allowance for the cost of hedging

in its regulations. It is also pertinent to note that there is a provision for the allowance of foreign currency

fluctuation losses in case the transmission licensee is not able to hedge the foreign exchange risks.

The article 50 of the Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations,

2014 states that:

1. The generating company or the transmission licensee, as the case may be, may hedge foreign

exchange exposure in respect of the interest on foreign currency loan and repayment of foreign loan

acquired for the generating station or the transmission system, in part or in full in the discretion of

the generating company or the transmission licensee.

2. As and when the petitioner enters into any hedging based on its approved hedging policy, the

petitioner should communicate to the beneficiaries concerned about its hedging decision within thirty

days of entering into such hedging transaction(s).

3. Every generating company and transmission licensee shall recover the cost of hedging of foreign

exchange rate variation corresponding to the normative foreign debt, in the relevant year on year-to-

year basis as expense in the period in which it arises and extra VND liability corresponding to such

foreign exchange rate variation shall not be allowed against the hedged foreign debt.

4. To the extent the generating company or the transmission licensee is not able to hedge the foreign

exchange exposure, the extra VND liability towards interest payment and loan repayment

corresponding to the normative foreign currency loan in the relevant year shall be permissible

provided it is not attributable to the generating company or the transmission licensee or its suppliers

or contractors.

5. Every generating company and the transmission licensee shall recover the cost of hedging and

foreign exchange rate variation on year-to-year basis as income or expense in the period in which it

arises”

In Nigeria, the Nigerian Electricity Regulatory Commission also provides for allowing the foreign exchange

fluctuation risks in the transmission charges. The multi-year tariff order for the period 1 June 2012 to 31 May

2017 issued by the Nigerian Electricity Regulatory Commission states that:

“The foreign exchange risk is accommodated in the MYTO model on a bi-annual basis during the minor

reviews. In addition, although this risk is regularly adjusted during the minor reviews, investors have

informed the Commission that the official CBN rates are not always accessible to them and that they are often

charged a commission by their bankers for purchasing foreign exchange. NERC therefore recommends a 1%

premium above CBN rates to cover these additional costs. The exchange rate adopted is assumed to increase

steadily over the years. This is also subject to review bi-annually”.

Considering the above facts, the hedging cost should also be allowed by ERAV to EVNNPT while determining

the transmission pricing.




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Implementation challenges

The implementation challenges for establishing a framework for foreign currency fluctuation hedging in

EVNNPT are as follows:

1. The establishment of hedging mechanism in EVNNPT will require approval from various stakeholders such as EVN, ERAV, MoIT and MoF. Obtaining approval from various stakeholders might be a potential barrier in the implementation of the recommendation;

2. No team of professionals with good exposure to hedging process in EVNNPT;

3. There is no clarity on the recovery of hedging cost in the transmission pricing. The cost of hedging

needs to be treated as a cost of financing and has to be a pass through component in the tariff;

4. If the cost of hedging is too high in Vietnam, it may actually outstretch the benefits of hedging;

5. Availability of hedging instruments in Vietnam is another important aspect for establishing the hedging

mechanism in EVNNPT. In the absence of the discussion with MoF and SBV, it is difficult to assess the

availability of hedging instruments in Vietnam; and

6. The liquidity position, i.e., demand-supply scenario of VND vis-à-vis free market currencies such as

USD and Euro is another important aspect in the establishment of hedging mechanism. In case the

demand for VND is very low compared to the supply, the hedging might be difficult.

Present status of foreign currency fluctuation hedging in Vietnam

In Vietnam, the foreign currency transactions are mainly governed by Decree 160 dated 28 December 2006.

The SBV announces a daily USD-VND official exchange rate. This is partly based on the average rate of

interbank transactions of the previous day. The SBV regulations set a trading band for USD-VND transactions

in the spot market. This trading band was last narrowed on 11 February 2011 from +/-3% down to +/-1%

around the official rate.

The forwards, swaps and options instruments are available in Vietnam. However, they remained to be a small

part of the foreign exchange market in Vietnam. They have accounted for only 10% of total foreign exchange

trading turnover.

The forward segment of the Vietnam foreign exchange market has been characterized by several unfavourable

features, such as:

1. Low trading volumes;

2. The sale-purchase structure of forward trading has been clearly lopsided by commercial banks. The

value of forward sales made by commercial banks represented around 75-85 percent of total forward

trading;

3. While quoting for the forward VND/USD rate, the banks have to work with highly prescriptive

guidelines. As per a report “VIETNAM’S EXCHANGE RATE POLICY AND IMPLICATIONS FOR ITS

FOREIGN EXCHANGE MARKET, 1986-2009”, it has been observed that out of 29 foreign exchange

dealers who were interviewed, 27 indicated that regulations had become a barrier to forward trading;

and

4. The banks are often relatively slow and cautious in responding to requests for forward quotations.




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The currency options were first introduced by Eximbank into Vietnam’s forex market in 2003. However,

trading in this form of derivative products has yet to establish.

Implementation road map

The road-map for establishing a foreign exchange hedging mechanism in EVNNPT is as mentioned below:

The hedging strategy or detailed policy of EVNNPT should provide for the following:

1. The processes and controls in respect of hedging such as:

a. When should foreign exchange exposure be hedged?

b. What tools and instruments can be used under what circumstances?

c. Who is responsible for managing foreign exchange exposure?

2. Monitoring controls over the limits and hedging process;

3. Reporting requirements for hedging on regular basis;

4. Process to determine fair value of the derivative instruments;

5. Operational framework for hedging mechanism; and

6. Determining the accounting policy and disclosures.

•There should be policy/ decree/ regulation/ decision issued by the Government on foreign exchange fluctuation hedging mechanism applicable to power sector

•The policy guidelines should prescribe for heding the foreign exchange transactions entered into by EVNNPT and recovery of cost by ERAV

Policy framework

•Under the broad policy issued by the Government, the EVNNPT has to draft its hedging stratergy/ detailed policy. It should be approved by its management board.

•This detailed policy document should provide for processes and controls in repsect of hedging mechanism

Hedging strategy

•The implementation of hedging framework may require to establish a new team with an experience of hedging

•The hedging activity can be outsourced for the initial period

Organisation structuring

•The hedging mechanism will only be successful, if the hedging cost is being allowed to be recovered in the transmission pricing.

•The benefits from hedging should also be passed on the consumers

Regulatory approval




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Once the EVNNPT decides for establishing the foreign exchange fluctuation hedging mechanism, it has to

deploy resources in managing it. A separate team with experience in hedging will be required under the finance

department. The operation framework to be followed by EVNNPT can be as follows:

Conclusion

The approach note discussed about the significance of foreign exchange fluctuation hedging for EVNNPT and

also the various options/ instruments used globally along with associated benefits and weakness. Although

EVNNPT will face challenges in establishing the hedging practices in Vietnam but it will be beneficial for

EVNNPT considering the huge dependence on foreign currency loans and the long term repayment tenure of

these foreign currency loans. EVNNPT should establish a foreign exchange fluctuation hedging mechanism to

minimise its foreign exchange fluctuation losses.

As an immediate step, EVNNPT should approach to ERAV for allowance of foreign exchange fluctuation

hedging expenses and foreign exchange fluctuation losses in the transmission tariff. Since Vietnam is a

developing economy, it is presently exposed to significant quantum of foreign loans, MoIT should develop a less

regulated market to encourage foreign exchange fluctuation hedging mechanism.

Determination of

exposure

•As a first step, EVNNPT should identify and measure the foreign exchange exposures in respect of repayment of foreign currency loan and payment of interest.

Analysis of forex

market

•After identifying and measuring the foriegn exchange exposures, EVNNPT needs to develop a forecast on the market trends to analyze the trend of the foreign exchange market in vietnam The period for forecasts should be typically 6 months. Based on the analysis, EVNNPT should estimate the foreign exchange risk and impact of it on the probability of EVNNPT

Setting up limits

•Based on identified foreign exchange exposures and estimated foreign exchange risk, EVNNPT has to set its limits for handling foreign exchange exposure. The remaining should be hedged by the EVNNPT through the selection of an appropriate hedging instrument

Selection of hedging instrument

•Based on the identified limits for hedging, EVNNPT needs to select an appropriate hedging instrument taking into consideration the hedging strategy approved by the management board and a robust cost benefit analysis.

Monitoring of losses

•NPT should also monitor the foreign exchange hedging transactions to identify the areas which need to be strenghtened in future. It should analyse the entire process of the transaction in case any loss has been incurred to EVNNPT after entering into a hedging transaction.

Reporting and review

•NPT should place an appropriate reporting and review process for periodic update to the management board. The reports should include status on unhedged forex transactions, details of the transactions entered by EVNNPT for hedging, profit or loss for each transaction, outcome of the monitoring report, and foreign currency trends in Vietnam.




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Overview

In a State owned transmission utility, the obligation of the utility is to serve all customers and available

demand. Capital investments are suggested to maintain or enhance system reliability required to serve the

forecasted demand. The transmission planning focusses on selection of least cost alternative with aim to

achieve the desired reliability and meet the load requirements. The transmission planning is treated as a

sequential activity to generation planning since adding generation capacity is more expensive compared to

adding transmission capacity.

The essence behind traditional approach of transmission investment selection is as follows:

1. To meet the reliability requirements of the system;

2. To meet the growing load requirements; and

3. Selection of an expansion plan with least associated cost.

Existing practice

NPT which is the nodal company responsible for planning, development, operations and maintenance of

transmission assets in Vietnam, is also responsible for identification of transmission investment requirements,

appraisal of the projects and selection of projects for execution. The final decision on execution depends on a

number of other state participants- EVN, MoIT, etc. However, EVNNPT remains the key body to undertake

various feasibility analyses to ascertain the viability of each of the projects.

The present system of identification, investment appraisal and implementation of transmission projects in

Vietnam is not at par with the globally accepted investment evaluation framework.

The existing practice at EVNNPT is that any project identified and which are technically feasible are eligible

projects. The projects are screened for to ascertain the financial feasibility (as a part of the Feasibility Study) but

financial viability is not considered as a NO-GO criteria.

The first stage is project identification. The projects are identified and dovetailed with generation plan. The

identified projects are mostly approved as a part of the Master/ Five year plans/ annual implementation plan.

Once the projects are broadly identified as a part of the sector plan and approved by competent authorities,

EVNNPT is responsible for undertaking the feasibility study and preparation of technical design of the project.

All the projects would necessarily have to undergo the feasibility study, which is the primarily appraisal stage.

The feasibility study of the projects has to be approved by MOIT before the Detailed Technical Design is being

commenced.

Investment appraisal process

The investment appraisal process is divided into two parts:

1. Feasibility study; and




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2. Detailed technical design.

Feasibility Study

At present, all identified projects undergo a detailed feasibility study in which certain economic, financial,

technical parameters are assessed and finally approved by MoIT. Once the feasibility stage is cleared

successfully, the projects are considered for next stage evaluation, i.e. approval of detailed technical design.

There are no scoring and weightage given to those parameters being evaluated during the approval of feasibility

study.

A select list of parameters considered as a part of the feasibility study:

1. Technical

a. System calculations: such as power flow studies, short circuit studies, dynamic and transient

stability studies

b. Line route survey: Line route survey is accompanied with three options and suggest optimal

route

c. Tower spotting, layout and estimate bill of quantities of equipment and material needed

d. Basic design (standard designs and specifications are prepared and approved by EVNNPT)

2. Financial

a. Total investment cost and financial analysis such as NPV, IRR, Benefit-to-Cost ratio

3. Others

a. Environment Impact Assessment (EIA) and Social Impact Assessment (SIA) and resettlement

to minimize land needs and adverse impact on local people and environment.

b. Other aspects like fire prevention, telecommunication etc.

Detailed Technical Design

The second stage of process which involves approval of detailed technical design of the transmission system is

known as Detailed Technical Design (DTD). The DTD is not mandatory for all projects and augmentation/ up

gradation projects associated with existing transmission substations and lines (also labelled as ‘Urgent and

Critical’) do not require an a detailed technical design. The detailed technical design is actually the phase in

which complete technical specifications for the project is finalised and approved by the appropriate authority.

Similar to the FS, the DTD is also sent up to EVN, MOIT, etc. for approval and once the approval is secured, the

project is considered as ready for implementation.

Key issues

1. There are several key issues in the transmission investment planning and investment appraisal process:

Upon careful examination of FS of select projects, it was seen that there is no scoring of the projects.

There is only a comparison with the standard criteria. The scoring will help EVNNPT to identify the

projects which are not low in terms of scores. In a situation, where EVNNPT has very limited resources,




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the scoring will enable EVNNPT to select the projects based on the scores within a portfolio of number

of projects;

2. All the parameters mentioned in the evaluation are considered equally important. Practically, there are

some parameters which may be extremely critical for the benefit of the country, while some other

parameters may not be as important as others. There should be a mechanism to differentiate among the

parameters based on its criticality and importance. The projects with higher score should be

implemented first over other projects;

3. The financial and economic analysis of the projects is based on the Decision no 445, issued in 1994. It

provides for the assumptions and methodology for preparation of financial model to carry out the

financial and economic analysis of the proposed investment projects. The assumption and methodology

provided in the circular are outdated and are of no relevance considering the current structure of

Vietnam power sector. The norms for the determination of transmission charges, depreciation, O&M

expenses, etc. are not in line with the norms prescribed by ERAV and provided in the audited financial

statements;

4. It is evident that EVNNPT lacks funds to finance its capital requirements. In such a condition, there

should be a tool/ system/ process/ regulation in place based on which the decision in respect of

prioritization of future projects can be made. Considering the limited funds/ budgets in EVNNPT, the

prioritization is essential to determine which projects have to be immediately implemented and which

projects can be delayed;

5. In EVNNPT, the projects are selected on the basis of least cost transmission project to cater to selected

load and generation centres. It is now being challenged. There are a number of alternate options

available such as selection of projects based on benefits rather than cost/ public interests; and

6. In Vietnam, the transmission planning follows the distribution and generation planning. In Countries

with rapid power sector reforms such as US have their transmission planning leading the generation

and load growth. EVNNPT also needs to enter into a dynamic transmission sector planning.

With such issues in the investment planning and investment appraisal process, EVNNPT needs to revise the

framework used currently. A more comprehensive and structured framework for the project evaluation and

prioritization is needed.

There is a requirement of a robust framework to assist EVNNPT in undertaking investment decision

particularly in respect of prioritization of projects which should be based on an appropriate weightage of

technical importance (reliability) and the commercial and financial viability of the project.

A prioritization framework should consider the organisational goal while evaluating the projects. It should

evaluate the projects on various parameters such as technical, economic, financial and organizational

capabilities. The parameters should be weighted such that the critical parameters impacting significantly the

organisational goal and national benefit are identified distinctly. The most critical projects identified should be

considered for implementation first. The EVNNPT framework does not satisfy many of these criteria, therefore

there is a need for revision of the framework.

According to the G20 Investment and Infrastructure Working Group and the G20 Development Working

Group, June 2014, “Simply raising spending on infrastructure will not provide the allocative and distributional

efficiency required to enhance economic growth and job creation over the long-term. It is therefore critical to

achieving the international community’s growth, job creation and poverty alleviation goals that governments

allocate scarce resources available for investment where they will have the greatest impact”.




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It is essential to have well-defined, transparent and clear criteria to prioritize projects so that their selection is

objective and free of any influence.

The Concept Paper looks at the global practices with relation to selection and prioritization of transmission

investments and proposes a comprehensive selection and prioritization criteria which may be followed by

EVNNPT in Vietnam.


Romania

Romanian TSO (TransElectrica - fully independent from the production and supply companies) is responsible

for transmission planning and development in Romania. TSO prepares a comprehensive ten year transmission

sector development which is updated once in every two years. Unlike in Vietnam, in Romania, the transmission

development plans are approved by an independent regulatory commission.

TSO conducts a complete set of studies including load flow analysis, security analysis, probabilistic analysis,

short circuit and dynamic calculations. The investment planning and appraisal consists of technical and

economic criteria which are summarized below:

1. Technical criteria

a. Planning with a n-1 reliability criteria and a n-2 reliability criteria to design transmission

capacity for nuclear power plants;

b. Static and dynamic stability; and

c. Technical criteria to design the reactive power compensation installations.

2. Economic criteria

a. Payback period (is the most important criteria to prioritize projects);

b. Reduction of loss of load costs;

c. Reduction of losses and costs;

d. Reduction of re-dispatching costs;

e. Reduction of congestion costs; and

f. Benefit from telecommunication lines, and any other benefits.

TSO does not conduct risk estimations.

Ireland

EIRGRID is the national power transmission company in Republic of Ireland. The entire transmission planning

stage comprises of six phases. The six phase of the transmission planning in EIRGRID is summarized below:

Top level engagement

This is the stakeholder consultation stage where concerns of various groups are addressed and the importance of grid development is communicated. There are two advisory forums- National and Regional Advisory Forums.




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Preliminary phase: technical basis of the project

The technical need for the project is clearly documented. The scope of the project is identified and defined in this phase. The scope is constantly challenged during the process to ascertain the importance and technical viability of the project.

Information gathering phase

The objectives of the information gathering phase are:

1. Preparation of the study area and rationale for the project;

2. To identify environmental and other constraints within the study area and prepare an environmental

and constraint map;

3. To identify potential route corridors/site locations (Potential Indicative Corridor/ Sites);

4. To present key messages regarding the project to the public and stakeholders; and

5. To obtain initial public/stakeholder input regarding the project.

Evaluation phase

During this phase, the various alternatives of corridors and sites are evaluated. The objectives of this phase are summarized below:

1. Carry out a multi-criteria evaluation of identified corridors/sites which includes identification of

selection criteria (which could be different for different projects) and evaluation of corridors;

2. Conduct comparative evaluation of alternatives;

3. Shortlist the identified indicative corridors/sites;

4. To identify an emerging preferred corridor/site (among alternative select the best one);

5. To identify a potentially feasible route within identified corridors;

6. To continue to present key messages to public/stakeholders; and

7. To obtain ongoing public/stakeholder input regarding project.

Route conformation phase

During this phase, the route is confirmed, landowners are identified and complete evaluation is done for the emerged preferred corridor. It includes:

1. Identify and engage with landowners on the route/site;

2. Continue to present key messages to public/stakeholders; and

3. Move from information gathering to information giving.

Environmental Impact Assessment and Application phase

This is the final stage where complete planning application along with proposal is prepared. At this stage comprehensive environmental impact assessment is also conducted and communicated to the stakeholders.




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India

POWERGRID is the inter-state transmission company which owns and operates almost all the inter-state

transmission assets in India. The transmission planning process of POWERGRID comprises of two broad steps:

Planning phase

The planning stage commences with identification of the project to be implemented in near to long term. The

planning phase comprises of the following three steps:

1. National Electricity Plan;

2. Network Plan; and

3. Identification of the projects by Empowered Committee to be implemented through competitive

bidding route.

Detailed design and implementation phase

This is the primarily stage where complete feasibility of the project is ascertained, investment proposal is

prepared and financing for the project is identified. The key steps in this phase are:

1. Approval of advance Preliminary Expense;

2. Feasibility Report (FR)/ Detailed Project Report (DPR) including Cost Estimates;

3. Project investment proposal; and

4. Finalization of project financing options.

It is the key appraisal stage for the project. At this stage the project is either accepted/ rejected / alternatives are

evaluated. An unviable project will not pass the feasibility stage. The projects are evaluated on the basis of the

following framework:

1. Technical: the technical evaluation will cover the evaluation of the following:

a. Broad route and alternate route identification for the project;

b. Bill of quantity (BOQ) for the project; and

c. Design, technical specifications and construction standards for foundations, towers, cables and

insulators.

2. Techno-commercial: It will cover the evaluation of the following:

a. Project packaging to attract suitable competition facilitating cost effective procurement;

b. Cost estimation as per BOQ prepared of the various system elements (such as cables,

conductors, transformers, switchgears, capacitors, lightning arrestors and insulators, the

control and communication system, engineering and project management, supervision and

contingencies);

c. Project implementation plan and schedule for the project taking into account, system

constraints and other relevant factors;




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d. Operation and maintenance plan including facilities such as protection, communication,

measurement, telemetry and interface equipment etc.;

e. Statutory and environmental clearances for project; and

f. System operation requirements, based on applicable laws and grid code.

3. Financial: It will be focused on carrying out detailed financial analysis including proposed capital

structure for the project.

The prioritization of the projects in India is very dynamic, where the central power planning agency ((namely

Central Electricity Authority) reviews the progress of the planned generation capacity to be added, increase in

load and the progress of the transmission lines proposed to be carrying that additional load.

Proposed framework for prioritization

At present, the resources available with EVNNPT are limited. It would often have conflicting projects exceeding

the available resources. In such a scenario, EVNNPT would have to select from these conflicting projects based

on the prioritization of the projects. There is need of framework based on which the prioritization of the

projects can be performed.

Overall Approach

NPT may follow the following six steps framework for prioritization of the projects:

Steps Description

Identify the critical parameters for

the evaluation of the project

Identify the parameters based on which the projects are to be evaluated.

The parameters will be divided into three parts:

Technical parameters

Economic parameters

Organizational parameters

Assign weights to the parameters

based on their criticality

While assigning weights, EVNNPT should keep in mind the

organizational and Company’s goal. The parameters which are of utmost

national importance should be given more weights than others.

Keep a minimum qualifying criteria

for each parameter

There should be minimum qualifying criteria for each parameter. The

project should fulfil the minimum qualifying criteria for each parameter

and any of the projects scoring below that level should be eliminated.

Assign a weightage to all the

parameters and determine the

weightage average score for all the

projects

Based on the assigned weightage for each parameter, a weighted average

score should be determined for all the projects which pass the qualifying

criteria

Weighted Average Score = (Score on each

parameter*Weights of each parameter) / Sum (Weights of

each parameter)

Rank the projects based on the

weighted average score

Rank all the projects in a decreasing order to create a prioritized list.

Implement the top ranked projects

for which funds are available

Based on the available funds, EVNNPT should select the top ranked

projects that should be implemented for national benefit and to achieve

the organizational growth




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Identify the critical parameters for the evaluation of the project

Based on the practices followed globally for the selection of the transmission projects, the following technical

and economic parameters can be considered for the selection of the transmission projects.

Technical parameters

The key technical criteria would include:

1. N-1 reliability criterion: The network complaint with (n-1) criterion means the network will be able

to withstand a single system element (e.g. transmission line, transformer, generating unit, etc.) outage

and meets the following requirements:

a. No breach of the limiting values for network operation variables (operation voltage, frequency)

that may endanger the security of the power system or lead to an unacceptable strain on

equipment, damage, destruction or an inadmissible reduction in the life of equipment;

b. No inadmissible overloading of components may take place;

c. The voltages and frequency are satisfactory for consumers and generating units;

d. Interruptions of supply are avoided (with the use of redundancies temporarily available in

lower voltage networks and in the installations of transmission system users);

e. Secondary tripping through activation of further protection devices on equipment not directly

affected by the disturbance cannot involve the risk of spreading the disturbance;

f. There is no need to change or, if necessary, interrupt power transfers; and

g. The loss of generating unit stability is avoided.

2. Short-circuit criterion: The facilities and devices connected to the network must be designed to

operate according to given current limits. Short circuit analysis provides the value of the maximum

current expected to flow during short circuit at specific node of the network. Network elements

(conductors, breakers, transformers) should be able to withstand such fault current without any

permanent damage to the element. The system design should guarantee that:

a. Short circuit currents will not exceed the capacity of devices/ switchgear installed on that node,

b. A sufficient short-circuit power value is available for fault clearance by the electrical protection

system.

c. In the short circuit analysis, the short circuit current for the line should be less than the limit

specified

3. Stability criterion: In the stability criterion, the objective should be to check the stability (state of

synchronism among generators) of the grid when fault occurs on any element or there is sudden

tripping of generator(s) or sharp reduction in the load. Stability calculations have to determine the time

value of short-circuit duration (critical clearance time-Tc) for which stability is to be ensured ((i.e.

generators must not go out of synchronism till such time after the transient), in order to estimate

stability margin. Critical clearance time should be calculated for the lines which are part of corridors of

important power transit. Steady-state scenarios for stability calculations should be determined.




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4. Load Flow Analysis: Load flow studies should be conducted to ensure that electrical power transfer

from generators to consumers through the grid system is stable, reliable and economic and do not

violate network loading and bus voltage limits. There should be standards for the load flow in the

transmission lines and the projects to be scored on the basis of the transmission load they are planned

for. The load flowing through each line of the network should be recorded and the overloading of lines

should also be recorded. One possible recording template could be:

Planning scenario

Node Voltage (kV) Overloaded branch

Overloading (% Imax or Sr)

Description of the analysed scenario

Name of nodes with voltages outside of permitted range

Absolute value of voltage which is out of range

Name of branch which is overloaded

Amount of overloading in percentage of maximum current or rated power

5. Line Survey: The transmission line survey should include the following:

a. Line route based upon topo sheets and theodolite survey;

b. Soil resistivity as this will give necessary data for induced currents and on that PTCC clearance

is to be obtained;

c. Crossing details e.g. river roads, telephone lines and forest etc.; and

d. Angle points so as to know the line route.

6. Environmental Impact Analysis: In this, the environmental impact of the project and the

measures envisaged to prevent damage to environment should be evaluated together with the cost

implication. The two important aspects to consider in this case are:

a. Forest clearing along the transmission line; and

b. Compensatory afforestation plan.

Organizational and management parameters

The organizational and management parameters will include the following:

1. Implementation plan: The project should also be given a score on the feasibility of the implementation

plan;

2. State of preparedness: There should a minimum benchmark set for the following to evaluate project:

a. Mode of implementation;

b. Infrastructural Back-up; and

c. Studies and investigations conducted.

Economic parameters

The economic parameters will cover the following:




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1. Need for the project: The need (business / social / others) for the project should be clearly defined

and the project should be scored on how critical is the need right now. The scoring criteria can be a

LIKERT scale rating and the scoring can be 1 to 5 based on the criticality. The LIKERT scale rating is

used to evaluate relative degree of positive or negative response typically to a questionnaire, such as a

LIKERT scale can be very high, high, moderate, low and very low;

2. Cost benefit analysis: Cost effectiveness analysis should be undertaken to determine whether

projected investment in the proposed project is consistent with overall national and sectorial objectives

and represents the best means of achieving the intended benefits;

3. Financial cost of transmission: For the purpose of appraisal, the capital cost and the operating

costs should be worked out at market prices. Cash flow should be prepared for the projected cost and

the flow of energy in each year covering entire economic life of the project. The costs and the units

transmitted should be discounted at a pre-determined rate of discount as may be specified by the

Government to workout unit cost of transmission;

4. Economic cost of transmission: The objective of the economic analysis of transmission project

should be to determine the cost of transmission at their true economic cost- actual resources cost as the

financial cost of transmission might not reflect the true cost of power on account of distortions inherent

in the market prices. While working out the economic cost of transmission, both the costs and power

transmitted have to be valued at their true economic resources cost. Ellis process involves removal of

taxes and duties from the costs as they are not the costs to the society. Similarly, the subsidies are also

not allowed as they are only transfer payments. The foreign exchange being scarce, there is certain

amount of premium on it. All the imported items such as plant and machinery have to be valued at CIF

prices. Apart from adjustment in the costs, the economic analysis also covers the impact of the

proposed project on the power system. As a result of the proposed project becoming operative, there

may be some improvement in reliability of the system. It should also consider the associated

environment and social cost;

5. Sensitivity analysis: The project plan should be prepared on the basis of, as far as possible, realistic

assumption of demand supply gap, capital cost estimates, gestation period, operating cost estimates,

production build-up, turnover, economic life, etc. However, the project is in the nature of a venture

which means exposure to chance and some of the assumptions/estimates may go wrong. Experience

shows that in several areas assumptions have often gone wrong. It is, therefore, necessary to carry out

sensitivity analysis to indicate the project's financial viability when there is changes in the estimates of

key parameters such as capital costs particularly the foreign exchange component, operating cost etc.

The extent of changes in the key parameters should be based on the past experience relating to the

sector. If the costs are very sensitive to the changes in the independent variable, the plan is not robust

enough. If the plan is not robust, it should be scored low for the implementation;

6. Profitability index: The profitability index (PI) is defined as the ratio between expected annual

benefit from candidate project and the annuity of its expected costs. In case the profitability of the

project is over one (1) then it is economically viable. The expected benefits and costs should be

determined as follows:

a. The expected benefits: The expected benefits should be the weighted average of the

followings:

i. Benefit due to reduction of expected annual undelivered electricity costs;

ii. Benefit due to annual losses reduction;

iii. Benefit due to reduction of annual re-dispatching costs; and




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iv. Benefit due to annual congestion costs reduction.

b. Expected costs of transmission project: The expected costs in the transmission project

should be:

i. Investment costs;

ii. Operation and maintenance costs; and

iii. System costs.

Assign weights to the parameters based on their criticality

The assignment of weights would depend on the strategic priority of the stakeholders in the sector. The weights

should be assigned to the framework through a consultative process including key stakeholders. The process of

weightage definition should be through brainstorming session between representatives all key departments.

However, assignment of weightage should be a time bound activity and the team responsible should present the

findings to the Board within specific time period. During this process, the minimum cut-off values for select

parameters may also be defined.

The values could be decided by EVNNPT Board and then sent to MOIT for approval.

The proposed investment evaluation framework for prioritization of projects has been proposed to look at

transmission sector as an area leading power sector reforms. Growth in power transmission is required for the

development and growth of power markets. Hence, the planning and evaluation criteria for selection of

transmission investments, to be set up within limited resources are of paramount importance.

The framework proposed is robust and a number of key elements of the framework is being discussed and

implemented in developing countries such as India and China. The basic framework for the project evaluation

has been defined however before operationalizing the key weightages for each of the parameter along with

minimum cut-off criteria should be defined by EVNNPT.

The evaluation framework can be further automated which will ensure a higher degree of transparency and

controls. Finally, parameters and process definition is only part of the work done but the true success lies in

actual implementation. Hence it is imperative that the evaluation framework is used impartially.




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Project model & Corporate model

Refer Appendix 8 - for the MS Excel based Project Model and Corporate Model

Description - Project model

Overview

Financial model is a standard tool widely used by investors, financial institutions and external evaluators to

assess the viability of a project. The leading public sector utilities around the world post the sector reform

process have widely adopted financial modelling as a basic and important phase of the investment appraisal

process.

NPT also uses financial models to assess the financial and economic viability of the projects based on the

assumptions and guidelines in the Decision No. 445. However, the financial models in use are outdated. It is

not adequate to evaluate an investment proposal on all the economic and financial parameters. The model

calculates some key financial metrics such as NPV and IRR but is not flexible to offer a variety of views for

different stakeholders.

Based on our observations and review of the existing financial model and our expertise in developing similar

models for public utilities, private investors and multilateral financial institutions, we have prepared a robust

financial model for appraising a project.

The project model is prepared to assess the financial and economic viability of an investment proposal as a

standalone project. Some of the key features of the financial model are as below:

1. The capital investment proposal including inflow of debt and equity has been calculated quarterly to

bring in more accuracy to the financial model;

2. Units of currency are primarily in VND million;

3. Segregation of input, output and working sections in the model to ease operation and updating;

4. Flexible and robust time and date functions so that the same model can be reused multiple times; and




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5. Calculating multiple ratios from view point of investors/ financial institutions/ and regulators.

This note is focused on a providing a complete brief about the financial model which would be useful for the

EVNNPT to operate and subsequently update the financial model. The entire note is divided into three sections,

similar to the financial model i.e. Assumptions/ Input, Working area and Output section.

The standard modus operandi for using financial models is that all users should have the flexibility to update

Assumptions/ Input area and review the Output section but the Working area should be managed only by a

dedicated team from Finance/ IMD Department.

Feeding in the right input

The financial model has a dedicated input area where the key assumptions pertaining to the project needs to be

fed in. The input area is marked distinctively with Yellow colour, marking off cells where the inputs should be

fed in. The rest of the section / values in the sheet are primarily either fixed values/ preliminary calculations.

Assumptions

The table below clearly indicates the major assumptions in the financial model and manner in which individual

values should be incorporated.

Reference Description Input values

Input sheet Line 6-17

The table in the associated line numbers indicates the mapping of each month (represented by month numbers) to each quarter (represented by quarter numbers).

The values should not change except if there is a change in the convention of the financial year for EVNNPT.


The lines are general time related input and should not change

Input sheet Cell D26

The input represents date on which the financial and cost are being evaluated. In most cases the date should be the current date when the model is being customized for a project.

The date is entered in a mm-dd-yyyy format

Input sheet Cell D30-31/ 35-36/ 40-43/ 50-52/ 56-58/ 62-64/ 70-75/ 79-84

The user needs to enter the value of the project components in VND million. The prices should ideally represent the current prices (i.e. on the Base Date in Cell D26)

The absolute cost needs to be plugged against each of the corresponding investment item.

Input sheet Cell D90-96/ E90-96/ D99-105

The cells indicate the general details of the project such as line length and number of bays.

The user needs to enter the project details in the requisite cells based on the units written in corresponding cells. The cells E90-96 are options in a drop down box and hence the user just needs to select the right input.

Input sheet Line 117-119/ 121-123/ 125-129/ 131

The line represents how the investment (in terms of actual cash outflows) is phased over the entire construction period. The total for each line item should be exactly equal to 100%.

The user needs to enter the percentage of money spent during each quarter compared to the total cost of the item.

Input sheet Cell C135

The cell represents how much debt would be required as a percentage of the total capital cost.

The user needs to enter the percentage of debt to the total project cost.

Input sheet The cell represents of the total equity to be The user needs to enter the




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Reference Description Input values C137 invested in the project, the amount of equity to be

invested upfront before the debt comes in. percentage of the total equity which will be invested upfront before the debt inflow.

Input sheet C138

The cell represent the return on equity to be allowed by the regulator for the project

The user needs to input the expected return on equity for the particular project based on regulatory guidelines.

Input sheet C139

The cell represents the interest rate on working capital loans.

The user needs to enter the expected interest rate for working capital loans based on prevailing market scenario.

Input sheet C140

The cell represents the WACC/ threshold rate over which the project would be viable for both debt and equity holders.

The user needs to enter the WACC/ minimum hurdle rate over which the project would be viable for the investors and banks. General formula is Debt/total project cost * (interest rate) * (1-tax rate) + equity/ total project cost * (cost of equity).

Input sheet D144-147

The proportion of the total debt to be financed by the corresponding debt item. The total for all debts should be 100%.

The user needs to enter the percentage of total debt to be financed through each loan source.

Input sheet D151/164/177/190

The cells represent the currency in which borrowing happens.

The options are available in a drop down menu and the user has to simply select the currency of the loan. The options are provided in the params sheet and model team can revise the same if a new currency type is required.

Input sheet D152/165/178/191

The cells represent the type of debt whether it is linked to LIBOR, Vietnam’s domestic interest rate or at fixed rate.

The options are available in a drop down menu and the user has to simply select the type of loan.

Input sheet D153/166/179/192

The cell represents the interest rate. Depending on the type of loan, the interest rate may change.

The user needs to enter the interest rate based on the prevailing market conditions.

Input sheet D154/167/180/193

The cells get activated only if hedging switch is on and represent the cost of hedging. This is the premium over the interest rate for full hedge.

In case the cell gets activated, i.e. text will appear asking to input the “Hedging cost” the user needs to enter the cost of hedging in percentage. This percentage will be added to the interest rate.

Input sheet D156/169/182/195

The cells are the switch for hedging and indicate if the hedging is being done for the loan or not.

The options are available in a drop down menu and the user has to simply select the option to hedge or not.

Input sheet D158/171/184/197

The cells represent the moratorium period i.e. period after the COD post which the repayment of loan begins.

The user needs to enter the moratorium period in months.

Input sheet The lines represent the loan repayment schedule The user needs to input the




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Reference Description Input values

D161/174/187/200 i.e. the percentage of the total loan to be repaid during that year. The total of each line should be equal to 100%

repayment scheduled for the loan based on tentative loan conditions.

Input sheet Line 205-206/209-210/ 213

The lines represent the forecast of macro-economic parameters. Lines 205-206 represent the exchange rate forecast between VND USD and VND Euro. Lines 209-210 represent the interest rates especially LIBOR and Vietnam base rate projections. Line 213 represents the inflation rate projections for Vietnam.

The user needs to enter the forecast for macro-economic parameters based on management’s view/ taking inputs from economists.

Input sheet D217-219/ 221-223/ 225-229

The cells represent the portion of the total cost for each item of the transmission project which is dependent on inflation. For example only 50% of the total conductor cost is subject to inflation.

The user needs to input portion the capital cost for the particular item which would depend on inflation and the cost may rise with time.

Input sheet D234-236 and D239-241

The cells (234-236) represent the base year cost for employee costs, administrative and general expenses and repair and maintenance costs. The cells 239-241 represent the escalation rate for the corresponding employee costs, administrative and general expenses and repair and maintenance costs.

The user needs to enter the estimate for base year for employee costs, administrative and general expenses and repair and maintenance costs and the expected annual escalation rate for the same.


The cells represent information for computation of tax. Cell D 245 indicates the tax holiday which may be applicable for transmission investments. Cell D246 indicates the corporate tax rate. Cell D 247 represents the VAT rate. Cell D 248 represents the years for which losses can be carried over for tax computation.

The user needs to enter the tax related inputs based on the actual guidance from tax department.

Input sheet D253-258 and E253-258

The cells represent the life of the assets and the residual value at the end of the life. These two values are used to calculate the depreciation rates.

The user needs to enter the life of the particular type of asset and the corresponding residual life for the project.


Line 261 represents transmission losses for the particular line. Line 262 represents the forecast for electricity bought (i.e. electricity input to the line measured at the starting point of the line). Line 263 represents the forecast for the price at which electricity is bought by EVNNPT.

The user needs to enter the transmission line losses, quantum of electricity to be bought and the price at which the electricity will be bought.


The cells represent the current assets. Cell D266 indicates the receivable days (expressed in months). Cell D267 indicates the inventory for spares expressed as a percentage of the fixed assets.

The user needs to input the months of receivables and inventory that the project would need to maintain as a percentage of the total asset base.


The cells represent the current liabilities. Cell D 270 represents the O&M expense payable days (expressed in months). Cell D 271 represents the power purchase payable days (expressed in months).

The user needs to input the months of payables for O&M expenses and for power purchase.




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Error checking

A user need to be careful while plugging in the input values while there are specific checks at certain sections to

indicate an erroneous entry. The colour coding for error checking is mostly incorporated in Column A. The

colour coding is simple; Green represents correct values while Red represents wrong value.

The description of error checking is provided in the table below:

Reference Error checking

Input sheet Line 117-119/ 121-123/ 125-129/ 131

The phasing of investments (%age) is used to show how has the total investment spread over the construction period. The total phasing for a single item (such as Conductors or Insulators or Civil) cannot exceed or be below 100% except for items where there are no investments at all.

Input sheet Line 161/174/187/200

The line items represent the repayment schedule as %age of the total debt. The total repayment scheduled cannot be less than or exceed 100%.

Input sheet Cell D148

The Cells D144-147 represents the proportion of the total debt being financed by corresponding debt item. Cell D148 represents the total of sum of individual loan as a percentage of the total debt. This cell should have a value of 100%.


The sheets “Quarter_computations” and “Annual_computations” are the calculation sheets. These sheets

should only be changed by experienced modellers in charge of maintaining the financial model.

The sheet “Quarter_computations” calculates the phasing of the investments in quarters from the date of the

estimation, expected debt and equity inflow and calculation of IDC and interest. Some of the key elements of

the sheet are summarized in the table below:

Reference Description

Quarter_computation Line 74-90

The cost of the project will increase from the date of estimation/ modelling to the actual implementation. This section forecasts the nominal cost of the project. The section uses the base cost and the inflation values along with dependence of each project component (denoted in the Input sheet: Line 217-229) on the inflation to calculate the nominal value of the project.


Complete equity phasing for the project which is calculated from the project phasing, debt to equity ratio and upfront equity commitment.


In these lines the complete debt schedule for the project is computed. The debt schedule includes debt inflow, repayment, interest calculations (including IDC) and forex fluctuations.

The sheet “Annual_computations” focusses on calculation of depreciation, O&M expenses, taxes, working

capital requirements and annual revenue requirement for the particular project. The table below summarizes

the important sections of the working sheet.


Annual_computation Line 28-72

The depreciation for each asset type is calculated in the lines from 28-72. The calculation depends on the depreciation rates and investment made.


The O&M expenses are calculated in the lines from 75-81. The calculation uses the base year estimation for employee, administrative and general and repair and




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Reference Description maintenance expenses and the expected annual escalation rates for the same.


The lines from 83-96 has the complete tax calculations including tax holiday, carry forward of losses and corporate tax and VAT payable.


This section includes the calculation of the transmission pricing for the particular project using the Cost + ROE principle.


These lines contain the calculations of the working capital requirements including forecast of current asset and current liabilities.

The sheet “Financial statements” is simply a summary of all items into the financial statements i.e. P&L,

Balance Sheet and Cash Flow Statement. The sheet also includes calculation of Free Cash Flow to the Project

and Free Cash Flow to equity holders to calculate the IRR and NPV.

Decoding the output

Iterations and how to run the model once the inputs are changed (Button on the output sheet)

There are certain sections in the model which have iterative calculation which implies that the some values have

circular dependence. In order to remove the circular dependence, we have used a macro which will be activated

pressing the button “Press the button to execute” on sheet “Key output.”

Hence every time an input is updated the user has to press this button to calculate the results.


The lines from D05 to H08 summarize the transmission pricing and details are summarized in the table below:


Key output D05 to H05

The line indicates the power buying rate


The line indicates the power selling rate


The line indicates the transmission price per kWh


The line indicates the annual revenue requirement for EVNNPT for this particular project including the costs and the profit margin in VND million.

Financial statements

The cells from D11 to H76 contain the detailed financial statements for the first five years of operations. The

years for which the user intends to see the results can be changed by change the cells D04 to H04.

The cells D15-H15, D19-H19, D23-H23, D29-H29 and D33-H33 calculate the key profitability ratios for the

project for the corresponding years. The profitability ratios are key values to indicate the profitability of the

project in terms of the pricing and cost structure.




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Ratio analysis

The cells from M 06 to Q 18 summarize the key ratios for the project. Each of the ratios indicate a different

aspect of the project and the table below shall help deciphering the ratios:

Ratio Description

Debt to equity ratio This is the standard leverage ratio to indicate how much the project is levered. A high leverage is generally good for the project since it indicates lower business risk for the equity holders and improved equity cash flows. However too high leverage also increases the financing risk for the project and the project may not be able to sustain the debt service requirements.

DSCR (Debt Service Coverage Ratio)

This ratio is defined as the ratio of Net Income to the total debt service requirements (i.e. repayment + interest). The DSCR is an important ratio which is evaluated by the banks/ lenders of the project and typical DSCR requirements is over 1.2 (however it may vary depending on the bank/ financial institution).

Interest coverage ratio (ICR)

This ratio is defined as the ratio of Net Income to the total interest payments. The Interest coverage is also an important ratio which is evaluated by the banks/ lenders of the project. The ICR is used to see if the project is able to meet the interest on loans.

Current ratio The current ratio is a measure of the liquidity of the project. It is used to assess if the project generates enough cash to meet its short term obligations. Typically a current ratio of over 1.5 is acceptable. A current ratio of less than 1 indicates that the company may likely enter to a cash strap scenario in future.

Acid test Similar to the current ratio, acid test is also a measure to assess the liquidity scenario of the project without considering the inventory (since a company typically cannot sell its inventory to generate cash). An acid test of less than 1 indicates that the company may likely enter to a cash strap scenario in future.

Days of receivables The approximate time it takes for the project to receive the payments from its customers.

Asset turnover Asset turnover depicts how profitably the assets are employed in the business. Typically in case of capital intensive industry such as power transmission asset turnover is lower compared to a low capital intensive industry such as retail/ electricity distribution. This ratio can be used to also evaluate competing projects. However a general approach is to determine the historical asset turnover and select project which match or exceed the benchmark ratio.

Degree of operating leverage (DOL)

DOL is a type of leverage ratio summarizing the effect of operating leverage on a company's earnings before interest and taxes (EBIT). Operating leverage involves using a large proportion of fixed costs to variable costs in the operations of the firm. The higher the degree of operating leverage, the more volatile the EBIT figure will be relative to a given change in sales (amount of power received and sold), all other things remaining the same. In a transmission business typically the degree of operating leverage is very low.

Days of payables The approximate time it takes for the project to pay the payments it owes to its suppliers.

Returns

The returns which are the final set of output parameters are the most important ones in any project appraisal.

The key ratios are summarized in the table below:




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Parameter Description

IRR to project The IRR to the project is the rate of discount at which the NPV to the project is zero. A project is said to be feasible only if the IRR to the project is greater than WACC. However on occasions IRR function doesn’t work since when the cash flow changes sign for more than once during the life of the project. At times of comparing two projects with different lives, IRR is not the right function to use. Hence NPV is treated as a better ratio for evaluation.

NPV to the project The NPV to the project is the value the project will generate considering an opportunity cost equal to the WACC of the project. A project is said to be feasible for equity and debt holders only if the NPV to the project is greater than 0.

IRR to the equity holders

The IRR to the equity holders is the rate of discount at which the NPV to the equity holders is zero. A project is feasible for equity investors only if the IRR to equity holders is greater than Cost of Equity.

NPV to the equity holders

The NPV to the equity holders is the value the project will generate for equity investors considering an opportunity cost equal to the cost of equity for the project. (In this case we have used ROE as a substitute for Cost of Equity). A project is said to be feasible for equity holders only if the NPV to the equity holders is greater than 0.

Payback period The Payback period is the years taken to recover the total investment from the date of commercial operations or COD.

This financial model is built to be simple yet scalable. However it is important that the modification to the

formulas and the working sheets should only be managed by professional modellers, typically from the Finance

and Accounts/ IMD Department. It is important that customization for individual projects should be kept a

minimum. The actual selection framework/ various hurdle rates would dependent on EVNNPT’s management

keeping in view the existing industry trend and acceptable benchmarks for lenders and investors.

Description - Corporate model

Overview

The objective of the corporate model is to assess the financial and economic viability of an investment proposal

vis-à-vis with the complete business scenario of the firm. Some of the key features of the corporate model are as

below:

1. The entire model is built using annual calculations for simplicity;

2. Units of currency are primarily in VND million;

3. Segregation of input, output and working sections in the model to ease operation and updating;

4. Flexible and robust time and date functions so that the same model can be reused multiple times; and

5. Calculating multiple ratios from view point of investors/ financial institutions/ and regulators.

This note is focused on a providing a complete brief about the financial model which would be useful for the

EVNNPT to operate and subsequently update the financial model. The entire note is divided into three sections,

similar to the financial model i.e. Assumptions/ Input, Working area and Output section.




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The standard modus operandi for using financial models is that all users should have the flexibility to update

Assumptions/ Input area and review the Output section but the Working area should be managed only by a

dedicated team from Finance Department.


The financial model has a dedicated input area where the key assumptions pertaining to the firm needs to be

fed in. The input area is marked distinctively with Yellow colour, marking off cells where the inputs should be

fed in. The rest of the section / values in the sheet are primarily either fixed values/ preliminary calculations.

Assumptions

The table below clearly indicates the major assumptions in the financial model and manner in which individual

values should be incorporated.


Input sheet Cell D4

This is the base financial year from which the projections are being calculated. In most scenarios, this will the immediately preceding financial year.

Input sheet Cell D9-14

The closing gross fixed asset in the base financial year as per audited financial statements.


The cumulative depreciation in the base financial year as per audited financial statements.

Input sheet D25

The CWIP in the base financial year as per audited statements.

Input sheet Line 27

This is the capitalization schedule of the CWIP outstanding in the base financial year.

Input sheet Cell D47 - 48

The break-up of loans outstanding in the base financial year as per the audited statements.


The assumption for repayment of the outstanding loan (in the base financial year)/ old loans (only)


The assumption for weighted average interest cost for old loans (outstanding in the base financial year).


The section is the input for the project cost. Each new project can be input into a fresh line.

Input sheet Cell D84-H103

The break-up of the investments plans (by each project wise) into the asset categories.

Input sheet Cell D106-H125

This section requires the user to input the year wise phasing of each of the project which forms a part of the investment plan.


This section requires the user to enter the project wise debt assumptions.


This section requires the user to input the operational assumptions for the firm in terms of energy to be bought/ sold and transmission losses.

Input sheet Cell D159/163/165/168/171

These cells represent various cost elements for the business. In this space, the user has to enter the base data of these costs as on base financial year (as per audited accounts).


This section contains the tax assumptions.


These cells represent the balance sheet scenario as per the base financial year. The user has to enter the data as per the accounts and update the model.




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Working area

The sheet “Calculations” contains the entire calculations which have been used to generate the specific outputs.

Some of the key elements of the sheet are summarized in the table below:


Calculations Line 06-89

The section represents the complete capital phasing of the investment plan for the company. The investment plan is multiplied with the phasing to generate the fixed asset schedule for the company.


This section focuses on the depreciation schedule where each type of asset, its value and depreciation rates are used to prepare the required forecast.


This section represents the complete debt schedule for the firm. The debt schedule is divided into three parts - Existing loan in domestic currency, existing loan in foreign currency and future loans.


This section focusses on calculating the O&M expenses.


This section contains the detailed calculation of taxes.


This section calculates the current assets and liabilities using historical trend.


This section calculates the transmission pricing in the given scenario.

Decoding the output

Iterations flag

There are certain sections in the model which have iterative calculation which implies that the some values have

circular dependence. In order to remove the circular dependence, we have used a flag concept. In the cell D05 of

the Input Sheet, there is a flag. This flag should be turned on to false and then back to true every time the model

is to be revised/ updated.


The lines from D05 to H08 summarize the transmission pricing and details are summarized in the table below:


Key output Line 07

The line indicates the power buying rate

Key output Line 08

The line indicates the quantum of power bought

Key output Line 10

The line indicates the power selling rate

Key output Line 11

The line indicates the quantum of power sold in million units.




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Ratio analysis

Ratio analysis using the forecasted the financial statements, may be used to evaluate various financial, risk and

operating aspects of the firm. The ratio analysis also serves as a decision tool which allows management to

undertake a conscious decision.

The Lines 16 to 33 summarize the key ratios for the firm and each of the ratios indicates a different aspect of the

firms’ business and the table below shall help deciphering the ratios:

Ratio Description

Debt to equity ratio

This is the standard leverage ratio to indicate how much the firm is levered. A high leverage is generally good for the firm since it indicates lower business risk for the equity holders and improved equity cash flows. However too high leverage also increases the financing risk for the firm and the firm may not be able to sustain the debt service requirements.

DSCR (Debt Service Coverage Ratio)

This ratio is defined as the ratio of Net Income to the total debt service requirements (i.e. repayment + interest). The DSCR is an important ratio which is evaluated by the banks/ lenders of the firm and typical DSCR requirements is over 1.2 (however it may vary depending on the bank/ financial institution).

Interest coverage ratio (ICR)

This ratio is defined as the ratio of Net Income to the total interest payments. The Interest coverage is also an important ratio which is evaluated by the banks/ lenders of the firm. The ICR is used to see if the firm is able to meet the interest on loans.

Current ratio The current ratio is a measure of the liquidity of the firm. It is used to assess if the firm generates enough cash to meet its short term obligations. Typically a current ratio of over 1.5 is acceptable. A current ratio of less than 1 indicates that the company may likely enter to a cash strap scenario in future.

Acid test Similar to the current ratio, acid test is also a measure to assess the liquidity scenario of the firm without considering the inventory (since a company typically cannot sell its inventory to generate cash). An acid test of less than 1 indicates that the company may likely enter to a cash strap scenario in future.

Days of receivables

The approximate time it takes for the firm to receive the payments from its customers.

Asset turnover Asset turnover depicts how profitably the assets are employed in the business. Typically in case of capital intensive industry such as power transmission asset turnover is lower compared to a low capital intensive industry such as retail/ electricity distribution.

Degree of operating leverage (DOL)

DOL is a type of leverage ratio summarizing the effect of operating leverage on a company's earnings before interest and taxes (EBIT). Operating leverage involves using a large proportion of fixed costs to variable costs in the operations of the firm. The higher the degree of operating leverage, the more volatile the EBIT figure will be relative to a given change in sales (amount of power received and sold), all other things remaining the same. In a transmission business typically the degree of operating leverage is very low.

Days of payables The approximate time it takes for the firm to pay the payments it owes to its suppliers.

Returns

The returns which are the final set of output parameters are the most important ones in any appraisal process.

The key ratios are summarized in the table below:





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NPV to the firm The NPV to the firm is the value the firm will generate considering an opportunity cost equal to the WACC of the firm. The business is said to be feasible for equity and debt holders only if the NPV to the firm is greater than 0.

NPV to the equity holders

The NPV to the equity holders is the value the firm will generate for equity investors considering an opportunity cost equal to the cost of equity for the firm. (In this case we have used ROE as a substitute for Cost of Equity). The business is said to be feasible for equity holders only if the NPV to the equity holders is greater than 0.

The primary use of the corporate model is for visualizing the cash flow scenario of the company under various

debt scenarios for a particular year. The model can also be used to assess if the firm would be able to service the

debt obligations. Both project model and corporate model are complementary and should be used in tandem for

decision making. The models are also designed to provide insight into the cost and pricing structure.




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Background

As per the National Master Plan for power development in Vietnam for the year 2011-2020 period with the

vision to 2030, there will be a huge investment requirement for EVNNPT. The total physical investment plan

envisaged according to the Master Plan is shown in the table below:

Item Unit 2011 - 2015 2016 - 2020 2021 - 2025 2026 - 2030

500 kV substations MVA 17,100 26,750 24,400 20,400

220 kV substations MVA 35,863 39,063 42,775 53,250

500 kV lines Km 3,833 4,539 2,234 2,724

220 kV lines Km 10,637 5,305 5,552 5,020 Source: Master Plan VII (for 2011-2020 and with a vision 2030)

The total investment in the grid will be 210.4 trillion VND during the period 2011 - 2020 and 494 trillion during

the period the 2021 - 2030.

NPT is largely dependent on the long term loans from ODAs (ADB, World Bank, etc.) and other International

Banks (e.g. Citibank, BNP Paribas) to fund their capital investment requirement. Based on our study, it seems

that EVNNPT is facing challenges to arrange the equity portion to fund its capital expenditure requirement due

to the following reasons:

1. No equity infusion by the equity shareholders; and

2. No adequate return on equity is allowed in the tariff order to generate retained earning which can be

used for self-financing.

In the given situation, EVNNPT is forced to utilize the surplus depreciation fund to finance its equity

contribution for capital expenditure. The depreciation period allowed by the Regulator is lower than the loan

repayment period. This provides some surplus cash to EVNNPT to invest into the capital projects. However,

such a practice may deteriorate the financial position of EVNNPT in long run. It is against the basic finance


Considering the above facts, EVNNPT is required to evaluate alternative modes of financing to fund the equity

portion to finance the huge capital investment requirement. The purpose of the concept note is to discuss the

various equity financing options available with EVNNPT along with their benefits and implementation

challenges.

Alternate modes of financing

The alternative modes of equity financing available with EVNNPT to fund the capital investment requirement

are as follows:

1. Raising fresh equity from capital markets to fund its investment;

2. Lease financing; and

3. Public private partnership.




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Raising fresh equity from capital markets to fund its investment

The capital projects are generally financed by debt and equity. The equity portion comes from retained earnings

or fresh infusion of equity. In case of EVNNPT, it is not allowed to recover any return on its equity therefore

there are no retained earnings available with EVNNPT. It has also been observed that no equity is being infused

from the shareholders or from the government. In the given scenario, an alternative option may be raising fresh

equity from capital markets. The pre-requisite for raising fresh equity from capital markets is that the company

should be listed in the stock exchange.

Benefits associated with the option

It will reduce the burden from the government budget and will help EVNNPT to meet the huge capital

investment requirements.

Experience of other countries

Australia: Many of the transmission networks in Australia are owned by public listed entities, the shares of

which are traded in the financial markets.

Spain: The electricity transmission sector in Spain is monopolized by Red Eléctrica de España (REE), a public-

listed company, which is the sole transmission agent and operator of the Spanish electricity system. The Red

Eléctrica de España is a public listed company which owns all the transmission assets. The shares of the

company have been quoted in the four Spanish Stock Exchange Markets since 7 July 1999.

India: The Central Transmission Utility in India, i.e., POWERGRID is a public listed company with National

Stock Exchange (NSE) and Bombay Stock Exchange (BSE) in India. The shares are traded in the capital

markets.


The option of raising fresh equity from the capital markets might not be feasible for EVNNPT because of the

following reasons:

1. NPT is a 100% government subsidiary company therefore the listing of shares in the stock exchange for

EVNNPT will not possible in the existing framework. The disinvestment of equity by the government

might not be feasible in Vietnam;

2. Tapping the capital market is feasible only for those companies which have achieved significant scale of

operations and have profitable operations. There should be a proven good financial track record for the

company to raise equity from the capital market. EVNNPT is a loss making company. It will be difficult

for EVNNPT to attract the investors; and

3. As EVNNPT is not allowed to recover any return on equity from the consumers; hence it will not be able

to distribute any dividend to its shareholders.

Considering the above-mentioned facts, it can be concluded that the option of raising fresh equity from capital

markets to fund its investment might not feasible in Vietnam.

Lease financing

The lease financing can be another mode of financing for setting up a transmission asset. Under a lease, the

developer (lessee) typically leases the fixed assets with an explicit intent to eventually own it and makes




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periodic payment to the lessor in lieu of using the fixed assets. At the end of the term of the lease, the developer

has a buyout option usually at a - bargain purchase price that is fixed in advance at the time the lease is

established. In other words, the lessee pays for essentially the full cost of fixed assets over the lease period,

based on the intent to own the assets.


The lease financing has been used by few state owned power companies in India to finance their fixed assets.


The lease financing is advantageous in the following manners:

1. The developer can finance 100% of the equipment using lease financing, which is not possible in case of

bank financing;

2. Lease financing can also be made available for long term such as 20 years, whereas it is almost

impossible to get loan from local banks for such a long tenure;

3. Assets and capital equipment can be paid from the revenue earned;

4. Rates can be as competitive, or even better, as compared to bank funding rates because of the security

provided by the asset;

5. During recession, leasing is particularly well positioned to help businesses when most have low taxable

profits; and

6. Depending on the situation, companies may benefit from tax advantages.


The lease financing option might not be feasible for EVNNPT because of the following reasons:

1. The depreciation can be generally allowed to the lessor. The benefit of depreciation will not be available

to the EVNNPT. As mentioned above, the EVNNPT is largely dependent on the surplus depreciation

fund to finance its equity contribution in capital expenditure. It will be very difficult to fund its capital

investment requirements other than those funded by lease financing;

2. There is no certainty regarding the allowance of the lease charges from the Regulator as a part of the

transmission charges;

3. There might be additional expenses such as indirect taxes associated with the lease payment; and

4. There must be a market for lease financing in Vietnam. Considering the poor financial position of

EVNNPT, the bank may hesitate to offer the lease financing options to EVNNPT.

The EVNNPT may evaluate the lease financing option subject to the offers available to EVNNPT by local or

international banks in Vietnam.

Public private partnership (PPP)

In a public private partnership (PPP), a venture of government service and private business is funded and

operated by a partnership of government and one or more private sector companies. Generally in a PPP, the




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public partner is (not necessarily) expected to take care of the government clearances and land acquisition and

the private partner is expected to bring with them the technical expertise and financing sources for the

development of the asset.

As per the Asian Development Bank, “the term “Public Private Partnership” describes a range of possible

relationships among public and private entities in the context of infrastructure and other services (Public

Private Partnership Handbook, ADB),”

A company like EVNNPT, which is facing constraints on investment and other resources, should recognize the

importance of private participation in investment in infrastructure to help them meeting their investment

requirements. Globally, governments are increasingly turning to the private sector as an alternative additional

source of funding to meet the funding gap.


The benefits associated with the option are discussed below:

1. It will supplement limited resources and capacities of EVNNPT to meet the huge capital investment

requirement;

2. It will help EVNNPT to bring in private sector technology and innovation which will enable EVNNPT to

provide better public services through improved operational efficiency;

3. It can a win-win scenario for both EVNNPT and private sector by:

a. Providing incentive to the private sector to deliver projects on time and within budgets, and

b. Imposing budgetary certainty on EVNNPT by setting present and the future costs of

transmission projects over time

4. It will assist EVNNPT in extracting long-term value-for-money through appropriate risk transfer to the

private sector over the life of the project - from design/ construction to operations/ maintenance

5. It will help in developing local private sector capabilities through joint ownership with large

international firms, as well as sub-contracting opportunities for local firms in areas such as civil works,

electrical works, facilities management, security services, cleaning services, maintenance services, etc.,

and

6. It will provide support to economy of the country by creating more infrastructure base as well as giving

a boost to its business and industry associated with infrastructure development (such as construction,

equipment, support services, etc.) at competitive costs.

Various options under PPP

There are many variants of PPP structure which have been used by different agencies around the world and can

vary from simple management/operating contracts to full divestments. These PPP models primarily differ on

four key characteristics:

1. Ownership of project asset;

2. Responsibility of capital investment;

3. Duration of the contract/concession; and




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4. Assumption and involvement of risks.

Based on the above parameters, there can be following PPP models:

1. Service contracts;

2. Asset transfer models;

3. Perpetual ownership of the assets; and

4. Joint Ventures.

Service contracts

Under this PPP model, i.e., service contracts, the government (public authority) hires a private company or

entity to carry out one or more specified tasks or services for a stipulated period of time. The public entity still

remains the primary provider of the infrastructure service and contracts out only portions of its operation to the

private partner. The private partner is bound to perform the service at the mutually agreed cost wherein it has

to meet performance standards set by the public sector. In several cases, the responsibility to incur capital

expenditure is also assigned to the private players.

Under the service contract, the government pays the private partner a predetermined fee for the service, which

may be based on a one-time fee, unit cost, or other basis. In order to increase contractor’s profit there is a need

to reduce operating costs and increase operational efficiency, while meeting required service standards.

The Governments generally use competitive bidding procedures to award service contracts, which tend to work

well given the limited period and narrowly defined nature of these contracts.

The associated strengths and weakness of this PPP structure has been presented below:

Strengths Weakness

Performance can be monitored easily These contracts don’t provide ownership right to the private parties, hence the private parties face problem to raise finance to incur capital expenditure (if required under the service contract). It reduces the effectiveness of contractor may be compromised

Brings substantial impact on the system operation and improves efficiency

The private party is to be selected through competitive bidding procedures. There must be sufficient bidders available in the market to compete for the bid otherwise the basic purpose will be defeated. The contract values are generally low in service contracts, there only local players will participate in the bidding.

Serves as an instrument for technology transfer and managerial capacity

Asset transfer models

This PPP model is also known as concessional contract model. In this model, the private party (also called

concessionaire) undertakes the capital investments and operates the facility for a fixed period of time (also

called concession period) after which the ownership of the assets reverts back to the public sector.

Under this PPP model, the private entity brings the capital required to build the new facility/ assets. The private

operator owns the assets for a period set by concessional contract. The period should be sufficient to allow the

private player to recover investment costs through user charges. The public sector entity agrees to purchase the

output produced by the facility. At the end of the contract, the public sector entity assumes the ownership of the




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facility/ assets. The public sector entity can also opt to contract the operation responsibility to the private party,

or award a new contract to a new private party post the end of the contract.

There can be different types under this PPP model:

1. Build Operate Transfer (BOT): It is a form of project financing, wherein a private entity receives a

concession from the public sector entity to finance, design, construct, and operate a facility stated in the

concession contract. Due to the long-term nature of the arrangement, the costs are usually recovered

during the concession period;

2. Build Own Operate Transfer (BOOT): A BOOT structure differs from BOT in that the private

party owns the works till the end of the concession period. During the concession period the private

company owns and operates the facility with the prime goal to recover the costs of investment and

maintenance while complying with the operation standards. The specific characteristics of BOOT make

it suitable for infrastructure projects like highways, roads mass transit, railway transport and power

projects and as such they have political importance for the social welfare but are not attractive for other

types of private investments;

3. Build Rent Operate Transfer (BROT) or Build Lease Operate Transfer (BLOT): The Build

Rent Operate Transfer (BROT) or Build Lease Operate Transfer (BLOT) is a public-private partnership

(PPP) project model in which a private party designs, finances and builds a facility and lease/ rent the

facility to the public sector entity. The private party operates the facility for the duration of the lease

and then transfers ownership to the public sector entity; and

4. Design-Build-Finance-Operate-Transfer (DBFOT): The Design-Build-Finance-Operate-

Transfer is a project delivery method very similar to BOOT. The private party assumes the risk of

design, construction and financing till the end of the contract period. It also assumes the responsibility

for maintenance and operation and transfer the facility or asset to the public sector entity at the end of

the contract period. This model is extensively used in specific infrastructure projects such as toll roads

and power sector.

The associated strengths and weakness of this PPP structure has been presented below:

Strengths Weakness

Effective way to attract private finance required to fund new construction or rehabilitate existing facilities

Concession contracts are complex in nature

Provides incentives to the operator to achieve improved levels of efficiency

Concessions provide only limited competition given the limited number of qualified operators for a major infrastructure network

Transfer of the full package of operating and financing responsibilities enables the concessionaire to prioritize and innovate

These contracts don’t provide ownership right to the private parties, hence the private parties face problem to raise finance to incur capital expenditure. It reduces the effectiveness of contractor may be compromised

It can supplement limited resources and capacities of public sector entities. It helps to bring in private sector technology and innovation which will enable public sector entity to provide better public services through improved operational efficiency

Non completion of the project within the stipulated timelines would result in creation of stranded infrastructure. It happened in India

The responsibility and risk are shared between the private party and public sector entity. The responsibility

sharing matrix is given below:




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Responsibilities Private party Public sector entity

Design and engineering The private party bears the entire responsibility of design and engineering.

Fund raising The entire responsibility of fund raising and optimal capital structure rests with the private party

The public sector entity provides the necessary support to private party to achieve the financial closure.

Project development The entire project development risks are borne by the private party

The public sector entity provides the support to private party in respect of achieving the statutory clearances and land acquisition

Operations The operations and operations related risks are also primarily borne by the private party. However concessions may be granted for certain events related to third party performance.

Public sector entity though does not carry any risk during this stages but do carries the responsibility of third party monitoring of activities

Off-take risks The public sector entity will be liable to purchase the services produced by the private player from the facility

Transfer of assets Public Entity has explicit and implicit contingent liabilities that may arise due to loan guarantees, default of a sub-sovereign loan or acquisition of the asset at a terminal value post expiration of the contract/concession.

Perpetual ownership of the assets

In this PPP model, the private sector remains responsible for design, construction and operation of an

infrastructure facility. In this model, the private sector builds, owns and operates a facility, and sells the

product/service to its users or beneficiaries- essentially the public entity. This is the most common form of

private participation in the power sector in many countries.

The public sector’s main advantages lie in the relief from bearing the costs of design and construction, the

transfer of certain risks to the private sector and the promise of better project design, construction and

operation.

There can be three main types under this form:

1. Build-Own-Operate type of arrangements (Build Own Operate, Build Own Operate

Maintain and Design Build Finance Own Operate, etc.): it is a public-private partnership (PPP)

model in which a private party builds, owns and operates some facility or structure, the output of which

is being sold to public sector entity. Although the government doesn't provide direct funding in this

model, it may offer other financial incentives such as tax-exempt status. The developer owns and

operates the facility independently. In a BOO/ BOOM, DBFOO project ownership of the project

remains usually with the private party. Therefore the private party gets the benefits of any residual

value of the project. This framework is used when the physical life of the project coincides with the

concession period;

2. Private Finance Initiative (a more recent innovation): The private finance initiative (PFI) is a

way of creating "public-private partnerships" (PPPs) by funding public infrastructure projects with

private capital. It has been developed initially by the governments of Australia and the United




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Kingdom, and used extensively there and in Spain. PFI can be used simply to place a great amount of

debt 'off-balance-sheet'. The key features of this PPP model are as follows:

a. In this model, a public sector entity signs a contract with a private sector consortium,

technically known as a Special Purpose Vehicle (SPV). This consortium is typically formed for

the specific purpose of providing the PFI. It is owned by a number of private sector investors,

usually including a construction company and a service provider, and often a bank as well;

b. PFI contracts are typically for 25-30 years (depending on the type of project); although

contracts less than 20 years or more than 40 years exist, they are considerably less common.

During the period of the contract the consortium (of the private parties) will provide certain

services, which were previously provided by the public sector;

c. The consortium is paid for the work over the course of the contract on a "no service no fee"

performance basis;

d. The public authority will design an "output specification" which is a document setting out what

the consortium is expected to achieve. If the consortium fails to meet any of the agreed

standards it should lose an element of its payment until standards improve. If standards do not

improve after an agreed period, the public sector authority is usually entitled to terminate the

contract, compensate the consortium where appropriate, and take ownership of the project;

and

e. Termination procedures are highly complex, as most projects are not able to secure private

financing without assurances that the debt financing of the project will be repaid in the case of

termination. In most termination cases the public sector entity is required to repay the debt

and take ownership of the project. In practice, termination is considered a last resort only.

3. Divestiture by license or sale: In this PPP model, the ownership of the facility/ assets is transferred

with the private developer. The private player is provided with the authorisation or license to build,

own and construct the facility/ assets. The ownership of the facility may be 100% or 51% with private

parties depending on the nature of divestment scheme. The public sector entity will not have any

control over the assets. It is more common in Indian power distribution sector. However, it has not

been very successful in power transmission sector. In Nigeria, the divestment happened for all the

public sector entities operating in generation and distribution sector but not for the transmission

sector.

The associated strengths and weakness of the PPP structure has been presented below:

Strengths Weakness

Effective way to attract private entity Default in payment to the private entity would result in uncertain revenues for the project

Provides incentives to the operator to achieve improved levels of efficiency

The private player will face implementation problems in respect of getting statutory clearances and land acquisition

It can supplement limited resources and capacities of public sector entities. It helps to bring in private sector technology and innovation

The responsibility and risk are shared between the private party and public sector entity. The responsibility

sharing matrix is given below:




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Responsibilities Private party Public sector entity

Design and engineering The private party bears the entire responsibility of design and engineering.

Fund raising The responsibility of actual fund raising and optimal capital structure rests with the private party

Project development The entire project development risks are borne by the private party

.

Operations The operations and operations related risks are primarily borne by the private party. However concessions may be granted for certain events related to third party performance.

Off-take risks The off-take risks are mostly shared by both private party and public sector entity depending on the arrangement, otherwise the public sector entity should purchase the service or output produced by the facility or assets.

Joint Ventures

Joint ventures serves as an alternatives to full privatization in which the facility/ asset is co-owned and

operated by the public sector entity and private operators.

In joint venture arrangement, the responsibilities to build and finance the facility/ asset are with the private

party and responsibilities in respect of operations are shared between the public sector entity and private party.

The main responsibility assigned to the public sector entity is to getting statutory clearances and land

acquisitions. Depending on the JV agreement, the public sector entity might require to bring the equity portion

to the extent of its share in the joint venture. The selection of JV partner is done through the competitive bid

process.

Under a joint venture there are two options for contribution of the public and private entity-the public and

private sector partners can either form a new company or assume joint ownership of an existing company

through a sale of shares to one or several private investors.

The associated strengths and weakness of the PPP structure has been presented below:

Strengths Weakness

Real partnerships of the public and private sectors that match the advantages of the private sector with the social concerns and local knowledge of the public sector.

Government’s dual roles as owner and regulator can lead to conflict of interest.

There is always an effort towards increasing the efficiency as the stakes of both government and private entity is involved

Joint ventures also have a tendency to be directly negotiated or to follow a less formal procurement


The PPP experiences in other countries are discussed below:

India

Transmission sector in India has been primarily considered as a regulated business. Private sector involvement

in transmission sector of India began with Ministry of Power putting in place a framework for promoting

private sector participation, allowing private players to develop transmission infrastructure though a Joint

venture route and under a tariff based competitive bidding framework.




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In 2006, Ministry of Power came out with a set of guidelines to promote private sector participation and

selection of developers under a competitive bidding framework and notified a set of standard bidding

documents in 2008 for tariff based competitive bidding to ensure transparency and level playing field among all

interested bidders.

A numbers of transmission project have been awarded to private players under the PPP framework in India.

The various PPP models operational in India are as follow:

1. Joint Venture route: In Joint venture route, the models currently adopted in India successfully

entail 26% of the equity investment in the project to be by the public sector company, while the balance

74% is brought in by the JV partner- private party. Joint Venture route has been successfully tried by

the Central Transmission Utility (POWERGRID) for 5 projects and one state transmission utility for 4

projects till date. Post January, 2012 this route is no more available and is completely replaced by the

competitive bidding routes described in succeeding paras.

2. Independent Power Transmission Company (IPTC) or tariff based competitive bidding

route or BOOM route: The IPTC route is based on the guidelines issued by Ministry of Power. The

project is identified by the selection committee (comprises of Central Electricity Authority- a

government appointed authority and Central Transmission Utility- POWERGRID) to be implemented

through this route. The private party is selected through an international bid process under a tariff

based competitive bidding framework. The project is awarded on a build own operate maintain

(BOOM) basis to the bidder selected through a tariff based competitive selection basis, with bidders

quoting for the transmission charges that they would charge for the Project. This framework has

successfully adopted for 16 inter-state transmission projects till date with close to 9 projects on the

anvil. Additionally, many States have also adopted this IPTC model for inter-state transmission

projects. Some of the early projects were marked with highly aggressive bidding by new entrants, which

have now been rationalized.

3. Viability Gap Funding (VGF) or BOOT route: The VGF route is based on the asset transfer model

of PPP. In this route, the state comes out with an upfront annual annuity for the project, while the

selection of the private developer is based on the amount of additional premium (viability gap, to be

provided to the private developer from the state) or concession (in case the annuity set upfront by the

procurer is more than the required, there might be reimbursements to the developer for implementing

the project). Till date, two projects have been awarded by State Transmission Utilities, while many

other states are currently in the process of selecting developers based on this framework. This route

takes a long lead time for securing pre-bidding approvals from Government of India and commitment

of funds for viability gap funding. Industry participants too exhibit lesser enthusiasm in this route.

Chile

Chile has a successful history of PPPs. The Chile’s electricity sector is organised around four distinct electrical

systems. Out of the four, the two more prominent ones are SIC (Sistema Interconectado Central) and SING

(Sistema Interconectado Norte Grande), which together constitute ~99% of the country’s demand. The

transmission ownership in the SIC region is dominated by TRANSELEC (which manages ~50% of the region’s

transmission capacity), while in the SING region, the transmission ownership is distributed among numerous

owners (each controlling between 10-20% of the capacity, adding up to 75% of the total regional capacity).

All assets in the sector are 100% privately owned in the country, with large scale privatisation starting in the

1980s. The transmission companies’ assets were constructed through concessions granted by the Chilean

government. The Chilean Electricity Law requires such companies to operate their assets on an open access

basis.




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Philippines

The government of Philippines has been promoting private investment in public projects in sectors like power,

transport, infrastructure etc. The Philippine BOT Law (Republic Act No. 7718) and its Implementing Rules &

Regulation provides tax exemptions and other benefits to the private companies contributing to the

development of the country. The country has seen PPP initiatives worth USD 19.5 billion.

In the transmission sector, the National Transmission Corporation (TransCo) is a government agency created

under Republic Act No. 9136, otherwise known as the Electric Power Industry Reform Act (EPIRA) of 2001.

Since March 1, 2003, TransCo operated and managed the power transmission system that links power plants to

the electric distribution utilities nationwide. The law mandated the privatization of TransCo through an

outright sale or management concession agreement.

Following a public bidding conducted in December 2007, the TransCo concession was awarded to the National

Grid Corporation of the Philippines (NGCP), which eventually secured a congressional franchise to operate the

transmission network through Republic Act No. 9511.

On January 15, 2009, the TransCo turned over the management and operation of its nationwide transmission

system to NGCP. The ownership of all transmission assets remains with TransCo. The NGCP operating under a

50-year franchisee has the right to operate, maintain, expand and further strengthen the country’s power

transmission system.

Brazil

More than 50% of the transmission infrastructure in Brazil is owned by Eletrobras Group (a mixed capital

company, which has the Federal Government as the largest investor).

Till 1999, Brazil had two independent sub-systems, viz., the South-Southeast-Center West and the North-

Northeast. These are now inter-connected, allowing for continuous and permanent exchange of energy between

the regions and which provides more flexible, secure and economic operation of the National Interconnected

System (Sistema Interligado Nacional, SIN).

Under the new electric model in the country, a private agency, viz., the National System Operator (Operador

Nacional do Sistema Elétrico - ONS), is responsible for the supervision of this National Interconnected System.

In 1999, ANEEL (Brazilian Electricity Regulatory Authority) started offering transmission concessions

(comprising transmission lines & substations) through public auctions. ANEEL runs these auction processes on

an international competitive basis, in which public / private, national / international, and individual firms /

consortium participate. The Concessionaire is selected on the basis of lowest annual revenue bid over a

concession period of 30 years (based on revenue cap regulation).


The implementation challenges for a PPP option are mentioned below:

1. In some cases, the development, bidding and ongoing costs in PPP projects are likely to be greater than

for traditional government procurement processes. In such cases, the government should assess

whether the greater costs involved are justified. There should be methods in place for analysing these

costs and looking at value for money;

2. In PPP framework, some projects may be easier to finance than others. If there is proven technology

involved and/ or the extent of the private sectors obligations and liability is clearly identifiable, the

financing under PPP framework will be smooth;




PwC 239

3. Finding a balance between the public and the private interest: In a public Private partnership, conflicts

of interest can arise due to the fact that the basic motive of both the parties to enter into the partnership

is different. The private partner is profit centric and the public partner is customer centric. In such

cases it is very important that the contracts are comprehensive and have taken into account the interest

of both the parties;

4. Allocations of risks and responsibilities: The PPP contracts should clearly distinguish the rights and

obligations of the private party and public sector entities. There should be clear demarcation of the

risks and responsibilities between the private and public sector entity;

5. Maintaining transparency during the procurement process: This is the most common challenge rising

in a PPP framework. The private parties will participate in the process only if the process carried out by

the public sector entity to select the bidder is transparent and genuine; and

6. Establishing the policy landscape enabling PPP: The pre-requisite for implementing a PPP framework

is that there should be appropriate policy landscape to support the PPP initiatives. Establishing PPP

framework in a country where there is no supporting policy landscape will be very challenging.

Implementation road map

It is pertinent to mention that there is a policy framework in Vietnam for implementation of PPP framework.

The decree no 108/ 2009/ ND-CP dated 27 Nov 2009 provides for investment domains, conditions, order,

procedures and incentives; and rights and obligations of parties in respect of the projects to be implemented

under the PPP framework such as build-operate-transfer, build-transfer-operate and build-transfer contracts.

The investment domains covered under the decree also include the power plants and power transmission lines.

The decree recognises the following three PPP models:

1. Build-operate-transfer (BOT) contract- It means a contract signed between a competent state agency

and an investor to build and operate an infrastructure facility in a specified duration. Upon the

expiration of this duration, the investor shall transfer without compensation such facility to the

Vietnamese State.

2. Build-transfer-operate (BTO) contract- It means a contract signed between a competent state agency

and an investor to build an infrastructure facility. After completely building this infrastructure facility,

the investor shall transfer it to the Vietnamese State. The Government will grant the investor the right

to operate that facility for a specified duration to recover investment capital and earn profits.

3. Build-transfer (BT) contract- It means a contract signed between a competent state agency and an

investor to build an infrastructure facility. After completely building this infrastructure facility, the

investor shall transfer it to the Vietnamese State. The Government will create conditions for the

investor to implement other projects for recovering investment capital and earning profits or shall

make payments to the investor as agreed in the BT contract.

The decree covers the following:

1. State agencies competent to sign and perform project contracts;

2. Raising of capital sources for project implementation by the investors or project enterprises;

3. Use of state capital for project implementation;

4. Setting up Inter-branch working parties to assist in project negotiation and implementation;




PwC 240

5. Drawing up and announcement of lists of projects to be implemented through the PPP framework;

6. Selection of investors for negotiating project contracts and signing of project contracts and related

contracts;

7. Contents of a project contract- transfer of rights and obligations under project contracts, modification

and supplementation of project contracts, term of a project contract, termination of project contracts,

application of foreign laws governing project contracts and related contracts, Security for the project

contract performance obligation, etc.;

8. Procedures for granting investment certificates and implementing projects;

9. Transfer of project works including general regulations on transfer of project works, finalization and

transfer of BOT works, and transfer of BT and BTO works;

10. Investment incentives and supports for investors and project enterprises; and

11. Tasks and powers of the various stakeholders.

The decree provides for the broad guiding parameters for investment/ project to be implemented through BOT,

BTO and BT in various sectors such as roads, road bridges, road tunnels and ferry landings; railways, railway

bridges and railway tunnels; airports, seaports and river ports; clean water supply systems; water drainage

systems; and wastewater and waste collection and treatment systems; power plants and power transmission

lines; other infrastructure facilities as decided by the Prime Minister.

Based on these broad guiding parameters, a specific standard bidding guidelines (covering the bidding

framework) and standard bidding documents (comprising of request for qualifications, request for proposals,

contracts, etc.) should be prepared for power sector in Vietnam. Most of the implementation challenges

mentioned above can be mitigated if the proposed standard bidding guidelines provide for the following:

1. Transparent bidding framework including the basis of bidding such as whether it will be competitive

tariff based bidding or viability gap funding basis or technical/ financial strength basis;

2. A robust mechanism of selection of projects to be executed through the PPP mode. There should be a

cost-benefit analysis to be carried out before proposing the project for implementation through PPP

mode;

3. An obligation for the public sector entity to support the private players in getting the statutory

clearances, achieving the financial closure and acquisition of land;

4. A balance between the interest of public sector entity and the private player. It should focus on

incentives based on performance or out-put to the private parties; and

5. An appropriately balanced risk and return framework for public sector entity and private party.

Considering the above-mentioned facts, it is recommended that the EVNNPT should evaluate the PPP option

for implementing its capital projects. It will supplement the limited resource requirement and limited capacities

of EVNNPT to meet the huge capital investment requirement. It will help EVNNPT to bring in private sector

technology and innovation which will enable EVNNPT to provide better public services through improved

operational efficiency.

As the guiding framework is already in place in Vietnam, it will be very smooth for EVNNPT to implement its

capital projects under the PPP framework. However, it will require a specific standard bidding guidelines and




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bidding documents for the power sector. The Ministry of Industry & Trade should develop a power sector

specific standard bidding guidelines and standard bidding documents.




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Overview

NPT has been set up as a company to develop, operate and maintain the transmission infrastructure in

Vietnam. The efficiency of transmission companies around the world is governed by their ability to effectively

plan and develop the infrastructure within a time schedule. The focus of EVNNPT should be on the following

parameters:

1. Effective investment planning;

2. Efficient approval process; and

3. Timely implementation and execution of capital projects.

Our concept note focusses on enhancement of effective and efficient investment planning and approval process

in EVNNPT. The investment planning process can be defined as the process of identification of capital projects,

designing the project structure, securing investment approval and tie up resources (importantly financial

resources). The investment planning process is a crucial activity in a capital intensive industry such as power

transmission. The financial and human resource available would be limited and hence a transparent investment

planning process ensures selection of viable, critical and priority projects.

Existing practice

The investment planning process in EVNNPT can be divided into three stages:

1. Planning stage;

2. Approval stage; and

3. Funds identification and tie-up stage.

The concept note only focusses on the planning and approval stage. The fund identification and tie up (not

covered under this concept note) requires strategic changes rather than process changes. These strategic

changes are discussed in “Concept note on alternative modes of financing.”

Planning stage

At this stage, the transmission projects are identified and a first level approval is secured before the projects are

included as a part of the long term transmission plan. The planning stage comprises of five levels of investment

plans. The five plans (in terms of hierarchy of planning) are discussed below:

1. Master Plan: The planning stage begins with ten year sector plan known as “Master Plan. It is

prepared by Institute of Energy (IE) and Directorate Generate of Energy (DGE) - both entities

subordinated to MoIT. The Master Plan prepared by IE & DGE is reviewed by MoIT. The MoIT submits

the draft Master Plan to Prime Master for approval. It is finally approved by Prime Minister. The




PwC 243

IE and DGE hold workshops to take inputs and discuss the master plan with various stakeholders

including EVNNPT.

2. Five year transmission plan: The five year transmission plan is a part of the five year business plan

for EVN (which is the holding company for EVNNPT and also manages power generation and

distribution). This five year plan is for the entire EVN. It also covers the five year plan for the

transmission sector prepared by EVNNPT and generation plan prepared by the generation corporations

and a high level plan for power distribution. It is approved by MoIT.

3. Five year rolling transmission plan: The above-mentioned five year plan will not change for the

next 5 years but a five year rolling transmission investment plan is prepared by EVNNPT every year.

The five year rolling transmission investment plan is a grid investment plan with a view to the next four

years - the current year with four year perspective. This is to support the MoIT for monitoring of grid.

It is approved by MoIT.

4. Annual implementation plan: Apart from the five year rolling transmission investment plan, the

EVNNPT also prepares an annual implementation plan. The five year rolling transmission investment

plan is based on 10 years master plan, whereas the Annual Implementation Plan based on the capacity

of the subsidiaries and departments. The annual implementation plan does not go to MoIT for

approval. It is approved by the EVN.

The process for planning of an individual project will depend on the fact that whether the project is included in

the Annual Implementation Plan or not. The

processes under each case are briefed below:

1. Projects not included in Annual

Implementation Plan: The critical

projects related to system

strengthening and augmentation to the

existing network to address network

overloading/ congestion issues/

voltage problems/ system inadequacy

are projects not included in the Annual

Implementation Plan. These projects

are identified on need basis by PTCs

who are responsible for operations of

transmission infrastructure. The

summary of the process is given in the

adjacent exhibit. Each such project

requires an approval from MoIT,

which is known as “first stage

approval”.

2. Projects included in the Annual

Implementation Plan: The projects

included in the Annual

Implementation Plan are related to

long term planned investments to

evacuate power from upcoming power

generation capacities, system

strengthening to cater to growing

NPT

PTC

[Identification of proposed investment and

preparation of Investment Proposal and

submission to IMD (NPT)

IMD

[Validation and review of Investment

Proposal by IMD based on inputs from

Technical Department]

President & CEO (NPT)

[Approval of Investment Proposal]

Management Board (NPT)


VP (Operations & Investments)


MOIT


3 levels of

approval

within

EVNNPT




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demand and network improvements to enhance quality and reliability of the supply. These projects

should not go to MoIT for approval as these projects are already part of Annual Implementation Plan.

However, each of the projects goes to MoIT for approval as a part of existing practice.

At present, the first stage approval of the proposed investment is required for each project irrespective of the

size and nature of the project.

Approval stage

There are broadly three levels of approvals (not including the approval for fund identification and tie up), which

are summarized below:

First stage approval - Reviewed by MoIT

The first stage approval of the proposed investment is required for each project irrespective of the size and

nature of the project. As mentioned above, the first stage approval is also required for the projects which are

included in the annual implementation plan.

Approval of feasibility study- Reviewed by MoIT for the projects more than 1500 billion VND

The FS is prepared by the PMBs/ PTCs and submitted to the IMD in EVNNPT for review. The IMD will review

the FS with inputs from a variety of departments in EVNNPT such as CPD, Technical department, safety

department, IT department and F&A department. The FS comprises of the technical studies, impact assessment

studies and financial and economic analysis. After the review, the FS is submitted to President & CEO and

Management Board for review and approval. In case the project cost is more than 1,500 billion VND or the

project is to be funded by the ODAs, the approval of MoIT will be required

Approval of detailed technical design

Once the FS is approved by MoIT/ Management Board (NPT)/ President & CEO (NPT), as the case may be, the

detailed technical design (DTD) is prepared by an external consultant (typically could be same consultant

involved in preparation of feasibility study).

The DTD is prepared with the inputs from all the relevant departments of PMB and is submitted to IMD for the

seeking approval from competent authority. The DTD is submitted to the President & CEO and Management

Board for review and further submission to MoIT for the approval. The MoIT review the DTD through an

independent external consultant appointed by it.


India

Planning phase

There are three stages during the planning process:




PwC 245

Any non-planned activities which are necessary for transmission capacity addition or system strengthening are

included in the network plan on a rolling basis (with quarterly revisions, if needed) as per the latest data

available for the major inputs to the plan.

The MoP is involved only at one point as mentioned above. The decision of the EC is finally approved by the

MoP. It is pertinent to mention that the approval of MoIT (counterpart to MOP in India) is required for four

times in the entire planning and approval process.

Detailed design and implementation approval phase

There are four stages in this phase:

1. Advance preliminary expense: After the project is being allocated to POWERGRID by the EC, the

first step is approval of advance expenses to be spent at the project site. It is estimated by the corporate

planning department of POWERGRID. These expenses are approved as per the delegation of powers

and are primarily to be used in various preparatory activities (viz. surveys, soil investigation, wind

National Electricity Plan

•It is prepared by the Central Electricity Authority establised by the Ministry of Power (MoP) •The National Electricity Plan is prepared for a short-term framework of five years while

giving a 15 year perspective •The National Electricity Plan is prepared by CEA in two volumes namely, Generation

(Volume I) and Transmission (Volume II). •It is prepared on the basis of the year-wise forecasts of electricity demand for each state,

union territory, region and all India in detail for a period of 15 years

Network Plan

•It is prepared by the POWERGRID and is divided into two parts- technical plan and commercial plan

•The technical plan is approved by the Regional Standing Committees for Power System Planning (SCPSP), consisting of CEA, POWERGRID, State Transmission Utilities (STUs) of the constituent States, Regional Power Committee (RPC) of the concerned region and representatives of generating companies in the region.

•The commercial plan (broad level cost estimates) is approved by the RPCs consisting of generating companies, POWERGRID, STUs, distribution utilities, and State Load Dispatch Centres (SLDCs) of the particular region

Review by EC for selection of project to

implement via competitive bidding

route

•An Empowered Committee (EC) has been constituted by the MoP, with representatives from the MoP, CERC, planning commission, POWERGRID, CEA and two (2) experts from the field of power sector nominated by MoP.

•The EC, based on the network plan, identifies key projects to be implemented under competitive bidding route (through private player participation). The remaining projects are awarded to POWERGRID on nomination basis.

•The decisions of the EC are then approved by the Ministry of Power (MoP)




PwC 246

analysis, rainfall data, local statutory and environmental clearances etc.) for the preparation of detailed

project report (DPR).

2. Preparation of feasibility report (FR)/ detailed project report (DPR) including cost

estimates: The DPR for the proposed transmission scheme consisting of all descriptions, technical

details and cost estimation is prepared by the cost engineering department of POWERGRID. The DPR

is prepared in coordination with other departments of POWERGRID like corporate planning, finance,

contracts & procurement, and engineering etc. in a time-period of around 8-10 weeks. In case the

estimated project cost is more than INR 1,000 Crore (USD 167 million), the POWERGRID is required

to take the technical approval for such project from CEA. The DPR is approved by either Chairman

(projects of value less than INR 5 Crore/ USD 0.83 million) or by Board of Directors (projects of value

more than INR 5 Crore/ USD 0.83 million). However, the approval from CEA is required in case the

project cost is more than INR 1,000 Crore/ USD 167 million).

3. Preparation of project investment proposal: Based on the detailed cost estimates in the DPR,

the corporate planning department of POWERGRID prepares the detailed investment proposal. In

case, the project cost is more than INR 1,000 Crore (USD 167 million), a third-part is appointed by the

POWERGRID for the financial appraisal of the project. The preparation of investment proposal takes

around 1 month. The investment proposal is sent to the Board of Directors for approval.

4. Project financing: The capital structure for any project (debt equity ratio) is a part of the DPR.

However, the sources of financing for any particular transmission scheme/project are not defined on a

project-specific basis in POWERGRID. Based on the planned transmission schemes, ongoing works

and milestones achieved, a financing proposal on company-wide basis is prepared by the corporate

planning department.

ElectraNet (Australia) - Planning phase

ElectraNet is the leading power transmission utility in Australia. The processes followed adopted by ElectraNet

is highly optimized and ensures higher efficiency. The planning in ElectraNet in Australia is summarised below:

Annual implementation plan- The annual plan is the finalised list of annual investments approved by AEMO based on the five year plan submitted by TNSP

Five year plan -Each TNSP prepares a five year plan based on load forecast/generation plans/ inputs from TNDP and public consultations.

Transmission Network Development Plan (TNDP) -Australian Energy Market Operator (AEMO) prepares the 20 years TNDP to serve as guiding document for Transmission Network Service Providers

(TNSP)




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Detailed design and implementation approval phase

Key issues based on the comparison with other transmission utilities

The process being followed by EVNNPT for investment planning and approval is a prolonged process requiring

multiple levels of approvals. The company including PTC/ PMB and its employees do not have much power and

almost all approvals are granted at the highest level, irrespective of the complexity, size and criticality of the

projects.

The key issues in the existing planning process are summarized below:

1. First stage of approval from MOIT for all projects:

a. The annual implementation plan does not go to MoIT for approval. As the annual

implementation plan is not approved by the MoIT, all the projects- planned (forming part of

the annual implementation plan) or non-planned investment (not forming part of the annual

implementation plan) is submitted to the MoIT for the first stage approval;

b. The first stage approval is simply an approval of the investment proposal before the

preparation of FS. Under the current process of approvals, there is no distinction between

critical projects and non-critical projects and projects with smaller/ larger ticket size; and

c. In comparison to the planning process of POWERGRID, it can be observed that once the

project is allocated to POWERGRID by EC, there is no requirement for going back to the MoP

for the approval of each and every individual projects. However, the approval of CEA is

required in case the project cost is more than USD 167 million.

2. At-least three-four iterations of approvals from MOIT:

a. Each project will go to MoIT for approval for at least three times (four times in case of ODA/

OICB funded projects) during the entire planning process.

Identification and tie up of funds- The commercial services department is responsible for identification and raising of funds for the proposed investment

Project assessment conclusion report- Finally collating all the discussions and consultations, the asset management department prepares project assessment conclusion report. It is submitted for

regulatory approval

Project assessment draft report- The asset management department summarizes comments, conducts economic viability analysis and submits it again for public consultation.

Project specific consultation report- The asset management department prepares the project specification consultation report and send it for public comments




PwC 248

b. The multiple rounds of approval while ensures greater oversight may lead to significant delays

in implementing critical projects which is not in lines with the globally leading practice.

c. On the other hand, if compared with POWERGRID, it can be observed that there is no role of

the MoP in the approval of individual projects. Once the project is allocated to POWERGRID,

there is no direct role of the MoP in the planning process. All the approvals in respect of the

feasibility study, detailed project report, financing tie up are to be provided internally by the

authorities in the POWERGRID. However, the approval of CEA is required in case the project

cost is more than USD 167 million.

3. DTD is reviewed by the external consultant on behalf of MoIT in all cases irrespective of

the size and importance of project:

a. MoIT appoints an independent consultant to review the DTD which is submitted to MoIT by

EVN;

b. The entire process from hiring an external consultant, review and submission of report is time

consuming and is associated with costs and efforts. This level of detailed review process may be

required in case of technically complex investment programme or projects of higher ticket size;

and

c. In case of smaller projects which are standard system strengthening / replacement projects,

hiring an external consultant may not be the efficient / cost effective measure.

4. At the planning stage, no prioritization of projects is done based on financial

parameters:

a. Based on the various discussions held with various stakeholders, it was observed that the

commercials of the projects are not discussed at the planning stage. The cost estimation is

determined at the time of approval of FS;

b. On the other hand, in POWERGRID, the commercials (broad level project cost) are also

determined and approved at the time of the approval of network plan. In Australia, there is a

well-established framework under which the projects are evaluated on commercial parameters

at the planning stage; and

c. The financial evaluation framework for selection of project should be more robust. A more

effective framework for cost benefit analysis should be introduced. This has been proposed and

discussed in a separate concept note.

Proposed recommendations for the investment planning process

In developed countries such as Australia, the UK and the USA the market comprises of multiple competing

transmissions service providers and these countries also allow for merchant transmission lines. This inherent

difference compared to developing countries such as India, South Africa and Vietnam where the transmission

sector is primarily dominated by single government owned utility leads to limited competition in developing

countries. In markets where the competition is less, some degree of monitoring is required. Most countries

seek to empower the employees but in turn warrant greater accountability from them. This is

the central theme while proposing the recommendations in this concept note. It is also noteworthy to mention

that recommendations in this concept note needs to be looked at and reviewed in conjunction with the




PwC 249

recommendation on “Delegation of Powers.” Both recommendations in isolation would defeat the purpose

intended.

The key elements set out in our set of recommendations include:

1. Minimum changes to the existing process to ensure quicker and smooth adoption while aiming to

achieve the desired objectives;

2. Reducing the number of approvals required to reduce the lead time from concept to operation without

impacting the controls in the process; and

3. Empowering EVNNPT as a company to undertake independent decisions which benefits the company

and its users (generators, distributers and ultimate consumers).

Planning process

In the planning stage there are four levels of plans which are prepared. It can be reduced to three levels. The

Five Year Rolling Transmission Plan is an overlap of the Annual Implementation Plan and Five

Year Transmission Plan.

The second change proposed is the approval of Annual Implementation Plan (AIP). It is proposed that the AIP

should be approved by MoIT. Once the AIP is approved, the projects included in the AIP should not again go to

MoIT for approval.

The new planning framework would be as following:

Approval process

The existing approval stage is complicated and requires multiple rounds of approval from MOIT which is the

highest body in power sector within the country. Approvals for Feasibility Study and Detailed Technical Design

are also sought from MOIT which requires a considerable lead time. The recommendation in respect of

approval process is focused on proposing minimal process change but ensuring quicker approval process.

Some key changes proposed are summarized below:

1. No first stage approval: The first level approval process on investment proposal which requires

approval from MOIT is premature. The key information required to prepare a comprehensive proposal

is only available post the FS and DTD studies. In cases the projects are not viable either commercially/

Master Plan (approved by Prime Minister)

Five year transmission plan (approved by MoIT)

Annual Implementation plan (approved by MoIT)




PwC 250

technically but in existing framework one approval is still sought. The first stage approval may be

replaced with a “Preliminary go-ahead” stage which should not go beyond the Board of Directors of

EVNNPT. This level of approval should only be sought for projects not included in the Annual

Implementation Plan.

a. Projects above VND 1000 billion - Preliminary go-ahead from Board of Directors of EVNNPT

b. Projects up to VND 1000 billion - Preliminary go-ahead from President & CEO of EVNNPT

c. Projects up to VND 500 billion - Head of PMB/ PTC / Vice Presidents of EVNNPT

2. Merger of FA and DTD and Approval of FS and DTD within EVNNPT: The FS and DTD go up

to MOIT for approval, separately which is a time consuming process. On the other hand, it is proposed

that MOIT in discussion with EVN may propose broad guidelines / criteria based on which EVNNPT

management can decide on the FS and DTD. The project exceeding defined financial and technical

threshold should go to MoIT for approval. It is also proposed that FS and DTD can be merged together.

A separate concept note is being submitted by the consultant in this regard. The external consultants

appointed by MoIT are not required for all projects but only projects which exceed a defined financial

and technical threshold of complexity can be reviewed by MoIT through an external consultant.

Based on the annual implementation plan, PTC/ PPMB prepares a preliminary proposal/ rationale

The preliminary proposal will be submitted to relevant authority for preliminary go ahead

PTC/ PMB's head/ VP/ Presidents & CEO/ BoD (as the case may be) will provide the approval as per the delegation of power




PwC 251

3. New stage of investment proposal: An investment proposal should be prepared for all projects

taking into consideration the key output from FS and DTD. The investment proposal should be

submitted to relevant authority for approval along with the complete FS and DTD (merged) reports.

The Investment Proposal should be prepared by the IMD department. The projects exceeding a defined

financial threshold can be submitted with MoIT for approval.

After the preliminary go ahead, the PTC/ PMB will prepare combined FS and DTD (in case the suggestion in respect of merger is accepted by EVNNPT), otherwise FS and DTD will be

approved separately as per the existing process

The combined FS and DTD prepared by PTC/ PMB, as the case may be, submitted to IMD department in EVNNPT.

The IMD will review the combined FS & DTD with inputs from a variety of departments in EVNNPT such as CPD, Technical department, safety department, IT department and F&A

department.

After review the combined FS & DTD will be submitted to relevant authorities within EVNNPT for the projects which are within a defined financial and technical threshold

For the projects exceding a defined financial and technical threshold, the proposal will be submitted to MoIT for approval

After the approval of FS and DTD, the IMD will prepare an investment proposal

In case the project cost is within the defined financial thresold, the investment proposal will be submitted to the relevant authority based on delegation of power with in EVNNPT

In case the project cost iexcceds the defined financial thresold, the investment proposal will be submitted to MoIT for approval

After the approval of investment proposal, BoD of EVNNPT will issue a final project implementation approval for the execution of project




PwC 252

Conclusion

The existing investment planning process is a prolonged one requiring multiple levels of approval from the

highest body (MOIT). There are advantages of repetitive approvals but the disadvantages are more over

whelming. Such a process reduces the accountability of the employees who are real workforce on ground.

In comparison in India which is a similar developing country, Ministry of Power has delegated the entire

investment decision making process to the Board of Directors of POWERGRID (which is the national

transmission company in India) even though the quantum of investments being managed by POWERGRID is

far greater.

In Australia too, similar to India, the entire investment planning process is managed by the transmission

company while the only external approving body is the independent regulator while Government has no role in

the entire process.

Considering the above facts, a new process has been proposed. The new proposed process is based on the

existing stages of the investment planning process. However, delegation of power in respect of decision making

is of indicative nature. It should be finalized based on a consultative process with all the stakeholders. The

approval of MOIT (which is the highest body in power sector) is only required once or for the projects which

exceeds a defined financial and technical threshold.

The new process will empower employees within EVNNPT and also enhance their accountability. MOIT each

year may appoint an audit committee to review the project approval process being followed within EVNNPT.

The entire process will reduce the lead time and cost.

The aim is that finally the entire investment planning process should be managed by EVNNPT alone without

requirement of external approvals.

Part-C (ii): Project management



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Part-C (ii): Project management




PwC 254


Requirement of standardization of designs

Standardization of designs, drawings and specification of transmission line systems is one of global practice

followed by leading transmission utilities to reduce costs and time required for execution of transmission

projects. In Vietnam, it was observed that the high project preparatory period is one of the key reasons for delay

in the project implementation and hence a reduction in this time will help in speedy implementation of

projects. Use of standardized designs, specifications and layouts will reduce engineering design efforts as well

as time for detailed engineering and consequently reduce project development period i.e. pre project

preparatory activities. Standardization of design and technical specifications for different power equipment is

already followed in multiple developed and developing countries of Europe and Asia. There are multiple

benefits of standardization.

1. Faster project execution: Standardization avoids repetitive work and hence leads to reduction in

time taken for all activities related to design, approvals, engineering activities, specification

preparation, type tests etc. This will also result in reducing the work load of officials who can contribute

in innovation, risk management and better project monitoring.

2. Saving in costs: Since repetitive inspection tests are avoided, this will lead to monetary savings for

the organization as well as supplier/ sub-vendors. Also, suppliers can quickly manufacture the

equipment because of familiarity. Suppliers also do not require costlier resources for design activities

and can employ junior resources since all the key aspects are standardized.

3. Better utilization of spares: Availability of standardized equipment will reduce the requirement of

inventory in central stores or regional stores. This will also impact working capital requirement during

operation and quick availability of spares leading to shorter downtime of transmission lines and

substations.

Standardization can positively impact timelines in

multiple stages of transmission project:

1. Design & Engineering: As mentioned

above, designs, specifications and drawings

for different equipment will be readily

available post standardization and hence

there will be significant work reduction for

PMBs/PTCs. Time required for specification

preparation, engineering drawings review

and approvals will be reduced significantly

post standardization of such equipment

designs. Even the chances of errors on part

of manufacturers will reduce because of

standardization.

2. Bid process: Standardization of designs&

technical specifications coupled with

Standardization

Design & Engineeri

ng

Bid process

Project Execution

Inspection & testing




PwC 255

standard clauses of bid documents will reduce the bid process duration significantly. Further, since the

suppliers, vendors and contractors are already aware of these standardization (and no deviations

permitted), the bid evaluation time will also reduce.

3. Project execution: Increased acquaintance with standard designs for field supervisors as well as

construction contractors will help them speed up different activities. Also, it impacts pace of

concomitant activities. For example, standardization of tower design will hasten up the tower

foundation design since the tower designs are available beforehand. Steel procurement can also start

without waiting for design finalization.

Standardization increases interchangeability. For example, tower parts for one project can be used for

other in case of any change in schedules.

4. Inspection and testing: Type tests, unlike routine tests, are done on first prototype of an equipment

to confirm that the equipment meets design specifications and are not repeated on every unit

manufactured or fabricated. In case of transmission towers, its testing is generally a time consuming

process and it will further increase in case of different wind zones/ voltage levels. Also, any failure of

testing will delay the process further. Further, availability of test beds to perform the testing may also

be an issue.

Hence, if equipment design is standardized, type testing can be avoided since a type test certificate can

be accepted for an agreed validity period (say 5 years for a transformer). This will help in reduction of

project time.

Standardization will also result in multiple benefits in operation as there will be less requirement of

maintenance of spares inventory since they will be interchangeable. Also, operation personnel will be familiar

with the design and operation and can easily trouble shoot issues because of familiarity.

Key aspects of standardization

Prior to standardization of various equipment design and specifications, it is essential to standardize operating

voltage level, basic insulation level and estimate short circuit levels at different voltage levels of the system. All

these parameters impact ratings of various protections and metering equipment in transmission lines and

substations and hence have to be finalized before standardization. The key design parameters that need to be

standardized in substation and transmission equipment and layouts are elaborated below. However, these are

indicative in nature. The exact scope and parameters that need to be standardized have to be decided by

EVNNPT with the help of technical consultants (as required).

Substation design & equipment

Standardization of design, layout and equipment reduces project design time, project preparatory period and

construction period considerably. Following paragraphs explain the scope for standardization of designs,

equipment specifications and layouts for a High Voltage substation/switchyard:

Substation switching scheme and layout: There are a variety of switching schemes for various HV and

EHV substations and it is desirable to standardize a switching scheme for different voltage levels based on cost

and reliability considerations. For example, in India the central transmission utility mostly follows one and half

breaker scheme for 400 kV substations and Double Main and Transfer bus scheme for 220 kV substations. The

switching scheme helps in standardizing bill of materials for key equipment like circuit breakers, insulators,

current and voltage transformers and their electrical connections, cabling requirements etc.




PwC 256

Further, layouts of substation can be standardized by standardizing on a typical layout of substation based on

statutory clearances required to be maintained, bay size & width, bus size and type of material, equipment

interconnecting level, bus level, span length etc. for a particular voltage level (say 500kV).

Once the substation/switchyard layouts are standardized, individual equipment structures can also

standardized. Standardized designs of beams and columns can be used for structures, further equipment

foundations designs can be also defined, if required.

Standardized of layouts and designs can be extended to substation control room buildings. The control

buildings designs can be standardized for a substation of each voltage level.

Transformers & reactors: We suggest standardizing specifications of power transformers viz. MVA ratings

for different voltage levels along with other parameters like % impedance, acceptable loss level at no load and

full load, number of windings, voltage regulation, vector group, tap changer ranges, electrical clearances,

bushing parameters, insulation levels, cooling requirements at various loadings, material for core, tank,

windings, transformer oil parameters, auxiliary fittings & accessories (e.g.: Buchholz, pressure relief valves, oil

& winding temperature indicators). A range of values for most of these parameters are available in the IEC

standards which are already adopted by EVNNPT and EVNNPT may choose optimum parameters based on

recommendations of technical consultants.

Similarly, we suggest that MVAR ratings & other parameters of bus reactors and line reactors used in high

voltage substations (500 kV and 220 kV) may also be standardised. The ratings of bus reactors have to be

determined by factors like required voltage regulation, short circuit-fault level in the system etc.

Circuit breakers: Key design parameters of circuit breakers to be standardised is the capability to withstand

short circuit current (generally in kilo Amperes/second) along with other parameters viz. insulating & medium

for arc-extinguishing (e.g.: SF6, oil), value of pre-insertion resistor, operating duty cycle, operating mechanism

(hydraulic or spring), capabilities of clearing faults (in kilo Amps) etc.

Lightning Arrestors: Key parameters to standardise for lightning arrestors or surge arrestors are type of

arrester for a particular voltage level. Generally Metal Oxide Varistor (MOV) arrestors are being used at high

voltage level. The other key ratings like rated arrester voltage, nominal discharge current, energy handling

capability, maximum continuous operating voltage etc. will need to be provided for a particular voltage class.

Current transformer and Capacitor Voltage Transformer: The rated currents and ratios, burden,

number of secondary cores (protection or metering), accuracy class for protection core (magnetising current

and knee point voltage) and accuracy class for metering core etc. have to be standardized for different voltage

levels

Protection schemes: There are three major components to be protected in the transmission system-

transmission line, bus bars and power transformers. Different types of protection schemes exist for detecting

different faults in these three areas. Generally line protection will have Main 1 and Main2 protection having

distance protection/differential protection and back up protection. Bus bar differential protection can be

distributed or centralised type and transformer protection will be differential type along with over current,

Restricted Earth Fault, back up earth fault, over flux and instrument relay protection mounted on transformer

body. These protection schemes need to be standardised for the sake of overall protection coordination. Even,

type of protection relay - numerical, static or electro-mechanical needs to be standardised

Communication equipment: Transmission system requires communication channels between substations

for speech, control and protection. The communication can be through Power line carrier communication

(PLCC) or through Optical Ground Wire (OPGW). The communication mode and different aspects of the same

may be standardised.




PwC 257

Standardization of Tower Design

It is desirable that the designs of transmission towers are standardised to the extent possible. The

standardization needs to be taken on various design parameters. As we understand from our numerous

meetings and discussions held with concerned EVNNPT engineers and managers, the height, weight and tower

configuration is decided depending on a complex interplay of multiple parameters and further some of these

parameters are again inter-dependent. Key parameters that impact standardization of tower design are

elaborated below:

Clearances

As per our understanding based on the discussions with EVNNPT engineers and managers, the total height of

tower is a sum of minimum permissible ground clearance,

maximum sag of lower most conductor, vertical spacing

between conductors and vertical clearance between ground

wire and top conductor. Following parameters have scope

for standardization.

1. Maximum sag of lowermost conductor: The

size and type of conductor, wind and climatic

conditions and span length determine the

conductor sag and tensions. Span i.e. horizontal

distance between two consecutive towers depends

on economic considerations and has to be

standardized for different voltage levels in

different terrains for different towers. Maximum

sag for conductor span occurs at the maximum

temperature and still-wind conditions.

2. Spacing of conductors: Length of the insulator, diameter of the conductors and maximum sag at the

centre of span, impact spacing of conductors and should be standardized.

Wind pressure

The loading on towers due to wind is a major component on total loading on towers. It should be noted that the

wind speed increases with height and is less at ground level because of friction. The aerodynamic forces on the

exposed surfaces may cause the effective loading in a direction different than wind direction and hence need to

be calculated properly.

As shown, Vietnam is divided into five wind regions depending on wind pressure.

They are further sub-divided into two regions on the basis of strong or weak

hurricane winds. While designing standard towers, it may be noted that

standardizing for all wind regions may not be necessary. The tower standardised for

higher wind speeds (say wind region III) will be used for areas under lower wind

speeds (wind region I & II). Area covered in a particular wind region, requirement

of transmission towers in that particular region should be considered to determine

whether standardization is, at all, necessary for that particular wind zone.

Wind region

Pressure (daN/ mtr2)

I 65

II 95

III 125

IV 155

V 185

Various Clearanaces

Wind pressure

Angle of deviation

Conductor, configuration




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Angle of deviation & crossings

The transmission line route will not be entirely on a flat terrain in a straight line and encounter varying angles

and ground heights in its route. Towers have to be standardized based on the angle of turn. A range of values

may be specified and a particular standardised design should be able to withstand the tensions and loading for

that particular range. Generally, tangent suspension towers are mostly used as long as the route is a flat terrain.

Angle towers (tension towers) can be sub-classified into different types depending on the requirement. The

tension towers for various angles of turn (15, 30, 45, 60 etc.) and suspension towers needs to be standardized

for different wind zones as mentioned above

Special towers need to be designed for crossing of river, highway, railway lines etc. However, standardization of

the same may or may not be needed depending on the number of such towers. Sometimes, tower and leg

extensions are required to provide sufficient clearance over ground or while crossing power lines, railway lines,

highways and uneven ground etc. Even these extensions can be standardised to ensure easy availability and

inter-changeability.

Conductors and their configuration

The type of conductor required is designed and selected based on various technical factors -power transfer

capacity required, thermal capacity of conductor, voltage level of power transfer and other electrical and

mechanical properties. Most commonly used conductors in high voltage power transfer are Aluminium Core

and steel reinforced (ACSR). Different types of conductors are available - bersimis, moose, panther, dog, wolf,

zebra etc. depending on number of aluminium and steel strands in a sub-conductor and diameter of each

strand. Many recent developments have come to enhance power supply, reduce loss, weight etc. which led to

newer types of alloys being used (e.g.: AAAC- All Aluminium Alloy conductor).We suggest to standardise type of

conductor, sub-conductors per phase and its configuration for different voltage levels and type of circuits

(single circuit, double circuit).

Other line related equipment

Tower material: The base width of the towers of different voltage can be standardised. Steel is the major

component of tower structure. Grade of steel and mix of mild steel and high tensile steel, member size has to be

standardised.

Tower parts: Other tower parts include bolts, nuts, clamps, connectors, fittings, washers, joints, different

plates, step bolts, anti-climbing devices, bird guards etc. Standards for most of the equipment are available in

IEC and other general standards along with process and method of connections. However, choosing a certain

standard for different equipment or method of connection has to be done by EVNNPT. For example,

dimensions of bolts like bolt diameter, hole diameter, spacing, edge distance can be standardized. Also, method

of fitting of bolts and nuts can be specified. Similarly, thickness of washer and type of washers can be

standardized.

Insulators: We suggest standardizing type of insulators to be used at different voltage levels based on

creepage distance, material of insulator (porcelain, glass, polymer), mechanical strength of insulators, shape

(disc or rod) and requirements of hard ware fittings.

Following are details of standardization carried out on power transmission systems by Indian Central Power

Utility. We are providing various design parameters, specifications, layouts etc. for different equipment at 400

kV level.




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Standardization by Indian Central Transmission Utility - Power Grid

Corporation of India Limited (POWERGRID)

The most common extra high voltage transmission level prevailing in India is 400 kV. POWERGRID has

standardised various tower design parameters, layouts, specifications of equipment for this voltage level

to reduce time and costs involved in repeated design and approvals. Some of the key design parameters

are presented below:

Wind zones: India is divided into six wind zones of different wind speeds -meter/second (m/s) - 33, 39,

44, 47, 50 and 55. In view of overall economy and time, the standardization has been done for wind zones

of 44 m/s and 50 m/s for all type of towers. The standard towers for wind zone of 44 m/s is also utilized

for wind zones of 33 m/s and 39 m/s and that of wind zone of 50 m/s is adopted for wind zone of 47 m/s.

No standardisation is done for wind zone of 55 m/s, since this wind zone is confined to very small area of

the country.

Angle of deviation: Classification of towers depending on the angle of deviation in route

Angle (degrees)

Single circuit

Double circuit

Uses

0-2 A DA/ P Tangent towers for straight run of the transmission line.

2-15 B DB/ Q Also used as sectionalising towers without any angle

15-20 C DC/ R Also used as transposition tower without any angle

30-60 D DD/ S Terminal towers near gantry or as anchoring tower before major river crossing, power line crossing, railway crossings

Tower & Leg extensions: All towers are designed so that they can be provided with standard tower

extensions of +3, +6 +9 and + 25 meters. These extensions are used to provide sufficient clearance over

ground or while crossing power lines, railway lines, highways, other towers, uneven ground etc. Standard

leg extensions are designed for 1.5, 2.5 and 3.5 meters for uneven ground (say hill slopes) to avoid or

reduce costs of benching /revetment.

Conductors: POWERGRID standardised usage of ACSR moose conductor for its 400 kV transmission

lines. Either twin or quad bundled conductors are used depending on quantum of power transfer.

Different parameters for conductor including strands of Aluminum & steel, wire diameter, overall

diameter and drawings for wooden drum of conductors are standardised.

Insulators: The standardization of insulators depends on parameters like creepage distance, electro-

mechanical strength of insulator and size of the insulators (i.e. diameter, length etc.). Generally

composite rod or disc type insulators are used in POWERGRID and the material and all types of

drawings for 220, 400 and 765 kV voltage levels are standardized. Example:

Composite rod insulator -For 400 kV Twin moose conductors

Type of Insulator

String

Size of Core dia x

Nominal length)

(mm)

Minimum

Creepage

Distance(mm)

Units

per

String

Unit’s Electro-

mechanical

strength (kN)

Mechanical Strength

of String along with

Fittings (kN)

Single ‘I’ Suspension 20 x 3335 13020 1 x 1 120 120

Single Tension 24 x 3910 13020 2 x 1 160 2 x 160

Double Tension 24 x 3910 13020 2 x 1 160 2 x 160




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Source: POWERGRID website

Standardization by Indian Central Transmission Utility - Power Grid

Corporation of India Limited (POWERGRID)

Other tower parts: All clamps, connectors, bolts, washers, angles etc. have been standardised. For

example, POWERGRID is using electro-galvanised spring washers under all nuts of tower with a

minimum thickness of 3mm. commonly used diameter of bolts are 12, 16 and 20 mm.

Switching Scheme of substations: The electrical switching layouts are standardized and following

are most commonly used. One and a half breaker scheme at 400 kV switchyard and Double Main and

Transfer bus scheme at 220 kV level have been standardised.

Transformer & reactors: For 400/220 kV substations, 315 MVA 3 phase auto transformers are used

till recently. However, 500 MVA rating transformers are being used in areas expected to have high load

growth. Similarly, MVAR ratings of bus and line reactors at 400 kV level are either 50 MVAR or 80

MVAR.

Protection schemes: POWERGRID uses Numerical distance protection schemes of two different

makes as Main-I and Main-II protection. Differential protection relay, Restricted Earth Fault Protection

relay, Backup impedance protection relays are used in case of reactors and transformers. Also, Over-flux

Protection, Direction Over current and earth fault protection are used additionally in case of

transformers. Key settings of these relays like operating time etc. are standardised. POWERGRID has

switched to numerical relays in all its protection schemes.

Circuit Breakers: SF6 circuit breakers with a short circuit rating of40 kA/sec are commonly used in 400

kV switchyards

Surge Arrestors: The insulation level for different equipment is designed to withstand lighting impulse

and switching surge levels for 400 kV system as follows:

Equipment Lightning impulse (kVp) Switching surge (kVp)

Power transformer +1300 +1050

Instrument Transformer +1425 +1050

Reactor +1300 +1050

CB/Isolator Phase to ground +1425 +1050

Across open contacts +1425 (-/+240) + 900 (-/+345)

Substation Civil works: POWERGRID has developed standard drawings for all the civil works

including control room building, fire-fighting system, foundations, and township works etc. which will be

issued during the bidding phase. All the required site specific variations will be incorporated and released

to contractor as per work schedule.

Battery & Battery Charger: In a 400 kV substation, the standard requirement of DC System is two(2)

float-cum- boost chargers and two(2) battery sets for each of 220V and 48 V systems.




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Current status of standardization in EVNNPT

As we understand, EVNNPT has already initiated the process of standardization of designs, specifications and

drawings of substation equipment. Technical Department of EVNNPT is leading the initiative for the

standardization of designs, specifications and drawings. Currently, few of the substation equipment

specifications are being standardized. However, the process of standardization needs to be expedited further by

formalizing the responsibility and process of the same. We suggest forming a high level committee of overseeing

and advising the standardization process carried out by technical department. The committee will be able to

drive the standardization initiative in EVNNPT.

Standardization of transmission line towers and other transmission line equipment is not on agenda of

EVNNPT. It needs to be included. As explained above, it will help EVNNPT in saving costs and time in

transmission project execution. Here is the approach we suggest to facilitate the standardization initiative

within EVN EVNNPT and its 7 subsidiaries.

Approach for standardization of designs

A high level committee of deputy directors from Technical, Materials and Procurement departments from

EVNNPT and Technical departments of PMBs and PTCs may be formed for the purpose of standardizing

various equipment and designs. This committee will be headed by Director of Technical department, EVNNPT.

Secretarial support will be provided by the Technical department of EVNNPT.

Objective

The objective of this committee is to standardize designs, drawings, layouts and technical specifications of

various equipment, materials, electrical and civil structures, processes in manufacturing, construction and

commissioning etc. To start with, the committee may focus on standardization of designs, drawings and

specifications of equipment and materials in substations and lines.

Key activities

Key steps to be followed for such standardization are as follows:

1. List out all the equipment, materials in the transmission line and substation along with specifications

and designs available and being used by EVNNPT;

2. Identify key equipment, material e.g.: power transformer, reactors, circuit breaker, conductor,

insulator, surge arrestor, wave trap, tower parts that consume significant time in engineering;

3. Conduct bid process for selection of consultant(s) who will prepare standard designs, drawings and

layouts for selected equipment within stipulated timelines;

Director, technical dept, EVNNPT

One Dy director, Technical dept,

EVNNPT

Dy director, Materials dept,

EVNNPT

Dy director, Procurement dept,

EVNNPT

One Dy Director from techncial

dept of each PMB

One Dy Director from techncial

dept of each PTC




PwC 262

4. Review the designs, drawings and layouts prepared by consultants and finalise the same by conducting

internal discussions (among EVNNPT and PMBs/PTCs) as well as interaction with consultant(s); and

5. Obtain approvals from concerned authorities for standardization of designs, drawings and

specifications.

Further, to incentivize the process of standardization and idea generation internally in the organization, the

working committee may seek ideas regarding standardization of design or specification of particular equipment,

material or from internal experts in different departments of EVNNPT and subsidiaries. A monetary incentive

may be provided for those designs which have been adopted after evaluation. The new ideas generated through

this initiative can be evaluated and develop further by following the steps mentioned above under “Key

Activities”.

Scope of work for Consultant(s)

Experienced Consultant(s) has to be hired for

standardization of designs, layouts etc. The

consultant(s) are mandated to study the historical

designs, decide various parameters impacting design

and then prepare standardized designs, drawings, and

layouts. For example, in case of transmission tower

designs, the scope of consultants will be

1. Decide parameters impacting design- e.g.:

clearances, angle of turn, wind zone,

temperature etc.;

2. Study past designs of different towers in similar conditions in Vietnam or similar countries;

3. Check for historical performance in terms of number of outages, faults & reasons, maintenance

requirements etc. and if these reasons are attributable to any design parameters; and

4. Finalize tower designs for existing combination of parameters that are mostly required.

Monitoring

There should be a time-bound plan for standardizing design and specifications of key equipment and materials

that should be monitored by the working committee in its quarterly review meetings and report to the top

management

Post standardization review

Standardization of designs, specification of different equipment and materials etc. needs to be reviewed once in

a year (as decided by EVNNPT for different equipment) based on operational performance, new technological

innovations, change in system conditions etc.

Also, it may be noted that even after standardization of key parameters in technical specifications of various

equipment/ materials, there will be other parameters which have to be finally provided by the vendor/

equipment manufacturer which should stipulate to relevant band of values provided in that particular IEC and

other standards. In some transmission projects, it may happen that some minor variations need to be

considered from standard specifications due to site specific issues or regional climatic vagaries. In this case,

Decide parameters

impacting design

Study previous designs and

layouts

Historical performance

Prepare standard designs, layouts




PwC 263

only the particular deviations need to be approved from the relevant authority rather than entire design (after

duly considering the impact of such deviations on operational performance, reliability and costs).




PwC 264


Drivers for Turnkey execution

EVNNPT has been awarding multiple and separate supply and erection contracts for the execution of power

transmission projects in Vietnam. Currently, following are the general list of packages associated with a

transmission line and substation projects.

# Typical packages in transmission line projects

Typical packages in sub-station projects

1. Consultant for preliminary cost estimates Consultant for preliminary cost estimates

2. FS consultant FS consultant

3. DTD consultant DTD consultant

4. Resettlement / site clearance Resettlement / site clearance

5. Topographical survey Topographical survey

6. Mines survey Mines survey

7. Tower steel supply HV Equipment and material supply

8. Conductor supply LV equipment supply

9. Insulator supply Control equipment supply

10. Cable supply Installation/erection

11. OPGW supply Testing and calibration

12. Installation/erection and tower foundation(multiple contractors)

SCADA

13. Insurance of asset Insurance of asset

14. Audit service Audit service

Note: The packages listed in italics are not common between line project and sub-station project

Following are the typical issues faced by an organization while executing multiple /separate supply and erection

contracts:

Lack of single point responsibility

Each contractor will be responsible for its own supply /design /erection packages and coordination of multiple

contractors will be a challenging task for the owner i.e. EVNNPT. Degree of complexity in coordination

increases with number of vendors /contractors. Further, in case of any issues in operation, identification of the

responsible party for the issue becomes the responsibility of the owner. This may prove time consuming if the

issue /defect cannot be attributed to a single vendor and the resultant delay impacts the performance of the

system. In the case of contracts executed by EVNNPT, the entire responsibility of resolving various

coordination issues lie with itself and hence it is vulnerable to all the above mentioned risks.

Difficulty in matching of procurement & erection schedules

Matching of schedule of procurement of equipment /material with the requirement at site for erection

contractors is a challenging task. The supply of equipment to erection contractor can be delayed due to reasons

like delay in procurement by the concerned department, delay in transport of equipment from stores, diversion




PwC 265

of material to any other site due to an emergency etc. and this leads to delay in project execution. On the

contrary, if the equipment lies idle in stores, and there is a delay on part of erection contractor mobilization, it

leads to quicker expiry of guarantee periods. In case of EVNNPT also, there are multiple contractors,

consultants working on the different packages of project and there is strong possibility of occurrence of the

above mentioned mismatches. Further, PMB’s Deputy Directors carry the responsibility of timely execution of

projects.

Probable low response from contractors

The value of multiple supply and erection contracts is generally low. We understand that even there are

packages for construction of only 20 km line as well. The value of such contracts will be low and will not be

commercially viable for established contractors leading to lesser number of responses for bids and hence less

competition.

Key aspects of turnkey contracts and separate supply and erection contracts

A brief comparison of key aspects of Turnkey and separate Supply & Erection contracts is presented below and

are subsequently elaborated.

Parameter Separate Supply & Erection Contracts

Turnkey Contract

Project responsibility Owner is responsible to identify the concerned party for a particular issue. Completion risk with owner

Turnkey contractor has single point responsibility to resolve all issues. Completion risk with contractor

Bid process Less time for evaluation for a package, but number of packages

More time for evaluation of package, Bid evaluation will become easier with standardization

Coordination Tasks Complex Simpler

Time and cost over runs Chances are high Lesser probability

Owners participation Limited participation in routine stages of project execution and monitoring. Can be mitigated by appointing an Owner’s Engineer

Considerable participation in almost every stage of project

Project Responsibility: In turnkey execution, all the activities from detailed engineering, procurement of

equipment and materials, arranging for testing and inspection, interactions with various sub-vendors, timely

erection, testing & commissioning will be the responsibility of the main turnkey contractor. In case of separate

supply & erection contracts, owner needs to interact with multiple contractors and consultants for different

packages. Further, during operation of the project, if any issue arises, then it would be the responsibility of the

owner to identify the concerned contractor, consultant for such defect. It would become complex if multiple

contractors and consultants are involved in a project.

Bid process: In case of multiple supply and erection contracts, the total time and efforts of owner for running

the bid process will be higher as compared to a single bid process in case of turnkey execution. Although, the

time and efforts required for that single bid process may be higher as compared to a single supply or erection

package because of detailed techno-commercial eligibility and qualification criteria in a turnkey project.

From the owner’s perspective, in a turnkey situation it is often difficult to effectively compare the various design

proposals submitted by contractors. The designs will probably not be uniform because there are usually many




PwC 266

different methods of satisfying the owner’s general needs and performance specifications. Partly, this issue can

be resolved by standardizing the basic designs and parameters, releasing a list of pre-approved sub-vendors etc.

In separate supply & erection contracts, though it takes significant time to conduct multiple bid processes for

various vendors and contractors for individual works, it is considerably easy to select the prospective bidder as

the comparison would generally be in monetary terms. The design is prepared by a separate consultant hired by

the owner.

Coordination: In case of separate supply & erection contracts, the owner should constantly coordinate with

multiple contractors and consultants to execute the project as per the timelines. This significantly increases the

workload on the executing authority as well as places the completion risk in its domain. At times of variation, it

becomes difficult for the owner to identify every contractor and vendor responsible for the specified work.

Further, any mismatch in the completion schedule of a package can lead to concomitant delays and other losses.

For example, in case of any delay in erection contract and the corresponding material equipment has already

been successfully delivered, the available guarantee period of such equipment will reduce without actual usage.

Turnkey execution will significantly reduce the risk and work load of the owner, since the coordination efforts

will be reduced and the turnkey contractor will bear major responsibility of timely execution of contracts. Also,

issues like wastage of guarantee period while the equipment lies idle in store, possibility of disputes with

erection contractors for delay in providing equipment/ materials etc. will be greatly reduced from the owner’s

perspective.

Further, in turnkey mode, the contractor’s control over design and construction planning allows it to use

innovative designs, familiar construction methods and timely procurement of equipment etc. resulting in better

project execution.

Time & Cost over runs: A properly planned turnkey project will reduce time and cost over-runs since the

main contractor can plan certain design and execution activities in parallel and can match its procurement

schedule of required equipment with overall erection schedule. A timely execution of project will avoid

additional costs like interest during construction that would have been incurred in case of delay. Further, the

owner can reduce the risk of cost escalation on raw materials in case of contractors default.

In separate supply & erection contracts, the contractor’s decreased control over the design of the project may

result in increased overall costs. Since design is prepared by an individual contractor, manufactured by other

vendor and erected by some other contractor, the erection contractor would not be in a position to order

necessary materials for subsequent phases ahead of time, perhaps increasing the cost. These expenses will all

result in increased project costs.

Owner’s participation: In turnkey execution the owner will have very limited or negligible participation in

the project execution and project management controls. This is generally mitigated by employing an owner’s

engineer to monitor the progress and quality of the work. This would help to retain owner’s interest on

specifications and quality of the project.

In separate supply and erection contracts, the owner will have significant participation in every stage of the

project. But due to its increased responsibility to maintain timelines and procurement schedules, owner will not

have greater focus on the quality of the work.

Part-turnkey

A variant of the turnkey execution is part turnkey or limited turnkey execution. This can be achieved by splitting

the responsibility on mutually exclusive activities of a project to individual parties. For example, in case of

multiple lines and substations of a project, transformer, reactor, conductor and insulators can be centrally




PwC 267

procured by the owner as they are high value items and supplied to the contractor at site. Central bulk

procurement would help in achieving cost effectiveness and also easier operation due to replicability of spares

and increased awareness among O&M. personnel. The procurement of remaining line equipment can be

clubbed with the erection contract(s) of lines as in case of turnkey execution.

Pre-requisites of turnkey mode of execution

Certain pre-requisites have to be satisfied before implementing turnkey mode of project execution to ensure

timely and effective project implementation.

1. Appropriate qualifying requirements with criteria on technical and financial capabilities of bidders,

similar past experience, clear conditions for joint venture /consortium of supply and erection

contractors;

2. Technical specifications have to be standardised for different equipment and a list of approved sub-

vendors/ suppliers should be made available so that time for testing can be reduced. Standardization of

designs and specifications will not only help in reducing the time for pre-construction activities but also

reduce the chance of disputes in future;

3. Comprehensive bid documents with clear scope of contractor, identification of responsibilities of

contractors and EVNNPT, proper price variation indexing, adequately defined payment milestones,

guaranteed performance & technical parameters, penalties for delay or faulty equipment, issue

escalation and dispute redressal mechanism etc.;

4. An effective project management tool (software) for constant updates on status of projects;

5. Prompt payment mechanism to contractors for completed milestones; and

6. Vendor capacity development initiatives are needed since this will be a new regime for contractors as

well. Also, vendor development initiatives are needed to develop domestic vendors’ capabilities as

turnkey contractors (reserving a certain percentage of packages that meet certain criteria to new

contractors).

Framework for designing turnkey contracts

Since turnkey mode is not prevalent in EVNNPT for domestic procurement, following steps are required to

institutionalize it.

Policy level changes

•Identify laws, decrees, decisions on procurement that get impacted

•Propose changes and pursue for approval

Development of detailed documents & procedures

•Develop working level documents/ procedures

•Multiple iterations and consultations with PMBs, PTCs and stakeholders

Pilot implementation & institutionalization

•Identify pilot projects for turnkey implementation

•Institutionalize the changes and seek improvement based on experience




PwC 268

1. Policy level changes

a. Identification of decrees, decisions that need to be updated: All the laws, decrees on bidding

and prevailing procurement process, delegation of power have to be studied and changes

required for implementing turnkey mode are to be suggested;

b. Discussion with EVNNPT, PMBs, PTCs and other stakeholders and submit to EVN/ MOIT/

concerned authority for approval;

2. Development of detailed documents and procedures

a. Post approval of policy changes, preparation of procedures and documents e.g.: draft Standard

bidding document (SBD) for different modes of procurement;

b. Discussion with key departments involved in Procurement function EVNNPT, PMBs, PTCs and

other stakeholders;

c. Incorporate the agreed inputs and submit to EVN/MOIT/concerned authority for approval;

3. Pilot implementation & institutionalization

a. Identification of pilot projects for execution in turnkey framework;

b. Institutionalize the changes and seek improvement based on experience.

To facilitate the entire process, a high level committee of Deputy Directors and experts has to be formed from

all key departments in Procurement function in EVNNPT and PMBs - procurement, materials, finance &

accounts, evaluation etc. This committee will be headed by Director of Procurement department, EVNNPT.

Secretarial support will be provided by the Procurement department of EVNNPT. Composition of the

committee is as follows:

Objective: The objective of this committee is to facilitate the process of development of policies, procedures

and standard bidding documents for the effective implementation of turnkey mode of procurement in EVNNPT

Role of Consultant(s): The committee can hire consultant(s) for assisting it in the above steps.

Monitoring: There should be a time-bound plan for identifying changes required in the existing policy regime,

development of policies, procedures and SBD, stakeholder consultations and obtaining approvals. The progress

should be monitored by the committee in its quarterly review meetings and report to the top management

Director, Procurement,

EVNNPT

Dy director, Procurement,

EVNNPT

Dy director, Materials, EVNNPT

Dy director, F&A, EVNNPT

Dy director, Technical, EVNNPT

One senior expert each from

Procurement & Evaluation of each

PMB

1 1 1 1 6




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Post implementation review: After successful pilot implementation and incorporating any changes in the

documents, a particular number of projects should be identified for turnkey mode of procurement every year.

Since turnkey projects are generally of significant value, they have to be executed by PMBs and not PTCs

Further, a dedicated cell in procurement department of the respective PMB may be created with sufficient

number of experts for executing the project in turnkey mode.

The committee will review the progress of turnkey mode of implementation once in a year (or as decided by

EVNNPT) to suggest changes in clauses, procedures for optimal implementation of turnkey regime.

Key aspects in turnkey procurement

Following are the key aspects to be considered for developing and implementing a turnkey procurement regime

in EVNNPT.

1. Packaging concept;

2. Qualification criteria;

3. Design & Engineering;

4. Role of supervisory consultant;

5. Risk allocation;

6. Contract management; and

7. Quality control.

Packaging concept

A transmission system project should be divided into clearly defined packages in such a way that the packages

can be executed without any coordination and interfacing issues and at same time attract competitive bids. So, a

package list has to be prepared based on cost of the package, location, availability of equipment and/or

materials, completion schedule etc.

So, we suggest the possible packaging concepts that can be considered for turnkey execution:

1. Route alignment, detailed survey and soil investigation packages;

2. In case of a single substation package, the entire substation (including transformer/reactor) may be

awarded to a single contractor including supply and erection of the same. In case of multiple

substations, transformers and reactors can be centrally procured and rest of the supply and erection

works can be awarded in turnkey mode;

3. In case of a single transmission line package, both conductor and insulator packages can be included in

the single supply-cum-erection contract. Further, in case of transmission line packages, a minimum

route length (say 100 km) can be awarded as a single package rather than multiple small packages; and

4. In case of long transmission lines that need urgent execution, the supply-cum -erection packages for

parts & erection along with conductors and insulators can be split according to distance and awarded to

two or more contractors.




PwC 270

EVNNPT has been contracting even small stretches of transmission lines (say 20 km) through separate erection

contracts; this can be executed in a different way, like combining the construction of a new line and renovation

of the existing line in one package (or) increasing the minimum route length that can be awarded to a single

player for a package. This would increase the estimated cost of the package, which may encourage more

established players to enter the sector as well as reduce the efforts of EVNNPT in procurement, approvals and

coordination.

Qualification criteria

Generally, qualification criteria for selecting a turnkey contractor include:

1. Basic criteria: Legal status of companies and other compliances to Acts& Rules in the country;

2. Technical capability: Relevant past technical experience in similar projects, say, supply of particular

equipment and the quantity of such equipment, value of erection services, O&M experience etc. in

particular period; Also, non-performance of contracts in the past years and pending litigation history

are checked. Generally, relevant client citations are asked as proof;

3. Financial capability: Historical financial performance is evaluated using parameters like annual

turnover, net worth, internal cash accrual. Audited financial statements are generally required as proof;

4. In some cases, experience of key personnel in relevant areas is also required;

5. Also, where applicable, conditions for Joint Venture /consortium participation in bids are mentioned;

EVNNPT should also develop criteria using similar criteria for the turnkey projects.

Design & Engineering

The design parameters, standard drawings & technical specifications, guaranteed technical particulars for all

key equipment and materials in the particular project package should be mentioned upfront in the bid

documents. The technical parameters are generally based mainly on output specifications. Further, a list of pre-

approved sub-vendors for different equipment is also part of the bid documents. The underlying principle of all

the designs & drawings is to balance two counteracting principles of standardization as well as providing

flexibility to contractors for innovation. The review and approval processes for working designs and drawings

are also to be provided in the document. Also, all testing and inspection processes & procedures along with

standards to be adopted for the fabrication, manufacturing, assembling, construction, erection and

commissioning have to be detailed as part of the document.

Role of supervisory consultant

EVNNPT/ PMBs can appoint a supervisory consultant to monitor the performance of the turnkey contractor in

project implementation. The Engineer shall be responsible for the enforcement and proper administration of

the contract and shall, with due care and diligence, carry out:

1. Review of designs and providing comments in line with owner’s requirements;

2. Attend testing & inspection of design, manufacturing, erection and commissioning of various

equipment/ material of projects;

3. Supervision of erection and construction activities in line with prescribed standards;

4. Attend testing and commissioning of the equipment; and




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5. Assist in resolution of disputes (if any).

Risk allocation

As an underlying principle, risks should be allocated to the parties that are best suited to manage them. Project

risks should, therefore, be assigned to the turnkey contractor to the extent it is capable of managing them.

Appropriate allocation of risks and responsibilities would increase the scope of innovation leading to

efficiencies in costs and services. For example, the commercial and technical risks relating to construction,

operation and maintenance can be allocated to the contractor whereas, all direct and indirect political risks can

be assigned to the EVNNPT.

Contract management

Variation: The variations in a turnkey contract include variation in quantity of supply items, increase in the

scope of services and subsequent time extension or increase in contract value. The provisions for variations

should include the owner’s right to vary the works, the contractor’s right to refuse a variation, contractor-

proposed variations, the procedure for variations and rules about disputed variations. The purpose of the

variation provisions is to ensure that the contractor is paid a reasonable fee for any changes in the design and

construction of equipment/ materials and the owner has its right to change the same subject to mutually agreed

rates and time extension.

Termination: A contract may be closed on completion of all supply and fabrication, erection, installation and

successful commissioning of equipment and materials in the scope of work of contractor. However, the contract

should provide for conditions for contractual termination by owner as well as contractor, e.g.: owner’s non-

payment or prolonged suspension of works and contractor’s insolvency or breach of performance. Generally, a

certain cure period is allowed for rectifying the breaches before issuing termination notice.

Payment: Timely payment to main contractor on fulfilment of particular payment milestone is essential in

turnkey contracts since the payments to sub-contractors and vendors are generally linked back-to-back to it.

EVNNPT already has experience in ODA funded turnkey contracts and hence can develop a timely payment

mechanism for domestically funded engagements.

Monitoring: An information system with monitoring responsibilities and responsible point of contacts for

different activities from contractor and turnkey contractor, escalation matrix for different issues need to be

agreed upfront between main contractor and owner so as to avoid unnecessary disputes during execution.

Defect liability: A turnkey contract framework generally specifies defect liability period for the performance

of equipment and materials from the date of issue of the completion certificate. During this period, the

contractor shall, at its own cost and initiative, correct, repair and/or rectify any and all defects and/or

imperfections in the design, fabrication, erection and installation of equipment/ materials. This effectively

transfers the task of defect identification and its resolution from the owner to the main contractor. In case the

contractor fails to resolve the issue with in stipulated timelines, it will be liable for pre-decided penalties.

Quality Control

Reduced efforts in coordination will help in focusing on quality control for project managers. They will be

enhancing quality control of the equipment/ materials and construction processes. Enhanced quality control

does not necessarily mean only attending all types of tests and increased inspections by EVNNPT officials. The

focus of quality control will be on crucial type tests, manufacturing of key equipment, monitoring processes and

ensuring that the transmission system operates within stipulated quality, security and reliability parameters.




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Project risk management

Risk is an uncertain event or condition which, if occurs, has a negative effect1 on the envisaged project outputs

and results in issues like time over run, cost over-run, poor quality execution resulting in increased O&M or

poor system availability etc. The power transmission projects, like other infrastructure projects face various

risks in different stages of the life cycle. A risk management plan/ matrix/ strategy should address these risks in

all phases of the project viz., design, approvals, financing, procurement, construction, completion and have

mitigation strategies for various risks.

Benefits of an effective risk management framework

1. Formulation of a realistic project plan in terms of both cost estimates and time estimates;

2. Minimization of risks for a party and /or allocation of risks to the party best able to handle them;

3. Clear contractual terms and conditions and lesser scope of disputes;

4. Effective contingency plans and risk mitigation options;

5. Better financial modelling of projects due to more statistical information of historical risks; and

6. More rational project decisions and risk appetite based on prevailing macro-economic conditions.

Key steps of risk management are identification, assessment, risk allocation and designing response strategies:

1. Risk identification: All possible risks have to be identified at the system studies/ design phase of the

transmission project. Generally, risks are identified based on historic experiences in similar projects.

Since many power transmission projects were already executed and in operation for a long time,

identification of risks in the country’s context is an easier job. As an illustrative example, we have

identified various project risks for a typical power transmission project till commissioning based on our

understanding and multiple interactions with EVNNPT officials later in this approach note.

2. Risk assessment: The degree of likelihood of various risks and possible consequences in case of

occurrence can be assessed using quantitative techniques and qualitative techniques.

a. Quantitative techniques utilize historic data to assess the probability and calculate the impact

of a risk occurrence in terms of either time or money. Various statistical tools and methods are

available to perform complex analysis and ascertain the risks in an objective manner

b. Qualitative techniques are predominantly used to list the likely risk sources and their

consequences, particularly in case of unavailability of historical data. We also suggest adopting

a similar approach in case of risk management matrix for EVNNPT due to lack of data.

Gradually, an information system can be built to accumulate all information of project, e.g.:

scheduled dates of different activities in project, actual dates and reasons for delay (i.e. risks),

cost over-runs, contract variations, changes in scope etc. However, to start with the project risk

1 Positive risks or opportunities are not analysed in this note.




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management matrix has been prepared by providing a subjective risk assessment methodology

i.e. a ratings assigned to both probability and impact of occurrence of risk and calculating an

overall rating for that risk.

3. Risk Allocation: The ideal principle of risk allocation in projects is that all risks should be borne by

the party best able to assess, and manage them or the party with access to hedging options or lowest

costs of bearing the risks. In the sample risk management matrix developed, we have identified the risk

bearer in the current regime.

4. Risk response strategies: Risk response strategies have to be designed for all the identified risks.

Possible strategies are identified in the next section.

Risk response strategies

An appropriate response to any occurrence of all envisaged risks should be

available beforehand. Different risk response strategies are mentioned

below:

Avoidance

This strategy can be adopted in the design phase of the transmission

project if the costs of risks are prohibitive. For example, avoiding high risk

construction approaches or activities, adopting a familiar approach

instead of an untested one, or avoiding an unfamiliar subcontractor may

be examples of avoidance. If it’s known that it involves significantly high

costs for construction/erection of transmission towers in a rainy season in a particular area, then construction/

erection activity can be planned in such a way to increase the activity prior to that season by increasing

resources or revising the construction plan etc.

Transfer

This strategy does not eliminate risk, but only transfers the responsibility of the particular risk to another party.

Risk transfer nearly always involves payment of a risk premium to the party taking on the risk. It includes the

use of different kinds of insurances (Equipment & material delay in supply or damages during different phases,

life & injury risk for officers and labour etc.), performance bonds, warranties, and guarantees. Typically, in case

of a turnkey contract the risk of delays on account of coordination of various schedules of suppliers/ sub-

vendors and erection contractor is transferred to the main contractor from the utility as opposed to the case of

having separate design, supply and erection contractors.

Mitigation

Mitigation of risks means to reduce the probability and/or consequences of an adverse risk event to an

acceptable threshold. Mitigation costs should be appropriate, given the likely probability of the risk and its

consequences. For example, during a transmission line implementation, it is realized that a delay in erection is

a possibility due to a delay in pre-construction activities. In this case, if increasing resources can reduce the

erection time, then a cost-benefit analysis can be performed for increasing costs due to deployment of more

resources vis-à-vis decrease in loss of revenue due to timely completion and revenue.

Acceptance

Avoidance Transfer

Mitigation Acceptance

Risk responses




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Risk acceptance is important for cases where the costs of avoiding, mitigating or transferring the risks to

another party are very high compared to benefits. Active acceptance may include developing a contingency plan

to execute, should the risk occur- the most usual one is to establish a contingency allowance, or reserve,

including amounts of time, money, or resources to account for the risk. The allowance should be determined by

the impacts, computed at an acceptable level of risk exposure, for the risks that have been accepted. Generally

force majeure events and acts of God etc. fall under this category.

Organization framework

We suggest that the planning department of PMB or PTC, as the case may be, undertake the additional

responsibility of preparing and maintaining of risk management matrix and analysis. In case a PMU is set up,

the responsibility of preparing the same can be passed on to it. The risk management matrix should be a

mandatory part of Feasibility Report for every medium and large size-projects over certain value of project costs

(say above 5 billion VND). The threshold value of project cost can be suitably decided by EVNNPT. Any

unforeseen risk faced during a project execution and corresponding risk response strategy adopted has to be

referred by the concerned site personnel (with any suggestion for response) to the concerned Planning

departments/ PMU. Further, a master risk management matrix for all projects executed in a year has to be

summarized by Planning department /PMU (as applicable) along with different risk mitigation measures

adopted. This will act as a reference for future projects.

In this note, we covered risk management of project from conceptualization till commissioning (operational

risks not covered) from the view point of EVNNPT based on our understanding of various project issues faced

by EVNNPT. Since, there is no historical data available to perform a quantitative analysis of risks, we followed a

qualitative approach. Risks are grouped under different heads - design, bidding, construction etc. and their

probability of occurrence and impact is rated in three categories - Low, Medium and High. Finally, an overall

risk rating is provided with product of ratings in both occurrence and impacts of risks. Also, parties bearing the

risk currently and risk response strategies for different risks are provided. Preparing a risk management matrix

before start of the project will act as a preventive measure and help to reduce issues leading to poor quality,

delayed execution and cost over-runs.

Please note that the risk management matrix is a live document that needs to be updated periodically based on

changing base conditions, external & internal factors in various aspects viz., operational, financial, commercial,

legal, regulatory impacting the project.




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Risk management matrix for a transmission project

Risk Description Probability of Occurrence

Potential Impact

Risk borne by

Overall risk rating

Risk Response Strategies

Design Risk

Wrong Design Wrong Design Equipment, Unsuitable technical specifications for equipment

Low High EVNNPT Standardization of designs and technical specifications will reduce the need for designing equipment or formulating specifications for every project. Further, careful scrutiny of concerned EVNNPT departments and hiring of experienced consultants for standardization will reduce the probability of occurrence This risk is transferred to turnkey contractor in case of turnkey mode.

Design Delay Delay in preparation of working designs due to issue with design consultants (non-performance, lack of resources etc.)

Medium Low EVNNPT Standardization will reduce the probability of occurrence. Turnkey mode of execution will reduce the impact as the same can be covered by faster execution by the turnkey contractor

Inappropriate design scheme or layout

Mismatch of designs with site Conditions

Medium Medium EVNNPT Turnkey mode of execution will reduce the impact as the turnkey contractor will be responsible for final working drawings, supply and erection activities.

Bidding Risks

Time over run Time over run in bid process- Preparation of documents, Conduct of bid process and bid evaluation, negotiations etc.

Medium Low EVNNPT This risk cannot be transferred and has to be borne by EVNNPT. However, chance of risk occurrence can be reduced by efficient project management (regular monitoring by PMU is a way to reduce the risk).

Wrong evaluation of bids

Evaluating specifications of same equipment manufactured by different companies

High High EVNNPT Standardization of specifications will reduce the probability of occurrence. However, impact cannot be reduced

Construction Risk

Planning Risk Inappropriate planning of activities Low High EVNNPT Identifying activity timelines as per actual conditions and proper monitoring of timelines. A PMU can perform the project planning using modern techniques like




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Potential Impact

Risk borne by

Overall risk rating


Critical Path method (CPM) where precedent and successor activities are identified along with linkages, early and late start time, early and late finish times, slack times etc.

Delay in construction

Lack of proper monitoring and slippages by contractor due to variety of reasons like non-performance of erection contractor, delay in supply of equipment, transport, site conditions, lack of access to site, Right of Way issues etc.

Medium High Erection Contractor & EVNNPT (sharing of risk depends on Liquidated Damages & Performance security clauses vis-à-vis lost revenue of EVNNNPT)

Rigorous monitoring of projects with a project management tool by dedicated staff (PMU) and good documentation practices will identify issues and parties responsible for delay. This helps the issue at site to reach the concerned authority for corrective action immediately. Further, segregation of risks and risk allocation upfront with clear contractual terms and conditions will give clear understanding to both contractor and EVNNPT. A standard bidding document for different modes of contract execution will help reduce the risk. Clauses on Penalties for delay and liquidated damages will act as disincentive for contractors

Increase in cost of raw materials

Cost estimate of materials may change due to inflation, market conditions, currency risk etc.

Medium High Supplier The risk is less for short duration projects. However, in case of longer duration projects, the risk is high as steel, copper, aluminium, labour costs can increase which impacts tower parts, conductor, civil foundation and erection services etc. If the contract does not have clauses on Price variation (i.e. proper indexing with international indices), it will result in high bid quotes. But, in case of price indexing clauses, any profit or loss due to increase or decrease in costs may have to be borne by EVNNPT.

Changes in scope Variations in the design, specifications, quantities of equipment/ materials required during construction

Medium Medium Erection Contractor & EVNNPT (sharing of risk depends

Standardization of specifications will reduce the scope for change in designs and specifications. Probability of scope variation is high in a transmission line erection project rather than any supply of




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Potential Impact

Risk borne by

Overall risk rating


on contractual terms)

equipment or substation projects. Correct preliminary and detailed surveys will reduce the probability of occurrence.

Delay in inspection and testing

Delay in testing and commissioning Low Low Supplier & EVNNPT (sharing of risk depends on Liquidated Damages & Performance security clauses vis-à-vis lost revenue of EVNNNPT)

This risk can be mitigated by developing an information system through which inspection calls can be logged by the vendors and their completion time, reasons for delay can be monitored. A PMU can monitor the system and pursue for early and successful completion of inspection. An incentive and penalty mechanism may be devised with good ratings for vendors with punctual calls and successful completion and habitual offenders can be penalised monetarily and in severe cases, blacklisted from participating in future bids

Payment Risk Delayed payments to contractors, resulting in contractors delaying/ stopping the work.

Low High EVNNPT Payment mechanism should be clearly mentioned and followed. The requisite documents for payment release should be specified. Regular monitoring by PMU will reduce the chance of occurrence

Financing Risk

Delay in Financial Closure

Tying-up financials required for the construction of the project

Low Medium EVNNPT Better credit ratings should be maintained with the banks by prompt payment of instalments.

Increase in interest costs, forex risk

Construction cost estimates may change because of increase in interest rates and forex rate (in case of foreign loan)

High High EVNNPT The risk is relatively less for short duration projects. However, in case of longer duration projects, the risk is high. The forex risk can be mitigated by hedging the foreign component of loan value with a financial institution after doing a cost-benefit analysis

Other Risks

Land Recovery & Right of way

Delay in land acquisition and right of way due to resistance from public on account of multiple

High High EVNNPT Most of the activities of Land acquisition fall outside the purview of EVNNPT and is monitored by the Government Act. Recent Land Law has better




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Potential Impact

Risk borne by

Overall risk rating


reasons compensation norms. The project execution authorities should follow the norms and regulations and interact with People Councils and committees and follow the prescribed approach (notices, wide publicity, sufficient notice period, prompt deposit of compensation etc.)

Delay in approvals

Delay in receiving approvals for each stage of project from the higher authorities

High Medium EVNNPT Optimization of process by merging certain steps (e.g.: FS & DTD phases) and also devolution of powers to subsidiaries

Force Majeure & other disturbances

Occurrence of an unexpected events or act of God; Labour disputes or any strife

- High Erection Contractor, Supplier & EVNNPT (sharing of risk depends on contractual terms)

- Clear and detailed clauses on force-majeure conditions, consequential termination as well as financial obligations of both the parties should be in the bid document/ contract

Delay due to Disputes

Any legal disputes delaying the contract execution

Low High - Unambiguous dispute resolution mechanism should be available in the contract documents. Generally conciliation, mediation, arbitration and court of law are ways for settling disputes in that order.

Index:

Probability of Occurrence Potential Impact Risk rating Low Low/Medium Low Medium Low Low High Medium Medium Medium High Low Medium High High High Medium/High




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No deliverable as agreed with ADB/NPT.




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Drivers for the recommendation

While reviewing and discussing the existing project planning processes with various departments of EVNNPT

and its subsidiaries, it was observed that, on an average, it takes around three years from issue of project

allotment letter to approval of Detailed Technical Design (DTD) in case of EVNNPT transmission projects

which is high and needs to be reduced for speedy implementation of projects. There are multiple factors

contributing for this delay- heavily centralized decision making process with PMBs/ PTCs having no powers of

approval and requiring multiple rounds of approval from MoIT; lack of standardization in technical

specifications and bid documents etc. The merger of Feasibility Study (FS) and Detailed Technical Design

(DTD) phases, in addition to our other recommendations will reduce this time significantly. This has been

suggested based on similar international practice followed by leading international transmission utilities. It

may be noted that the focus of this note is only on merger of activities of FS and DTD phases at PMB/PTC level.

Overall optimization of planning process is covered in another approach note of investment planning.

Current process

The FS is prepared by the PMBs/ PTCs (as the case may be) and submitted to the IMD in EVNNPT for review.

The FS comprises of the technical studies, impact assessment studies and financial and economic analysis. The

current process in FS & DTD phases in projects executed by PMB and PTC are provided in Figure 1 and Figure 3

respectively. In the FS phase, following components are covered:

1. Line route survey with three options and suggest optimal route

2. Tower spotting, layout and Estimate bill of quantities of equipment and material needed

3. Basic design of equipment

4. Total investment cost and financial analysis such as NPV, IRR, Benefit-to-Cost ratio

5. Environment Impact Assessment (EIA) and Social Impact Assessment and Resettlement to minimise

land needs and adverse impact on local people and environment.

6. Other aspects like Fire prevention, Telecommunication etc.

After FS approval, DTD consultants are selected and they prepare the detailed engineering/ technical designs

and specifications along with bidding documents. Only the urgent and critical projects or small augmentation

projects will not require DTD. We suggest merging both the phases into a single phase and leaving the detailed

working designs / construction design drawings to the selected contractor, as part of his responsibility.

In our approach note related to investment planning on “Process Improvement”, we have already shared

international practices/activities involved in planning phase of couple of utilities.

The relevant process highlights of the feasibility study process of POWERGRID, Indian Central Transmission

Utility and Inter-state Transmission Licensee, (which owns majority of inter-state lines) is provided below for a

quick reference:




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Proposed process

We are proposing the revised process, considering similar global project planning practices followed. Following

tasks will be included in our proposed process for Feasibility Report and Detailed Technical Design.

1. Line route survey for the finalized system with three options and suggest optimal route;

2. Design, technical specifications and construction standards for foundations, towers, cables and

insulators, conductors, transformers, reactors, circuit breakers and other key equipment of the project.

Availability of standardised designs, specifications and drawings will significantly reduce the time

required for this step;

3. Quantities/numbers of different types of tower structures, poles, insulators, length of cables&

conductors, circuit breakers, isolators etc. indicated as the Bill of quantities (BOQ) schedule;

4. Cost estimation as per BOQ prepared of the various system elements (such as cables, conductors,

transformers, switchgears, capacitors, lightning arrestors and insulators, the control and

communication system, engineering and project management, supervision and contingencies);

5. Financial analysis for assessing financial viability of project and proposed capital structure for the

project (type of funding-domestic or foreign, amount, equity etc.);

6. Project packaging to attract suitable competition facilitating cost effective procurement. The size &

scope of the different packages depends on magnitude & location of project. If turnkey or part turnkey

procurement with suitable norms for packages along with a list of pre-approved vendors for different

equipment is adopted, time and cost for procurement can be optimized with good competition. The

standardised designs along with project implementation plan and schedule for the project considering

possible contingencies;

7. Statutory and environmental clearances required for project and the progress of the same. At least

preliminary applications should have been made by this stage; and

POWERGRID allots projects for execution, post approval of the allocation of transmission system by

empowered committee. Following steps are being followed, once project is allotted for execution.

1. A route survey is conducted and a techno-commercially & environmentally optimal route

alignment is chosen

2. A detailed project report is prepared consisting of all descriptions, technical details and cost

estimations. It will be prepared by the cost engineering department in coordination with

corporate planning, finance, contracts & procurement, and engineering etc.

3. The Chairman or Board of Directors of POWERGRID or the Central Electricity Authority (CEA)

will be the approving authority for technical portion depending on cost of the project. Similarly

investment proposal will be approved either by BOD or Ministry of Power depending on cost of

the project.

4. Post requisite approvals, the bid documents for packages will be released for the purpose of

tendering which will have basic standard designs, specifications, qualification criteria etc.

5. The detailed engineering of layout designs, equipment designs and tower drawings will be

completed by the contractor and approval obtained from POWERGRID.




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8. System operation requirements, based on applicable laws and grid code. Operation and Maintenance

plan include facilities such as protection, communication, measurement, telemetry and interface

equipment etc.

The consultants will also prepare bid documents after their submission of packaging plan, BOQ and cost

estimates. The revised process post-merger of FS & DTD phases for PMB and PTC projects is presented in

Figure 2 and Figure 4 respectively

Implementation support

To facilitate the merger of these two phases, a high level committee of Vice President and Directors has to be

formed from all key departments involved in planning function in EVNNPT- CPD, IMD, F&A, Technical and

Procurement along with Directors of all PMBs and PTCs. This committee will be headed by Vice President

(Operation & Investment), EVNNPT. Secretarial support will be provided by CPD of EVNNPT. Suggested

composition of the committee is as follows:

Objective of the committee: To design a process that merges current FS &DTD phases thereby reducing the

time taken for iterative approvals.

Timelines: The committee should work in a time bound manner with a target date of achieving its objective

(say an year). The committee should meet at least once in two months till the objective is achieved.

Steps/Activities: The Committee members can form a working group in their respective departments/

subsidiaries to gather inputs on the merger of these two phases. These inputs can be debated in the bi-monthly

meetings and a final process flow has with responsibilities of each department along with work flow to be

designed. The above suggested process can be taken as a guideline and the committee may discuss and finalize

the detailed aspects. Also, the requisite changes in the policy level documents may be identified (decrees, etc.)

and consequential changes may be put up for approval of concerned authorities.

The final process may be sent to President& CEO, Management Board of EVNNPT and subsequently to

concerned authorities of EVN, MOIT for approval.

Vice President (Operation & Investment),

EVNNPT

Director, CPD,

EVNNPT

Director, F&A,

EVNNPT

Director, IMD,

EVNNPT

Director, Technical, EVNNPT

Director, Procurement,

EVNNPT

Directors of PMBs and

PTCs




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Feasibility Study and Detailed Technical Design- PMB Projects


FS consultants prepare implementation plan , basic design,

conduct route survey ,system studies, EIA , SIA, resettlement issues & an

investment project proposal

Second stage approvalApproval of EIAR by DoNRE through CMD

Approval of Feasibility study by EVN/ MoIT/ NPT board depending on value through IMD

Evaluation dept reviews all inputs of FS by itself or with help of other consultants and submits to NPT

Land Acquisition / recovery process

Project allotment letter to PMB Procurement process for selection of FS

Consultants


small valueNo



bid documents by Procurement Dept of NPT

Evaluation dept reviews with inputs from other departments /

other consultants

Procurement process for selection of DTD Consultants






Procurement Department reviews and forwards for

approval




small valueNo

Procurement Department prepares bid documents&


Yes

Yes

Figure 1: Current FS & DTD processes in PMB projects




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Proposed merging of Feasibility Study(FS) and Detailed Technical Design(DTD) - PMB Projects


FS-cum-DTD consultants prepare ( as required) Implementation plan

Line Route survey and optimal route

EIA , SIA, resettlement issues

Detailed design ( possible after standardization of drawings& designs)

Feasibility report with detailed cost estimates, financial analysis

Procurement plan (packaging)* , bid documents along technical specification

*Procurement plan and bid documents by planning dept of PMB in case of urgent works

Approvals EIAR by DoNRE through CMD

Procurement plan through CPD of NPT

Design by Technical Dept of NPT

Bid documents by Procurement Dept of NPT

All parts of FS by EVN/ MoIT/ NPT board depending on value through IMD

Evaluation dept reviews all inputs of FS by itself or with help of other consultants/departments and submits to NPT for final

approval

Land Acquisition / recovery process( ( as

required)

Project allotment letter to PMB

Procurement process for selection of equipment /

erection contractor

Planning dept calls for bids



Approval of consultants by President & CEO/ NPT board through CPD

Figure 2: Proposed Process flow for PMB projects post-merger of FS&DTD phases




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Feasibility Study & DTD – PTC Projects

NPT/ EVN & Ministries & DeptsPTCConsultants

FS consultants prepare implementation plan , basic

design, and other aspects required for an investment project proposal

Second stage approvalApproval of Feasibility study by EVN/ MoIT/ NPT board depending on value

through IMD

Construction investment dept reviews all inputs of FS by itself or with help of other

departments and submits to NPT

Consultant prepares tentative project cost estimates

First stage approval (Technical feasibility) by MoIT

through IMD of NPT

Planning dept reviews with help of Construction investment dept and sends for

approval

Land recovery process ( Rarely

required)

Requirement of project identified by

PTC

Procurement process for selection of FS Consultants


small valueNo





Construction investment dept reviews with inputs from other

departments / other consultants

Procurement process for selection of DTD Consultants (Rarely required)


Yes


Procurement process for selection of Cost Estimates Consultants


Planning Department reviews and forwards for

approval




small valueNo

Planning Department prepares bid documents&


Yes

Figure 3: Current FS & DTD processes in PTC projects




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Proposed merging of Feasibility Study(FS) and Detailed Technical Design(DTD) - PMB Projects


FS-cum-DTD consultants prepare ( as required) Implementation plan

Line Route survey and optimal route

EIA , SIA, resettlement issues

Detailed design ( possible after standardization of drawings& designs)

Feasibility report with detailed cost estimates, financial analysis

Procurement plan (packaging)* , bid documents along technical specification

*Procurement plan and bid documents by planning dept of PMB in case of urgent works

Approvals EIAR by DoNRE through CMD

Procurement plan through CPD of NPT

Design by Technical Dept of NPT

Bid documents by Procurement Dept of NPT

All parts of FS by EVN/ MoIT/ NPT board depending on value through IMD

Evaluation dept reviews all inputs of FS by itself or with help of other consultants/departments and submits to NPT for final

approval

Land Acquisition / recovery process( ( as

required)

Project allotment letter to PMB

Procurement process for selection of equipment /

erection contractor

Planning dept calls for bids



Approval of consultants by President & CEO/ NPT board through CPD

Figure 4: Proposed Process flow for PTC projects post-merger of FS&DTD




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Requirement of a Project Management Unit

There is a significant growth in the transmission network of Vietnam since 2008 as lines increased by 40% &

substation capacity increased by 62%. Further, EVNNPT is planning to augment its transmission assets

significantly during 2016-30, viz. ~9,500km lines & 71,000 MVA transformation capacity @500 kV level and

~16,000 km lines &135,000 MVA @220 kV level. It is imperative that, to attain this level of system

strengthening in given time frame and estimated budget, timely completion of various activities of different

projects is mandatory. However, currently, many controllable and uncontrollable factors like delay in land

acquisition, resistance from general public, lack of proper monitoring methodology (IT tool), long time for

various approvals and pre-construction activities are delaying project execution of transmission projects of

EVNNPT resulting in time and cost overruns.

In the current organization structures of EVNNPT and its subsidiaries, there is no focus on project management

across the different activities of project life cycle. We also faced considerable difficulties in collecting historic or

current data of various project management aspects, in particular regarding actual and schedules dates of

various activities, reasons for delays, time and cost over-runs of project etc. There may be a significant gap in

historic project data management. We felt the need for establishing a Project Management Unit (PMU) at

EVNNPT level.

As per our interactions with officials of EVNNPT and its subsidiaries, we have designed a structure that utilizes

existing organizational resources as well as provide flexibility to hire new resources, if required. Our suggested

structure for PMU is briefly mentioned below.

Figure 5: Overall structure of PMU

Director (CMD) will be the head of the PMU. A new Deputy Director with at least two experts as Project

Management Officers (PMOs) will be performing the designated roles of PMU structure at EVNNPT level. A

new Deputy Director is required since the current three deputy directors reporting to Director (CMD) and the

associated experts are already overloaded with their current responsibilities (viz. approval of DoNRE, testing &

inspection etc.). Further, all the Deputy Directors of all PMBs/PTCs will be assisted by at least one PMO for

performing the designated roles of PMU structure at PMB/PTC level. The number of PMOs can be decided

depending on number of construction projects to be monitored and the envisaged work load. Manpower

requirement of PMOs can be managed either by identifying existing experts with lighter work load, or by

recruiting new employees at a junior level.

Director (CMD) PMU head, EVNNPT

PMU, EVNNPT

PMU, NPMB

PMU, CPMB

PMU, SPMB

PMU, PTC1

PMU, PTC2

PMU, PTC3

PMU, PTC4




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PMU officials are expected to interact with concerned officials, vendors, contractors, consultants to understand

the issues in detail and present viewpoints of the parties concerned in review meetings to top management.

Figure 6: Interactions of PMU

The roles and responsibilities of PMU officials are segregated into corporate and regional levels, viz. EVNNPT

and PMB/PTC.

PMU at PMB/PTC level

Directors of all the PMBs/ PTCs have to identify at least one official at expert level for each deputy director of

the PMB/PTC. Number of required PMOs assisting a Deputy Director will be decided by the Director PMB/PTC

depending on the number of projects to be monitored.

Roles and responsibilities of officers at various designations in the PMU structure are defined below:

Designation Activities

Project Management Officers, PMB/PTC

The roles and responsibilities of PMO at PMB/PTC are mentioned below. The number of PMOs at PMB/PTC will be decided by the Director of that particular PMB/PTC depending on the workload (i.e. number of projects being monitored)

Project Management Unit (PMU)

EVNNPT

CPD, IMD, CMD, Technical,Materials, Procurement etc

PMBs/ PTCs

Technical, Materials, Resettlement, Planning, Procurement, F&A, Evaluation etc

Design consultants, different suppliers,

contractors, vendors

Others

Other approving authorities (e.g.:

ministries & concerned depts, People councils)

Director of PMB / PTC

Deputy Director - 1

At least an expert dedicated as PMO

Existing Experts

Deputy Director - 2


Existing Experts

Deputy Director - 3


Existing Experts




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Prepare requisite plans (detailed project plan, procurement plan, resourcing requirements etc.). While designing project plan, modern techniques like Critical Path method (CPM), Program Evaluation Review technique (PERT) charts can be adopted

Prepare risk management matrix of different projects

Monitor procurement process for selection of consultants, contractors, vendors and highlight delays

Monitor work progress of Design and FS consultants, EIAR consultants

Monitoring of various activities in project execution vis-à-vis agreed detailed schedule (L2 network) and identify delays along with reasons for the delays.

Interact with concerned F&A departments regarding payment of invoices and expedite completed invoices; educate contractors and site engineers on various standard forms and requisite proofs to enable speedy processing of bills

Prepare evaluation report consolidating various steps in project along with reasons for deviation from original schedule and costs. This will act as historical data for future projects

Deputy Director PMU, Nodal officer at PMB/PTC

Consolidate report from PMO(s) and follow up with concerned parties to resolve the issues.

Provide monthly consolidated project highlights and major issues report to Director, CMD with a copy to concerned Director of PMB/PTC

Director, PMB/PTC Guidance to concerned deputy director and support in resolving issues with contractors

PMU at EVNNPT level

Organization structure

Roles and responsibilities of officers at various designations in the PMU structure are defined below:


Project Management Officers, EVNNPT

Follow-up to ensure speedy turnaround time for various approvals in a prompt manner (project plan, procurement plan, EIAR, Feasibility Study etc.)

Monitor status of land recovery and Right of way issues.

Developing procedures, templates for information gathering from different

Director of CMD (also Head - PMU)

Deputy Directors - 1, 2, 3 and

associated experts

New Deputy Director - 4 (for

PMU)

PMO#1 PMO#2




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departments

Identify common pain areas in project execution and prepare an action plan beforehand that can be applicable across different projects

Identifying good project management methodologies based on experience and document the same as best practices for approval of concerned authorities

Assist Deputy Director, PMU, EVNNPT in delivering any of his/her responsibilities

Deputy Director#4, PMU, EVNNPT

Consolidate inputs from PMUs of various PMBs/PTCs and present an exception summary report to top management in review meetings

Follow up with other relevant departments (Procurement, Technical, Finance & Accounts, Administration etc.) in EVNNPT for resolving any issues in a project

Organize an yearly meeting /conference with various contractors, consultants and sub-vendors to understand the key concerns and submit the findings to the top management

Director (CMD), EVNNPT

Take direct action or direct concerned officials to resolve issues highlighted in exception report

Report to concerned authorities in case of any issues impacting projects that are outside his/her authority.

Tools & methodologies

PMB/PTC and EVNNPT officials are already conversant with preparing project plans using Microsoft Project

(MS Project). A typical project plan for a transmission project using MS Project is provided subsequently in

Figure 7: Sample Project plan of EVNNPT. Preparation of detailed project plan for all projects is a key role of

PMU. To start with, PMU officials can use MS Project to prepare the plan which should incorporate all the

activities involved and the time for completion of each activity. PMU officials can use methods like Critical Part

Method (CPM), Program Evaluation & Review Technique (PERT) for planning and scheduling. For example,

steps in CPM method are

1. Activity identification: Identify activities in different phases of the project from inception to

commissioning;

2. Activity precedence identification: Identify the dependent activities i.e. activities that cannot start until

the completion of another activity (say, Bill of quantities and costing of projects cannot start until the

completion of survey activity or Notice inviting tender cannot be floated till approval of bid

documents);

3. Network construction: The detailed project plan can be prepared using MS project. Subsequently, time,

cost and resource implications of a various activities in the plan are decided; and

4. Critical Path: Critical path determines the shortest possible time to complete the project. It is the

sequence of activities that add up to the longest overall duration. PMU can prepare a detailed list of

activities with help of concerned departments with their early and latest start and finish times.

Dependencies between different activities are already identified. This will help in identification of

critical path.

The contractor is also required to prepare a detailed schedule of activities for completion of work within time

frame for approval of EVNNPT. The actual execution timelines of different activities will be regularly monitored

against this schedule.




PwC 291

Monitoring frequency: PMOs will be monitoring weekly/ bi-weekly / monthly progress of pre award and

post award activities of projects, as decided at the start based on criticality of project. Progress monitoring

reports regarding status of projects will be shared as summary reports to top management.

Reports: Various status reports need to be generated by the PMU officials for the purpose of project status

reporting to top management. The templates of such reports need to be developed and standardized by the

PMU officials. Templates and reports with common interest parameters cost, budget, loading of resources that

need to be monitored can be standardised for all the common packages like civil and electrical erection works of

transmission lines, supply of conductor, insulators, transformers and reactors. MS Project has capabilities to

track scheduled and actual values of timelines of different activities, budget spent, loading of resources etc.

Since EVNNPT officials are already conversant with MS Project, these reports may be developed using the same

tool. PMOs at PMB/PTC will generate these reports for their respective PMB/PTC and these will be

consolidated by PMOs at EVNNPT and circulated to the top management in various review meetings.

Information sources: The preliminary source of information for project status monitoring will be the

“Project management software” being developed/ implemented. Till the time it is not developed or there are

areas where software does not provide information, PMOs/experts will interact with concerned departments

and obtain information. Standard templates for accessing information will be prepared by PMOs for gathering

information from departments where it is not available in the software. Information can be accessed by via e-

mail from all the concerned officials. PMU officials can also visit project sites in case of necessity.

Implementation support from EVNNPT: An internal circular has to be issued mandating prompt and

accurate response (to the extent possible) from all the concerned departments and officials to the queries and

information sought by PMU officials. A list of nodal persons from these departments and all contact details will

also be mentioned in the circular along with the list of PMU officials and their contact details. PMU officials

may be provided separate computer with an internet connection.




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Figure 7: Sample Project plan of EVNNPT




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Part-C (iii): Transmission pricing

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Summary

Title of the training: Training on principles of regulatory economics and international practices

Date & Time: 07 October 2014, 9.00 am - 12.00 noon

Venue: Seminar Room, Fifth Floor, EVNNPT, 18 Tran Nguyen Han, Hanoi

No. of participants: 4

Training material: Refer Appendix 9 -

List of participants

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PwC 296


Context

The Ministry of Investment & Trade (MoIT) and Ministry of Finance (MoF) have promulgated regulations

which guide the process and method of determining the transmission charge payable to the EVNNPT by the

users of the transmission system. The primary regulation that governs the determination of transmission

charge is Circular No. 14/2010/TT-BCT dated 15 April 2010 (amended by Circular No. 3/2012/TT-BCT dated 19

January 2012). It sets out the detailed methodology for calculating the transmission revenue and charge along

with procedures and timelines to be followed for the submission, calculation, review and approval of the

transmission revenue and charge by stakeholders namely EVNNPT, EVN, EPTC, NLDC, ERAV and payers of

transmission charge.

NPT is facing certain financial and procedural bottlenecks due to specific provisions of the prevailing

regulations. Also, EVNNPT is unable to comply with certain provisions of the regulations due to ambiguity in

the said provisions of the regulations or certain internal difficulties. Hence, EVNNPT has decided to identify

such provisions, evaluate its impact on EVNNPT’s performance, compare them with global practices and

propose appropriate amendments for consideration by ERAV / MoIT.

In this context, the following section captures some of the key provisions of the existing regulations (including

laws, decisions, decrees) governing the transmission pricing framework in Vietnam and presents a case for their

review and amendment. Such analysis is supported by select global practices followed in South East Asian

countries such as India, Malaysia and Philippines. It aims at providing an indication towards the

recommendations to be made. Key issues are as discussed below.

Issue#1: Inadequate Return on Equity

Return on Equity (RoE) as the name suggests is the regulated return allowed to the investors/ equity holders of

the regulated entity. The rate is determined by the regulator after taking into consideration a multitude of

factors namely the prevailing market risk premium and beta value as well as the normative Debt:Equity ratio.

Alternatively some regulators allow Return on the Regulatory Asset Base (comprising of equity and debt), while

not allowing interest on debt (long-term loans) separately.

Description of the existing provisions

Circular No. 14/2010/TT-BCT recognizes the need to allow a return to the EVNNPT in its estimation of total

revenue requirement and provides for profit from power transmission as part of the capital cost. The formula

for determining the Total Capital Cost is provided as follows.

1. Total transmission capital cost in year N (NTTCAPC ) is determined by the following equation:

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PwC 297

NLVDHKHTTCAP LNCCCNNN

Where:

NKHC : Total depreciation cost of fixed assets in year N (VND)

NLVDHC : Total long term-loan interest charge and associated fees for loan taking, to be paid in year N

for transmission assets (VND)

LNN: Allowable profit from power transmission in year N (VND)

2. Further the allowable profit for year N (LNN) is determined by the following equation:

LNN = VCSH,N × ROEN

Where:

VCSH,N: Average of equity as of December 31st of year N-1 and estimated equity as of December 31st of

year N (VND)

ROEN: Rate of return on the EVNNPT’s equity (%), to be determined to ensure financial criteria for

investment and development of transmission network, including Self Financing Ratio (SFR) and Debt

Service Coverage Ratio (DSCR) which should gradually increase to reach 25% and 1.5 times

respectively.

Even though the provision exists in the regulation, the same is not being mandatorily allowed as part of

transmission charge by the ERAV. Also, the regulation does not specify a fixed % of equity as return on equity

(profit) because of which EVNNPT is unable to assess absolute amount of RoE in a particular year, impacting its

ability to plan self-financing (equity infusion) for new investments.

Rationale for proposed amendments

The proposed amendments suggested above are based on two factors:

1. The shortcomings in the existing regulations (Circular No. 14/2010/TT-BCT dated 15 April 2010)

promulgated by the MoIT and its impact on the EVNNPT. Some of them have been highlighted below:

a. Regulation allows RoE, as part of the permitted capital cost, to cover the cash (equity) costs of

new investments, but it does not specify the % of RoE. This ambiguity leaves the provision open

for manipulation and allowed or disallowed as deemed fit.

b. ERAV has been allowing very low RoE to EVNNPT in the past. Even in 2014 the allowed RoE

was only 1% which means a post-tax RoE of 0.75%. This is a very low % by any market standard

return and will not satisfy any cash needs of the utility nor satisfy requirements of the investors

and bankers.

c. Even Self Financing Ratio (SFR) and Debt Service Coverage Ratio (DSCR) were not favourable

during the period between 2009 and 2011. Subsequently, there was an improvement in these

parameters in 2012, but the same was due to significant increase in asset base due to

revaluation of assets (increase of 15,277 billion VND in asset value).

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PwC 298

2. A clear understanding of the importance of allowance of RoE, backed by provisions made by

comparable economies in the region. Presented below is a comparison of the approach followed by

India, Philippines and Malaysia on the provision of Return on Equity/ Regulatory Asset base.

India Philippines Malaysia

Fixed post-tax rate of 15.5%

Additional 0.5% for timely completion of the project

Mandatorily included in ARR

Income tax on RoE is allowed separately

Return = WACC x RAB

Asset revaluation undertaken prior to each RP

Asset revaluation done based on optimised depreciated replacement cost

WACC is with pre-tax cost of debt

WACC = reE/V + rdD/V

Return = WACC x RAB

Return is based on a benchmark efficient WACC

If the utility is able to structure capital requirements such that the actual cost of capital is lower than the regulated WACC, the financial benefit is retained by the business

WACC under IBR (FY2014-2017) is 7.5%

The above practice followed by comparable economies in terms of maturity of the transmission industry, throws

light on the approach followed by all three regulators to provide for a regulated assured return. While in India

the regulator allows a stipulated return on equity and interest expense on long-term loan capital separately, the

regulators in Philippines and Malaysia allow for a composite return on the regulated asset base covering equity

and long-term loan capital.

Description of proposed amendments

Regulated utilities should be allowed to recover their cost to do business and earn a return on invested capital

(both, equity and debt). This return can be ploughed back into the business to enable further investment for

meeting demand growth and improving quality of service. The rate of return on equity should be fixed such that

it will not only attract investment and generate sufficient resources for further growth in the sector but also to

take care of the consumers’ interest.

The following pointers need to be considered while arriving at the % RoE.

1. Regulation calls for RoE to be such a % which will gradually achieve a SFR >= 25% and DSCR >= 1.5;

2. ERAV may undertake a study of appropriate return to be allowed based on market risk premium, beta

and D:E ratio;

3. Increasing equity base through asset revaluation is a notional adjustment and does not amount to real

flow of funds. Hence allowing RoE will ensure available funds to plough back in new projects; and

4. Some of the approaches available for ERAV to undertake the assessment of RoE are; i) Dividend

Growth Model/ Discounted Cash Flow Model; ii) Price/Earning Ratio Method; iii) Risk Premium

Approach; and iv) Capital Asset Pricing Model (CAPM).

Based on the above consideration, the ERAV may determine a fixed % of RoE (either pre-tax or post-tax), which

shall be mandatorily allowed to form part of the ARR of EVNNPT. Making such a provision is essential for the

financial health and credibility of EVNNPT. This will also provide credibility to the EVNNPT to secure sufficient

funds at reasonable interest rates from bankers for future investments.

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The estimated potential impact of allowance of fixed RoE on EVNNPT’s profit and revenue for the year 2014 is

shown in the following chart. The chart depicts the revenue (in billion VND), profit (in billion VND) and the %

increase in revenue for year 2014 under five scenarios as compared to the revenue figures for the year 2013. The

five scenarios considered are 1) 0% RoE (last year); 2) 1% RoE (current year); 3) 4% RoE (as asked by EVNNPT

in its petition); 4) 10% RoE (interim scenario); and 5) 16% RoE (potentially desirable).

The two graphs indicate the growth in revenue as well as in the DSCR and SFR due to inclusion of various % of

RoE as part of the total transmission revenue requirement. It can be seen that a desired SFR of 25% can be

achieved only at a ROE of higher than 10%.

27% 29%

35%

49%

62%

0%

10%

20%

30%

40%

50%

60%

70%

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

Scenario-1(RoE=0%)

Scenario-2(RoE=1%)

Scenario-3(RoE=4%)

Scenario-4(RoE=10%)

Scenario-5(RoE=16%)

% I

nc

re

as

e

Bil

lio

n V

ND

Growth in Revenue and Profit under five RoE scenarios

Revenue (billion VND) Profit (billion VND) % increase in Revenue

1.74 1.78

1.90

2.13

2.36

13.9% 14.9%

18.0%

24.3%

30.6%

0%

5%

10%

15%

20%

25%

30%

35%

-

0.50

1.00

1.50

2.00

2.50

Scenario-1(RoE=0%)

Scenario-2(RoE=1%)

Scenario-3(RoE=4%)

Scenario-4(RoE=10%)

Scenario-5(RoE=16%)

%

No

. o

f ti

me

s

Change in DSCR and SFR under five RoE scenarios

DSCR SFR

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PwC 300

Issue#2: Depreciation charging methodology

It is accepted in regulatory regime that the depreciation represents service to capital subscribed and normally

considered a cash flow available for repayment of long-term loan. There should be enough cash flow available to

meet the repayment obligations of the transmission licensee during such time as average loan repayment

tenure.


Circular No. 14/2010/TT-BCT lays down the below formula for determining the Total Capital Cost for EVNNPT

of which deprecation on fixed assets is an integral part.

1. Total transmission capital cost in year N (NTTCAPC ) is determined by the following equation:

NLVDHKHTTCAP LNCCCNNN

Where:

NKHC : Total depreciation cost of fixed assets in year N (VND)

NLVDHC : Total long-term loan interest charge and associated fees for loan taking, to be paid in year N

for transmission assets (VND)

LNN: Allowable profit from power transmission in year N (VND)

Total depreciation of fixed assets in year N (NKHC ) is determined in accordance with the provisions on duration

of use and depreciation method for fixed assets as specified in Circular No. 203/2009/TT-BTC dated 20

October 2009 of the Ministry of Finance which provides guidelines on the management, utilization and

depreciation of fixed assets and any subsequent additions or revisions thereof.

For transmission assets, the time for depreciation is different from what is specified in Circular No.

203/2009/TT-BTC, the EVNNPT shall develop a regime for depreciation of those assets and submit to the EVN

for consideration; the EVNNPT shall also submit that document to the ERAV for adoption before submitting to

the Ministry of Finance for issuance.


The proposed modifications suggested as above are based on two factors:

1. The shortcomings in the existing regulation (Circular No. 14/2010/TT-BCT dated 15 April 2010)


Summary: MoIT / ERAV may determine a fixed % of RoE, which shall be mandatorily allowed

to form part of the Annual Revenue Requirement of EVNNPT. If allowed RoE is post-tax,

income tax on RoE should be allowed separately.

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PwC 301

a. The regulation allows for depreciation on re-valued asset base. In such cases depreciation is

allowed on assets which have already been fully depreciated once, thus amounting to double

charging of depreciation.

For example: useful (technical) life of transmission lines is typically 25-35 years, but for tariff

purpose it is taken as 10 years. If revaluation is allowed, depreciation is charged on the re-

valued base for say another 10 years. This in effect leads to double recovery of the depreciation

for the same asset.

b. The depreciation charging mechanism is also not in line with the repayment schedule of long-

term loans (debt) taken. For assets which are not re-valued, the typical life is considered to be

between 8-12 years while the loan repayment tenure varies between 12-30 years. On the

completion of the life of the asset, there remains no revenue (in terms of recovery through

depreciation) to repay the loans for which repayment of principal component for another 0-18

years is outstanding.

2. Provisions made by comparable economies in the region, on depreciation charging mechanisms are

presented below.


Cash flow available to meet the repayment obligations

Useful life Line - 35 years Sub-station - 25 years

Straight line method and at specified rates for first 12 years; remaining depreciation spread equally over balance life

Depreciation rates for regulatory (tariff) purpose are different from those used for book keeping purpose

Depreciation calculated on straight line basis

Depreciation = Replacement cost/Regulatory life

Replacement cost = optimised depreciated asset value; hence no excess depreciation

Economic life of asset expires when cost of O&M > replacement cost

Regulatory life = weighted average of economic life of specific asset category

Depreciation calculated on straight line basis

Commission to benchmark economic life determination with global best practices

To also obtain Independent engineering estimate for useful life estimation

The above approaches followed clearly illustrates that depreciation is definitely linked to debt repayment (asset

replacement cost) ensuring adequate cash flow for repayment of debt. Further, the useful life of asset used for

regulatory purpose should be linked with technical / economic life of the asset and shall be determined based

on engineering estimates and expert opinions. It is also pertinent to note that the depreciation rates for

regulatory (tariff) purpose could be different from those used for book keeping purpose as the objectives of both

the computations are different. The following table shows framework for computing depreciation for

transmission line assets in India:

Purpose Life (years)

Depreciation method

Depreciation Rates (per annum)

Salvage value (% of gross asset value)

Regulatory (as per CERC tariff regulations 2014)

35 SLM (two slopes) 0-12 years: 5.28% 13-35 years: 1.158%

10%

Book keeping (as per Companies act 2013)

40 SLM (single slope) 0-40 years: 2.38% 5%

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PwC 302

For example: If the gross value of the transmission line asset is 100 INR, utility can charge depreciation as

per following: (i) First 12 years: 100*5.28% = 5.28 INR per year (Total deprecation for first 12 years = 63.36

INR); (ii) 13-35 years: Balance depreciation for last 23 (=35-12) years = 100 - 10%*100 (salvage value) -

63.36 = 26.64 INR; Depreciation rate for last 23 years = 26.64 / 23 = 1.158%


Depreciation is a major component of annual fixed charge (62% in Vietnam as per the financial statements VAS

2013). It needs to be determined in a scientific manner based on such methodology which on one hand allows

for servicing of debt during the entire loan tenure while on the other does not lead to excess cash generation

beyond requirement burdening the customers. Thus linking depreciation rate to the average long term loan

repayment period is the key to ensuring availability of adequate cash for principal repayment and then passing

on the benefit of lower charge to customers post loan repayment tenure.

Factors to be taken into consideration while designing the depreciation rates:

1. Determination of useful (economic) life of various categories of transmission assets based on

independent engineering estimates and industry standards;

2. Average long-term loan tenure applicable to EVNNPT;

3. Normative Debt:Equity ratio prevalent for similar regulated businesses in Vietnam;

4. Reduction in interest burden caused due to repayment of debt at given rates;

5. Reduced transmission charge to consumers due to reduced depreciation charge over the balance useful

life of the asset;

6. The remaining depreciable value (if any) to be spread over the remaining life of the asset; and

7. To disallow depreciation on revalued asset base considering, the benefit of increased RoE (as proposed

in earlier section).

The above approach will ensure that the burden of debt repayment of the utility is provided for while allowing

the benefit of lower charge to customers once loan repayment if completed.

The estimated potential impact of depreciation methodology on EVNNPT’s profit and revenue for the year 2013

to 2015 (as estimated in the petition document) is shown in the following chart. It can be seen that depreciation

allowed is in excess of requirement for principle repayment. From the depreciation values provided, the rate of

depreciation allowed lies between 5.8% and 6.6%, whereas the ideal rate keeping in mind the requirement for

principle repayment would lie between 3.2% and 3.8% approximately.

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59%

5%

10%

26%

Proportion of debt in foreign and local currency (Dec'12)

USD

EUR

JPY

VND

Issue#3: Treatment of foreign exchange rate variation

Loss on account of foreign exchange rate variation is a real loss and must be allowed to be claimed in respective

year’s revenue. For EVNNPT, there is no clear mechanism/timelines for recovery of accumulated foreign

exchange loss. In addition, EVNNPT is not using any hedging mechanism to minimise the risk of foreign

exchange rate variation.

Hedging of and/or compensating for foreign exchange rate variation is important for utilities like EVNNPT

whose foreign debt exposure is significant. As on 31

December 2012, EVNNPT’s debt in foreign currencies (USD,

EUR & JPY) was close to 74% of total debt. Utilities usually

hedge the foreign exchange exposure in respect of the interest

on foreign currency loan and repayment of foreign loan, in

part or full at their discretion. Such a safeguard is considered

proactive by the regulator and such costs related to hedging

are allowed as pass through in the transmission charge. On

the other hand, any unhedged positions not only entail high

risk for the utility but will also burden the customers, if the

full loss so suffered is passed on to consumers through

increased transmission charge.


Circular No. 14/2010/TT-BCT mentions in passing the inclusion of variation in foreign exchange rates on its

long-term loans under the calculation of ‘other monetary costs’, as follows.

“The total of other monetary costs in year N (NKC ) includes such expenditures as: per diem; expenditures for

workshops and conferences, and for receiving guests; expenditures for training; expenditures for buying

reactive power; expenditures for scientific research, studies, and innovative initiatives; expenditures for

meals during shift work; expenditures for the militia, watchmen, flood control, and firefighting; expenditures

4,914

3,248 3,309 3,402

1,666

3,198

4,382

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

2013 2014 2015

Bil

lio

n V

ND

Excess depreciation proposed for the years 2013-15

Depreciation

Loan PrincipleRepayment

ExcessDepreciation

6,507

7,784

Summary: MoIT / ERAV may undertake the exercise of re-determining the deprecation

charging rates by linking it to the loan repayment tenure the useful (economic) life of the

asset thus preventing excessive recovery of depreciation.

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for protective clothes, working clothes, labor safety, industrial and environmental sanitation; expenditures

for drinking water during working hours, in-kind compensation for night shifts, and compensation for toxic,

harmful and hazardous works; expenditures for emergency care in case of accidents in work, normal

medicine and rehabilitation for workers; expenditures associating to recruitment; losses accounted into

expenditures; tax expenses; land rental; short term interests due in the given year (including interest charges

of short term loans for obtaining working capital needed for transmission operations); and discrepancies

between effective foreign exchange rates of long term loans due in the given year and other

monetary expenditures in year N.”

The existing regulations have no specific provisions laid down for mitigation of such losses through hedging

etc., even though such losses have been significant in nature and have impacted the profitability of EVNNPT.


The proposed modifications suggested above are based on two factors:


promulgated by the MoIT and its impact on the EVNNPT. Some of them have been highlighted below.

a. There is no hedging undertaken to safeguard against foreign exchange currency movement and

subsequent losses. Total loss (as on December 2012) was around 2,013 billion VND (96 million

USD).

b. As per the prevailing regulations, ERAV allows recovery of only realised foreign exchange loss

(incurred in the current year) in respective year’s revenue but not the unrealised foreign

exchange loss (anticipated to be incurred in future years). But without taking necessary steps to

safeguard against such losses, the customer of the utility is unduly burdened

c. Part of the accumulated losses has been allowed to be recovered whereas balance is carried

forward over future years to avoid tariff shock to customers. It was proposed to liquidate the

accumulated loss of 2,013 billion VND in equal instalments in 2013, 2014 and 2015 (i.e. 671

billion VND per annum). However, in 2014, ERAV has allowed only 241 billion VND of foreign

exchange loss. There is no clear mechanism/timelines for recovery of accumulated foreign

exchange loss.

2. Provisions made by comparable economies in the region, on treatment of foreign exchange rate

variation are presented below:


Transmission licensee hedges foreign exchange exposure

Licensee to communicate to the beneficiaries about its hedging decision within 30 days

Licensee to recover cost of hedging corresponding to the normative foreign debt, in the relevant year

To the extent there is no hedge for the foreign exchange exposure, the

Licensee to request for change in MAR if:

o A major prescribed change in the PhP/$US exchange rate of + 15% occurs

o The PhP/$US exchange rate for a Quarter is > 120% of the PhP/$US exchange rate for that Quarter which is approved for the capital expenditure

Not specified

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extra rupee liability, shall be permissible

program

Revaluation of RAB before every regulatory period implicitly considers foreign exchange rate variation

From the above table, it can be seen that both India and Philippines have regulations that govern the treatment

and minimisation of foreign exchange rate variation exposure and subsequent treatment of cost / loss.


NPT shall exploring possibility of hedging against foreign exchange rate variation and adopt the following

suggestions:

1. Exploring possibility of hedging against the risk of foreign exchange fluctuations, through appropriate

instruments.

2. Cost of hedging for hedged foreign debt and currency liability for un-hedged foreign debt shall be

allowed to be recovered in the respective years.

3. If quantum of such exposure exceeds a certain set limit, then a maximum time frame in years to be

stipulated for such recovery.

4. Such expense / loss should be reflected in the books of accounts, as their exclusion will lead to further

erosion of funds as tax on unavailable profit.

To demonstrate the impact of reduction in realised exchange rate differences on profit for the year 2014, four scenarios have been presented here, where Scenario 1 assume a reduction of 10%, Scenario 2 a reduction of 30%, Scenario 3 a reduction of 50% and Scenario 4 a reduction of 70% in the realised exchange rate differences estimated for the year 2014 (as per the tariff application). The estimated additional profit availability due to anticipated reduction in realised forex losses under four scenarios is shown in the following chart:

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It can be seen from the above chart that there is direct benefit of hedging against foreign exchange rate

variation to EVNNPT reflected through an increase in profit.

Issue#4: Lack of proper cost norms

Normative operating cost norms to calculate the Operating & Maintenance (O&M) expenses are absolutely

necessary to enable the utility to adhere to efficient standards of incurring such expenses. These norms will set a

clear benchmark beyond which any costs if incurred will be deemed inefficient and may not be allowed as pass

through in the transmission charge.


Circular No. 14/2010/TT-BCT stipulates the methodology for estimation of Costs of materials and Cost of major

repairs as two of the five components for estimating the total Operation and Maintenance (O&M) cost.

1. The formula laid down for calculating the total material cost is divided into the material cost of three

components namely, i) transmission lines, ii) sub-stations and iii) transformers. For example:

a. The total materials cost for transmission lines in year N (ĐD

NVLC ) is determined by the following

equation:

Where:

886 886 886 886 886

5 16 26 36

700

750

800

850

900

950

Actuals Scenario 1 (10%reduction)

Scenario 2 (30%reduction)



Bil

lio

n V

ND

Estimated additional profit available due to anticipated reduction

in realised forex losses through forex hedging

Profit Additional profit

NK

Đd i

NC

ĐBhhid

ĐD

VLhid

ĐD

VL ĐGLCN

500

110,,,,

Summary: EVNNPT shall explore possibility of hedging against foreign exchange rate

variation. The MoIT/ ERAV shall provide for pass-through of such costs in the regulation to

be included as part of total revenue requirement

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PwC 307

hidL ,, : Total length of transmission lines type d, at voltage level i, under topographic

conditions h and operated in year N (km)

hid

ĐD

VLĐG,,

: Material unit cost for 1 km of transmission lines type d, at

voltage level i, under topographic conditions h (đ/km)

d: Indicators for type of lines including: single-circuit overhead line (D), double-circuit

overhead line (K), one-circuit underground cable (NĐ), two-circuit underground cable

(NK)

i: Indicators of voltage level including 110 kV, 220kV, 500 kV

h: Indicators of topographic conditions including: the plain (DB), the midland and

mountains (TD), high mountains and thick forests (NC).

b. Similarly the regulation lays down formulas for calculating the material cost of sub-stations and

transformers. Under each formula, the total cost is calculated based on the normative per unit

cost for various voltage levels and topographic conditions.

2. The formula laid down for calculating the total cost of major repairs is divided into the major repairs

cost of four components namely, i) transmission lines, ii) sub-stations, iii) transformers and iv)

auxiliary and servicing structures. For example:

a. The total cost for major repairs of transmission lines in year N (ĐD

SCLNC ) is determined by the

following equation:

Where:

hidL ,, : Total length of transmission lines type d, at voltage level i, under topographic

conditions h and given major repairs in year N (km)

hid

ĐD

SCLĐG,,

: Unit cost of major repairs for each km of transmission lines type

d, at voltage level i, under topographic conditions h (VND/km)

d: Indicators for type of lines including: single-circuit overhead line (D), double-circuit

overhead line (K), one-circuit underground cable (ND), two-circuit underground cable

(NK)

i: Indicators of voltage level including 110 kV, 220kV, 500 kV

h: Indicators of topographic conditions including: the plain (ĐB), the midland and

mountains (TD), high mountains and thick forests (NC)

b. Similarly the regulation lays down formulas for calculating the major repairs cost of sub-

stations, transformers and auxiliary and servicing structures. And under each formula the total

NK

Dd i

NC

ĐBhhid

ĐD

SCLhid

ĐD

SCL ĐGLCN

500

110,,,,

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PwC 308

cost is calculated based on the normative per unit cost for various voltage levels and

topographic conditions.

Both these above mentioned cost estimations rely on underlying unit cost norms determined by EVNNPT for

voltage levels and topographic conditions. It is seen that the current cost norms set as the basis for calculating

the material costs and major repair costs (which are components of the transmission revenue) are outdated and

there is no mechanism to adjust these existing cost norms to reflect inflation, technological advancement or

substitution between capital and variable costs. Further, since the list of cost norms is outdated, it also does not

contain certain cost items (e.g., EIA study, engineering / management software, etc.) which today form part of

the overall cost list.





a. Cost norms are the basis for calculating the material costs and major repair costs (which are

components of the operating costs in the total transmission revenue);

b. The cost norms currently used by EVNNPT were developed by EVN in 2006

i. There is no mechanism to adjust existing cost norms to reflect inflation, technological

improvement etc.;

ii. Further, it also does not contain certain cost items which today form part of the overall

cost;

For example: EIA study, engineering / management software, fire prevention systems,

propaganda systems, communication systems etc.

c. Cost of major repairs is capped at 0.8% of asset value in Year N-3;

d. Once norms are implemented, EVNNPT should be allowed to retain any savings on account of

difference between allowed cost (normative) and actual cost (audited) provided quality of

service parameters are adhered too.

2. Provisions made by comparable economies in the region, on designing normative cost standards are

presented below:


For regulated transmission licensees, the CERC has defined the consolidated O&M norms covering employee costs, repair and maintenance costs and administrative and general costs. These norms are defined in terms of:

For lines: INR/route km/year for each conductor configuration and tower configuration

For sub-stations: INR/bay/year for each voltage level

Separate norms for HVDC systems

Not specified Not specified

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PwC 309


In addition to O&M norms, regulations also define norms for working capital, auxiliary power consumption in sub-stations, initial spares (inventories) to be capitalised (along with the total project cost), etc.


NPT is expected to review its cost norms and revise them based on the following pointers:

1. The usual practice should be one where the cost norms are reviewed and revised in a timely fashion to

be reflective of price movement in the current market. This is of utmost importance to be able to allow

the utility to correctly gauge impending costs and recover rightful revenue through tariff.

2. Further changes in terms of additions/ deletions to this list are necessary to be able to incorporate any

new elements or do away with redundancy.

3. Scientifically developed norms will drive reduction in operating costs.

Issue#5: True-up (adjustment) mechanism

The process of truing-up (adjustment) is an inherent component of any mature regulation. It is a control

mechanism that helps in adjusting the over/ under recoveries of efficient costs by the transmission licensee

resulting from differences between forecast/approved values and actual/legitimate values. Such differences

may arise on account of controllable factors and uncontrollable factors.

True-up of revenue / cost requires one or the other kind of revenue / cost control mechanisms in place. For

example: defining controllable and uncontrollable cost parameters putting an overall revenue cap etc. This

mechanism is a clear indicator to the licensee of the expected prudent levels of certain costs that it may plan

and incur.


Circular No. 14/2010/TT-BCT specifies true-up / adjustment mechanism as part of transmission charge

determination methodology as follows:

Annual permitted total transmission revenue of year N (NTTG ) includes: permitted capital cost (

NTTCAPC ),

permitted operation and maintenance cost (NTTOMC ) and adjusted transmission revenue for year N-1 (

1NCL ), which is determined by employing the following formula:

1 NOMCAPTT CLCCGNTTNTTN

Summary: EVNNPT in conjuncture with EVN shall develop updated cost norms with all

relevant cost components covered

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PwC 310

Where:

NTTCAPC : Permitted transmission capital cost for year N of the National Power Transmission

Corporation (VND)

NTTOMC : Total permitted operation and maintenance cost of year N of the National Power

Transmission Corporation (VND)

CLN-1: The difference between transmission costs and revenues of year N-1 which is

adjusted in the permitted total transmission revenue of year N (VND), determined in

accordance with the method prescribed in Clause 9 Article 1 of this Circular”

Chapter III of the above regulation lays down the principle of calculating the transmission revenue adjustment

of year N-1 to be adjusted in year N, and also lays down the responsibility for maintaining records and reporting

on differences between transmission cost and revenue.

Even though the regulation has made a provision to make such corrections, ERAV has not yet undertaken any

such adjustment in determining the transmission charge in the past, to take care of variation between approved

tariff and actual expenses during the previous year.





a. Regulation specifies revenue true-up (adjustment) mechanism but not in practice;

b. Variations between approved expenses/revenues and actual expenses/revenues during the

previous years have not been adjusted by ERAV till date;

c. Further, regulation does not specify controllable and uncontrollable expense items, which

would be good indicators to EVNNPT to be prudent and efficient in expenses;

d. Thus there is no mechanism which enforces the need to be prudent and efficient in incurring

capex and opex as well as adjustment for over/under recovery of revenue; and

e. Timely true-up will help EVNNPT recover justifiable revenue and retain efficiency gain

(positive difference between allowed cost and actual cost).

2. Provisions made by comparable economies in the region, on true-up (adjustment) are presented below:


CERC Tariff Regulations 2014 define controllable / uncontrollable factors

o Controllable - Capex variation due to time over-run and cost over-run, project implementation

TWRG 2009 stipulate a correction factor in determining revenue requirement

Correction factor - Adjustment for over/under recovery of revenue in year t-1

ECM Tariff Regulations 2012 stipulate an Efficiency Carryover Amount as part of total revenue requirement

ECA = Base Incentive + Efficiency Carryover

o BI - Retention of

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PwC 311


efficiency, delay in execution on account of contractor/supplier

o Uncontrollable - Force majeure, change in law

Calculated based on actual amount billed to customer plus net receivable by utility less max. allowable revenue for year t-1

variances in actual Opex & Capex relative to forecasts within the regulatory term

o EC - 50% of cost efficiency amount achieved in last regulatory term

The below example from the tariff order of the Northern Region System Strengthening Scheme-V of

Power Grid Corporation of India (POWERGRID) shows the disallowance of controllable cost items by

the CERC. This assessment sends clear indication to the transmission licensee (here, POWERGRID)

that expenditure which is controllable and not prudent will not be allowed as a pass-through.

As per the investment approval, the project was scheduled to be commissioned within 36 months from

the date of investment approval i.e. by 01.07.2009. The transmission asset was put under commercial

operation on 01.01.2011, after a delay of 18 months. Upon scrutiny of the reasons and relevant

documents, the CERC was not convinced by the reasoning given by the utility. Therefore in the absence

of any justifiable documentary evidence, the cost of time over-run i.e. impact on cost of the delay of 18

months was disallowed as a pass through.

Details of disallowed Interest During Construction (IDC) and Incidental Expenditure During

Construction (IEDC) are as follows:

As per Management Certificate submitted vide affidavit dated 06.12.2013 (INR million)

Particular IDC IEDC

Expenditure up to 31.12.2010 13.284 3.605

Total IDC and IEDC claimed 13.284 3.605

Details of IDC & IEDC Disallowed for 18 months

Disallowed IDC and IEDC for 18 months 4.428 1.202

Total allowed 8.856 2.403


NPT has already made a provision for adjusting its over/under recoveries in the previous year, in the total

revenue requirement of the current year. The next step would be to widen the scope of this adjustment in such a

manner that it also inculcates efficiency in the operations of EVNNPT. The below pointers indicate the benefit

of undertaking a true-up process:

1. Undertaking a true-up on a timely basis is an absolute necessity to ensure that neither the licensee nor

the customer is being burdened by disallowance of prudent costs or through allowing inefficiencies to

be passed on through transmission charge.

2. Defining controllable and un-controllable parameters sets clear standards of performance to the

licensee, which will be allowed to enjoy incentive for efficiency and will be penalised for inefficiencies.

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PwC 312

3. The mechanism of truing-up of cost items should be based on the principles of controllable and

uncontrollable costs rather than on arbitrary judgement based on the level of final retail tariff to be

imposed. Based on such categorisation alone there can be a scientific approach to allowance or

disallowance of true and reasonable costs.

4. This will also send a clear signal to the utility about being prudent and efficient in their capital and

operating expenditure.

5. On one hand, elements like RoE are completely disallowed and on the other hand, over-recovery

through depreciation on re-valued asset is allowed. This imbalanced approach will not give the utility

any incentive to improve its functioning efficiency and may create financial strain in the future.

MoIT / ERAV may review the regulations governing truing up, cost control mechanisms of contemporaries and

design its own regulations which best fits EVNNPT and the energy regime in Vietnam.

Issue#6: Penalty framework for failed service quality

Suitable performance norms of operations together with incentives and dis-incentive mechanism is key to

ensure that the licensee has a clear understanding of the expectation from it in terms of performance standards.

Alongside the above, there is a need to be design an appropriate arrangement for sharing the gains of efficient

operations with the consumers. The norms should be efficient, relatable to past performance, achievable,

progressively reflecting increased efficiencies and may also take into consideration the latest technological

advancements, fuel, vintage of equipment, nature of operations, level of service to be provided to customers etc.

Continued and proven inefficiency must be controlled and penalized.


Circular No. 14/2010/TT-BCT lays down the procedure for calculating penalty for failed service quality, where

EVNNPT is fined for failing to guarantee quality of service in cases where outages of transmission lines and

transformers of the transmission system in the year exceeds regulated limits for each voltage level, except for

incidents caused by force majeure or problems not caused by EVNNPT. The total amount of penalties due to

failure to ensure the transmission service quality every year (year N) RN of the EVNNPTC is determined by the

following equations:

NN TLN RRR

CtLrBtLrAtLrRl

k

kNkL

m

j

jNjL

n

i

iNiLLNNNN

1

,

1

,

1

, 500220110

GtSrEtSrDtSrRl

k

kNkT

m

j

jNjT

n

i

iNiTTNNNN

1

,

1

,

1

, 500220110

Where:

Summary: MoIT/ ERAV may establish controllable and uncontrollable cost parameters and

ensure that the provision for true-up made in the existing regulation is enforced in a timely

manner. EVNNPT should be allowed to retain the efficiency gains (i.e. positive difference

between approved costs and actual costs). Further, regulation should lay down clear

instructions with regard to timelines and process of filing information by EVNNPT.

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PwC 313

NLR : The amount of penalty due to failure to ensure the transmission service

quality because of blackouts in the transmission line system (VND)

NTR : The amount of penalty due to failure to ensure the transmission service

quality because of blackouts in transformers (VND)

NiL , ( NjL , , NkL , ): Total length of 110kV (220kV, 500kV) transmission lines under blackout

when event i (j, k) happens (km)

NiS , ( NjS , , NkS , ): Total installed capacity of high voltage transformers 110kV (220kV, 500kV)

under blackouts when event i (j, k) happens (MVA)

it ( jt , kt ): Duration of blackout on transmission lines or high voltage transformers

110kV (220kV, 500kV) when event i (j, k) happens (minutes)

n (m, l): Number of blackouts on transmission lines or high voltage transformers

110kV (220kV, 500kV) in year N (from 01 September year N-1 to 31 August

year N)

NLr 110 : Rate of penalty due to failure to ensure transmission service quality because

of blackouts on transmission lines in year N calculated for each km of 110kV

transmission line in one minute [VND/(km*minute)], in accordance with the

following equation:

NTTL GXrN

110110




following equation:

NTTL GXrN

220220




following equation:

NTTL GXrN

500500

NTr 110 : Rate of penalty due to failure to ensure transmission service quality because

of blackouts in transformers in year N calculated for each MVA capacity of

high voltage 110kV transformer in one minute [VND/(MVAminute)], in

accordance with the following equation:

NTTT GYrN

110110





NTTT GYrN

220220





NTTT GYrN

500500

110X : Coefficient of penalty due to failure to ensure transmission service quality

because of blackouts on 110kV transmission lines [1/(kmminute)]



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110Y : Coefficient of penalty due to failure to ensure transmission service quality

because of blackouts in 110kV transmission transformers [1/(MVAminute)]





A (B, C): Penalty norms for blackouts on 110kV (220kV, 500kV) transmission lines

D (E, G): Penalty norms for blackouts in 110kV (220kV, 500kV) transmission

transformers

Blackouts on transmission lines and transformers that are taken into account when determining penalties due

to failure to ensure the transmission service quality should be the events with the duration of more than or

equal to one minute. The duration of blackouts on transmission lines and in transmission transformers should

be in round figures and in the unit of minute.

The above guideline is merely on paper and is not actually implemented. The cause for it is the inadequate data

available as well as lack of clearly defined quality parameters for assessing performance.





a. Even though the provision for estimating the penalty for failed service quality has been made in

the regulation, it has not be implemented so far due to the fact that the information required to

be filed by the licensee not being accurately/ fully captured as well as lack of clearly defined

penalty norms as below:

i. Time of outage of transmission line or transformer

ii. Number of outages of transmission line or transformer

iii. Duration of outages of transmission line or transformer

iv. Rate of Penalty for outage of transmission line at 110 kV, 220 kV, 500 kV

v. Rate of Penalty for outage of transformer at 110 kV, 220 kV, 500 kV

b. Also the mechanism defined in the regulation for penalising EVNNPT for any such failure is by

deducting the penalty amount from the welfare fund which is created for all staff members.

This approach seems to be penalising all staff members who might not be in any way related to

the process of managing the service quality of the transmission system.

2. Provisions made by comparable economies in the region, on performance standards and associated

incentives / penalties are presented below:


Tariff Policy 2006: Based on RTWR, the initial The Commission proposed

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Suitable performance norms together with incentives/penalties and appropriate sharing of gains of efficient operations with consumers are necessary

CERC Tariff Regulations 2014:

NATAF: o For recovery of

Annual Fixed Charges: 98% (AC); 95% (HVDC)

o For incentive consideration: 98.5% (AC); 96% (HVDC)

Total penalty/incentive is adjusted in the revenue requirement of the utility

reliability targets are set as - the mean value of the particular reliability performance for the last five (5) years where the upper and lower cut-off points shall be set at plus or minus one (±1) standard deviation from the mean value.

Reward/Penalty should not exceed:-

10% of the average monthly rate

3% of the ARR for that Regulatory Year

that each of the TNB business entities recommend 3 operational performance indicators and demonstrate that they comply

For example: the Commission notes that:

o circuit and plant availability, supply interruption and losses are common indicators adopted for the electricity transmission businesses in Australia, UK and Singapore

In addition, power quality indicators (voltage dip incidents) have been used in Singapore for electricity transmission

The above regulations clearly illustrate that standards of performance - Availability, Interruptions, Loss

levels etc. have been defined by each regulator and corresponding penalty and (or) incentive scheme is

also designed to ensure its implementation by licensee. The table below captures the Incentive earned

by the transmission utilities in India based on the set availability norms by Central ERC or State ERC:

Name of transmission utility (in India) Year Estimated incentive on account of System Availability > Target Availability (million INR)

Power Grid Corporation of India Limited 2013-14 1787.6

Maharashtra State Electricity Transmission Company Limited 2011-12 451.1

Tamil Nadu Transmission Corporation Limited 2013-14 234.4

Karnataka Power Transmission Corporation Limited 2011-12 143.9


The existing provisions in the regulation need to be made implementable by undertaking the below pointers:

1. Specification of standard operating norms and performance parameters is essential to measure efficient

performance of the licensee and to develop a suitable mechanism of incentive and disincentive are key

to drive performance.

2. The approach followed usually for specifying operation norms is based on historical data analysis and

consideration of efficiencies, technological advantage, vintage etc.

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3. The performance norms are also designed to be practical and implementable allowing the utility a fair

chance to achieve the set standards.

Issue#7: Structure of transmission charge

The structure of the transmission charge determines how the recovery of the total revenue requirement of the

transmission licensee takes place. The standard method of recovering transmission cost from long-term

customers is based on the system capacity. Only for short-term transactions, the transmission charge is based

on the energy transacted. The rational being that the entire revenue requirement for a transmission system

comprises of fixed cost components and thus do not vary with the volume of energy transacted. Hence

irrespective of the volume of energy transacted, this cost has to be fully recovered by the transmission licensee.


Article 7 of Circular No. 14/2010/TT-BCT lays down the method to calculate the annual transmission charge for

units subject to pay such charges as follows:

1. The annual transmission price ( iTTg) (VND/kWh) in year N for the unit i subject to transmission cost

payment is determined by the following equation:

Ni

i DB

GN

iTT

A

TCg

,

Where:

TCi: Transmission cost to be paid by the unit i subject to transmission cost payment in year N

(VND)

Ni

DB

GNA,

: Total estimated electrical energy to be received by the unit i at all receiving points in year N

2. The transmission charges payable by the ith unit subject to pay transmission charge in year N (TCi) is

calculated by employing the following formula:

1,, NiAPNi DCTCTCTCii

Where:

TCP,i: Part of transmission cost based on capacity (VND)

TCA,i: Part of transmission cost based on electrical energy (VND)

1, NiDC : Total adjusted amount of transmission cost for the unit subject to transmission cost payment

i for year (N-1) (VND)

Summary: MoIT / ERAV may undertake technical study of historic data on performance of

EVNNPT and design appropriate operating norms along with incentive/ disincentive

mechanism duly considering technological advancement, vintage of equipment etc. Initial

targets can be set at “relaxed” level.

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3. The parts of transmission cost based on the capacity and based on the electrical energy are respectively

determined by the following equations:

DB

Nin

i

DB

Ni

TT

P P

P

GTC N

i ,

1

,

Ni

N

i

DB

GNn

iNi

DB

GN

TT

A A

A

GTC

,

1,

Where:

DB

NiP, : Total maximum projected receiving capacity of the unit subject to transmission cost

payment i at receiving points in year N (MW)

n: Total number of units subject to transmission cost payment

, : Ratio of parts of capacity and electrical energy to transmission cost as annually

specified by the ERAV, with + = 1; and = 0 for year 2011.

This may not be the ideal way to recover transmission revenue, as the system is built to cater to the

maximum available generation capacity and thus should entail recovery from long-term (committed)

customers on capacity basis as well. Also if the recovery is only energy based, there is no certainty to

revenue recovery, as the actual energy transmitted may vary from the projected energy to be

transmitted.





a. Currently α is set at zero leading to the transmission charge being a completely “energy-based

charge”;

b. It is a known fact that any transmission system is built to cater to the maximum demand and

evacuate available generation and therefore should entail full recovery of the such capacity

charges irrespective of actual energy flow;

c. In case of “energy-based charge”, there is no certainty to recover full approved revenue, as the

actual energy transmitted may vary from the projected energy used to calculate the per unit

rate;

d. In the absence of the true up mechanism, this method of charging the transmission customers

becomes even more unreliable;

2. Provisions made by comparable economies in the region, on structure of the transmission charge are

presented below:


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PwC 318


Based on capacity for long-term and medium-term customers (expressed in INR/MW/month)

Based on energy for short-term customers (expressed in INR/MWh)

Based on energy (expressed in PhP/kW/month)

Based on energy (expressed in sen/kWh)


MoIT / ERAV to review the exiting mechanism and determine the value of so as to derive the component of

transmission charge which will be based on the transmission capacity. The below key points may be taken note

of while determining this proportion:

1. It is not ideal to recover transmission revenue only on energy basis, as the system is built to cater to the

maximum available generation capacity and thus should entail recovery from long-term customers

(such as power distribution companies) on capacity basis.

2. The total available transmission capacity based on the capacity of all generating stations can be taken as

the basis for determining the capacity based transmission charge for long-term transmission

customers, while energy transacted can be taken as the basis for determining the transmission charge

for the short-term customers.

Issue#8: Transmission charge sharing mechanism

Sharing mechanism is the means by which the total revenue requirement of the Transmission utility is charged

to its customers. The sharing of transmission charges is based on the technical and commercial information

provided by various customers, the transmission licensees, and any other relevant entity, including the load

dispatch centres. Based on the method opted, relevant information is collected to assess the proportion of total

charges to be apportioned to various customers.


On the overall method adopted for pricing transmission service, it is observed that the current methodology

followed is nationally uniform, flat energy-based charge (also called the postage stamp method) where no

distinction is made between the transactions with regard to the power flow path, distance of power flow,

direction of power flow, supply or delivery points, the time when it takes place etc. Though this methodology is

reasonable in the existing context, further development of the transmission network, electricity markets and

competition will call for a more efficient pricing mechanism.


An efficient transmission pricing regulation should ensure following factors:

Summary: MoIT / ERAV based on existing regulations and information from EVNNPT to

determine the value of so as to charge transmission tariff based on both the transmission

capacity as well as energy transmitted.

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1. Reasonable revenue to the transmission system owners to enable repayment of loans, payment of

interest, return on equity, reimbursement of O&M cost, contingencies, etc.;

2. Encourage investment in the network and determine optimal location of generation and demand;

3. Transmission constraints and congestion in the network are properly assessed and addressed;

4. Proper accounting and allocation of transmission losses; and

5. Rational sharing of transmission charges and losses among the users.




a. Nationally uniform, energy based flat charge being levied to customers of EVNNPT, where no

distinction is made between the transactions with regard to the power flow path, distance of

power flow, direction of power flow, supply or delivery points, the time when it takes place etc.

b. Methodology is reasonable in the existing context, development of the transmission network,

electricity markets and competition will call for a more efficient pricing mechanism.

2. Provisions made by comparable economies in the region, on transmission charge sharing mechanism

are presented below:


Moved from regional postage stamp to simplified nodal pricing (PoC) reflecting usage, distance, direction and voltage level

Generators and demands pay different rates

Revised every three months

Nationally uniform, flat charge based on demand

Forecasted monthly usage of available transmission capacity is used to determine charge expressed in PhP/kW/month

Revised annually

Nationally uniform, flat charge based on energy

The tariff so determined is nationally uniform, flat energy-based charges expressed in sen/kWh

Revised annually

Note: Since 2011, India is using the simplified nodal pricing (Point of Connection methodology). PoC

methodology is used for computation and sharing of the Inter State Transmission System Charges and

Losses among Designated ISTS Customers (DICs) which depends on quantum of power flow and

location of the node (injection/drawal) in the grid and is sensitive to distance and direction. Charges

would be computed for each node of DICs based on hybrid method. The hybrid method employs both

the average participation method as well as the marginal participation method.


The existing method of pricing even though reasonable in the existing context needs to be reviewed as any

further development of the transmission network, electricity markets and competition will call for a more

efficient pricing mechanism.

ERAV is expected to assess various models available to determine appropriate transmission sharing mechanism

and adopt one which is best suited in Vietnamese context.

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Some of the methods that can be reviews by the ERAV are as below:

1. Rolled in Paradigm: Postage stamp, Contract Path Method, MW-Mile method

2. Incremental Transmission Pricing Paradigm: Long/Short Run Incremental/Marginal cost method

Issue#9: Impairment of regulatory independence

The very purpose of a regulator is to be able to undertake an independent evaluation of the tariff petition. The

Regulatory Commission is responsible to balance out the interests of both the transmission licensee as well as

the consumer. It is bound to function without any political influences.


Article 31 of the Electricity Law stipulates guidelines for determination of electricity prices and associated

charges and the bodies who are responsible for its verification and approval. It identifies the regulating body as

a separate entity to that of the concerned ministry namely MoIT. But as on today the ERAV is an integral part of

the Ministry and does not wield any decision making of its own. The lack of an independent regulating body

might cause the price determination process to be driven by factors other than as stipulated in Circular 14.

1. It has been observed that EVNNPT does not have full autonomy to determine its revenue requirement;

it has to be channelled through EVN. It seems EVN significantly modifies revenue/price proposed by

EVNNPT before its submission to ERAV. In 2014, EVN curtailed EVNNPT’s proposed revenue by 22%

and allowed only 1% RoE (instead of 4% as proposed by EVNNPT). It appears ERAV also does not have

powers to review investments proposed by EVNNPT.

The table below captures the disallowance of revenue and expenses by EVN for 2014:



Dis-allowance in %

Million VND

Power transmission output (Million kWh)

123,345 122,200 0.9%

Power transmission tariff 109.9 86.4 21.4%

Revenue 13,556,849 10,552,297 22.2%

Expenses 12,670,971 10,342,306 18.4%

Materials 166,133 140,148 15.6%

Salary and social insurance 1,390,407 1,356,838 2.4%

Depreciation of fixed assets (excl. revaluation of fixed assets)

6,506,645 6,004,235 7.7%

Outsourced services 202,188 50,360 75.1%

Major repair expenses 381,060 381,060 0.0%

Cash expenses 2,486,621 2,387,101 4.0%

Increases and impairments in 1,537,917 22,564 98.5%

Summary: MoIT / ERAV may review the existing norms by keeping in view the developments

in the sector, current and perceived challenges in the sector and duly recognizing the need

for sustainable market development. Though it is important to maintain regulatory certainty

in tariff approach, the tariff should reflect the changing market conditions as well.

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Dis-allowance in %

electricity price

Profit from power production and trading (1% of state capital)

885,878 220,000 75.2%

EVN made considerable changes in the numbers submitted by EVNNPT. Overall reduction was to the

tune of 22% in the revenues and 18% in the total expenses. Major reductions were made in RoE and

foreign exchange loss allowance.

2. Further, ERAV being integral part of MoIT lacks autonomy while approving the transmission revenue

and charge. ERAV does not have any specific powers to review proposed investments as part of the

transmission pricing calculation. Instead, the five-year network development plan and annual

investment plan as approved by MoIT and EVN are used to calculate the costs of investments in the

coming year.

3. As per Decision No. 69/2013/QD-TTg, ERAV shall mandatorily seek approval of MoIT for all increases

in retail tariff beyond 7% (w.r.t. prevailing prices).


1. Provisions made by comparable economies in the region, on regulatory independence and related

processes are presented below:


As per the Electricity Act 2003, the Central ERC and State ERCs are independent quasi-judicial regulatory bodies

CERC/SERCs do not report to the Ministry of Energy / Power

Central and State Transmission utilities file the transmission pricing petition directly to CERC /SERC

Under Section 38 of EPIRA 2001, the Government created an independent, quasi-judicial regulatory body namely the Energy Regulatory Commission (ERC) of Philippines

Transmission utility (National Grid Corporation of the Philippines) files the transmission pricing petition directly to ERC

The Malaysian Government established the Energy Commission (Suruhanjaya Tenaga) as autonomous body under the Energy Commission Act 2001

Integrated utility, TNB files the transmission pricing petition directly to Energy Commission of Malaysia

The above Acts and provisions confer exclusive rights to the regulator and ensure (as far as possible) their

independent operations. Also the existing transmission utilities file their annual transmission petition directly

to respective regulators and not through the holding company, thus being able to fairly seek their share in the

overall retail tariff.


Based on the understanding of the existing regulations and processes followed by EVNNPT for filing the TPTR

petition to ERAV, the proposed changes may be reviewed:

1. ERAV to be independent of direct political influence (MoIT) and set up as an independent regulator.

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2. EVN to allow EVNNPT to directly exercise its powers as the transmission licensee and not be part of

EVNNPT’s TPTR petition filing process. This will ensure that EVN does not side-line the interests of

EVNNPT to ensure the overall compliance to be met for retail tariff setting.

Summary: ERAV and EVNNPT to be given sufficient independence to operate in their

respective capacities as the regulator and the transmission utility. This may be done by

incorporating relevant changes in the tariff filing process.

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Refer Appendix 10 -

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Recommendation#4: Prepare a transmission pricing procedure (TPP) for collection, compilation and validation of information needed for transmission pricing

Context

Circular No. 14 & 3 lay down the procedure for data collection, review and filing of the application (petition) for

review and approval of Total Power Transmission Revenue (TPTR) and Transmission Charge (TC) by EVN and

finally by ERAV. The proposed Transmission Pricing Procedure (TPP), with an underlying objective of

streamlining and standardising the entire process, shall help EVNNPT improve its compliance to the relevant

circulars and decisions.

Objective

1. The TPP shall help streamline the process of preparation, collection, compilation and validation of

various information and data needed for transmission pricing. At present, there is no standard

procedure and timeline being followed; and

2. The TPP shall help ensure timely collection and use of complete and credible information for the

Transmission Pricing Model (TPM).

In this context, the following section captures key provisions proposed to be followed during the preparation of

the TPTR / TC petition based on the data to be collected and compiled from various departments of the

EVNNPT.

Provision#1: Streamlining the process of data preparation, collection, compilation and validation

This section will clearly lay out the responsibilities at department level / individual level for submission, review

and validation of data along with prescribed time lines for enabling the CPD in the preparation of the TPTR /

TC petition.

Status of data to be submitted by various departments

The table below lists down all the data that is needed to be submitted to the Corporate Planning Department by

various other departments and presents the current status of data and formats used to provide such

information and necessary action to be taken.

Sl. No.

Description of data Responsible Department

Data presently being provided (Yes / No)

Status of formats available

(A) CAPITAL COST DATA

1. Depreciation F&AD No Format made

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Sl. No.




Opening GFA

Additions / Deductions during the year

Life of the asset

Annual depreciation rate

Not in the detail required.

available to capture necessary details.

2. Interest charges

Loan details including total loan and currency

Interest rate

Loan tenure and grace period

Outstanding loan at the start of year N

Principal and interest repayment

Residual value at the end of year N

F&AD/ PTC Yes Minimum adjustment in format required to include some details.

Format made available to capture necessary details.

3. Return on equity

Outstanding equity at the start of the year N

% RoE to be applied

F&AD Following a different approach to determine profit. Alternate method suggested.

No other detailed format required. Change in approach required.

(B) OPERATING COST DATA

4. Material costs

Opening material cost for year N

Additional quantity of material procured and cost norms for lines and transformers of various voltages and for different terrains

Adjustment factor and its basis

F&AD Yes But more details to be provided, with clarity on various adjustment factors considered and causes for exclusions.

Existing format is adequate.

5. Salary costs

Estimated staff and their levels

Labor productivity

Unit price salary for working staff and management

Provision for health and staff welfare

OPLD Yes Precise and non-conflicting information and index used to compute salary hikes to be provided.

Existing format is adequate, but consistency of data needed.

6. Major repairs costs

Total Tangible and Intangible fixed assets for the year N

F&A Yes Minimum adjustment required.


7. Outsourced service costs

Opening cost for year N

Additional quantity of material procured and cost norms for lines and transformers of various voltages and for different terrains


Increase beyond applicable cost norms and reasons thereof

F&AD Yes But more details to be provided, with clarity on various adjustment factors and causes for exclusions.


8. Other expenses in cash

Opening cost for year N

Additional quantity of material procured and cost norms for lines and transformers of various voltages

OPLD Yes But more details to be provided, with clarity on various adjustment factors and causes for


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Sl. No.




and for different terrains


Increase beyond applicable cost norms and reasons thereof

exclusions.

(C) TECHNICAL DATA

9. Transmission lines and transformers outage record

Transmission line and transformer outage data including line length, voltage level, minute of outage

Penalty co-efficient applicable for various voltages

Penalty norms for various voltages

TD / PTC No Not at all provided. Need to first establish the value for penalty co-efficient and penalty norms for various voltage levels for lines and transformers. This should be based on technical studies undertaken by the utility.

Working Appendix 9 made available to capture necessary details.

(D) ACCOUNTING DATA

10. Actual cost and revenue information for previous year (N-1)

Actual costs incurred and revenue earned during year (N-1) based on audited financial statements.

Costs incurred due to force majeure causes

Costs incurred due to additional projects sanctioned by the government

Interest rate applicable(as per regulation) as carrying cost on under recovery

F&AD No Not at all provided. Can be easily sourced from prior period accounts statements.

Working Appendix 8 made available to capture necessary details.

Based on the above table the status of data and whether or not it is being adequately provided can be gauged. To

enable better capture of information pertaining to Depreciation, Interest on Long term loans, Penalty

calculation and Prior period cost and revenue adjustments, new formats have been designed and annexed along

with the Transmission pricing model. These formats will act as a common input form from where data will flow

into the pricing calculations.

It should be noted that the formats/ appendices which are part of the Transmission pricing model should be

used as a common format by all departments which need to submit information on the various cost item.

This will ensure that the CPD receives information from various departments in similar formats and can easily

collate, compile and incorporate the same into the model for arriving at the Transmission charge.

The figure below captures the seamless flow of data from various departments responsible for supplying such

information to CPD, leading to preparation and submission of the TPTR & TC petition.

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The table below lists down the staff responsible within each department to submit data to CPD. Further internal

time lines have been drawn to ensure that all the departments including CPD has sufficient time in preparing

the TPTR petition within the time lines defined by Circular 14.

Department Responsibility No. of staff

assigned

Designation of

staff

Time line to be adhered to

F&AD Submission of Financial data in prescribed formats.

2 (Suggested) 1 - Deputy Director

1 - Expert

5th March, year N

TD Submission of Technical data in prescribed formats.


1 - Expert

5th March, year N

OPLD Submission of data on employee cost etc. in prescribed formats.

3 1 - Deputy Director

2 - Experts

5th March, year N

PTC Submission of necessary Financial and Technical data in prescribed formats.


1 - Expert

5th March, year N

CPD Collection and compilation of all data submitted.

2 1 - Deputy Director

Business

Operations

1 - Expert

1 - Expert suggested

15th March, year N

Prudence and consistency check.

2 25th March, year N

Receipt and incorporation of any additional data sought from various departments.

2 5th April, year N

Complete preparation of the TPTR petition and submit it for internal approval.

3 (Suggested in overall)

5th May, year N

Make any recommended changes in the petition.

12th May, year N

NPT to submit the TPTR Petition to EVN for review before 15th May, year N

Transmission Pricing Petition

Financial data on financing cost,

depreciation, equity, operating costs

Technical data on failed service quality

due to outages

Need based information on

technical and financial aspects

Data on employee salaries, benefits

associated costs and cash expenses

Corporate Planning

Department

Finance & Accounting Department

Technical Department

PTCs (Planning and

F&A Departments)

Organization, Personnel &

Labour Department

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The above table clearly assigns responsibility to each department as well as staff member for enabling the

preparation and timely submission of the TPTR petition to EVN in line with timelines specified.

Provision#2: Designing standard formats for furnishing all the relevant data in MS Excel formats

It is of utmost importance to have necessary formats which enable the capture of all relevant information under

all cost items. Such forms/ formats should be designed such that they are self-sufficient and capture all

necessary information. These formats will act as the input feed to all calculations and will help in determining

the Transmission charge.

Such formats enable the imminent transition towards maintaining regulatory accounts, which calls for separate

set of accounts be maintained for the regulatory process apart from that of books of accounts for accounting

purposes. The below two formats on Depreciation calculation and calculation of Interest on long term loans

have been designed keeping in mind the method of calculation to be employed and capture of relevant details

for future reference. These formats should be incorporated into the Transmission pricing model to form the

input sheets, from which relevant information flows.

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Format 1 - Format for Depreciation Calculation

Sr. No.

Year N Gross Block of Assets Annual rate of

depreciation (%)

Depreciation Name of Asset At the

beginning of the year (as

on 1 January of year N)

Additions from

investments during the

year N

Deductions / Adjustment during the

year N

Additions from

revaluation during the

year N

At the end of the year (as

on 31 December of

year N)

On the Assets at the

beginning of the year (as

on 1 January of year N)

Pro rata depreciation on additions

from investments during the

year N

Depreciation on revalued asset for the

year N

Total depreciation

for the year N

1. Land and Land rights

2. Buildings

3. Hydraulic works

4. Other civil works

5. Plant & machinery

6. Lines & cables Network

7. Vehicles

8. Furniture & Fixtures

9. Office equipment

10. Capital spares

TOTAL

Format 2 - Format for Principal Repayment and Interest Expense Calculations for Long-term Loans

Sr. No.

Counterparty Contract Value Interest %

Loan Periods (months) For year N Currency Amount Grace

period Loan

payment period

Time for principal payment

Outstanding at the start of the year

Principal Payment

Interest Payment Total (Principal

+ Interest)

Residual at the end of

the year Start Finish Basic

construction Business operation

1.

2.

3.

4.

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Provision#3: Defining data reconciliation and dispute resolution procedure

Data reconciliation is a key aspect of the responsibility assigned to CPD. Given that information is provided by

multiple departments, there is scope for varying information under the same head (for the same parameter) to

be provided to CPD. The very use of common formats being used by all departments will weed out possibility of

any calculation error to a certain extent.

In the even that there is still some discrepancy in the data submitted by different departments under the same

head, a quick reconciliation of such variation is necessary to ensure correctness. To ensure that such variations

be smoothened, CPD staff responsible for preparation of the TPTR petition shall call for one representative

from each department which provided such data to substantiate with sources, information so provided.

A total of 5 working days at the maximum can be set aside for such dispute resolution, as any further delay on

this count may adversely impact the adherence to timelines prescribed for final submission by EVNNPT. The

support of internal / external specialists can be sought for any clarification of complex nature.

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Part-C (iv): Public relations

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Context

An extensive assessment of the public relations (PR) practices of EVNNPT and its subsidiaries was undertaken

by the visiting consultants. To conduct this assessment, detailed interviews were conducted with senior officials

and key officials responsible for communication across EVNNPT departments and select EVNNPT subsidiaries

based in Hanoi, Ho Chi Minh City and Danang. The consultants also studied relevant laws / decisions / decrees

/ regulations / circulars relating to the communication activities of EVNNPT. All available communication

plans of EVN, EVNNPT and its subsidiaries were also thoroughly examined. In addition, a Perceptions Audit

was carried out with select stakeholders to understand their assessment of EVNNPT and its subsidiaries. This

was a qualitative, dipstick study among key stakeholder groups to determine and analyse perceptions about

EVNNPT and its subsidiaries and the satisfaction quotient about the communication processes that these

organisations follow.

As per the findings of the Perceptions Audit:

1. NPT’s image and reputation are intertwined with those of EVN -which is seen widely as monopolistic

and unresponsive. Therefore, EVNNPT does not seem to have a strong independent brand identity.

2. NPT does not appear to enjoy a positive reputation amongst some of its stakeholders positive

reputation among a majority of the stakeholders The level of EVNNPT’s communication with the

general public appears to be inadequate

It is understood that a majority of EVNNPT’s projects get delayed -and mostly due to problems relating to site

clearance, compensation, land acquisition and rehabilitation. In addition, it is a constant challenge for EVNNPT

to maintain the inviolability of transmission corridors and ensure that breaches and accidents do not result in

unacceptably long disruptions in the uninterrupted supply of power.

It was found that EVNNPT and its subsidiaries do carry out a fair amount of communication work with regard

to their stakeholders. There is also some internal communication within the organisation and between its

subsidiaries. But the overall PR work is sporadic, disjointed and carried out on an ad hoc and tactical basis by

various departments and various executives. Much of the external stakeholder communication work is being

undertaken by EVNNPT’s General Affairs Department which has many other administrative duties. Most other

departments of EVNNPT think communication is the responsibility of the General Affairs Department. But the

General Affairs Department capacity is not equal to the task. The small PR team does not have the bandwidth to

do justice even to their limited responsibilities.

Despite the need for constant communication with stakeholders, there is no dedicated PR Department within

the organisation. In most of the subsidiaries, the part time staffs carry out the PR work. Among the executives

who handle PR work, in EVNNPT and its subsidiaries, there is an acute shortage of qualified, trained, or

experienced personnel in PR.

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The reason for this state of affairs is that PR is not seen as a strategic function or central to the working of

EVNNPT. It is essential to recognize that PR is critical for furthering the business objectives of EVNNPT. There

is a dire need for EVNNPT to have a fully empowered and adequately funded PR Department. Equally, there is

a need for EVNNPT to emerge from its self-imposed shell in PR. It must also not keep its subsidiaries at a

distance and maintain what is effectively an arm’s length relationship with them, especially in PR. It must

ensure that EVNNPT drives all communication relating to such vital areas as land clearance, land acquisition,

compensation, resettlement and rehabilitation of affected land-owners. It must also drive all communication

relating to the protection of transmission corridor.

The proposed dedicated PR department within EVNNPT will function as the central point for strategy, planning

and implementation of all communication initiatives and external stakeholder engagement undertaken by

EVNNPT through its own departments and/or its subsidiaries. It will drive all communication work, including

the development of Key Messages, in EVNNPT and its subsidiaries. Currently, the subsidiaries do PR work in

silos. There is no coordination or effort to take advantage of synergies. This lacuna can be addressed by having a

central PR department in EVNNPT and smaller PR departments for the subsidiaries - all working in concert. It

must reach out to its stakeholders much more than it does now. It must do so in a planned manner and in

concert with its subsidiaries.

This department would also spearhead the internal communication function within EVNNPT and its

subsidiaries alongside crisis communication, digital communication (including social media) and related

activities. It will act in tandem with local authorities and public officials whose interface with the ordinary

people will continue to be valued and leveraged to EVNNPT’s advantage.

Most importantly, given the organisational structure of EVNNPT vis-à-vis EVN, the proposed PR Department

would keep EVN informed and updated and would not work at cross purposes with EVN’s PR Department.

However, and this would be the critical difference from the current practice, EVNNPT’s PR Department would

be autonomous and would not take directions from EVN’s PR Department on strategy and major tactical

matters.

Benefits of an independent PR department

Above all, an internal PR Department at EVNNPT will understand the organisation as well as its business

objectives better and be best placed to drive communications. The PR Department will ensure that all

communication with stakeholder groups is in line with the company’s vision, mission and business objectives.

The major responsibility of the PR Department will be to interface with other stakeholder groups and build and

maintain positive relations with them. These stakeholder groups would include:

1. Government and relevant ministries;

2. Local authorities at all levels up to the province;

3. Ordinary people;

4. Influencers at all levels (including commune leaders);

5. International donors;

6. Business associates, including suppliers, contractors;

7. Generating companies, other power producers, distributing companies;

8. Consultants;

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9. Media; and

10. Employees.

Approach

The PR department should be headed by a member of the leadership team of EVNNPT and reports directly to

the President and CEO of EVNNPT. The chief executive should take a personal interest in the functioning of the

PR Department. This is because the CEO is the principal decision maker and chief spokesperson for the whole

organisation. When he drives policy in the organisation, it is only apt that he also gives direction to the

communication function. What the public relations department does must at all times be carefully coordinated

with the positions of the leadership team. Such senior level involvement will ensure that PR gets its due in

terms of organisational functioning and financial resources. The business goals of EVNNPT will be best served

by such an arrangement. Illustrated below is the four step process towards setting up and operationalising a PR

department:

Step-1: Defining the PR department’s objectives and scope

1. Define the PR Department’s role along with a clear statement of the team’s objectives and what specific

business need it will meet

2. List all the groups/departments that the PR Department will support and the level of support that will

be provided - both in EVNNPT and each subsidiary

3. Outline how the PR Department of EVNNPT will work with the smaller PR department in each

subsidiary

Step-2: Identifying deliverables and resource needs

1. Clearly outline the PR Department’s responsibilities & deliverables

2. List specific deliverables, frequency and timelines

3. Define the resources required based on the deliverables. These must be both human resources and

financial resources

Step-3: Determining team roles & responsibilities

1. Putting together the organisation chart and reporting structure

2. Outlining the roles and responsibilities of each executive

3. Determination of the skill set required in each executive

a. Professionally qualified PR professionals for, among other areas

i. strategy

Defining the PR Department’s objectives and

scope

Identifying deliverables and resource needs

Determining team roles &

responsibilities

Operationalising the new PR department

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ii. routine work

iii. content for print, electronic media and Internet media

iv. media relations

v. community relations

vi. social media

b. Trainers (internal/external) to address training needs

4. Developing specific job descriptions for each of the members in the team

5. Developing clear measuring criteria in order to track performance of executives

Step-4: Operationalising the new PR department

Once the PR Department is officially launched, the following steps would need to be taken to operationalize it:

Stakeholder mapping

The first step would be to do stakeholder mapping: Develop databases of prominent members of all stakeholder

groups including, but not limited to the following Media

1. Media

2. Influencers

3. Those who are active on social media on issues of relevance

4. Leaders of the communes

5. Donor agencies

In Stakeholder Mapping, through a systematic process, we identify key members and opinion leaders within

each stakeholder group and assess their ability to influence the external environment on vital issues. This tool

provides an approach for greater strategic integration based on qualitative considerations. Our research seeks

to identify:

1. Important members of various stakeholder groups

2. Focus areas of various stakeholders groups and individuals

3. Likely friends, negative influencers or neutrals among these stakeholders

4. The greatest opportunities for engagement: for defensive or reactive purposes or for proactively seeking

opportunities for cooperation

Stakeholders are then plotted on a chart according to their ability to influence the external environment (Y-

axis) and the/organisation’s ability to engage with the stakeholder (X-axis). The result: a targeted list of

stakeholders that allows the organisation to prioritise engagement and track shifts over time.

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Preparing PR Plan

1. Prepare an annual PR Plan for EVNNPT and for each of the subsidiaries

2. A typical PR Plan has the following broad elements:

a. Situation analysis;

b. Business objectives;

c. PR objectives;

d. Target audiences;

e. Strategy;

f. Key messages;

g. Tactics; and

h. Activities.

These plans would be complete with timelines and tools for measurement.

1. Measurement is evaluating the effectiveness of a PR programme. There are different ways of

measurement. Broadly, these can be classified into the following categories:

2. Outputs: These look at Reach: for example, the number of news articles generated during the period

surveyed, their Advertisement Value Equivalent (the column centimetre cost of the editorial coverage

generated), their tonality (positive, negative, neutral), and whether they have carried the Key Messages

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3. Outcomes: These look at Opinion: for example, the Perceptions Audit conducted among stakeholders

by the consultants - have the views of stakeholders changed at the end of the period under review, and

how have they changed

4. Business Results: These look at changes in Business Results: for example, the number of projects

delayed due to issues relating to site clearance and resettlement

Clearly, the first method is measurement of direct effectiveness and the third method is the measurement of

indirect effectiveness, while the second is in-between.

Thus, it is important to set measurable public relations objectives and link PR objectives to business and

organisational objectives.

Getting a clear understanding of an organisation’s business or performance goals is the PR Department’s first

step in setting measurable objectives for a communications programme. EVNNPT need to set objectives by:

1. Specifying a desired outcome like increase awareness, improved relationships, positive perception, etc.;

2. Directly specifying one or several target audiences and stakeholders;

3. Being measurable, both conceptually and practically; and

4. Including a time frame in which the objective is to be achieved.

Developing key messages

Key messages are at the heart of PR. Key Messages are core messages that EVNNPT’s target audiences will hear

and remember. Articulated repeatedly and consistently by spokespersons, either verbatim or paraphrased, Key

Messages will help the target audiences know exactly what EVNNPT stands for. They must form the bedrock of

the spokespersons’ statements. They will create meaning and headline the issues EVNNPT want to focus and

discuss. Key messages will allow EVNNPT to control communications and enhance relationships with the target

audiences.

The key messages and proof points should ideally:

1. reflect EVNNPT’s company strategy;

2. be credible and drive EVNNPT’s agenda;

3. reflect stakeholders’ understanding;

4. avoid negativity and enhance positive points;

5. use and enhance EVNNPT’s brand image; and

6. stand the test of time for a reasonable period.

As part of the deliverables in targeted capacity-building for this project, the consultants conducted a Key

Message Development Workshop for the leadership team of EVNNPT on October 15, 2014. Nearly a dozen of

the top managers of EVNNPT, including the Chairman of the Board of Management Members of the

Management Board, Heads of Department, and Vice Presidents, participated in the brainstorming session that

led to the finalization of the following key messages for EVNNPT:

1. By successfully covering the whole country with its state-of-the art transmission network, EVNNPT

provides the backbone of the national power system;

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2. By ensuring safe, stable and uninterrupted supply of power, EVNNPT plays a critical role in the social

and economic development of the country; and

3. NPT has a highly qualified, skilled, disciplined, devoted, responsible and humane workforce.

Developing media kit

A Media Kit would be a pre-requisite for a media relations programme or even a standalone media interaction.

The contents of it are meant for the use of the media person and her publication. Typically, a Media Kit for

EVNNPT or any of the subsidiaries would comprise the following:

1. A corporate profile or backgrounder on EVNNPT;

2. A corporate profile or backgrounder on the subsidiary;

3. Profiles of the leadership, including the spokespersons;

4. Pictures of the leadership;

5. Annual Report;

6. Material relevant to the media interaction where the Media Kit is given out: for example, if it is to be

given out at a press conference, then the news release meant for the event must be included;

7. Soft copies of all of the above;

Setting-up the processes

One of the early tasks of the newly set up PR Department would be to put in place processes, among others, for

the following:

1. Media Monitoring (in-house or outsourced) of the print, electronic and Internet-based media. What

appears in the media must be made available in the shortest possible time to a select mailing list of

recipients (within and outside the PR Department) at the head offices of EVNNPT and its subsidiaries;

2. Flow of information within EVNNPT (between the PR Department and the relevant departments) and

between EVNNPT and its subsidiaries - Internal Communication

3. Preparation, management and updation of lists (data-bases), including the following:

a. Media persons

b. Influencers

c. Government and public officials, including local authorities

d. Relevant executives within EVNNPT and subsidiaries

4. Stakeholder mapping is related to this activity.

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Other prominent functions of an independent PR department

Internal communication

NPT’s internal communication is limited, at this time, to the use of company websites, newsletters and

magazines. The information flow relating to PR between EVNNPT’s General Affairs Department and the

subsidiaries does not appear to be planned nor seamless or uniform. Internal communications - on a broader

level - can be extended to the staff members of EVNNPT and all its subsidiaries. This can include the exchange

of ideas and opinions, the development of professional relationships, updates and announcements. It can

empower them and spur them to perform optimally in their work. Structured internal communications

programmes can be put in place. Engaged employees accelerate business performance by going above and

beyond the call of duty, always looking for ways to create additional value for the business. They are focused on

value-creating behaviours during times of change or challenge. The proposed PR Department could develop

innovative campaigns for such employee engagement.

Two-Way Communication Models

Communication work that EVNNPT has been doing so far appears to be focused mostly on one way

communication. It is critical for EVNNPT to listen carefully to all stakeholders at all times. This is the only way

to understand the point of view of the stakeholders, especially those who are dissatisfied with anything that

EVNNPT or a subsidiary is doing or planning to do. This is particularly true of issues relating to land acquisition

or the maintenance and protection of transmission lines. Warning bells can ring early on and corrective action

can be taken before a potentially damaging situation spins out of control. Monitoring the local media is one

effective way of “listening”. Monitoring the social media and receiving feedback through social media constitute

another effective way. The social media platform is a very effective medium for two way communication. The

PR department needs to have trained and dedicated resources for handling social media engagement.

Crisis communication

NPT does not appear to have a crisis communication strategy in place for anticipating and combating crisis

situations that may arise during land acquisition for new projects and in securing the transmission corridor

from violators. There is need to develop a crisis manual that will anticipate all possible scenarios as well as plan

and prepare for mitigating the damage to reputation caused by those situations.

Corporate social responsibility

It is very important for companies in the infrastructure sector, especially those which have to deal with people

whose livelihood is land dependent, to undertake and / or promote socially beneficial activities and projects.

These activities and projects would be above and beyond the compensation, resettlement and rehabilitation

relating to land acquisition. Thus EVNNPT must have a comprehensive corporate social responsibility (CSR)

policy which is based on the needs of the communities which are being impacted (directly or indirectly) by its

projects. This CSR policy must be implemented by a CSR function either as a part of the PR Department or as a

separate department working in conjunction with the PR Department.

Priorities for the PR Department

1. Undertake a robust, proactive, multi-pronged PR campaign

2. Build an independent brand identity for EVNNPT

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3. Take the lead and drive all communications relating to land acquisition and protection of transmission

corridor

4. Undertake an aggressive media outreach programme

5. Pay due regard to safeguard—whether of the environment or the rights and needs of indigenous peoples

and ethnic minorities

Model structure in Vietnam

We can refer to similar companies in other countries to study the structure and role of a PR Department.

We refer here to three companies: one in Vietnam and two in India - one in the private sector and the other in

the public sector.

FPT (The leading ICT company in Vietnam) - Communications Department

1. Structure: Communications Department is directly under the Management Board of FPT. It comprises

3 sub-departments which are PR, Branding and CSR.

2. Tasks: The PR sub-department implements communication activities for the whole FPT, including

communication support for all subsidiaries (investor relations included). Its main activities are media

relations, organising events, issuing press releases, writing PR articles, organising media interviews,

developing communication strategies (quarterly, yearly or ad-hoc)

The Branding sub-department’s function is to build and manage the brand, to participate in

sponsorship programmes to position the brand.

The CSR sub- department’s function is to focus on social sponsorship activities and to organize

contribution activities to support the staff of the company.

3. Workforce: 13 people, including 1 department head, 1 PR sub-department head and the rest are

executives.

The PR sub-department comprises 7 people, 1 based in Ho Chi Minh City and the other six in Hanoi. 1

is head, 1 is responsible for investor relations and the rest are in charge of subsidiaries.

Vietnam Airlines - The Division of Branding and Public Relations

1. Function: In Vietnam Airlines, PR is the responsibility of the Division of Branding and Public Relations.

This department is under the Department of Planning and Development with the function of

consultation for the Department Head on internal communication, corporate communication and

media relations in order to promote Vietnam Airlines’ image and to support sales following the

direction and development strategy of the organisation as a whole.

PR Tasks: To develop strategies, plans and implement strategic communication activities in Vietnam

and other key markets to build, protect and enhance Vietnam Airlines’ image in all networks;

a. To develop PR plans and implement communication activities to support sales, services and

product advertising in order to ensure general business productivity;

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b. To develop and implement plans for internal communication, media communication and crisis

communication;

c. To be the contact point in providing information to the media, both local and international;

d. To build and develop relationships of cooperation with media agencies, to organise media

related activities such as media conferences, media workshop, presentations, media field

trips/press tours, and to support the media in working with the other departments of the

organisation;

e. To be the contact point for Corporate Social Responsibility - CSR in the Sky Team; and

f. To write and edit content and speeches for the top leaders.

2. Structure: 5 sub-divisions (Planning, Design & Production, Advertising & Sponsorship, PR, and

Finance)

a. Number of staff: 23, including 1 Division Head and 3 vice-heads; and

b. Number of staff of PR sub-division: 4, including a vice-head and 3 executives.

3. Main activities: To cooperate with other departments to implement:

a. Media Relations;

b. Organising events;

c. Editing and publishing magazine for external audiences (partners, users, customers, etc.);

d. Editing and publishing in-flight magazine;

e. Internal communications;

f. Media monitoring;

g. Media analysis;

h. Crisis communications;

i. Community sponsorship; and

j. Direct non-commercial activities with customers.

Model structure in India

The company in the Indian private sector

The mentioned company is one of India’s largest integrated power sector companies. The Company together

with its subsidiaries and jointly controlled entities has an installed gross generation capacity of close to 10,000

MW in India and a presence in all the segments of the power sector.

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Organisation Chart of PR department

Roles and Responsibilities

1. Managing Director: As the chief executive, he/she is the key spokesperson for the company. He/she

is expected to be from a technical background and have a thorough understanding of both the

technological and commercial aspects of the business. He/she is expected to be knowledgeable and able

to tell audiences about his/her organisation in an interesting and compelling manner. He/she is

expected to be willing to meet the media whenever such meetings are called for and delivers the key

messages of the company unfailingly and consistently. He/she is the key decision maker on what issues

to comment on, which publication to talk to and what topics to speak on. Yet, on most PR related

issues, he/she is willing to be guided by the advice and recommendation of the PR Department.

2. Head - Corporate Communications: Runs the PR Department of the company and is responsible

for both internal and external communications and works directly with the Managing Director of the

company. This official ensures positive working relationships with key external stakeholders in a

manner that furthers the business interests of the company. The official also ensures that the

department delivers and executes an effective PR strategy along with a PR Plan to implement it.

Function of the position is to also ensure that an updated crisis manual is available to all relevant

executives and crisis drills are carried out at regular intervals. This official leads the engagement of the

PR department with various business heads and subsidiaries. Any content that is sent to the

stakeholders is reviewed and approved by this office.

3. Lead - Internal Communications: This position leads and coordinates the Employee Engagement

and Internal Communications Divisions, providing professional support to the organisation. This

function coordinates for news gathering across the business verticals and subsidiaries, identifying

internal issues and opportunities. He/She is also responsible for coordinating for the dissemination of

employee-related news to the media. He/She reports to the Head- Corporate Communication.

4. Lead - External Communications: This position coordinates the delivery of an integrated

communications and media service across all business verticals and subsidiaries. The official works

closely with the internal communication team to package newsworthy information for the media.

He/She produces all media collaterals and the monthly newsletter that is sent to various stakeholders.

He/She is the organisational point person for liaising with the PR agency hired by the firm for external

communications. As such, he/she is responsible for media relations, including all media events and

relationships with media persons. He/She is responsible for coordinating with various stakeholders

Managing Director

Head - Corporate Communications

Lead - Internal Communications

Lead - External Communications

Lead - Corporate Branding

Businesses: • - Generation • - Transmission • - Distribution • - Trading

Business Heads Subsidiaries Heads

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outside the organisation. He/She collaborates with the digital team to align social media/blogging

content with wider digital objectives.

5. Lead - Corporate Branding: This position is responsible for the management and coordination of

all the activities under corporate marketing, including advertising. Thus, he/she is responsible for the

development of advertising campaign plans, coordination of the campaign development process;

briefing of campaigns to the subsidiaries and business units; execution of the campaigns; and the

monitoring and evaluation of those campaigns. He/She is also responsible for management and

coordination of brand initiatives such as participation in trade fairs and exhibitions.

The company in the Indian public sector

The Power Grid Corporation of India Limited (POWERGRID) is a state-owned electricity company.

POWERGRID carries about 50% of the total power generated in India on its transmission network.

POWERGRID operates throughout India. Its transmission network consists of roughly 101,886 circuit

kilometres and 170 EHVAC and HVDC substations, which provide total transformation capacity of 168,063

MVA. POWERGRID's inter-regional capacity is more than 32,000 MW. It has a subsidiary company, Power

System Operation Corporation Limited (POSOCO) which runs the five Regional Load Dispatch Centres and a

National Load Dispatch Centre. POWERGRID also operates a telecom business under the name POWERTEL.

Organisation Chart of PR department

Roles and Responsibilities

The PR Department of the company is headed by an executive of the level of General Manager. He reports

directly to an Executive Director, who is a member of the top leadership team of the organisation. The PR

Department oversees all aspects of internal and external communications across all stakeholders. The

department is manned by executives who have PR training and / or have experience of handling PR. Its key

responsibilities are as follows:

Chairman & Managing Director

Director - Personnel

General Manager - Public Relations & Communications

Chief Manager - Corporate Communications

Officer - Public Relations

Regional Heads Subsidiaries Heads

• - Northern • - Eastern • - Southern • - Western

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1. Ensure that all positive initiatives of the company are highlighted through print/electronic/social

media;

2. Remove misinformation and allay misgivings in the public domain;

3. Develop and executive comprehensive PR plans in a timely manner. The plans must mention

ownership for all PR tasks, timelines and methods of measurement to ensure delivery;

4. Ensure there is a uniform set of messaging through the company to support its communications;

5. Ensure there is planned engagement with all stakeholders to convey the company’s perspective;

6. Ensure there are crisis communication plans in place for all possible scenarios.

European Union Prescription

The European Union (EU) has developed a "Grid Infrastructure Communication Toolkit” - a website that

outlines the elements essential for successful, inclusive project communication and multi-stakeholder dialogue

at the local level of any power grid development project in Europe.

The toolkit is designed along categories of communication and all factors involved in the context of

transmission projects. These include identification and engagement with the various Stakeholders involved, the

Project Stages, the Communication Channels, the Communication Formats and the Contents conveyed. Each of

these categories addresses the concerns of the different types of stakeholders along with addressing the needs of

the different project stages. These profiles are linked to one another showing how communication elements in

the context of transmission projects work together. The descriptions are accompanied by questions that will

help to identify the places where further, project-specific considerations are important. The toolkit also

provides several Practice Examples showing how different toolkit elements have proven to work in the

framework of real-life grid projects.

The toolkit can be accessed at http://www.grid-communications-toolkit.eu/. It would very useful to access this

material at the time of setting up the new department and adopt such practices as might be considered useful

and appropriate to the Vietnam context.

Indicative timelines

Month 1: Defining the PR

Department’s objectives and

scope

Month 2-5: Identifying

deliverables and resource needs

Month 6-8: Determining team roles &

responsibilities and appointing

staff

Month 9-13: Operationalising

the new PR department and

undertaking CSR activities

Month 14-18: Measure

http://www.grid-communications-toolkit.eu/

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Introduction

The nature of EVNNPT’s business is such that there is always a likelihood of a crisis or a near-crisis situation.

Land is a sensitive issue in many parts of the world. Vietnam is no exception. Land acquisition for new projects

is not always a smooth operation. The number of EVNNPT projects that get delayed due to problems relating to

site clearance, land acquisition and resettlement is unacceptably high. Likewise, there are often issues that have

to do with the protection of transmission lines. Accidents and breakdowns are often caused by the breaching of

the safety corridor of transmission lines. Such crisis situations cause substantial financial loss to EVNNPT.

When there are project delays and power breakdowns, there is also loss of reputation and the loss of confidence

in EVNNPT of multiple stakeholders, including the ordinary public and the Government / political leadership.

Besides land and transmission corridor, there could be other causes of crisis for EVNNPT like, for instance fire

in an installation.

All of these make it absolutely imperative for the public relations team of EVNNPT to make crisis

communications a core competency. With effective crisis communications, a crisis is defused before it spins out

of control or causes substantial damage. Thus, delays due to land acquisition can be either eliminated or

significantly reduced. Likewise, the damage caused in the smooth functioning of transmission lines, and breaks

in the uninterrupted supply of power, can be limited to the bare minimum. Additionally, the proactive

communications that this would necessarily entail would contribute significantly in furthering the PR objectives

of EVNNPT.

So far, adequate attention does not appear to have been paid by EVNNPT to crisis communications. The reason

for this is perhaps that EVNNPT does not yet see communication related to land acquisition as its direct

responsibility. However, this will change once EVNNPT has an empowered PR Department with a full-fledged

PR programme that is multi-faceted and very proactive. Crisis communications would necessarily be an

important leg of such a PR programme.

The essential precondition for effective communications during crisis and pre-crisis situations is strategic and

tactical preparedness. It is critical for EVNNPT to have a Crisis Manual, copies of which should be available to

senior members of the PR departments in EVNNPT and its subsidiaries. If the Manual is stored online, then

these senior executives should have ready access to it. The following are the steps involved in crisis

preparedness, including the preparation of the Crisis Manual.

Strategy

We suggest the following four stage approach to the development of a crisis communication Manual for

EVNNPT.

Communications Audit

Analysis of the Audit report

Development of a Crisis

Communications Manual

Training

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Communications Audit

The Communications Audit for Crisis will accomplish the following tasks:

1. Identify vulnerabilities in operations - weaknesses of EVNNPT that might cause a crisis situation

2. Identify image vulnerability - how any weakness or gap in public perceptions about EVNNPT may give

rise to a crisis situation

3. Identify the different kinds of crisis situations and the possible levels of risk. The following are some

obvious examples of the kinds of crisis situations:

a. A problem relating to site clearance and land acquisition;

b. A breakdown of transmission line;

c. A fire in an installation.

It would be important to identify all possible crisis scenarios, including those that are most unlikely to happen.

That would ensure preparedness for the worst cases as well as the least likely cases.

The communications audit will comprise of the following steps:

1. Evaluate systems currently in place for crisis communications. This would include evaluation of the

following:

a. Infrastructural and functional readiness. This would involve also surveying the physical

operations by making visits to on-site locations and critical off-site locations

b. Readiness and approach of the members of the leadership team at EVNNPT as well as in each

of the subsidiaries

2. Evaluate whether formal or informal crisis teams are in place in EVNNPT and in each subsidiary

3. Evaluate people-readiness and the skill set of executives likely to deal with crisis situations

4. Map and study current systems and protocols for internal and external communications in times of

crisis in both EVNNPT and its subsidiaries. The issues to be studied would include the following:

a. Internally, is it laid down who is to be informed and by whom and at which point, during pre-

crisis and crisis situations?

b. Externally, is it laid down who, among external (non-media) stakeholders is to be informed and

by whom and at what point during pre-crisis and crisis situations?

5. Is there a checklist of contacts in place with full contact details?

6. Is there a list of potential allies at vulnerable locations?

7. Evaluate existing protocols for media relations during pre-crisis and crisis situations. This would

include evaluation of the following:

a. Does EVNNPT and each subsidiary have in place a relevant media list a with full contact

details?

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b. Are there are clear guidelines in place about proactively informing the media and reacting to

media queries?

c. Do EVNNPT and all subsidiaries have designated spokespersons and are they all media-

trained?

d. Are draft media statements and draft media releases in place?

e. Is there a list of potential allies in the media with their contact details?

8. Examine media coverage during past crisis situations to see whether there are any highlights or

patterns

9. Evaluate the hardware and equipment available to those handling PR at EVNNPT and its subsidiaries

10. Evaluate perceptions about EVNNPT among key stakeholders, especially the public, in vulnerable

locations where crisis situations may arise. This would include an evaluation of cultural and attitudinal

factors at play in crisis-prone regions

11. Collect and analyse information about crisis situations from the past. This will include analysis of media

coverage

12. Carry out a thorough analysis of the social media coverage of EVNNPT in general and previous

coverage, if any, of crisis situations

13. Conduct a review of the online presence (websites, etc.) of EVNNPT and its subsidiaries

Analysis of the Audit report

This exercise will consist of a gap analysis and a needs assessment. This means identifying the gaps between

current practices and best practices and then assessing what needs to be done to close those gaps.

Development of a Crisis Communications Manual

Comprising more than just Standard Operating Procedures, this document will have the following:

1. Definitions of crisis situations so that users of the manual might be able to identify them. By that token,

they also know when action is called for and when not. Degrees of crisis are also specified;

2. Step by step instructions on the course of action to be taken in the event of every kind of crisis;

3. Crisis Response Teams by office with names of executives and their contact numbers;

4. Duty assignment: who will do what in the event of different kinds of crisis and their powers of decision

making;

5. Crisis contact list within the organisation;

6. Checklists of who in the organisation is to be notified and at what stage. This includes notifying the top

management. For instance, some organisations divide crisis situations into three broad levels: A, B and

C levels. “A” Level crisis situations require that the top management be notified within two hours. “B”

Level crisis situations require that the top management be notified within 24 hours, while “C” Level

crisis situations require that the top management be notified after the crisis is over;

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7. Guidelines on alerting or notifying authorities outside the organization - who and at what stage. These

would include local authorities, regulators and government officials, etc.;

8. Guidelines on how exactly information is to be shared;

9. Methodology for maintaining records and keeping logs. The system would include logging calls from

stakeholders and communicating key points to relevant executives;

10. Specific instructions on what kind of crisis and what degree of crisis merit internal communications

(employee communications) and the manner of disseminating information within the organization and

obtaining feedback where required;

11. Guidelines on communications with the local community at crisis locations. These would spell out also

how to deal with village folk perturbed by any step taken by EVNNPT with regard to land acquisition or

transmission corridor. This would also list out common perceptions and region-wise peculiar cultural

and attitudinal factors and how to respond to all of these;

12. Region and area-wise list of allies and positive influencers who can be mobilized to help EVNNPT

respond to people’s concerns;

13. Complete guidelines on media relations - both proactive and reactive. These will comprise the

following:

a. Names of designated spokespersons;

b. Names of team leaders and members of crisis teams in EVNNPT, subsidiaries and their offices

with full contact details;

c. Names of special Crisis Media Unit in every organization (NPT and subsidiaries and their

branch offices) This would comprise one or more designated executives from the PR

Department who would be earmarked exclusively for media relations during a crisis;

d. Relevant media lists with contact details;

e. Names of media allies;

f. Names of third party influencers who could be persuaded to talk to the media and lend indirect

support;

g. Guidelines on responding to media queries;

h. Guidelines on proactively going to the media through statements, press releases, media

briefings, press conferences or electronic media appearances / interviews;

i. Template of holding statements for the media;

j. Template of proactive statements for the media;

k. Template of press releases for likely crisis situations and degrees thereof;

l. Draft Q’s and A’s and issues & responses document for use in answering questions from the

media. Whenever crisis occurs, these can be quickly modified and tailored to suit the needs of

the situation;

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m. Do’s and don’ts of dealing with the media during crisis situations: What spokespersons are

permitted to say and what they are not;

n. System for maintaining logs of media calls;

o. Special guidelines for monitoring the media, including the online media, during crisis

situations;

p. Guidelines on Social Media activities for crisis mitigation;

q. Guidelines on the use of the print publications, electronic media and online presence (websites,

etc.) of EVNNPT and its subsidiaries for crisis mitigation;

14. System for conducting post-mortem after a major crisis; and

15. Emergency summary cards for each office: These would list, in simple language, the immediate first

steps to be taken in the event of a crisis - even before the Crisis Teams get activated.

Training

Crisis preparedness would be incomplete without training and testing through mock drills. Training for crisis

preparedness would involve the following:

1. Media training for all spokespersons;

2. Extensive briefings of relevant executives at EVNNPT and subsidiaries and their offices outside head

office;

3. Mock drills or simulations of crisis situations followed by extensive analysis;

4. Follow-up action basis the above-mentioned analysis of mock drills.

The Crisis Communications Manual must be periodically reviewed and necessary revisions carried out. A year is

a reasonable period after which a review must be carried out.

Indicative timeline

Month 1: Communication

Audit

Month 2: Analysis of Audit Report

Month 3-5: Development of

Crisis Communications

Manual

Month 6: Training

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Summary

Title of the workshop: Develop uniform key messages for EVNNPT

Date & Time: 15 October 2014, 7.30 am - 11.30 am

Venue: Meeting Room No. 202, Second Floor, EVNNPT, 18 Tran Nguyen Han, Hanoi


Training material: --


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Introduction

From a communications or PR perspective, it is imperative for any organisation to have the following:

1. A limited number of authorised spokespersons.

2. The spokespersons say only that which is in alignment with the business and communications

objectives of the organisation.

3. The spokespersons sing from the same sheet - meaning there must be total alignment between what

they say individually. They must deliver the same key messages.

4. The spokespersons drive the agenda in every interaction with the target audience--the media or any

other audience.

Every organisation, every brand and even every business initiative must have its own set of key messages. Key

messages, articulated repeatedly and consistently, will help audiences know exactly what the organisation /

brand / business initiative stands for just the way the spokespersons want them to—nothing more, nothing less.

These key messages must form the bedrock of the spokespersons' communications. Regardless of whatever else

they may say, they must deliver these messages--either verbatim or by paraphrasing them. The key messages

must stand the test of time in the medium term. They must be reviewed after a reasonable length of time for re-

validation or revision.

When a spokesperson drives the agenda in a media interaction, he responds to media queries, but regardless of

whatever else he says, he also puts across the key messages. Not necessarily verbatim, but woven into the

narrative, as it were. The messages have to be conveyed with the aid of facts and statistics as well as illustrations

from the working of the organisation -- the on-the-ground situation.

Focused, timely and pro-active communication of well-defined and clear messages is of critical importance for

EVNNPT as it embarks on using effective PR as an essential and indispensable tool to achieve its business

objectives.

The key messages will provide a base or an underpinning to all other PR statements or messages delivered by

EVNNPT. They will reinforce EVNNPT’s PR, including the delivery of all other messages.

In the message development workshop, the senior management of the company will engage in a brainstorming

session moderated by the consultants. This brainstorming session will be neither open-ended nor freewheeling.

There is a structure to it and the consultants will ensures that the discussion remains within the ambit of that

structure.

The objective of the workshop is to come up with a set of key messages or communications themes.

Structure

On the following pages, we cover eight steps to arrive at the key messages. Please use them as worksheets. Your

inputs are vital, invaluable and the very basis of this workshop.

Step-1: Set business objectives

What do we want to accomplish through PR / communication?

1. Uninterrupted, safe and stable power transmission

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2. Maintain efficiency

3. Maintain profitability

4. Serve society

5. Serve the national economy

Step-2: Identify target audiences

Who do we want to reach?

1. Government and relevant ministries

2. Local authorities, including provincial authorities

3. Ordinary people

4. International donors

5. Suppliers (including contractors)

6. Consultants

7. Media

Step-3: Analyse issues: facts

What are the salient things we want to say about EVNNPT? (Positive facts)

1. NPT provides and maintains the backbone of the power network in Vietnam

2. NPT plays a very important role in the social and economic development of the country

3. NPT is a state tool for governing the power market

4. NPT is the bridge connecting power producers and consumers

5. NPT has successfully covered the whole country with its transmission network

6. NPT ensures the supply of power - safely, stably, and continuously

7. NPT’s rate of power losses meets international standards

8. NPT provides a state-o-the -art transmission network

9. NPT has highly qualified, skilled, disciplined, and devoted human resources

Step-4: Analyse issues: facts

What are the questions we want answered? (Negative facts)

1. There are difficulties in site clearance

2. Transmission tariffs are low. Internationally, these are 10-12 % of retail prices to end users, in Vietnam

the corresponding figure is 5.5%

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3. There are difficulties in transmission corridor protection

4. There are difficulties in forecasting & planning for power demand

5. There are difficulties in determining the development, planning and progress of power generation

6. There are difficulties in the mobilisation of funds for construction work

7. Low profitability

8. Reliability is not very high

9. Difficulties in implementation of government regulations & procedures on construction investment,

site clearance and tariffs

10. Difficulties in recruitment of staff in rural & mountain areas

11. Difficulties in the utilisation of linesmen who are older than 45

12. It is a difficult and dangerous job for the operational staff

Step-5: Analyse issues: perceptions

What are the impressions we want to create or reinforce? (Positive perceptions)

1. NPT and the national power transmission system play a very important role in the social & economic

development of the nation

2. NPT has a highly qualified, skilled, disciplined & devoted workforce

3. NPT owns a modern national power transmission system that meets international standards

4. NPT’s transmission power loss rates meet international standards

5. NPT keeps in mind (the need to) provide enough power for socio-economic development and people’s

lives

6. It is the responsibility of all of us to safely protect the national power transmission system

7. NPT tariffs are low (from the consumer’s point of view)

Step-6: Analyse issues: perceptions

What are impressions we want to dispel or remove? (Negative perceptions)

1. NPT projects are always delayed

2. High power transmission loss rates

3. EVN association: low productivity, high power tariff, low responsiveness (monopoly)

4. Low compensation

5. Transmission projects do not bring direct benefit to local people

6. Transmission lines have a harmful health impact

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Step-7: Develop important messages

What are the principal messages? (Keywords suggested by Chairman)

1. Modern

2. Responsibility

3. Disciplined

4. Humane resources (aim for)

5. Important

Step-8: Develop key messages

What are the key messages?


provides the backbone of the national power system


and economic development of the country

3. NPT has a highly qualified, skilled, disciplined, devoted, responsible and humane workforce

Outcome and feedback

The workshop helped identify and develop the key messages for EVNNPT as outlined in the workshop content:




and economic development of the country; and

3. EVNNPT has a highly qualified, skilled, disciplined, devoted, responsible and humane workforce.

Another prominent aspect of the workshop was that it was attended by the Chairman of the Management Board

for EVNNPT. Following this workshop, EVNNPT contacted the PR experts to judge and shortlist slogans from a

slogan competition organised by the Company. In addition to shortlisting the slogans, the PR experts also

provided additional recommendations for slogans to EVNNPT.

Slogans shared by EVNNPT

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Sr. No.

Content Copywriter Agency

45 slogans from EVNNPT slogan creation contest

A EVNNPT

1. Soi sáng tương lai Light up the future

Phạm Văn Trường Ban TCCB & LĐ

B CÔNG TY TRUYỀN TẢI ĐIỆN 1

2. EVNNPT Truyền tải niềm tin (câu này trùng ý tưởng nhiều tác giả) EVNNPT - Trust Transmission

Trần Minh Tuấn BGĐ - Công Ty TTĐ1

3. Truyền tải vươn xa - thắp sáng mọi nhà Transmission toward further - light up all houses

Phạm Văn Cường Trạm 500kV Thường Tín-Công ty TTĐ 1

4. Truyền tải Quốc Gia - Không ngừng vươn xa National transmission - Never stop to reach further

Phạm Văn Cường Trạm 500kV Thường Tín-Công ty TTĐ 1

5. Truyền tải điện: Kết nối tương lai Power Transmission: Future Connection

Chu Xuân Khoát Trạm 500kV Thường Tín-Công ty TTĐ 1

6. Truyền tải điện quốc gia - Hạnh phúc cho mọi nhà! NATIONAL POWER TRANSMISSION - HAPPINESS TO EVERYONE!

Hoàng Văn Lược Phòng.TTBV&PC - Công ty TTĐ 1

7. EVNNPT Dong điên thăp sáng niêm tin EVNNPT Power light up the trust

Hồ Văn Hồng TTĐ Hoa Bình Công ty TTĐ 1

8. EVNNPT Thắp sáng tương lai EVNNPT Light up the future

Nguyễn Quốc Dân TTĐ Hoa Bình Công ty TTĐ 1

C CÔNG TY TRUYỀN TẢI ĐIỆN 2

9. Sức mạnh niềm tin vươn xa Nghiêm Xuân Hoàng Đội truyền tải điện Komplong

10. An toàn - Ổn định - Sáng tạo - Hiệu quả Safety - Stability - Innovation - Efficiency

Nguyễn Ngọc Phước Đội truyền tải điện ĐăkTô

11. An toàn - Liên tục - Hiệu quả Safety - Continuation - Efficiency

Phạm Công Long Đội truyền tải điện ĐăkTô

12. An toàn - Chất lượng - Hiệu quả Safety - Quality - Efficiency

Huỳnh Tấn Phú Đội truyền tải điện ĐăkTô

13. Truyền ánh sáng, tải niềm tin Transmit light, bring the trust

Nguyễn Thế Thành Truyền tải điện Qua ng Bình

14. Không chỉ là điện Not just power

Nguyễn Tấn Khôi Tra m biên áp 500 kV Qua ng Nga i

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Sr. No.


15. An toàn, tin cậy, chất lượng, hiệu quả Safety, reliability, quality, efficiency

Đặng Khánh Ly Tra m biên áp 220 kV Dung Quât

16. Kết nối năng lượng - Dẫn bước tiên phong Power connecting - To pioneering step

Nguyễn Thế Mạnh

17. EVNNPT gưi tro n niêm tin EVNNPT fully deliver the trust

Trân Khương Non Đô i Truyên ta i điên Sơn Hà

D CÔNG TY TRUYỀN TẢI ĐIỆN 3

Văn phòng Công ty

18. EVNNPT - Vững bước tiên phong, đồng hành phát triển. Pioneer of innovation, companion of development

Văn phong Công ty A. Phú CVP là nhóm trưởng

19. EVNNPT - An toàn - Hiện đại - Bền vững Safety - Modernity - Sustainability

Văn phong Công ty A. Phú CVP là nhóm trưởng

20. EVNNPT - Không giới hạn, Không khoảng cách NPT: No Limit - No Distance

Truyền tải điện Pleiku

21. Truyền sức mạnh - tải niềm tin Transmit the power, load belief

Đặng Đức Lý Giám đốc

22. Rạng ngời huyết mạch Việt Nam Vietnam arterial shine

Nguyễn Tuyên

Truyền tải điện ĐăkLăk

23. EVNNPT kết nối sức mạnh, toả sáng tương lai Connect the power, shining future

Trương Công Ân Phó Giám đốc

24. EVNNPT - Nối nguồn ánh sáng Connect the light source

Phan Thị Hiền

25. EVNNPT Truyền tải niềm tin- Thắp sáng tương lai Transmission beliefs - Lighting the future

Lê Thị Thoả

26. Ánh sáng của mọi nhà, năng lượng của mọi nơi Light of every houses, energy of everywhere

Nguyễn Tiến Dũng

27. EVNNPT - Kết nối điện năng, sẻ chia phát triển EVNNPT - Power connection, development share

Hoàng Văn An

Truyền tải điện Ninh Thuận - Cam Ranh

28. Tải đủ, truyền xa, quốc gia thịnh vượng. Efficient and far-reaching transmission makes a prosperous country

Trương Thị Bích Loan

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Sr. No.


Truyền tải điện Cao Nguyên

29. EVNNPT Đi cùng năm tháng thắp sáng tương lai EVNNPT Along the years light the future

Võ Ngọc Sơn

30. EVNNPT - Năng lượng để phát triển bền vững EVNNPT - Power for firm development

Đỗ Phi Hùng Phó Giám đốc

31. EVNNPT Kết nối nguồn năng lượng EVNNPT - Connecting electric power

Phan Đình Minh

Trạm biến áp 500kV Pleiku

32. EVNNPT Xuyên suốt mọi miền, nối liền dòng điện. Through everywhere, connecting electric current

Huỳnh Quang Thịnh

33. EVNNPT Chắp cánh cho dòng điện vươn xa. Winging for current's development

Đào Ngọc Sơn Chủ tịch CĐ

E CÔNG TY TRUYỀN TẢI ĐIỆN 4

34. Truyền tải nguồn sáng, kết nối tương lai Transmission of the light source, connected future

Nguyễn Tấn Danh Trưởng phiên trạm 220KV Cai Lậy

BAN QUẢN LÝ DỰ ÁN CÁC CÔNG TRÌNH ĐIỆN MIỀN BẮC

35. EVNNPT-Đưa điện đủ đến đời. EVNNPT- Transmitting power enough for life.

Đoàn Ngọc Hưng Trưởng Phòng Tổng hợp Ban Quản lý Dự án các công trình điện miền Bắc

36. EVNNPT-Truyền tải năng lượng Việt. EVNNPT-Transmitting Vietnam power.

Đoàn Ngọc Hưng CV. Phòng Tổng hợp Ban Quản lý Dự án các công trình điện miền Bắc

37. EVNNPT- Vì một Việt Nam tràn đầy năng lượng EVNNPT - For Vietnam full of power

Trần Thị Hạnh CV. Phòng Kỹ thuật Ban Quản lý Dự án các công trình điện miền Bắc

38. EVNNPT- Khơi nguồn sáng EVNNPT - Create light source

Trần Thị Hạnh CV. Phòng Kỹ thuật Ban Quản lý Dự án các công trình điện miền Bắc

39. EVNNPT- Một phần tất yếu của năng lượng Việt. EVNNPT- A part of Vietnam power.

Trần Thị Hiền CV. Phòng Tổng hợp Ban Quản lý Dự án các công trình điện miền Bắc

40. EVNNPT- Truyền tải điện - Truyền tải mạch sống Việt EVNNPT- Transmit power - Transmit Vietnam life source

Trần Thúy Ngân CV. Phòng Tổng hợp Ban Quản lý Dự án các công trình điện miền Bắc

BAN QLDA CÁC CÔNG TRÌNH ĐIỆN MIỀN TRUNG

41. Lưới điện vươn xa, nhà nhà hạnh phúc The further the power grid reaches, the more happiness it brings to us

Phan Thị Hằng Ban QLDA CCT Điện Miền Trung

42. Vượt qua thách thức, tháp sáng tương lai Overpassing challenge, lighting up future

Phong ĐT Ban QLDA CCT Điện Miền Trung

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43. Có điện, có phát triển - Đủ điện, đủ tiện nghi

Hoàng Nam Ban QLDA CCT Điện Miền Trung

44. Lưới điện vươn xa - nước nhà tiến tới The power grid reach further - the nation reach higher

Hoàng Nam

BAN QLDA CÁC CÔNG TRÌNH ĐIỆN MIỀNNAM

45. EVNNPT: Truyền tải sức mạnh, truyền tải niềm tin EVNNPT: Transmit the power, Transmit the faith

Phạm Hữu Chương CV. Phòng Kỹ thuật Ban Quản lý Dự án các công trình điện miền Nam

9 slogan from creative agency

1. Truyền khát vọng, bật tương lai Transmit aspiration, gain future

2. NPT: Lan tỏa hạnh phúc, hội tụ niềm tin NPT: Share happiness, converge belief

3. NPT: Xây tầm cao mới, hướng tới tương lai NPT: Toward higher reach, toward future

4. Lan truyền văn minh, khởi nguồn khát vọng Spreading civilization, originating aspiration

5. NPT: Mang ánh sáng hạnh phúc đến muôn nhà NPT: Bring the light of happiness to all

6. NPT: Dòng chảy phồn vinh NPT: The flow of prosperity

7. Huyết mạch cuộc sống The vessel of life

8. An toàn trên từng đường dây Safety in each line

9. Tận tụy từ trái tim Dedication from the heart

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Slogans shortlisted by the PR expert:

1. Sr. No. 1 & 8: Light up the future

2. Sr. No. 10: Safety - Stability - Innovation - Efficiency

3. Sr. No. 14: Not just power

4. Sr. No. 15: Safety, reliability, quality, efficiency

5. Sr. No. 19: Safety - Modernity - Sustainability

6. Sr. No. 28: Efficient and far-reaching transmission makes (for) a prosperous country

7. Sr. No. 42: Overpassing challenge, lighting up future

8. Sr. No. 44: Power grid reach further - nation reach higher

Selection from the slogans submitted by the creative agency:

1. Sr. No. 1: Transmit aspiration, gain future

2. Sr. No. 5: Bring the light of happiness to all

Additional slogans submitted by the PR experts:

1. Transmitting prosperity

2. Transmitting a better life

3. Overcoming challenges to light up the future

4. For a better life for all

5. We help build the nation

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Context

Visiting consultants studied the public relations practices of EVNNPT and its subsidiaries by interacting with

the key officials responsible for communication alongside reviewing the available documentation on the

Company’s practices.

One of the findings of the study is that EVNNPT is not active in the social media arena though EVNNPT uses

online media. It primarily implies that EVNNPT and its subsidiaries do not actively engage in social media

platforms like Facebook, Twitter, YouTube and online blogs.

On reviewing the statistics for internet penetration & usage; and social media usage in Vietnam it is revealed

that the internet penetration in Vietnam, is nearly 40% -well above the global average of 33%. Internet is

available in every commune in even the rural areas of the country. A Vietnamese accesses the Internet on an

average 5.6 hours per day, 6.4 days per week. The average time of using the Internet is 4 hours and 37 minutes

per day. As many as 34% of mobile users access the Internet on mobiles, while the average time of mobiles

users accessing is 1 hour and 43 minutes per day.

Over 38% of the population uses social networking, with an average daily usage time of 2 hours and 23 minutes.

There are 20 million Facebook accounts in the country. Every 3 seconds a new Facebook account is created

indicating the popularity of Facebook and other similar platforms.

The explosive growth of social media across the world indicates social media to be a powerful PR tool.

Increasing number of participants in social media has resulted in increasing discussions on all possible topics of

interest - including those relevant for the various businesses. Social media is also a platform for activism and

anti-business discussion. It is important for companies and brands to be aware if they are being talked about

and then to influence such conversations to their advantage. Conversely, it is equally important for companies

and brands to join the conversation flow and spread positive messages about themselves and their business

initiatives. It follows then that if companies or brands are not on social media not only are they missing a huge

opportunity to influence public opinion, but are also laying themselves open to considerable damage by the

unhindered flow of negative messages.

It is worth mentioning that while social media allows unmediated and direct access to stakeholders, this

directness can hurt companies and brands badly when negative messages go viral in no time and, additionally,

get picked up by traditional media. Not surprisingly, organisations around the world are not only using social

media as an integral part of their multi-pronged PR programmes but are finding new and innovative ways of

doing so.

Recommendations

It is important therefore for EVNNPT - as it sets up an independent PR Department and adopts a robust,

vigorous and proactive PR programme, driving communication along multiple channels - to seek to leverage

social media as an indispensable PR tool. While social media may not be the best option for reaching out to

target audiences in rural areas (direct communication with opinion leaders may be the best way to reach out to

audiences in matters of land acquisition), it is certainly a credible and effective way to spread the message

alongside brand building. It is important to imaginatively utilise social media platforms to reach out to various

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stakeholders and engage with them on a continuous basis. Thus, it is critical to develop a proactive, sustained

and inclusive social media engagement programme for EVNNPT that delivers on the following:

1. Helps build a separate brand identity for EVNNPT throughout the digital community;

2. Creates and reinforces positive perceptions about EVNNPT centering around the corporate Key

Messages;

3. Identifies potential crisis situations and addresses them through an effective response mix.

NPT’s Key Messages, as decided by its leadership team, are as follows:




and economic development of the country;

3. NPT has a highly qualified, skilled, disciplined, devoted, responsible and humane workforce.

Strategy

Under this section we have detailed out a step by step strategy that is required to develop a plan for leveraging

social media

Listen

1. Track existing conversation on social platforms like Facebook, Twitter, Online blogs, by using relevant

keywords. These could include topics of interest for the brand, or issues of concern for the Company or

the industry;

2. Detailed tracking of all online conversation on defined topics or relevant issues.

Analyse

1. Use analytics to derive insights across various themes, topics, demographics related or relevant to

EVNNPT;

2. Need to understand positions and habits of regular social media users and influencers;

3. Analysing tonalities and trends of conversations on social media platforms.

Note: Social media measurement tools can be expensive. But free or low cost options are also readily available.

These include Google Alerts, Google Analytics, and Hootesuite.

Plan

Marrying insights gathered in Stage 2 with the business and PR objectives of EVNNPT, a detailed action plan

needs to be prepared. This action plan to include:

1. a proactive approach towards content dissemination - identifying topics, tonality and tools for

dissemination of content;

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2. a robust approach to mitigate reputational damage by responding to negatives in the quickest possible

time.

Create

1. Create content on various aspects of EVNNPT’s work;

2. Prepare ways to create content in almost real time to counter negatives;

3. Develop a list of influencers to carry positives, including key messages;

a. Third-parties;

b. Bloggers;

c. Focus groups.

Engage

1. Engage with bloggers and tweeters to post the information online;

2. Invite public to participate in the discussion;

3. Engage with third parties for content development and posting.

Execute

1. Create and publish content along with executing campaign ideas;

2. Amplifying key messages through relevant channels.

Measure

1. Devise and carry out measurement by generating reports around keywords, themes, topics and cull

insights that could be relevant to EVNNPT.

Content Opportunities

1. All press releases on new developments and initiatives at EVNNPT being disseminated among print

and electronic media journalists or being uploaded on the EVNNPT’s website should also be

disseminated on platforms like Facebook and Twitter. This might even be better than contributing to

clog the inbox of journalists. They can be reached on platforms they visit on a regular basis;

2. Information, pictures and videos about various proactive initiatives of EVNNPT can be posted on these

platforms and these stories can reached to a greater mass of people directly in real time;

3. The Perceptions Audit carried out by the consultants has revealed that the general public does not know

enough about the CSR activities of EVNNPT. These initiatives can be publicised on social platforms;

4. Links to online coverage received by EVNNPT press releases can be posted on social media;

5. Suggested topics for positive conversation online:

a. Information on EVNNPT’s transmission projects at Vietnam;

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i. Announcement of new projects;

ii. Information on the project management and progress;

iii. Completion of projects;

iv. Expansion of existing projects;

b. Richer content in terms of pictures, video, infographics with positive messaging about the

contribution of EVNNPT to the socio-economic development of the country;

c. Content relating to the Key Messages of EVNNPT can be posted;

d. Short videos on public safety can be posted;

e. Videos on success stories of EVNNPT in handling land acquisition;

f. Create content around the theme of EVNNPT building and maintaining the backbone of the

power sector in Vietnam and the theme EVNNPT helps transform the lives of people;

g. Highlight best practices undertaken by EVNNPT; and

h. Facts and infographics on the Vietnam power sector and on EVNNPT projects.

6. An awareness campaign on the inviolability of the transmission corridor can be prepared and

implemented through social media.

Tactics

Greater engagement with the online community can be achieved by the following tactics:

6. Create a Facebook page for EVNNPT for carrying branded content;

7. Create a Twitter handle for EVNNPT. Give viral reach to positive buzz, using influencers to amplify;

8. Monitor negative postings and put out own point of view, without getting into arguments with those

posting negative content;

9. Create a microsite titled “Humane EVNNPT”. This will host all content that will position EVNNPT as a

caring organisation that builds and maintains the backbone of the power sector in Vietnam;

10. Use YouTube as a personalised channel that will host all video based content;

11. Ross post industry information;

12. Post links to positive messages about EVNNPT, including re-tweets, cross-posting topics of relevance;

13. Express thanks by cross-posting and replying, “favouring” and following those who talk positively about

the brand;

14. As part of an Influencer Outreach Programme, build and maintain relationships with online influencers

who will serve as EVNNPT’s brand advocates and help convert their audience into brand advocates. An

independent third party perspective has a positive impact on the public. The content can be posted on

various platforms;

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15. Develop small groups on social media who will discuss on industry issues like land acquisition and

project delays, giving full play to EVNNPT’s positions on contentious issues;

16. Create social media campaigns using positive case studies: instances where issues relating to land

acquisition or transmission corridor protection have been handled in a positive manner leading to high

levels of satisfaction among the affected people;

17. Use traditional media to amplify the positive postings on social media; and

18. Measure success using online monitoring tools and modify engagement plan accordingly.

Indicative timeline

Month 1-2: Listening

and Tracking

Month 3-5: Analysis

Month 6-8: Plan and

Create Plan

Month 9-11: Engage

Month 12-16: Execute


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Context

An extensive assessment of the public relations (PR) practices of EVNNPT and its subsidiaries was undertaken

by the consultants. To conduct this assessment, detailed interviews were conducted with senior officials as well

as key officials responsible for communication across departments of EVNNPT and select subsidiaries based in

Hanoi, Ho Chi Minh City and Danang. The consultants also studied relevant laws / decisions / decrees /

regulations / circulars relating to the communication activities of EVNNPT. All available communication plans

of EVN, EVNNPT and its subsidiaries were also thoroughly examined. A Perceptions Audit was carried out. This

was a qualitative, dipstick study among key stakeholder groups to determine and analyse perceptions about

EVNNPT and its subsidiaries and the satisfaction quotient about the communication processes that these

organisations follow.

During the course of this study, it was found that EVNNPT undertakes many corporate social responsibility

(CSR) initiatives, though these are neither described nor seen as such. Furthermore, the impact of many of

these activities could be perceived to be inadequate to build positive perceptions about EVNNPT in the public

mind. Additionally, the Perceptions Audit revealed that most of the stakeholders feel the quantum of CSR

activity that EVNNPT undertakes was is unsatisfactory. A significant chunk of the respondents in the

Perception Audit were not aware of the CSR activities undertaken by EVNNPT. Currently, there is no

department or unit in EVNNPT that is in charge of CSR. Activities related to CSR are carried out by different

departments and different unions. Overall, the CSR effort appears to be somewhat disjointed and devoid of

focus with no net gain coming to EVNNPT out of them.

Benefits of a robust CSR programme

All over the world, companies and brands are moving CSR towards the centre of their overall business strategy.

In 2014, in the Trust Barometer global survey carried out by Edelman (the leading PR firm) it was found that

84% of the respondents believed a company can pursue its self-interest while also doing good work for society.

In its 2012 “goodpurpose” survey, Edelman found that 87% of the respondents believed business should place

at least equal weight on both business and society. In response to this groundswell of opinion in favour of

companies being socially more responsible, leading organisations and brands have been leveraging their

resources to tackle social and environmental challenges and make a positive difference on societal issues.

There are many names to this business response:

1. Citizenship: A company's responsibility to the communities in which it operates and to society at

large;

2. Sustainability: A business approach that creates long-term stakeholder value by embracing

opportunities and managing risks deriving from economic, environmental and social developments

stemming from the manner in which a company is run;

3. Philanthropy: A company’s donation of funds, time or talent without any expectation of direct

corporate gain - such as increases in revenue; and

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4. Purpose: The strategic, emotional driving force behind an organisation / brand’s core value

proposition.

CSR enables a company to associate itself with a higher social good. It allows the company to differentiate itself

before a diverse set of stakeholders. It builds, protects and enhances reputation. It creates goodwill for the

company, especially in areas of operation and reduces risk by opening channels of communication.

CSR engages and inspires all categories of stakeholders, including customers and employees in an increasingly

connected world. It is a useful way to mobilise, unite and motivate all the people a business touches from

employees to customers. It goes beyond philanthropy or altruism. It is a strategy for profit and growth based on

improving people’s lives.

In India, the government has turned CSR from a voluntary activity to a mandated responsibility for all

companies having a certain threshold of size. Thus, CSR is no longer an act of charity or individual philanthropy

but a responsibility of corporates.

How EVNNPT can profit from organised CSR work at project sites

Organised and focused CSR activities will contribute significantly in EVNNPT’s effort to gain goodwill of not

only those who are directly affected by its projects, but also those who might be affected by them at a future

date. A robust CSR programme that meets the aspirations of the affected communities will lead to the

following:

1. Community’s licence to operate: A robust CSR programme will not only provide EVNNPT with the

people’s licence to operate, but also to retain the licence, creating and increasing the people’s trust in

EVNNPT

2. Enhanced corporate reputation: The benefits of goodwill, positive image and branding would

accrue to EVNNPT once it operates effective CSR programmes. This will allow EVNNPT to position

itself as a responsible corporate citizen

3. Reduced Resistance: Various stakeholders will see EVNNPT as a development partner fostering

growth at the national level and adopting socially beneficial initiatives at the local level rather than as

an entity that is only interested in acquiring land from those who are unwilling to part with it

4. Easier access to capital: International funding agencies prefer to work with companies that behave

responsibly on safeguard by fulfilling ethical, social, and environmental responsibilities and by

responding positively to the needs of ethnic minorities and indigenous peoples

It is very important for companies in the infrastructure sector, especially those which have to deal with people

whose livelihood is land dependent, to undertake and / or promote socially beneficial activities and projects.

These activities and projects would be above and beyond the compensation, resettlement and rehabilitation

relating to land acquisition.

Thus EVNNPT must have a comprehensive corporate social responsibility (CSR) policy which is based on the

needs of the communities which are being impacted (directly or indirectly) by its projects. The overall purpose

of the CSR activities would be to help improve, in a sustainable manner, the quality of life of the communities

touched by EVNNPT’s projects, both at the construction stage and at operation & maintenance stage. The

overall objective would be to win trust and gain goodwill for EVNNPT - and help build an independent brand

identity for it. All of this would go a long way to help EVNNPT further its business goals. If enough goodwill is

generated over time, project delays due to the resistance of local people may become history.

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This CSR policy must be planned and implemented by a CSR function either as a part of the proposed PR

Department or as a separate department working in conjunction with the PR Department.

Approach

Since, there is still strong reservations within the EVNNPT leadership about the advisability of having a formal

CSR function within the organisation, we recommend the following strategic approach to the creation of such a

function.

Build Vision and Support for CSR

The key objective here is influencing internal stakeholders of EVNNPT with the goal of creating a broad base of

support for CSR throughout the organisation. Key action steps might include:

1. Developing a clear CSR mandate for EVNNPT

2. Fostering organisational interest for CSR at EVNNPT

3. Building board, CEO and executive-level support and involvement

Once there is broad agreement on the advisability of setting up a separate and dedicated CSR function,

the following process of setting it may be followed:

Examine current scenario on CSR

The key objective here is assessing the whole picture on CSR or on initiatives that might be described as CSR

activities. Illustrative assessment actions might include:

1. Determining the Vietnam government’s position on CSR or activities that can be viewed as CSR;

2. Assessing CSR definition currently being used by EVNNPT;

3. Assessing the community and environment work being undertaken by EVNNPT;

4. Evaluating EVNNPT’s existing CSR policies, standards, values statements or business principles -such

as they are;

5. Understanding current commitments of EVNNPT on CSR or on activities that might be described as

CSR;

6. Identifying departments, functional areas, or cross functional initiatives involving CSR at EVNNPT and

its subsidiaries;

7. Evaluating relationships with various stakeholders in the context of CSR;

8. Examining evaluation, measurement and reporting processes related to CSR activities.

Build Vision and Support for CSR

Examine current scenario on CSR

Design a CSR Structure

Operationalising the new CSR function

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Design a CSR Structure

The key objective here is engaging in a process to develop the most appropriate CSR structure for EVNNPT

considering its industry sector, mission, culture, business structure, geographic locations, risk areas and level of

commitment. Various steps for designing a CSR structure include:

1. Understanding the key drivers;

2. Identifying key community, environment, and related issues which are of relevance to the various

stakeholders of EVNNPT and its subsidiaries;

3. Identifying and evaluating all stakeholders of EVNNPT and its subsidiaries;

4. Identifying functions that support CSR efforts at EVNNPT;

5. Analysing company systems, culture & any impending changes;

6. Evaluating structural options inter-team, inter-department at EVNNPT and its subsidiaries;

7. Creating a structure for cross-functional interaction in EVNNPT and between EVNNPT and

subsidiaries. Such a structure would comprise a separate department within EVNNPT, or a separate

unit within the proposed PR Department of EVNNPT, and smaller units in the subsidiaries;

8. Developing a detailed staffing plan for the new CSR team; and

9. Developing a process for budget preparation and resource allocation.

Effectively, the above-mentioned steps would amount to the following:

1. Defining the CSR function’s objectives and scope;

2. Identifying deliverables and resource needs;

3. Determining team roles and responsibilities; and

4. Setting up the CSR department in EVNNPT and CSR units in the subsidiaries.

Operationalising the new CSR function

Once the CSR team is in place, the next step would be to operationalise the CSR function. This would comprise

the following basic steps:

1. Database preparation of key stakeholders relating to CSR;

2. Preparation of an annual plan for CSR - at the levels of EVNNPT as a whole and each subsidiary;

3. Setting up processes for implementation (directly by the team and / or indirectly through partners like

NGOs and self-help groups);

4. Setting-up processes for systematic use of employee resources (volunteers) and unions;

5. Setting-up processes for monitoring and measurement of impact; and

6. Setting-up processes for publicising the CSR work within the stakeholder groups, including the affected

people, public authorities and the media.

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PwC 369

CSR Activities

The CSR activities that EVNNPT could look at the level of the community at the project sites can broadly be

categorised under the following buckets:

1. Economic value creation in communities;

2. Educational initiatives;

3. Health & family welfare;

4. Environmental sustainability initiatives;

5. Protection of national heritage;

6. Employee engagement in value creation;

7. Empowering women from economically disadvantaged sections; and

8. Improving the lives of people from the ethnic minorities and indigenous peoples.

Measurement of CSR Programme

To measure the efficacy and success of the CSR programmes, the new CSR department could undertake the

following:

1. Monitor the positive outcomes of the initiative - in terms of making a positive impact on the

community;

2. Monitor the coverage received in the media and social media;

3. Perceptions Audit: Qualitative analysis of the perceptions of stakeholder groups about EVNNPT’s CSR

work.

Indicative timeline

Month 1-2: Build Vision and

Support for CSR

Month 3-5: Examine current scenario on CSR

Month 6-9: Design a CSR

Structure

Month 10-15: Operationalising

the new CSR function


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PwC 370


Summary

Title of the workshop: Training to EVNNPT spokespersons on media handling skills

Date & Time: 14 October 2014, 2.00 pm - 5.00 pm

Venue: Meeting Room, Fifth Floor, EVNNPT, 18 Tran Nguyen Han, Hanoi




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PwC 371

Tips for dealing with the media

We believe the press is becoming more intrusive in the rush to get stories. Often, businesses and organizations

get caught in crossfire of sloppy reporting, misleading information and inaccuracies.

The following common-sense “rules of engagement” for dealing with the media have been tested and proven in

our years of experience with the press:

1. Don’t lie. Ever.

2. You don’t have to answer every question you’re asked.

3. Think. Think before you answer anything. A corollary: Have a clear goal in mind before you answer

anything

4. Don’t lose your cool. If you do, the media won’t forget- it will show a video clip or photo of how you lost

your cool over and over and over.

5. If you’re wrong, admit it. If you’re happy, be it. If you’re hurt, show it.

6. Answer only the question that you want to answer it.

7. Assume everything is “on the record”.

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PwC 372

8. Stick to your story. Don’t improvise.

9. Don’t speak too much. Be concise and to-the-point. Often, less is more.

10. Always think of the future. Don’t burn your bridges with reporters.

Ten Commandments of media interaction

Cardinal rule: Be truthful

1. Be relevant

a. Talk from the point of view of your audience’s interest

b. Know your audience

c. Don’t use jargon

2. Be personal

a. Speak in personal terms, whenever possible, to enhance credibility

b. Use ‘I’, not the corporate “we”

c. Take personal responsibility

3. Be careful

a. If you do not want some statement quoted, do not make it

b. There is no such thing as “off the record” or “not for attribution”

c. “Off the cuff” statements run the danger of being headlines the next day

d. Statements made for “background” or briefing purposes are always subject to being quoted

e. If you happen to make an inaccurate statement, correct it immediately

4. Be organized

a. State the most important fact at the beginning

b. People are often too busy to read an article in entirety

c. Always keep your key message in mind

d. Use your voice and gestures for added emphasis

e. Back up your points with statistics and personal anecdotes

5. Be calm

a. Do not argue with a reported or lose your cool. You’ll never win the argument

b. Audiences and reporters will sense hostility

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PwC 373

c. Be friendly, but not too talkative

d. Reporters deliberatively argue to elicit a response

6. Be positive

a. If a question contains negative language or words you don’t like, do not repeat the reporter’s

negative words

b. You run the risk of having the reporter’s negative language attributed to you. Instead, state the

answer in a positive manner

7. Be direct

a. If a reporter asks a direct question, he is generally entitled to a direct answer

b. Answer the questions, but then bridge to a key message

8. Be confident

a. Don’t speculate

b. Answer the reporter, but then bridge to a key message

9. Be open

a. If you cannot answer a question, never say “no comment”

b. Always give a valid reason for not being able to answer. For example, a legal case is “pending”

10. Be attentive

a. Listen to the question

b. Be sensitive to the reporter’s intent

c. If you miss the point of a question, you appear evasive

Body Language Do’s

1. First steps

a. Handshake

b. Smile

2. Getting acquainted

a. Eye contact

b. Listening head

c. Open gestures and Easy body movements

d. Leaning forward

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PwC 374

3. Getting a word in edgeways

a. Speaking a little louder

b. Triple head nods

c. Verbal signal like ‘yes’, ‘well’, ‘but’

4. Be calm

a. Do not argue with a reported or lose your cool. You’ll never win the argument

b. Audiences and reporters will sense hostility

c. Be friendly, but not too talkative

d. Reporters deliberatively argue to elicit a response

Body Language Don’ts

1. Stare at the speaker - different from maintaining eye contact

2. Fold your arms - indicates withdrawal and a desire for self-protection

3. Tap or twitch your feet

4. Work while the speaker is talking to you

5. Pack up papers and folders before the meeting is over

6. Look at the watch

7. Lean back in your chair with your hands behind your head

8. Drum your fingers and bite your nails

9. Cover your mouth while you talk

10. Have your hands in the pocket

11. Overfriendliness

Outcome and feedback

The workshop was aimed at helping develop skillsets to clearly communicate with external audiences. Based on

an initial assessment of the workshop, it can be concluded that the group was able to understand and value the

training.

As part of the training, a mock interview was conducted as a training exercise to resemble a real media

interview as closely as possible. This was aimed at preparing the candidate in better engagement with media

and better presentation of their point of view.

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PwC 375

Mock interview - Transcript

1. Question#1: The most difficult step in transmission projects is site clearance. Some papers report that

the difficulty caused by affected people. Have you ever wondered that one of the reasons of anti-acts of

affected people is attitudes, behaviour and communication capacity of the power sector’s staff?

a. Answer: EVNNPT's transmission line projects are mainly served for national socio-economic

development and people's life purposes so there is no case of lack of support from people in the

site clearance. If there are any cases of lack of support, it may be caused by unclear explanation

from local authority. The resettlement is done by the local authority so EVNNPT have been

coordinating with the local authority to persuade the cases of lack of support.

2. Question#2: What is EVNNPT's role in communication with the people in the site clearance?

a. Answer: Communicate purpose, meaning of the projects; Introduce technical parameters to

ensure that people feel secure to support for EVNNPT's projects.

3. Question#3: As unofficial sources, there are some households facing with a lot of difficulties after the

resettlement and difficulty to have a stable daily life. What EVNNPT has to do in those cases?

a. Answer: EVNNPT is currently focusing to ensure progress of projects. Regarding to those cases

of households after the resettlement, we will actively coordinate with the local authority to

quickly ensure people's stale life because one of EVNNPT's project purposes is to serve for the

country and people.

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PwC 376


Summary

Title of the workshop: Fundamentals of effective public relations

Date & Time: 13 October 2014, 7.30 am - 11.30 am 13 October 2014, 2.00 pm - 5.00 pm

Venue: Meeting Room, Fifth Floor, EVNNPT, 18 Tran Nguyen Han, Hanoi




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PwC 377

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PwC 378

Exercise#1: EVNNPT's real press release (Task: To edit and comment)

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PwC 379

Exercise#2: To prepare a communication plan for an EVNNPT project

Overview of Vietnam power sector



PwC 380

Appendix 1 - Overview of Vietnam power sector

Industry structure

The Vietnam Electricity (EVN), a state owned enterprise, reporting to Ministry of Industry and Trade, is the

largest buyer of electricity from the power plants and has a monopoly on transmission and distribution of

electricity. The EVN was has been a vertically integrated utility till the recent past. Although now separate

entities have been formed for generation (three entities), transmission (NPT), trading (EPTC) and distribution

(five entities), all these entities are either wholly-owned subsidiaries of EVN or EVN has a controlling stake in

these entities.

The power sector is under the jurisdiction and management of the Ministry of Industry and Trade (MoIT). The

Electricity Regulatory Authority of Vietnam (ERAV), under MoIT, is responsible for issuing license for

participants in electricity market, regulatory body in competitive power market, and regulating electricity tariff.




PwC 381

Government of Vietnam

(GoV)

Ministry of Industry and Trade

(MoIT)

Directorate General of Energy

(DGE)

Vietnam Electricity

(EVN)

National Load Despatch Centre

(NLDC)

Northern Regional Load Despatch

Centre

Central Regional Load Despatch

Centre

Southern Regional Load Despatch

Centre

Electric Power Trading Company

(EPTC)


(NPT)

Power Transmission Company No. 1

(PTC1), Hanoi

Northern Power Projects

Management Board

(NPMB), Hanoi


(PTC2), Danang

Central Power Projects

Management Board

(CPMB), Danang


(PTC3), Nha Trang

Southern Power Projects

Management Board

(SPMB), HCMC


(PTC4), HCMC

Multiple Subordinated Local

Companies (applicable to all

four PTCs)

Power Companies (Discoms)

Northern Power Company, Hanoi

Central Power Company, Danang

Southern Power Company, HCMC

Hanoi Power Company, Hanoi

Ho Chi Minh City Power Company,

HCMC

Power Generating Companies

Power Generation Corporation 01



Independent Power Producers

BOT Power Projects

Electricity Regulatory Authority of Vietnam

(ERAV)

Ministry of Planning and Investment

(MPI)

Ministry of Finance

(MoF)




PwC 382

Demand-Supply scenario

Demand

Power consumption in Vietnam has increased nearly fivefold since 2000 as Vietnam underwent a period of

strong economic growth. Since opening up to foreign trade and investment, Vietnam has been growing faster

than most other Asian countries, reached CAGR of 13.5% in the period of 2000 - 2012. Industrial players and

households are major components in power consumption, representing 90% of total demand. It is forecasted

that domestic demand for electricity will double in the next 10 years (CAGR expected to be about 9.0%).

Source: Source: IEA, BMI, PwC Analysis

Supply

22,403

102,457

242,077

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

-

50,000

100,000

150,000

200,000

250,000

300,000

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

20

16

20

18

20

20

20

22

Electricity Net Consumption

Net Consumption (GWh) YOY Growth (%)

49%

14%

10%

6%

8%

6% 7%

Installed capacity by ownership in 2012

EVN

JSC with EVN'sstake

Petro Vietnam

Vinacomin

Foreign Developers

Other LocalDevelopers

Imported

52%

28%

19% 1%

Installed capacity by fuel source in 2012

Hydropower

Gas turbine

Coal fired

Oil fired

Others

79 93

100 112

122 135

148 161

90 100

109 119

130 144

158 173

-

20

40

60

80

100

120

140

160

180

200

2010 2011 2012e 2013f 2014f 2015f 2016f 2017f

Th

ou

sa

nd

s

Demand and Supply of Vietnam Electricity Industry (Million kWh)

Supply of electricity - BMI

Estimated demand of electricity




PwC 383

Demand-Supply imbalance

Vietnam has a history of power shortage and it is expected to continue to be an issue until 2020. Further,

hydropower, including imports from China and Laos, which makes up the bulk of Vietnam’s power generating

capacity, is susceptible to shortages during the dry season. Other factors that have resulted in a shortage of

power in Vietnam are the lack of funding, increasing cost of fuel and other inputs, difficulties in land

acquisition, investors' lack of capability and prolonged approval processes. In order to address this need, power

generation capacity will have to increase and diversify to other sources, both renewable and non-renewable.

Transmission & Distribution network

In 2012, the rural electrification rate in Vietnam was 96.8% and is expected to reach nearly 100% by 2020. The

transmission system has seen a steady growth both in terms of line length (km) and transformation capacity.

Growth in transmission system 2008 2009 2010 2011 2012

500 kV transmission lines (km) 3,455 3,758 4,243 4,328 4,847

220 kV transmission lines (km) 7,987 9,400 9,870 10,645 10,858

500 kV transformation capacity (MVA) 7,050 8,400 11,550 13,950 15,150

220 kV transformation capacity (MVA) 15,477 17,977 21,039 24,476 25,351 Ref: EVN EVNNPT presentation in May 2013

In addition to the transmission system, Vietnam’s power distribution system of about 115,659 km is comprised

of various 6kV, 10kV, 15kV, 22kV and 35kV lines with a total capacity of 3,662 MVA and 109,199 km of 220V

lines with a total capacity of 32,061 MVA. The T&D losses have also been consistently reducing from approx.

21% in 1995 to around 10% in 2011.

6,2

33

7,8

71

8,8

84

10

,010

10

,62

6

11,

57

6

12

,27

0

13

,512

15

,76

3

17

,52

1

20

,54

2

23

,52

7

26

,47

5

-

5,000

10,000

15,000

20,000

25,000

30,000

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

Growth in Installed Generation Capacity (MW)




PwC 384

Source: EVN, PwC Analysis

Retail tariffs

Wholesale prices at which EVN sells electricity to distribution companies are determined by production costs

and retail prices. Therefore, distribution companies that have high retail prices will buy electricity at higher

prices than those with low retail prices. Retail prices at which distribution companies sell electricity to

consumers are set by the government for the whole country. Although retail prices have been adjusted almost

each year (at a CAGR of 7.7% p.a. during 2005-2014), currently retail prices still do not cover actual costs of

electricity. The flow chart below shows the broad process of approval of electricity price.

Source: EVN

3,539 3,657 4,243

5,012 5,272 6,010 6,258

6,863 7,445 7,401

7,985

9,597 10,060

15%

14% 14% 14%

13% 13%

12%

11% 11%

10% 10% 10% 10%

0%

2%

4%

6%

8%

10%

12%

14%

16%

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Electric Power Transmission & Distribution Loses (Million kWh)

Electric Power T&D Losses Electric Power T&D Losses (% of Output)

787 815 860 870 948

1058

1242

1361

1499 1533

0

200

400

600

800

1000

1200

1400

1600

1800

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14f

Average retail electricity tariff (VND / kWh)

EVN MOIT

MoF

Validate price

Prime Minister

Approve new price

End-users

Proposal for price change

Approve if retail price change <=10%

Retail price change >10%

Although price change decisions

shall be made by MOIT, price

change less than 10% is usually

approved if there is no special

judgment from the Government

CAGR = 7.7%




PwC 385

Power sector reforms & development of market structure

The Electricity Law notified in 2004 (effective from July 2005) is the first step taken by the Government of

Vietnam towards the power sector reforms as it set the objective to make the power sector more competitive

and increase investors’ confidence. In 2006, the Government of Vietnam has formally initiated the reforms by

bringing out a roadmap for establishing a competitive power market and restructuring the erstwhile state-

owned vertically integrated utility, Vietnam Electricity (EVN).

The power sector reform road map spans across a period of about 20 years and is planned to be implemented in

three successive market phases as indicated below:

Overview of EVNNPT's performance and plan

The following table summarises EVNNPT's operational and financial performance in the last two years and plan

for next two years:

Parameter Unit 2012

(Actual)

2013

(Estimate)

2014

(Proposed)

2015

(Proposed)

Transmission output Billion kWh 103.58 112.64 123.35 135.68

Losses % 2.33 2.75 2.18 2.00

Employees Nos. 7,202 7,085 7,461 7,848

Capex Million USD 375 629 736 903

Charter capital Million USD 342 1,057 1,057 1,057

RoE (proposed/approved) % 0.29/0.29 0.59/0 4.00/1.00 6.00/NA

Revenue

(proposed/approved)

Million USD 410/410 476/NA Op-1: 644/500

Op-2: 682/490

Op-1: 779/NA

Op-2: 836/NA

Price

(proposed/approved)

US

cents/kWh

0.40/0.40 0.42/0.40 Op-1: 0.52/0.41

Op-2: 0.55/0.41

Op-1: 0.57 /NA

Op-2: 0.62/NA

Self Financing Ratio (SFR) % - 9.82 Op-1: 18.04

Op-2: 23.07

Op-1: 23.60

Op-2: 30.02

1: Competitive Generation Market

(Up to 2014)

• Qualified electricity generation companies are able to sell electricity to the wholesale buyer (EPTC - Electricity Power Trade Company) through bilateral contracts and the spot market

• EPTC then sells electricity to EVN and EVN’s subsidiaries through wholesale contracts

• EPTC, NPTC (National Power Transmission Company) and NLDC (National Load Dispatch Centre) are still EVN’s subsidiaries

2.1: Pilot Competitive Wholesale Market

(2015-2016)

• Allowing the establishment of new wholesale buyers

• NPTC and NLDC become independent units in the Electricity market

• Power Generation Corporations (GENCO 1,2,3), EVN’s power plants (except large power plants which relate to national security) transform into state-owned IPPs

• Power Corporations and Power Companies (distribution units) are also retail sellers but must separate those two businesses

• Power corporations, Power companies, qualified retail sellers and large consumption clients can buy electricity from power plants and wholesale sellers (pilot wholesale market)

2.2: Competitive Wholesale Market

(2017-2022)

• Subsidiaries of Power Corporations (power companies) become independent units. They must separate their distribution business from retailing business

3.1: Pilot Competitive Retail Market (2022-

2024)

• Allowing the establishment of new retail sellers

• Retail sellers buy electricity from power generation units, wholesale sellers through bilateral contracts and spot market, then sell electricity to customers

• Retail departments in some power companies become independent retail sellers

• Some consumption clients are selected to participate in pilot competitive retail market

• Customers will be able to buy electricity from power generation units, wholesale sellers or retail sellers of their own free will through bilateral contracts or spot market

3.2: Competitive Retail Market (2024

onward)

• Retail departments in power companies must become independent retail sellers




PwC 386

Parameter Unit 2012

(Actual)

2013

(Estimate)

2014

(Proposed)

2015

(Proposed)

Debt Service Coverage

Ratio (DSCR)

Times - 1.47 Op-1: 1.90

Op-2: 2.08

Opt-1: 2.23

Op-2: 2.50

Forex variation (allocated) Million USD 35 32 Op-1: 32

Op-2: 32

Op-1: 32

Op-2: 32

Revaluation depreciation

(allocated)

Million USD 732 - Op-1: 0

Op-2: 38

Op-1: 0

Op-2: 57

Op-1 (Option 1): Additional depreciation cost (generated from revaluation of assets) is included

Op-2 (Option 2): Additional depreciation cost (generated from revaluation of assets) is NOT included

Organisation structure of EVNNPT and its subsidiaries



PwC 387

Appendix 2 - Organisation structure of EVNNPT and its subsidiaries

Organisation structure - EVNNPT Head Office

Management Board

President & CEO

Vice President (Construction &

Investment)

Vice President (Technical)

Vice President (Economics & Finance)

General Department Internal Control

Department

General Affairs

(Administration)

Department

Procurement

Department

Information

Technology (IT)

Department

Corporate Planning

Department

Construction

Management

Department

International

Cooperation

Department

Organization and

Human Resources

Department

Technical Department Inspection Department

Finance & Accounting

Department Safety Department Legal Department

Investment

Management

Department

Materials Department




PwC 388

The organization structure depicted above and the designation wise staffing details is based on the discussions

held with various departments of EVNNPT:

Sr. No.

Department Director Deputy Directors

Experts Total

1. Construction Management Department 1 3 9 13

2. Corporate Planning Department 1 2 10 13

3. Finance & Accounting Department 1* 2 16 19

4. Administration Department 1 2 27 30

5. Information Technology Department 1 2 8 11

6. Inspection Department 1 1 6 8

7. Internal Control Department 1 1 1 3

8. International Cooperation Department 1 1 7 9

9. Investment Management Department 1 3 11 15

10. Legal Department 1 1 2 4

11. Materials Department 1 2 4 7

12. Organisation, Personnel & Labour Department 1 2 8 11

13. Procurement Department 1 3 7 11

14. Safety Department 1 1 2 4

15. Technical Department 1 3 20 24

TOTAL 15 29 138 182 * Chief Accountant




PwC 389

Organisation structure - NPMB

The mapping of departments with director and deputy directors within NPMB is shown below:

The reporting hierarchy within NPMB is shown below:

In terms of staffing, NPMB has one Director, three Deputy Directors, 130 Experts and 20 other staff. The

information on department-wise staffing is yet to be received from NPMB.

Director (NPMB)

Deputy Director#1


Deputy Director#2


Deputy Director#3

Resettlement Department

Direct reporting to Director (NPPMB)


Planning Department

Procurement Department

Evaluation Department

Administration Department

Vice President (Construction),

EVNNPT

Director (NPPMB)

Deputy Director#1

Experts

Drivers & Support Staff

Deputy Director#2

Experts


Deputy Director#3

Experts





PwC 390

Organisation structure - PTC1

The functional departments, transmission companies, units directly under control of PTC1 and other business units (like workshop) within PTC1 are shown below:

Director Board

(PTC1)

Functional Departments


Planning Department

Organisation and Labour

Department


Safety Department


Inspection & Legal Department


Construction Investment Department

Load Shedding Department

Information Department

Workshop Team

Testing Workshop

Repair and Maintenance

Workshop

Logistics and Mechanics Team

Transmission Companies

Ha Noi PTC

Hai Phong PTC

Quang Ninh PTC

Thai Nguyen PTC

Hoa Binh PTC

Tay Bac PTC

Ninh Binh PTC

Thanh Hoa PTC

Nghe An PTC

Ha Tinh PTC

Units under direct control

220kV Ha Dong Sub-station

220kV Chem Sub-station

220kV Mai Dong Sub-station

500kV Hoa Binh Sub-station

500kV Thuong Tin Sub-station




PwC 391

Director of PTC1 monitors four departments directly- Planning, F&A, Organisation & Labour and Construction

Investment. All other departments of PTC1 report directly to respective deputy director in-charge. The mapping

of departments/units with director and deputy directors within PTC1 is shown below:

In terms of staffing, PTC1 has one Director, three Deputy Directors, 2466 other staff (including Experts).

Director (PTC1)

Deputy Director#1

- Sub-stations

- Testing Workshop

- Repair and Maintenance Workshop

- Load Shedding Department

- Information Technology Department

-Technical Department (Sub-stations)

- Grid Development of Hanoi Area

Deputy Director#2

- Transmission lines

- Technical Department (Transmission lines)

- Safety Department

- Material Department

- Logitics and Mechanics Department

- Managing Flood Prevention Actions

Deputy Director#3

- Administration Department

- Inspection and Legal Department

- House constructions in all projects




PwC 392

Organisation structure - other PMBs and PTCs

PMBs

CPMB

Description Number Remarks

Total departments 8

Total staff 136

Director 1

Deputy Director 4

Experts 111 9 master degree, 95 bachelor degree, rest others

Drivers and support staff 20

Note:

One additional deputy director compared to NPMB/SPMB.

Average value of the projects under construction (ongoing) in CPMB area: 4 trillion VND

As per the current year mandate, they must start construction of 9 projects and must commission 9

projects

SPMB

Description Number Remarks

Total departments 8

Total staff 167 95% staff are experts and above having bachelor degree

Director 1

Deputy Director 3

Experts 143

Drivers and support staff 20

Note:

In a department: Max staff - 30; Min staff - 10

PTCs

PTC2, PTC3 and PTC4 have two deputy directors whereas only PTC1 has three deputy directors because

PTC1 manages very large geographic area and larger system

Number of departments (11) are same in all four PTCs

Total staff of PTC4 = 2044 (11 departments)

Work plans of TA Experts



PwC 393

Appendix 3 - Work plans of TA Experts

Investment planning

Month (M) Activities/ tasks Time of Expert (person months)

M1-M2 Project inception and high level study of current practices

Project kick-off and inception visit

Agree on work plan and timelines

High level study of current processes, procedures, tools and

methodologies, roles of departments involved in investment

planning

Submission of Inception Report

0.90

M3-M4 Detailed study of current practices and high-level recommendations

Workshop, stakeholder consultation and agreement on key findings

Detailed study of existing tools, mechanisms, procedures and

strategies, roles and responsibilities

Collection/receipt of pending baseline data by means of detailed

interactions with various stakeholders

Comprehensive review of current practices and identification of gaps

Study of select global practices

Make high level recommendations

Submission of Mid Term Report

1.30

M5-M6 Final recommendations

Recommendations and solutions to improve existing tools,

mechanisms, procedures and strategies


Identify, review and propose strategies and solutions to improve

existing practices based on current review, select global practices

and stakeholder inputs on high level recommendations

Preparation of implementation plan

Submission of Draft Final Report

1.30

M7-M8 Implementation support

Workshop and stakeholder consultation on issues in implementation

Training and handholding

Receipt of comments from all stakeholders

Submission of Final Report

1.50

Total 5.00




PwC 394

Project management

Month (M) Activities/ tasks Time of expert (person months)





methodologies, roles of departments involved in project management


0.90











1.20






existing practices based on current review, select global practices and

stakeholder inputs on high level recommendations



1.40






1.50

Total 5.00




PwC 395


Month (M) Activities/ tasks Time of expert (person months)





methodologies, roles of departments involved in transmission

pricing


0.90











1.10






existing practices based on current review, select global practices

and stakeholder inputs on high level recommendations



1.40






1.60

Total 5.00




PwC 396

Public relations

Month (M) Activities/ tasks Time of Expert

(person months)

International National

M1-M2 Project inception and high level study of current

practices




methodologies, roles of departments involved in public

relations


0.80 0.90

M3-M4 Detailed study of current practices and high-level

recommendations

Workshop, stakeholder consultation and agreement on key

findings

Detailed study of existing tools, mechanisms, procedures

and strategies, roles and responsibilities

Collection/receipt of pending baseline data by means of

detailed interactions with various stakeholders

Comprehensive review of current practices and

identification of gaps




0.90 1.10




Workshop, stakeholder consultation and agreement on key

findings

Identify, review and propose strategies and solutions to

improve existing practices based on current review, select

global practices and stakeholder inputs on high level

recommendations



0.80 1.20


Workshop and stakeholder consultation on issues in

implementation




1.50 1.80

Total 4.00 5.00

Questionnaires for perceptions audit



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Appendix 4 - Questionnaires for perceptions audit

To EVN officials and public officials

1. What is your general perception or opinion about EVNNPT?

2. Do you see EVNNPT as a distinct entity or an extension of EVN or do you see it as a part of EVN?

3. How would you rate EVNNPT in terms of its communication and information flow with different

stakeholder groups, including the Ministry of Industry & Trade?

4. Do you think that the local people are communicated well on various issues? Are you happy with

the level of communication?

5. What do you think of the CSR activities of EVNNPT?

To media

1. What is your general perception or opinion about EVNNPT?


3. What is your opinion of the information flow from EVNNPT? Is it regular and adequate? Is it

responsive when you contact EVNNPT? Is it easy to connect with the EVNNPT officials and receive

information?

4. What is your opinion about CSR that EVNNPT undertakes? Does EVNNPT do enough for ordinary

people in project areas (other than ensuring / paying compensation to people whose land is

acquired for the project)?

To affected people


2. Are you unhappy about the land loss?

3. How do you compare your present home to the old one?

4. Are you satisfied with the compensation or not?

5. Are you communicated well through loudspeakers, leaflets etc. on various issues? Are you happy

with the level of communication?

6. Has your family been trained or guided about the need to protect transmission lines corridors?

Summary of laws / decisions / decrees / circulars



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Appendix 5 - Summary of laws / decisions / decrees / circulars

Relevant to investment planning

Decision No. 1368/QD-EVNNPT dated 18 October 2013

This is the most crucial Decision in the investment planning process. This Decision lays down the delegation of

powers for various activities/ decisions under the investment planning process. This decision is in fact an

amendment of the original Decision No. 496/QD-NPT dated 16 June 2010. A brief reading of the changes

suggests that the new Decision has brought about more centralisation in decision making to the President &

CEO or Management Board. This Decision is important not only from a process efficiency perspective but also

from a governance perspective.

Some of the salient features of the Decision are summarised below:

The authority for investment decision and implementation in EVNNPT is based on the value of the investment

proposed. The investment is categorised into three broad categories (based on its value) which includes:

1. Investment value less than 500 billion VND

2. Investment value from 500 billion VND to 1000 billion VND

3. Investment value from 1000 billion VND to 50% of the total asset value

The powers are judiciously divided for each activity under the investment planning process for each category of

projects.

Scope of work Authority of approval Investment value above 1000 billion VND and up to 50% of the total asset value

Investment value between 500 billion VND and 1000 billion VND

Investment value less than 500 billion VND

Selection of consultant at feasibility study stage

President & CEO President & CEO President & CEO

Approval of feasibility study

Management board President & CEO President & CEO

Selection of consultant at technical design stage

President & CEO President & CEO Projects Management Board / Power Transmission Company

Approval of technical design, estimation

President & CEO President & CEO Projects Management Board/Power Transmission Company

Approval of procurement plan

Management board President & CEO N.A.

Approval of invitation to bid, request for proposal


Approval of DTGT President & CEO President & CEO Projects Management Board/Power Transmission Company




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Scope of work Authority of approval Investment value above 1000 billion VND and up to 50% of the total asset value

Investment value between 500 billion VND and 1000 billion VND

Investment value less than 500 billion VND

Approval of contractor selection result

Management board President & CEO Projects Management Board/Power Transmission Company

Contract signing Projects Management Board

President & CEO Projects Management Board/Power Transmission Company

Selection of supervision consultant


Approval of working drawings - estimation

Projects Management Board/Power Transmission Company



Approval of unexpected contents: - Unexpected work items, revision of main technical solution or total investment stated in Decision on approval of project investment


Modification of technical design affecting main technical solutions stated in Decision on approval of technical design, or over provision value.


Modification of technical design not affecting main technical design and not over provision value.




Establishment of acceptance board


Approval of balancing of finished projects


Decree No. 38/2013/ND-CP dated 23 April 2013

This Decree is primarily pertaining to the management and utilization of the Official Development Assistance

(ODA) and concessional loans from various donor agencies. This Decree clearly outlines the following

important areas:

1. Basic principles for use of ODA funds

2. Priority areas for use of ODA funds

3. Process to be followed for ODA funding, use and monitoring

4. Roles of various state agencies

The salient features of this Decree is summarised in the table below:




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Area Salient features

Basic principles for use of ODA funds

The ODA funds and concessional loans from donor agencies will be used by the Government in socio-economic development of the country. The ODA funds are managed centrally by the Government. The use of ODA funds shall be towards achieving the highest socio-economic effectiveness with sustainable manner. The guiding principles for use of such funds includes equality and fairness, capital absorption capacity, debt re-payment capability and the safety of public debts, in which prioritize to use concessional loans for programs and projects that can refund directly. The Government of Vietnam is also open to creating a favourable framework for use of ODA funds by private sector. In case there is some discrepancies among state laws and international treaties (with Government of Vietnam), the provisions of such international treaties shall take precedence.

Priority areas for use of ODA funds

The priority areas for use of ODA funds include:

Large transportation infrastructure

Urban infrastructure including power supply infrastructure

Energy Infrastructure with focus on renewable and new energy

Social development infrastructure

Science and high technology

Rural and agriculture development

Institutional strengthening and administrative reforms

Environment protection, climate change, natural resources protection etc.

Promote trade and investments

Support implementation of National target programmes

Other sectors under decision of Prime Minister

Process to be followed for ODA funding, use and monitoring

The ODA funding process from identification to utilization is defined under the Decree as a five step process:

Step 1: Formulation and approval of funding limits by the Prime Minister of

Vietnam

Step 2: Preparation, appraisal, approval of program or project documents by

EVNNPT (who will act as the Project Owners) under the aegis of MoIT

Step 3: Conclusion of International treaties on ODA and concessional loans

by the Prime Minister (in case of strategic projects) with support from

Ministry of Foreign Affairs, MoJ, MoIT and MPI or by MoIT in case of non-

strategic projects.

Step 4: Implementation of programs and projects under the management of

Project Management Unit formed by EVNNPT from internal team/ external

consultants

Step 5: Supervision and evaluation of programs and projects by Line

Agencies, PMU and MPI.




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Area Salient features Roles of various state agencies

There are various roles assigned to various key departments and ministries in the country for mobilization, use, supervision and evaluation of use of ODA funds/ concessional loans. The key players include:

State (Vietnam): Unified management of ODA funds, making decisions,

policies, master plans, issuing legal documents and executing macro level

management and utilization of ODA funds.

Ministry of Planning and Investment: Responsible for drafting and

submission of legal documents for management and utilization of ODA funds;

focal point agency for all management responsibilities including problem solving,

collating and providing the funding list to the Prime Minister; coordinating with

MoF for approval of domestic financial regime applicable to ODA funded projects,

planning disbursement and handling demand for adding capital in the annual

plans; managing supervision and evaluation activities and submitting periodic

reports.

Ministry of Finance: Coordinating with MPI and other agencies for

formulating strategies and plans for mobilization and utilization of ODA funds;

guidance on preparation of content involving conditions on using funds, financial

management of programs and projects; inputs to Prime Minister on conclusion of

international treaties; officially representing as the borrower on behalf of the

Government; execution of financial management programs; Specifying the

procedures for fund withdrawal and management of fund withdrawal; guiding on

implementation of policies on taxes and charges; allocating budget from the State

budget and other funding sources for payment of ODA; coordinating with the

State bank of Vietnam in defining and publishing the list of commercial banks

eligible to perform the external payment transactions related to ODA; collating

data on disbursement and full responsibility to arrange counterpart funds.

State Bank of Vietnam: Responsible for coordinating with relevant agencies to

conclude ODA funds under select multilateral institutions; coordinating with MoF

post execution of international treaties and monitor and report fund withdrawal

and payment.

Ministry of Justice: Appraising, negotiating and providing comments on the

draft International treaties; comments on the project/ program and regarding

need of international cooperation; appraising the program and PD on foreign

cooperation in legal sector and providing comments from legal aspects on the

draft resettlement framework policy

Ministry of Foreign Affairs: Representing Vietnam abroad to mobilize the

ODA funds; checking, proposing for negotiation, conclusion of the International

treaties on ODA; conducting external procedures on conclusion and

implementation of International treaties and coordinating with concerned

agencies in elaborating and implementing guidelines and directions for ODA

Office of Government: Assisting the Government and the Prime Minister in

leading, directing and operating the uniform state management on ODA;

providing opinions on contents in the course of preparing the programs and

projects and assisting the Government and the Prime Minister for checking and

urging implementation of this Decree

Ministers/ Ministerial level agencies/ Government Agencies:




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Area Salient features Formulating Outlines of programs and projects and submitting them to

competent agencies; coordinating with the MoF and the SBA to conclude

international treaties; proposing to the Prime Minister for conclusion of specific

International treaties; executing the functions of state management of ODA and

concessional loans and ensuring transparency.

People’s Committee: Coordinating with MPI and other agencies for

formulating strategies and plans for mobilization and utilization of ODA funds;

formulating outline of programs and projects, coordinating with MoF and SBV to

conclude the international treaties; responsibility for directing and organizing

land acquisition, compensation and site clearances; ensuring publicity and

transparency and arrange funds for debt repayment in case of on lending

programs.

Decision No. 1485/QD-EVNNPT dated 11 December 2013

The Decision 1485 of 2013, issued by the President & CEO (NPT) is pertaining to the amendment of some

functions and responsibilities of various departments of EVNNPT. This Decision in addition to various

departments also refers to some amendment in roles and responsibilities of Corporate Planning Department

and International Cooperation Department, both of which have a significant role in the investment planning

process.

The detailed roles and responsibilities of CPD and ICD outlined under the Decision 1485 of 2013 are already

provided of this report.

Decision No. 1208/QD-TTg dated 21 July 2010

The Decision 1208 of 2010 from Prime Minister of Vietnam is the Master Plan for 2011-2020 with a

consideration of 2030. The Master Plan is broadly divided into two parts:

1. Part I: Deals with the vision, mission and targets for the energy sector in 2011-2020 with a macro

view of the vision till 2030; and

2. Part II: Deals with the responsibilities of Ministries and other Government Agencies.

Some of the key objectives/ targets set under the Master Plan are summarised below:

1. Invest in the transmission grid to achieve N-1 reliability standard;

2. Ensure the grid is developed in coherence with standards in neighbouring countries to enable

energy exchange between countries;

3. Promote development of GIS and underground substations where land availability is a constraint;

4. Should be able to handle 194- 210 billion kWh by 2015; 330- 362 billion kWh by 2020; and 695-

834 billion kWh by 2030 which would include 18400 MW of wind and hydro power by 2020 (since

variable energy sources such as wind and hydro require greater investment in transmission system

to build the required redundancy);

5. Invest in higher voltage lines i.e. 500 kV;




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6. Higher use of multi circuit lines; and

7. Enable connectivity with other ASEAN countries and Great Mekong Sub-Region (GMS) countries.

The physical investment targets are summarized in the table in starting of this module.

In terms of responsibilities to various ministries, the following table summarises the responsibilities from an

investment planning perspective:

Ministries Responsibilities

Ministry of Industry and Trade

The key responsibilities of MoIT are:

Strictly monitor the electricity supply-demand, progress of

implementation of electricity source and grid projects in order to decide

and adjust the schedules of projects in the approved master plan or

consider and report to the Prime Minister;

Coordinate and urge investors and contractors to implement projects in

the Master Plan in a timely and efficient fashion

Publicize lists of projects in the approved plans and select investors for

Prime Minister’s approval

Formulate plans for raising capital for electricity development

Study and submit plans on Smart Grids

Complete the legal and infrastructure requirements to develop a

competitive market


The key responsibilities of MPI are:

Formulate mechanisms and policies to attract foreign investment, ODA

capital and private investment capital; and

Prime responsibility, along with MoIT, to allocate adequate budget funds

for the formulation and publicity of the master plan.

Ministry of Finance The MoF will be responsible for formulating financial mechanisms and capital mechanisms for investment in the development of the electricity sector under the approved master plan.

State Bank of Vietnam The SBV will be responsible coordinating with all concerned ministries and sectors in formulating appropriate mechanisms and policies to enhance the capacity of banks to ensure adequate supply of funds for electricity projects under the approved master plan

Vietnam Electricity (EVN) The key responsibilities of EVN are:

Invest in, and put into operation the assigned electricity transmission

projects according to the approved schedules; and

Assign EVNNPT to invest in 500 kV and 220 kV network.

Provincial level People's Committees

The key responsibilities of Provincial level People’s Committees are:

Arrange land areas in their local land use planning for electricity

transmission grid works approved in this master plan

Assume the prime responsibility for, and closely coordinate with

investors in, ground clearance, compensation, population relocation and

resettlement for grid projects

Decree No. 108/2009/ND-CP dated 27 November 2009

This Decree provides for investment domains, conditions, order, procedures and incentives; and rights and

obligations of parties to build-operate-transfer, build-transfer-operate and build-transfer contracts. This decree




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contains information about the State agencies competent to sign and perform project contracts, investment

domains, capital sources for project implementation, and use of state capital for project implementation.

The decree contains the process for drawing up and announcement of lists of projects (which includes the

approval of project proposals and feasibility study reports) and selection of investors for negotiating project

contracts.

Along with this, the other things highlighted in the decree are:

1. Project contract details;

2. Procedures for granting investment certificates and implementing projects;

3. General regulations on transfer of project works;

4. Finalization and transfer of BOT works;

5. Investment incentives and security for investors and project enterprises; and

6. State management of investment projects in the form of BOT, BTO or BT contract and

Implementation provisions.

Decree No. 24/2011/ND-CP dated 5 April 2011

Amendment of some articles of Decree 108/2009/ND-CP dated 27 November 2009 of the government on

investment under form of Build-operation-transfer, build-transfer-operation or build-transfer contract

(hereafter Decree 24/2011/ND-CP)

Circular No. 01/2014/TT-BKHDT dated 9 January 2014

This Circular provides guidelines for the Government's Decree No. 38/2013/ND-CP according to Clause 1

Article 70 of the Decree No. 38/2013/ND-CP. Decree No. 38/2013/ND-CP which deals with the management

and utilization of the Official Development Assistance (ODA) and concessional loans from various donor

agencies. The circular contains information about the donors of ODA and concessional loans, management and

use of non-project aid, compiling and approving funding lists and Regulations on the Prime Minister’s

competence to approve the funding list.

It gives the process for the preparation, assessment and approval of project documentation. It also lists down

the various conditions for management of project execution, Formulating & approving capital plans of projects

and Project supervision & evaluation. The circular also deals with the programs, projects, and non-project aid

that are established during the transition from the Government's Decree No. 131/2006/ND-CP dated

November 09, 2006 on ODA management to the Government's Decree No. 38/2013/ND-CP dated April 23,

2013.

Decision No. 106/QD-TTg dated 19 January 2012

The decision is regarding the approval of the scheme on orientations for attraction, management and use of

official development assistance and other preferential loans of donors during 2011-2015. The salient features of

the scheme are:

1. The 2011-2015 scheme consists of three parts:

a. Part I: Necessity, objectives and scope of the scheme.




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b. Part II: Evaluation of implementation of the contents of the scheme on orientations for

attraction and use of official development assistance during 2006-2010.

c. Part III: Attraction, management and use of ODA and other preferential loans of donors

during 2011-2015.

2. The plan of action for implementation of the 2011 -2015 scheme constitutes part of the scheme.

3. The Part II of the decision contains the evaluation of implementation of the contents of the scheme

which is based on the Results of implementation of the contents of the 2006-2010 ODA scheme

and the problems and constraints in the attraction and use of ODA. The evaluation evaluates the

causes of the problems in the scheme of 2006-2010

4. The Part III then places the context for the Attraction, management and use of ODA and other

preferential loans of donors during 2011-2015. The investment demand in the five-year socio-

economic development plan is estimated and guiding principles for improving the institutional and

legal environment are also outlined.

5. Lastly the action plan is outlined which is given as follows:

Group of solutions

Action Responsible agency

Coordinating agency

Deadline Indicator for monitoring

I. Improving policies and institutions

1. Elaboration and submission to the Prime Minister of a draft new decree to replace Decree No. 131/2006/ND-CP on ODA management and use


Ministries of Finance, Foreign Affairs, and Justice. State Bank, Government Office and donors

Second quarter of 2012

A decree issued

2. Issuance according to competence of documents and circulars guiding the new decree replacing Decree No. 131/2006/ND-CP on ODA management and use

Ministries of Planning and Investment and Finance

Related agencies and donors


Guiding Documents and circulars issued

3. Based on the new decree replacing Decree No. 131/2006/ND-CP and circulars guiding this Decree, related agencies shall improve administrative procedures

Ministries of Planning and Investment, and Finance

Related agencies

Third quarter of 2012

Current administrative procedures reduced by 30%

4. Study and proposal to the Prime Minister for decision of the issuance of guidelines on


Related agencies


Guidelines issued




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Group of solutions


Coordinating agency


allocation, management, implementation and supervision of disbursement of domestic capital allocated from the state budget for programs and projects funded with ODA or preferential loans, including priority policies for each. sector, field or difficulty-hit locality

II. Improving organization and management

1. Improvement of organizational structures of focal agencies at all levels in-charge of management and use of ODA and preferential loans


Related agencies

Fourth quarter of 2012

Organization of these focal agencies improved

2. Improvement of effectiveness and efficiency of operation of the Government's ODA working party by upgrading this working party into a national steering committee for ODA headed by a government leader

Ministry of Planning and Investment And Government Office

Government's ODA working party


National Steering committee for ODA Established and operating

III. Enhancing partnership and improving aid effectiveness

I. Raising of quality of dialogs between the Government and donors by renovating agendas and contents of forums for development policy dialogs at national and sectoral levels, associating aid effectiveness with development effectiveness

Ministry of Planning and Investment And ministries and sectors


2012-2015 Quality of Dialogs between the Government and donors raised

2. Enhancement of the role and raising of quality of operation of the Aid Effectiveness Forum by implementing the


AEF Executive Committee, related Vietnamese agencies and donors

2012-2015 Aid quality and effectiveness improved, associating aid effectiveness with development




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Group of solutions


Coordinating agency


Busan Declaration in Vietnam and carrying out activities to improve aid effectiveness

effectiveness (plan on implementation of the Busan Declaration in Vietnam elaborated and approved; a new aid architecture with participation of ministries, sectors and localities and groups of partnerships in sectors and fields set up)

IV. Building capacity for management and use of ODA and preferential loans

1. Elaboration and implementation of medium-term plans on building capacity for management and use of ODA and preferential loans toward professionalism and sustainability



-Second and third quarters of 2012

Plans promulgated

2. Provision of basic training in policies, institutions, processes. procedures and operations of management and use of ODA and preferential loans for project managers at all levels and donors' officers



2012-2015 Officers directly managing the implementation of ODA and preferential loans and donors' officers provided with professional knowledge and skills

V. Improving tie implementation of programs and projects, speeding up disbursement

1. Periodical review of program and project preparation and implementation, proposal of solutions to speed up the signing and increasing disbursement rate

Ministry of Planning and Investment, other Ministries, sectors and localities

Agencies in-charge of state management of ODA and Preferential loans, project managers and donors

2012-2015 ODA and preferential loans signed and disbursement rate increasing year on year

2. Harmonization of processes and procedure between the Vietnamese Government and donors

Agencies in-charge of state management of ODA and preferential loans and managing agencies

Related agencies and donor

2012-2015 Differences in processes and procedures between the Vietnamese Government and donor narrowed a number of action to be taken in advance




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Group of solutions


Coordinating agency

Deadline Indicator for monitoring institutionalized; procedures for supplementing and amending international agreement on ODA and preferential loans in the course of implementation of program and project simplified

VI. Enhancing the monitoring, supervision and assessment

1. Enhancement of monitoring, supervision and evaluation

Ministry of Planning and Investment, General Statistics Office of Vietnam

Ministries, sectors, localities and donors

2012-2015 System of management information and data on ODA and preferential loans improved: national statistics on signed and disbursed ODA loans formed

2. Building of personnel capacity for monitoring, supervision and evaluation of management and use of ODA and preferential loans

Ministries of Planning and Investment, and Finance, and ministries, sectors and localities


2012-2015 Training courses in institutions and skills of monitoring, supervision and evaluation organized

3. Elaboration and application of penalties to assure compliance with regulations on monitoring, supervision and evaluation of management and use of ODA and preferential loans




Penalties to assure Compliance with regulations on monitoring, supervision and evaluation elaborated and applied

4. Enhancement of community-based monitoring and supervision



Regularly Institutions and environment favourable for community participation in monitoring and supervision of effectiveness of ODA and preferential loans enhanced

VII. Information publicity and transparency

1. Coordination with donors in publicizing policies, prioritized sectors and areas,



2012-2015 Policies, prioritized sectors and areas. conditions for provision of ODA and preferential




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Group of solutions


Coordinating agency


conditions for provision of ODA and preferential loans of donors

loans of donors publicized

2. Updating of information on attraction, management and use of ODA and preferential loans in the mass media

Ministries of Planning and Investment, and Finance, ministries, sectors and localities


2012-2015 Information on Attraction, management and use of ODA and preferential loans updated and provided in the mass media

VIII. Implementation of the scheme

1. Dissemination, thorough grasp and implementation of the scheme




Ministries, sectors, localities and donors guided in and thoroughly grasping the spirit, guiding principles and contents of the scheme; the action plan for the scheme implementation implemented

2. Monitoring and evaluation of the scheme implementation

Ministry of Planning and Investment, ministries, sectors and localities


2011-2015 Biannual and annual reports on the scheme implementation and results of ministries, sectors and localities sent to the Ministry of Planning and Investment; periodical reports and reports on mid-term and final evaluation of the scheme implementation results of the Ministry of Planning and Investment submitted to the Prime Minister

Decision No. 553/QD-EVN dated 7 September 2011

Issuance of regulation on delegation of investment decision and investment implementation in Vietnam

Electricity.




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Relevant to project management

Decree No. 12/2009/ND-CP dated 12 February 2009 and amendment Decree No. 83/2009/ND-CP dated 15 October 2009

The Decree No. 12/2009/ND-CP dated 12 February 2009 is an over encompassing decree on all the

construction activities in various social and economic infrastructure sectors of Vietnam, viz., power industry, oil

and gas extraction, chemicals, fertilizer, machine manufacture, cement, metallurgy, mineral exploitation and

processing, all modes of transport sector, irrigation, housing, electronics, pharmaceutical, telecommunication,

health care, tourism, aquaculture, forestry and fishery product processing etc. The Decree details about various

categories of infrastructure projects depending on nature, size, source of funding etc. and mentions roles,

responsibilities and authorities of different “investment deciders” in various stages of projects including

formulation, funding, evaluation and approval of feasibility studies, techno-economic studies, monitoring of

implementation etc. The Decree also elaborates on capability conditions of organizations and individuals

engaged in various construction activities.

The formulation, evaluation and approval of investment projects on the construction of works funded with

ODAs shall comply with the corresponding laws of ODA.

Salient features

1. Project classified based on investment requirements and sector- Group A (> 1500 billion VND),

Group B (75-1500 billion VND) and Group C (<75 billion VND). Power projects fall under all the

three groups depending on investment size.

2. Involvement of state management in a project across different stages also depends upon funding

source of projects i.e., For a state-funded project, state manages the project across the life cycle

from identification of investment policies, project formulation, investment decision, designing,

estimation, contractor selection, construction, testing and operation. Whereas, for a private sector

project, investors shall decide on forms and contents of project management.

3. Formulation of Projects: Details of formulation of different construction projects in feasibility

reports with design plan, design drawings along with authorities for approval for different types of

projects and time limits are explained in this Decree. For example, in case of design drawings, there

are 3 different types of construction designs depending on the size and nature of a specific work.

a. One-step design: In this case, basic design (during formulation of project indicating major

technical specifications), technical design (post investment approval with further details)

and working drawing design (exhaustive design used in construction) steps are combined

into working-drawing design step;

b. Two-step design: Involves separate basic design and combining technical design and

working-drawing design; and

c. Three-step design: Involves separate basic design, technical design and Working-drawing

design. Power Transmission projects generally fall under this category.

4. Evaluation of Projects: Project evaluation authorities/ committees along with their composition

and evaluation methodology for different projects are explained.

5. Management of environment and labour safety: Steps to be taken for proper environment

management, labour safety during construction activities are described.




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6. Capabilities of organizations and individuals engaged in construction activities across different

levels are elaborated.

Amendment to Decree No. 83/2009/ND-CP dated 15 October 2009

1. Investment deciders shall allocate sufficient capital within 3 years, for group-C projects, or 5 years,

for group-B projects, depending on project implementation schedules.

2. Time limits set for agencies examining the project dossiers for different categories of projects and

in case of no opinion within stipulated timelines, a deemed agreement is assumed for the project

dossiers.

3. Amendments for clauses regarding adjustments in projects for which state’s contribution is more

than 30% and detailing type of public projects that can be set for architectural design competitions;

Expenses for such competitions will be considered part of project investment.

4. Ministry of Planning and Investment to guide capability conditions of organizations and

individuals for evaluating work construction investment projects.

Decree No. 14/2014/ND-CP dated 26 February 2014

The Government Decree No. 14/2014/ND-CP dated 26 February 2014 provides detailed stipulations on

implementation of some articles of the Electricity Law on power safety, including safety in power generation,

transmission and distribution along with safety norms during construction and operation of transmission line

for personnel as well as general public. The Decree also elucidates about compensation and assistance for

buildings, land and trees to be acquired in safety corridors of overhead electrical wires during construction and

operation as well.

Salient features

1. Norms for permitted working time vis-à-vis electric field intensity in and around substations

2. Different safety clearances for electricity discharge by voltage level for overhead power

transmission lines, underground cables and substations

3. Contents for Training programme on safety for workers

4. Technical parameters for material and insulation type used in power transmission

5. Procedures to be followed in operation and maintenance like tree cutting, periodicity, intimation to

owner or Commune People’s Committees

6. Compensation norms, authorities responsible for approving compensation amount for land,

households and other property which is being used for construction of transmission assets

Decree No. 15/2013/ND-CP dated 6 February 2013 and Circular No.10/2013/TT-BXD dated 25 July 2013

The Government Decree No. 15/2013/ND-CP dated 6 February 2013 provides regulations on quality

management of construction works in survey, design, construction execution and acceptance of construction

works; on safety management, handling of incidents during construction execution, exploitation and use of

construction works; and on warranty of construction works.




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Salient features

1. Nodal Agency: Ministry of Construction is nodal agency for the quality of construction works

across all sectors. Since, the construction of transmission lines falls under specialized category of

construction works and Ministry of Industry & Trade supports Ministry of Construction.

2. Project Classification: Projects classified into five different categories - building works,

industrial works (includes power sector projects), urban infrastructure projects, transport works,

works for agriculture and rural development.

3. Survey: Various tasks in construction survey along with responsibilities of Investor, Survey

Contractor and other organizations supporting in survey are mentioned.

4. Design: Various tasks in design (including drawings, specifications etc.) for works along with

responsibilities of Investor, Design Contractor are mentioned. Further, steps in appraisal and

approval of design including role of state authorities (Ministry of Construction, Ministry of

Industry & Trade, Departments of Construction and Industry & Trade) in verification of design

works are also detailed.

5. Construction Execution: Responsibilities of investors, Design Contractors, Construction

contractors, manufacturers and suppliers of materials & equipment used in construction works etc.

are elaborated. Safety management during construction and inspection responsibilities of different

ministries/ departments along with timelines for implementation of the same are elaborated.

Ministries of Construction and Industry & Trade along with the corresponding departments are

responsible for power transmission projects. Dispute resolution mechanism is also specified.

6. Warranty post Construction: Warranties (time lines) for different grade projects and

responsibilities of parties are specified.

7. Incident handling: Based on the damage to human life and property, incidents are graded into 4

levels- particularly serious level, level I, level II and level III. Provincial People’s Committees are

responsible for sending the reports on incidents to concerned Ministries. In case of any incident,

the Ministry of Construction along with Ministry of Industry & Trade (for power transmission) are

mandated to investigate it, prepare a report on causes and remedial measures being adopted.

Circular No.10/2013/TT-BXD dated 25 July 2013

This Circular elaborates regulations on inspection, assessment and approval of construction quality

management according to the Decree No. 15/2013/ND-CP, applicable to the building works (does not cover

power sector projects). The circular mentions the tasks of project management enterprise/ investor for

construction quality management (e.g.: selection and approval of sub-contractor, building schedule, quality

control etc.) under different kinds of contracts- Engineering-Procurement-Construction (EPC), Engineering-

Construction (EC), construction, Engineering-Procurement (EP), Procurement-Construction (PC) and under

different ownership models - BOT, BTO, BT, or PPP.

The circular details various steps of construction survey- objectives, survey plan and survey activity,

preparation of report, assessment and acceptance. Plans for controlling quality during construction process

along with such methods for different products and safety measures to be adopted during construction have

been mentioned. All steps similar to life cycle of construction project i.e., design, work plan, plan for controlling

quality, monitoring construction works’ quality & supervision, inspection, assessment are to be performed for

building construction also. The construction authorities affiliated to the Ministry of Industry and Trade will

inspect the building works in power lines in class I, II & III projects. After performing requisite tests on building




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structures and providing reports, completion reports have to be prepared by the investors. Any disputes over

construction quality shall be settled either through - negotiation, hiring a third party consultant or courts.

People’s Level Committees of provinces have to send annual or unscheduled reports on the quality and quality

management of local building works to the Ministry of Construction before December 15 every year. Penal

measures in case of failure in meeting the set standards are also mentioned.

Circular No. 13/2013/TT-BXD dated 15 August 2013

This circular details the verification, appraisal and approval for technical design for works implementing three-

step design, construction drawings design for works implementing one-step or two-step design and other

designs which are carried out following fundamental design specified in Article 20 and Article 21 of the Decree

No. 15/2013/ND-CP, dated February 06, 2013, on quality management of construction works (hereinafter

abbreviated to Decree 15/2013/ND-CP).

In case of works does not fall under the five categories mentioned in Article 21 of Decree 15/2013/ND-CP,

investors will submit technical or construction drawings design (as applicable for one-step, two-step or three-

step design) following basic design to construction-specialized agencies at Central level (Ministries of

Construction, Industry and Trade etc.) and Provincial/Municipal level (e.g.: Departments of Construction,

Industry and Trade etc.) for verification. The verification can be done by agencies appointed by construction-

specialized agencies in case of non-state funded projects. Details of contents of such appraisal and verifications

reports are elaborated - e.g.: conformity about components, specifications of design dossiers compared with

regulations, gaps found etc. After verification, construction drawings are to be approved by Investor.

In case of any change in work construction design due to any reason, the verification, appraisal and re-approval

has to be done. A dossier of design verification of the works construction design includes a report for

verification of the works, approval of project decision, conditions on capability of survey contractors,

contractors for construction design, Drawings and design description, construction estimate of works etc.

Different time limits for verification of construction design for different projects is specified and time for

beginning the design verification of the construction-specialized agency is calculated from the date of receipt of

full and valid dossier. Investors will pay charges for the verification charges to the agencies in line with

provisions of the Ministry of Finance.

Decree No. 69/2008/ND-CP dated 13 August 2009

The Government Decree No. 69/2008/ND-CP dated 13 August 2009 provides regulations on land use planning,

land recovery, compensation, support and resettlement, land prices, land allocation and lease, land use rights

and ownership of houses and other assets attached to land, and land use duration extension.

The land use plan will be consolidated through a bottom-up approach in the People’s Committees at different

levels-Commune level, District level and Provincial Level. Provincial level People’s Committees coordinate with

different ministries (including Ministry of Industry & Trade) which propose their demands for land use in

different areas. Ministry of Natural Resources and Environment finalizes the land use plan and formulates

national-level land use plan and submits to Government for approval.

Salient features

1. Land Prices: In case of land use by equitized state enterprises who have been allocated land by

government (i.e. not through competitive bidding or auctioning), there is provision to re-determine

rates set by Provincial People’s committee in case the rates set are not close to actual market prices.

Principles for setting the annual land rent rates as well as lump sum rates are available in the

decree.




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2. Key Compensation principles:

a. Provincial level People’s committees assign compensation, support and resettlement tasks

to compensation organizations viz. District-level compensation, support and resettlement

councils, Land fund development organizations. The composition of such organizations

and funds for their expenses are elaborated in the Decree; and

b. Land recovered by the State shall be compensated with new land with the same use

purpose. If no land is available for compensation, compensation equal to the value of land

use rights calculated based on land prices at the time of land recovery decision will be paid.

In case land is compensated with new land or residential land or a house for resettlement,

any difference in value shall be paid / recovered in cash.

c. Provincial-level People's Committees shall, based on the practical conditions of localities,

prescribe the minimum resettlement quota and support levels. In case compensation

amount is less than the minimum resettlement quota, households and individuals

receiving residential land or houses for resettlement are entitled to the difference as

resettlement support.

d. Supports: Principles for life support, job support and other supports are referred in the

Decree. For example, in case of recovery of agricultural land, support for life stabilization

will be provided as follows:

Support* to land users who 30-70% agricultural land

>70% agricultural land

need not move out 6 months 12 months

have to move out 12 months 24 months

move out to areas with extreme difficulties

24 months 36 months

* cash equivalent to 30 kg of rice for a month at the average price at the time the support

3. Procedures for Land Recovery, Allocation and Lease: In case it is decided to auction land

use rights for a particular land, land shall be recovered and allocated to land fund development

organizations for clearing the ground and organizing the auction. Subsequently, natural resources

and environment agencies shall carry out procedures to issue certificates of land use rights (as

applicable) to the successful bidder in auction. In case, land is required to be recovered for a

project, following steps are followed. It may be noted that this is not an exhaustive process and

some steps have been simplified for the purpose of clarity.




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Investor to submit a dossier to local agency which submits to Provincial level People's Committee(PLPC)

Land recovery note (LRN) contains reasons for land recovery, area, location, approved detailed construction planning, relocation plan

Is identified Land under planning stage?

PLPC notifies land recovery (land recovery note) or authorize district-level People's Committee(DLPC) to notify land recovery after introducing an investment site.

No

Wait till issue of Land PlanYes

PLPC chairperson permits Investor to conduct survey and map project area after investment approval; prepare detailed construction planning for approval, recovering land and making a master plan on compensation, support & resettlement

LRN notified in local media, posted at head offices of Commune Level peoples’ Committees (CLPC) & public places in areas where land is to be recovered

PLPC chairperson directs DLPC /CLPC to perform following activities

DLPC to set up a council to make a compensation , support & resettlement plan , job training etc. If Land fund organizations exist, they may be assigned this task

CLPC to coordinate with the investor in preparing survey and also with local people

Investor formulates investment project proposal under applicable laws along with all details /plans on compensation , resettlement etc

Compensation, support & resettlement plan Details of land losers, land, compensation & support plan, resettlement arrangements , relocation etc

Min 20 days

NREAs submit land recovery dossiers to corresponding Level people Committees(LPCs)

LPCs decide to acquire land

Provincial/District NREAs submit compensation plans to corresponding LPCs for approval

5 days

Approval of LPCs on compensation plans

CGCO coordinates with CLPCs in publicizing the plan

3 days

Council on Compensation, support and resettlement pays compensation to the land losers

Land recovered from respective persons/ organizations

20 days

Land coercion by CGCO, CLPC etc in case land is failed to be handed over30 days

A

A

Compensation plan publicized similar to LRN

Comments received by Compensation & ground clearance organization(CGCO)

CGCO summarizes and sends to natural resources & environment agency (NREA)

Provincial/ District level NREAs coordinate with respective agencies and decide on land recovery

Process from Planning of Compensation to Land Recovery

Land Recovery Process

Decree No. 106/2005/ND-CP and Amendment Decree No. 81/2009/ND-CP

Decree No. 106/2005/ND-CP dated 17 August 2005 details and guides the implementation of articles of the

Electricity Law on protection of safety of high-voltage power grid works. This decree is supplemented by Decree

No. 81/2009/ND-CP dated 12 October 2009 which has amended certain articles (primarily regarding removal

of 66 kV voltage level and compensation and resettlement mechanism).Decree 106 mentions the safety

corridors (i.e. specific width depending on voltage level and along the length of line) and clearances (safety

corridors) required to be maintained for different voltage levels for protection of various assets and their users

viz. household, trees, crops in fields, railway transport, inland water ways, existing transmission wires & power

cables. The compensation & resettlement framework for tower footing and Right of Way of power transmission

lines provided in the decree is summarized below:

Project Relocation & Compensation

Compensation &

supports for houses

and facilities inside

power grid safety

corridors

For 220 kV & below transmission lines

No relocation required subject to electric field intensity being under stipulated

limits, maintaining safety clearances and following stipulated conditions (e.g.:

fire-proof roofs& walls, proper earthing of metal structure).

Compensation up to 70% of value of house (or as decided by PLPC) provided for

restricted usability and impact on daily life.

If the above stipulated safety criteria are not met, additional compensation to be




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Project Relocation & Compensation

borne for meeting those conditions will also be provided to the PAP.

If these criteria cannot be met, then PAPs are entitled for relocation support

For 500 kV transmission lines

Relocation of all land users is mandatory if they lie inside safety corridors of

500 kV transmission lines. All compensation and support provided as per

relevant decree

Compensation or

support for land inside

power grid safety

corridors

If land lies in the safety corridor and is not subject to land recovery, users will

be entitled to compensation or support for restricted usability of their land.

Lump sum compensation or support will be decided by PLPC and paid from

investment project capital

Compensation or support not exceeding 80% of the compensation for recovery

of land (residential or combination of residential & other types) calculated on

the land area lying inside the corridor

Other salient points:

When land users have to relocate their houses from safety corridors and wish to change the use of

land of other types outside the safety corridors into residential land, local land management

agencies shall carry out procedures to propose competent authorities to permit the change of land

use purpose.

Compensation will be provided for tree felling /trimming whether they are inside or outside the

safety corridors if they exist before implementation notice.

However, we understand that both Decree No. 106/2005/ND-CP and Decree No. 81/2009/ND-CP are expiring

on 15 April 2014 and are awaiting inputs on valid decrees.

Decision No. 2414/QD-TTg dated 11 December 2013

The decision finalises the list and commissioning schedule of key generation and transmission projects during

2014-20 period. Criteria for generation and transmission projects to be treated as urgent are stated in this

decision.

1. Preparation for Project Investment: Investors can appoint domestic advisory contractor(s), in

line with Law on bidding, for preparation & verification of technical design, compensation and

resettlement, social-environment report, feasibility report and other support during

implementation of project. The pre-conditions for investors for starting a project are capital

mobilization plan (in-principle agreement on capital supply from credit institutions) and

satisfactory environmental standards. In case of urgent power transmission projects, the investors

are allowed to carry out previously a few of contents of survey, advisory for making technical design

during appraisal and approval of the investment project. In case investors are allowed to put

implementation of technical design into the scope of work of EPC bidding package, they will be

responsible for preparation of appraisal, approval of technical design; appraisal and approval of

design of construction drawings

2. Compensation and ground clearance: Investors can appoint suitable agencies for setting up

landmarks of corridors of lines as soon as the competent agencies have approved sub-projects on

compensation, ground clearance & resettlement and relevant PPCs have granted Right of way for

lines.




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3. Selection of contractors & contract price: Competent authorities will decide the bidders in

line with Decision No. 50/2012/QD-TTg dated 09 November 2012. In case of urgent projects with

similar technology/ parameters, contract can be negotiated directly with those having similar

experience in the last 5 years subject to some principles (e.g.: quality of equipment should not be

lower than quality of project already executed). Further, prices for imported equipment and

services are lump-sum and for domestic construction, instalment, it is adjusted w.r.t. changes in

exchange rate, labour unit price and prices of other inputs. Also, provisions for contract price

variation (increase or decrease) can be kept for change in scope, volume or quantity of work.

4. Funding arrangement: Foreign funding is allowed for investors as prescribed in Law on Public

Debt Management and the Government’s Decree No. 15/2011/ND-CP dated 16 February 2011. With

respect to domestic funding, State Bank of Vietnam can direct domestic commercial banks to

provide loans to investors. Credit institutions are allowed to provide loans exceeding 15% of own

capital for a customer and exceeding 25% of own capital for a group of concerned customers.

Further, domestic credit institutions are exempted from appraisal of economic and financial

efficiency for each power transmission project.

5. Responsibilities of Ministries: Ministry of Industry and Trade (MoIT) shall appraise, approve

supplementation of list, and correct the scale and progress of the transmission augmentation works

so that the system operates in synchronism with generation addition finalised in the Decision.

Relevant ministries shall support and, coordinate with MoIT in monitoring, inspecting, urging,

aiming to facilitate for investors in effective implementation of the urgent power projects; timely

resolution of issues under their competence, and escalation of issues if the same cannot be resolved.

PPCs shall support by allocating land, establish councils of compensation and ground clearance and

population relocation and resettlement.

Law No. 43/2013/QH13 regarding Law on bidding

1. Scope of law: Among other projects, this law regulates selection of bidders to provide advisory

services, non-advisory services, goods, construction and installation for investment projects of

state-owned enterprises (SOEs) in which SOEs investment is (a) 30% or more; (b) less than 30%

but total invested capital is more than 500 billion VND.

2. Types of bidding methods and processes: The law details different types and methods of bid

processes viz., open & limited bidding, domestic & international, Direct & competitive, single phase

& two phase, single dossier bag & two dossier bags etc. and mentions the cases in which particular

method/ type can be used.

Timelines applicable for key steps in selection of bidders are as below:

Sl. No.

Key Activity in procurement process Timeline

Domestic International

1. Time for appraisal and approval of Plan on tenderer selection

20 days for appraisal and 05 working days for approval after receiving report on appraisal

2. Time for appraisal and approval of bid dossiers after submission by bid solicitor

20 days for appraisal and 10 working days for approval after receiving report on appraisal

3. Time for issue of dossiers for submitting EOIs, invitation for pre-qualification, dossiers of requirements

03 working days from day of publishing such notices

4. Time for EOI /pre-qualification submission by tenderers 10 days from issue of bids

20 days from of issue of bids




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Sl. No.

Key Activity in procurement process Timeline

Domestic International

5. Duration for preparing the bid dossiers by bidders At least 20 days At least 40 days

6. Duration for bid evaluation / assessment

dossiers of expression of interest / pre-qualification

dossier of proposals

bid dossiers

20 days 30 days* 45 days *

30 days 40 days* 60 days*

7. Duration for approving or giving the handling opinion on result of tenderer selection

10 days 10 days

* can be extended by another 20 days if required

1. Selection Process: The law provides articles on formulation of plan for selection of bidders with

project and package details, estimated price, capital sources, method and type of procurement,

duration of contract etc. The plan will be submitted to the competent authority by the investment

owner/ bid solicitor for their evaluation and approval. Generic steps for tenderer selection are

Prepare for tenderer selection; organize the tenderer selection; assess dossier of proposals and

negotiate contract; submit, evaluate, approve and publicize the result of tenderer selection; finalize

and sign contract. These steps vary according to the method and type of selection. Eligibility

conditions, value of bidding guarantee for different kinds of supply and services contracts along

with conditions for return of security are also provided.

2. Evaluation: Different methods to assess bidders for goods and construction are available- (a)

lowest price (all bidders who satisfied required technical criteria will be ranked in terms of their

quotes), (b) assessment price (all expenses converted on a same ground on technical, financial and

commercial elements for entire use life cycle of goods), (c) combination of both the lowest price and

assessment method. Advisory services packages are also evaluated similarly. After evaluation,

contract will be signed between successful bidder(s) and authority.

3. Contract: Different types of contracts depending upon contract payment- lump sum, fixed unit

price, modifiable unit price, time-based contract are prevailing in Vietnam. Also, list of contract

documents, contract performance guarantee, contract adjustments are elaborated in the law.

4. Responsibilities: Responsibilities of different parties in selection of tenderers, investors -

competent agencies, investment owner, bid solicitor, expert groups, evaluating organizations,

tenderers and investors are elaborated in the law. Further, responsibilities of different state

agencies like Ministries, Prime minister and peoples’ committees in managing & supervising bid

processes are mentioned.

5. Others: The law also talks of banned acts in bidding process and how to deal with violations in bid

process and resolution of protests and disputes in bidding process.




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Relevant to transmission pricing

Electricity Law No. 28/2004/QH11 dated 3 December 2004

This law dated 3 December 2004 as amended by Law No. 24/2012/QH13 dated 20 November 2012 is the

guiding principle which specifies broad rules and regulations by which all entities that operate in the electricity

sector abide by. These principles lay down the basis for development planning and investment of the electricity

sector; development and operation of the electricity markets; rights and obligations of organizations and

individuals undertaking various activities and users of electricity; protection of electrical equipment; electricity

saving and safety.

Salient features (relevant to transmission pricing)

Article 30 lays down the basis for determining and adjusting electricity price as follows:

1. The electricity price policies;

2. The socio-economic development conditions of the country, people’s incomes in each period;

3. The electricity supply-demand relationship;

4. The electricity production and business costs and reasonable profits of electricity units;

5. The electricity market development grades; and

6. The annual audited financial statement of the electricity unit.

Article 31 stipulates guidelines for adjustment of electricity prices and associated charges as follows:

1. The schedule of electricity retail price shall be worked out by the electricity retailing entity based on

the framework of average price, the mechanism of adjustment of price and structure of the retail

price prescribed by the Prime Minister, and in conformity with the level of development of the

electricity market.

2. The MoIT is primarily responsible, and coordinates with the MoF to elaborate the price framework

based on average price, mechanisms of adjustment of price and structure of the retail price table

and submit them to the Prime Minister for final decision. The adjustment of the electricity retail

price must be implemented publicly, transparently with respect to changes of component relating

to adjustment of such price. The State uses measures to stabilize the electricity sale price in

conformity with provisions of the Law on price.

3. The price of - electricity generation, electricity-wholesaling, transmission and auxiliary services for

electrical system; charges for regulating the system operations and charges for administration of

market transaction shall be elaborated by the concerned electricity units and appraised by the

electricity regulating agency before they are submitted to the Minister of Industry and Trade and

the Minister of Finance for approval.

4. The MoIT shall assume the prime responsibility for, and coordinate with the MoF to guide methods

to elaborate the range of electricity generation, electricity-wholesaling, transmission and auxiliary

services for electrical system; charges for regulating the system operations and charges for

administration of market transaction.




PwC 420

Article 40 lays down the rights and obligations of the electricity-transmitting unit. The electricity-transmitting

units shall also have the following rights:

1. To elaborate and submit for approval the electricity transmission charges;

2. To be supplied with necessary information on electricity-transmitting activities.

Decree No. 137/2013/ND-CP dated 21 October 2013

The Decree No. 137/2013/ND-CP dated 21 October 2013 deals with the implementation aspect of various

clauses stipulates in the Electricity Law 2004;


1. MoIT is responsible to regulate the method, formulation and review of power generation price

framework, power wholesale price framework, power transmission line charge, auxiliary service

price of power system, load dispatch and operation charge of power system, operation charge of

power market transaction after considering inputs received from the Ministry of Finance.

2. MoIT is responsible to approve:

a. Load dispatch and operation charge of power system, operation charge of power market

transaction after considering inputs received from the Ministry of Finance;

b. Power generation price framework, power wholesale price framework, power transmission

line charge, auxiliary service price of power system except for cases regulated in clause 22

of Article 1 of amended and supplemented law on electricity.

The above Decree clearly chalks out the roles and responsibility of MoIT in approving the pricing framework

and regulating the charges for all operations in the electricity sector.

Decision No. 69/2013/QD-TTg dated 19 November 2013

The Decision No. 69/2013/QD-TTg of the Prime Minister dated 19 November 2013 regulates mechanism for

changing of average retail power price;


Article 4 lays down the mechanism for adjustment of electricity selling price as follows.

1. In a given financial year, average electricity selling price is considered for adjustment when the

basic input parameters change in comparison to the parameters which had been used to define the

basic average electricity selling price.

2. In case where the basic input parameters changed in comparison to the parameters used for

defining the basic average electricity selling price, which makes the basic average electricity selling

price.

a. lower than the current average selling price and within the defined price bracket, EVN

shall reduce the average selling price to the respective level and report to the MoIT and

MoF;




PwC 421

b. higher than current average selling price (after using power price stability fund) by 7% to

less than 10% and within the set price bracket, EVN will be entitled to adjust the increase

average power price at corresponding levels after reporting and receiving approval of the

MoIT;

c. higher than current average selling price (after using power price stability fund) by more

than or equal to 10% and not within the set price bracket, EVN will be entitled to adjust to

increase average power price at corresponding levels after reporting and receiving

approval of the MoIT. EVN will prepare a price proposal document, report to MoIT and

submit to MoF for review. Within 10 working days, MoF has responsibility to review and

send its comments to MoIT. Within next 10 working days, MoIT has responsibility to

consolidate and submit the appraisal opinion to the Prime Minister for consideration and

direction.

Article 5 lays down the responsibility of examination and supervision over adjustment of average electricity

selling price as follows.

1. The MoIT is responsible to examine and supervise over adjustment of average electricity selling

price. When necessary, the MoIT shall request in writing to the EVN for reducing or stopping any

increase of the average electricity selling price.

2. The MoF is also responsible to examine adjustment of the average electricity selling price;

participate in and coordinate with the MoIT in examining differences of rational and regular costs

in comparison to the figures calculated in the petition of electricity selling price after having figures

of settlement statements, audit reports etc.

3. The MoIT is also responsible to announce publicly the cost price of electricity production and

business at all stages, namely of generation, transmission, distribution and retail supply,

administration of auxiliary services of electrical system; the extent of loss or profit of the EVN and

costs which have not yet been included in the cost price of electricity production and business. The

EVN shall announce publicly the adjustment of average electricity retail price and reason thereof.

The above clauses shed light on the mechanism of retail selling price adjustment and its likely impact on the

transmission charge approved. A better understanding of the basis of cost adjustments (true-up process) will

help in bringing out any shortcomings in the existing mechanism of finalization of the transmission charge.

Circular No. 14/2010/TT-BCT dated 15 April 2010 and Circular No. 03/2012/TT-BCT dated 19 January 2012

The Circular No. 01/VBHN-BCT dated 6 September 2013 is a consolidated circular specifying the methodology

for process and procedures for formulation promulgation and management of the power transmission charge.

This circular was originally promulgated as Circular No: 14/2010/TT-BCT dated 15 April 2010 and later

amended through Circular No. 3 /2012/TT-BCT dated 19 January 2012.

This elaborates the methodology stipulated for determining the transmission charge and lays down the process

to be followed for submission/ filing of the transmission charge petition by the EVNNPT to the EVN for

consensus and further to MoIT and ERAV for final assessment and approval.

This provides the following principles and mechanism for allocation of transmission charges on the users of the

system.




PwC 422

Transmission tariff calculating principle

The annual power transmission charge is applied as a unified price nationwide irrespective of distance of power

transmission and point of transfer and receipt.

Average transmission charge is determined annually under the principle of recovery of eligible costs and

profitability to operate the electricity transmission grid to achieve specified quality criteria and meet financial

requirements for investment and development of electricity transmission grid.

Average transmission charge of year N (NTTg )

Determined based on the permitted total transmission revenues of year N of the EVNNPT and total energy

output delivered by the EVNNPT to the units subject to pay transmission charge at the delivery points.

n

i

DB

GN

TT

TT

Ni

N

N

A

Gg

1,

Where:

NTTG:

Permitted total transmission revenues of year N of the National Power Transmission Corporation (VND);

Ni

DB

GNA, :

Total energy output expected to be delivered of the unit i at all delivery points in year N (kWh);

n: Number of units subject to pay transmission charge.

Annual permitted total transmission revenue of year N (NTTG ) includes: permitted capital cost (

NTTCAPC ),

permitted operation and maintenance cost (NTTOMC ) and adjusted transmission revenue for year N-1 (

1NCL )

1 NOMCAPTT CLCCGNTTNTTN

Where:

NTTCAPC:

Permitted transmission capital cost for year N of the EVNNPT (VND);

NTTOMC:

Total permitted operation and maintenance cost of year N of the EVNNPT (VND);

CLN-1: The difference between transmission costs and revenues of year N-1 which is adjusted in the permitted total transmission revenue of year N (VND).

Capital cost:




PwC 423

Total capital costs of transmission of year N ( ) is defined under the following formula:

=

Where:

: Total depreciation costs of fixed assets in year N (VND);

: Total long-term loan interest expenses and borrowing fees and payables in year N for transmission assets (VND);

LNN: Eligible power transmission profit of year N (VND).

Operations and Maintenance cost:

Total O&M costs of year N ( ) is defined under the following formula:

Where:

: Total material costs of year N (VND)

: Total salary costs of year N (VND)

: Total major repair costs of year N (VND)

: Total outsourced service costs of year N (VND)

: Total of other expenses in cash of year N (VND)

Cost and Revenue adjustment component:

The EVNNPT shall be responsible for setting up and maintaining the system of records to monitor cost items to

determine the difference between the cost and revenue of year N-1 to adjust in the permitted total transmission

revenue of year N.

The adjustment of transmission cost and revenue can only be done in the following cases:

Actual total revenue of year N-1 of the EVNNPT is different from the approved permitted total transmission

revenue of year N-1;

Actual rise in eligible costs of year N-1 (based on the financial statements) against the approved proposal of

transmission charge of year N-1 (including depreciation cost, long term interest, salary cost, overhaul cost,

outsourcing service cost, difference of exchange rate), except the arisen cost prescribed in the two cases

below;

Cost incurred for remedies of damages due to natural calamities and force majeure in year N-1;

Arisen cost for reasonable investments in transmission assets beyond the plan of year N-1 approved by the

State’s competent agencies.




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Transmission charge ( ) (VND/kWh) of year N chargeable to payer i of transmission charge

This charge is based on the following formula:

Where:

TCi: Transmission costs to be paid by payer i of transmission costs in year N (VND);

: Total forecast power delivery of payer of power transmission costs at all delivery points in year N;

The transmission charges payable by payer i of transmission costs in year N (TCi) is calculated by employing the

following formula.

1,, NiAPNi DCTCTCTCii

Where:

TCP,i: Capacity transmission charge (VND) TCA,i: Energy transmission charge (VND)

1, NiDC:

Total adjustment amount of transmission charge payable by payer i of transmission costs for year (N-1) (VND)

Components of electricity transmission costs by capacity and power volume are determined by the following

two formulas.

Where:

Total adjustment amount of transmission charge payable by the ith unit due to the difference between the actual

energy delivery output, actual maximum delivery capacity and the estimated energy delivery output and the

estimated maximum delivery capacity for year N-1 (DCi,N-1) is calculated by employing the following formula:

: Total forecast maximum delivery capacity of payer i of power transmission costs in delivery points in year N (MW)

n: Total number of payers of power transmission costs α, β: Ratio of capacity and energy volume components in the power transmission charge

regulated by ERAV each year, with α + β = 1; regulated α = 0 for the year 2011




PwC 425

n

i

DB

DB

n

i

TT

TT

n

i

DB

DB

n

i

TT

TT

NTTNNi

A

A

A

A

P

P

P

PGIDC

1

1-NGNi,

1-NGNi,

1

1-NGNi,

1-NGNi,

1

1-Ni,

1-Ni,

1

1-Ni,

1-Ni,

111, %1

Where:

Transmission costs of month j (TCij) of payer i of power transmission costs is defined by the following formula.

Where:

Principles of penalty for failed service quality

The EVNNPT is fined for failing to guarantee quality of service in cases where outages of transmission lines and

transformers of the transmission grid in the year exceeds regulated limits for each voltage level, except for

incidents caused by force majeure (natural disaster) or problems not caused by EVNNPT.

Mechanism of penalties is applied annually by deduction from welfare fund with an amount equal to the total

penalty for failure to guarantee transmission service quality and that amount is transferred to the development

reserve of EVNNPT.

The annual total amount of penalty for failed service quality (year N) RN of EVNNPT is defined by the following

formula:

1NTTG:

Total power transmission revenue of year (N-1) (VND)

DBP 1-Ni, : Total estimated maximum capacity of the ith unit subject to pay transmission charge at all delivery points in year (N-1) (MW)

TTP 1-Ni, : Total actual maximum capacity of the ith unit subject to pay transmission charge at all delivery points in year (N-1) (MW)

DBA 1-Ni, GN : Estimated energy delivery output of the ith unit subject to pay transmission charge in year (N-1) (MWh)

1-Ni,

TT

GNA:

Actual energy delivery output of the ith unit subject to pay transmission charge in year (N-1) (MWh)

1NI:

Average interest rate of deposit in VND, term of 12 months post-paid for corporate customers determined on the December 31st of year (N-1) of 4 commercial banks (Vietcombank, Vietinbank, BIDV, Agribank) plus 3.0%

: Total of actual delivery volume at delivery points of payer i of transmission costs in month j (kWh)

: Transmission tariff of year N for payer i of transmission costs (VND/kWh)




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Where:

: The amount of penalty for failed transmission service quality due to outage of transmission lines (VND)

: The amount of penalty for failed transmission service quality due to outage of transformers (VND)

Li,N (Lj, N, Lk,N): Total length of 110 kV transmission line (220kV, 500kV) under outage when the incident i happened (j, k) (km)

Si,N (Sj,N,Sk,N): Total capacity of transformer of high voltage level of 110kV (220kV, 500kV) under outage when the incident i happened (j, k) (MVA)

ti (tj, tk): Time of outage of transmission line or transformer of high voltage level of 110kV (220kV, 500kV) when the incident i happened (j, k) (minute)

n (m, l): Number of outages of transmission line or transformer of high voltage level of 110kV (220kV, 500kV) in year N (from 01 September of year N-1 to 31 August of year N)

,

Penalty for failed service quality due to outage of transmission lines in year N for each km of 110 kV, 220 kV & 500 kV transmission line in a minute [VND/(km x minute)] is calculated by the following formula:

= X110 or (X220, X500, Y110, Y220, Y500) x GTT N

,

Penalty on failed transmission service quality due to outages of transformer in year N for each MVA of transformer, of voltage level 110 kV, 220 kV & 500 kV in a minute [VND/(MVA x minute)]

X110, X220, X500 Penalty ratio for failed transmission service due to outage of transmission line of 110 kV, 220 kV & 500 kV [1/(km x minute)]

Y110, Y220, Y500 Penalty ratio for failed transmission service due to outage of transformer of 110 kV, 220 kV & 500kV [1/(MVA x minute)]

A (B, C): Penalty norms for outage of transmission line at 110 kV (220kV, 500kV) D (E, G): Penalty norms for outage of transformer at 110kV (220kV, 500kV)

The total penalty for failed service quality in year N (RN) of EVNNPT for 0.1% incidence is (0.1% x ).

Incidents of failure of transmission line and transformers are taken into consideration when defining penalties

for failed service quality when the outage last for at least 1 minute.

Circular No. 203/2009/TT-BTC dated 20 October 2009

Article 4 deals with determination of historical costs of fixed assets:

The historical costs of fixed assets of enterprises may only be changed in the following cases:

1. Revaluation of fixed assets in the following cases:

a. Under decision of a competent state agency;




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b. Reorganization of the enterprise, change of ownership of the enterprise, transformation of

the enterprise: separation, splitting, merger, consolidation, equitization, sale, contracting,

lease, transformation of limited liability company into joint-stock company and vice versa;

and

c. Use of assets for outward investment.

2. Upgrading of fixed assets.

3. Removal of one or a number of parts of the fixed asset which is/are managed according to the

standards of a tangible fixed asset.

Article 13 lists the various available methods of depreciation of fixed assets:

1. Straight line method;

2. Declining balance method; and

3. Units-of-production depreciation method.

Based on the ability to meet the conditions stipulated for each fixed asset depreciation method, enterprises are

allowed to select depreciation methods suitable for each kind of its fixed assets.

Straight line method: Fixed assets engaged in business activities may be depreciated according to the

straight line method.

Enterprises operating and gaining high economic efficiency are allowed to conduct rapid depreciation of their

fixed assets in order to quickly renew technologies. Fixed assets engaged in business activities and eligible for

rapid depreciation include machinery, equipment; measuring and experimental instruments: equipment and

means of transport; tools used for management: and working animals and gardens of perennial trees. When

conducting rapid depreciation, enterprises shall ensure that they get profits in their business. In case enterprise

conduct rapid depreciation over two times the prescribed frame of use life of fixed assets provided in Appendix

I to this Circular, the depreciation cost exceeding the rapid depreciation level (over two times) may not be

included in their reasonable expenses upon calculating enterprise income tax of the period.

Appendix I of the regulation presents the schedule of useful life of all asset categories, where on an average it

varies between 8-12 years.




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Relevant to public relations

Decision No. 1208/QD-TTg dated 21 July 2010

The objective of the plan is to develop the roadmap for power sector in conformity with the national socio-

economic development strategy, ensuring adequate supply of electricity for the national economy and social

life. The National Master Plan is focused on the following development viewpoints:

1. To develop the electricity sector in conformity with the national socio-economic development

strategy, ensuring adequate supply of electricity for the national economy and social life;

2. To effectively utilize domestic energy resources for electricity development in combination with the

rational import of electricity and fuel, diversification of primary energy sources for electricity

production, conservation of fuel and energy security for the future;

3. To incrementally improve the quality of electricity supplied to consumers of Vietnam;

4. To apply market mechanism for electricity sale prices with a view to encourage investment in the

development of the electricity sector;

5. To encourage electricity conservation;

6. To develop the power sector along with protecting natural resources and the eco-environment, and

ensuring national sustainable development;

7. To gradually create and develop a competitive electricity market, diversifying the modes of

investment and trading in power sector;

8. To preserve the monopoly of the state in the power transmission grid in order to ensure security of

the national energy system;

9. To develop the power sector on the basis of the rational and efficient use of primary energy

resources of each region; and

10. To further step up rural electrification and ensure adequate, uninterrupted and the safe supply of

electricity in all regions nationwide.

The National Master Plan addresses the various topics of interest to the industry sector. Since the government

is the decision maker with regards to EVN and EVNNPT, it would be a good idea to examine the government’s

agenda - as mentioned in the National Master Plan - from the perspective of EVN’s and EVNNPT’s

communications plans. Listed below are some of the initiatives that are relevant for it:

1. Focus on the overall power generation of the country with an efficient use of the domestic energy

resources in combination with the import of primary energy;

2. Giving priority to sustainable energy sources, including renewable energy sources for power

production;

3. Focus on rural electrification;

4. Stress on developing and strengthening regional power centres nationwide, ensuring reliable power

supply on site;

5. Focus on technology and innovation in the transmission sector;




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6. Laying underground electricity grids incrementally in cities and towns to limit the impact on the

landscape and environment;

7. Reduction of electricity losses and building smart grids;

8. Interest in attracting foreign direct investment (FDI) in developing electricity projects.

Law No. 13/2003/QH11 dated 29 November 2013

The land law prescribes land management and use. The State is clearly defined as the sole owner of the land. As

such, it is described as having the right to recover and re-possess land as and when required to further the

larger public good. Below are some major highlights of the law:

Salient features

1. The State leases land in exchange of annual land rents from households and individuals. They rent

land for agricultural production, forestry, aquaculture, salt making etc.;

2. The State has the right to take back the land for the purposes of defence, security, national interest,

public interest and economic development;

3. The State will pay compensation, as decided by the Provincial/municipal People's Committees, and

sometimes open for bidding or as agreed between State and the lessee;

4. The state will notify at least 90 days before land recovery for agricultural land, and 180 days for

non-agricultural land;

5. Also, the state shall notify the person the reasons for recovery, time and plan for evacuation, the

overall schemes for compensations, ground clearance and resettlement;

6. In instances where people refuse to provide the land, the State will use coercive ways to recover the

land;

7. If there are no resettlement zones planned, the persons whose land is recovered will receive

compensation to purchase or lease residential areas under the State's ownership;

8. For safety protection corridors: If the land use affects the safety protection of works, the works

owners and land users will apply remedial measures; if remedies cannot be achieved, the State shall

recover the land and pay compensations according to the provisions of law.

Summary

1. The State clearly defines itself to be the sole owner of the land where it gives land use rights to the

citizens of Vietnam and withdraws the land for a greater purpose like development;

2. The State will communicate such an order giving notice of at least 90 days for agricultural land and

180 days for non-agricultural land along with the reason for the withdrawal along with the

compensation that will be provided and the resettlement policy.

Decree No. 15/2013/ND-CP dated 6 February 2013

This Decree provides regulations on the quality management of construction works in survey, design,

construction execution and acceptance of construction works; on safety management, handling of incidents




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during construction execution, exploitation and use of construction works; and on warranty of construction

works. Listed below are the major points:

Salient features

1. The investing company has to undertake responsibilities for organizing the quality management in

the implementation process of works construction investment projects;

2. All construction activities should comply with the National technical codes;

3. In case the investing company is following an international standard, those have to be translated

into Vietnamese and ratified by the authority;

4. Construction survey has to be undertaken in compliance with the construction survey technical

plans;

5. The survey reports have to be prepared so that they satisfy requirements of survey tasks and

contracts;

6. The survey will validate if the quality of construction materials, products, equipment and

components is in accordance with the applied standards and national technical codes in

correspondence and the requirements of design;

7. Investors have to design dossiers with design tasks, basic designs, conditions of construction

contracts, and relevant regulations of the law and send them to competent authorities for

verification;

8. Investors have to provide the contractual party with sufficient information and documents related

to products and goods as stipulated by the regulations on the quality of products and goods and

other relevant regulations; follow the regulations on labels of products and goods;

9. Organizational structure and supervision work plan including the responsibilities, powers, tasks for

all positions of supervision, the quality control plan and procedure, the inspection and acceptance

procedure and the management of related documents and materials will also be prepared by the

investors;

10. Labourers involved in construction execution at sites must be eligible, healthy, trained on safety

and allocated adequate safety equipment as stipulated by regulations on labour safety;

11. Preparation and archives of completion dossiers of completed items, construction works by the

investor;

12. Stakeholders are responsible to hold negotiation for solutions in case of any disputes over the

quality of construction works;

13. Reporting of incidents should be immediate. Investors must briefly report to communal level

People’s Committees and Investors’ senior agencies within 24 hours after the incidents have

occurred;

14. Reporting of incidents:

a. For all types of incidents, if humans are hurt, Investors must also report to the Ministry of

Construction and other competent State authorities as stipulated in the relevant

regulations;




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b. After the receipt of reports in writing or of information about the incidents, Provincial

People’s Committees are responsible for sending the reports on incidents to the Ministry of

Construction and Ministries managing specialized construction works in cases of incidents

of particularly serious level, and other incidents causing the loss of human life;

c. Involved parties must take photos, shoot films, collect evidences and take notes of incident

scenes in service of the State inspection of incident causes and preparation of incident

dossiers before dismantling and clearing incident scenes; and

d. Investors, owners or use managers of works shall take responsibilities for compiling

dossiers of incidents with contents.

Summary

1. National codes are of utmost importance and international quality codes has to be ratified by local

authorities;

2. A construction survey has to be undertaken to check if the work has complied with the technical

plans and has to be reported in accordance with the applied standards and national technical codes;

3. Investors have to design dossiers with design tasks, basic designs, conditions of construction

contracts, and relevant regulations of the law and send them to competent authorities for

verification; and

4. A special emphasis is laid for crisis communication. In case of an incident during construction, the

developer has to also report to the Ministry of Construction and other competent State authorities

in writing. They also need to click photos, shoot films, collect evidences and take notes of incident

scenes in service of the State inspection of incident causes and preparation of incident dossiers

before dismantling and clearing incident scenes.

NPT Regulation on Propaganda (communication), 2011

This regulation, issued by EVNNPT, describes in detail the communication responsibilities of EVNNPT. This is

keeping in view the current laws. This regulation is to be applied comprehensively in EVNNPT (head office and

subsidiaries).

Salient features

1. Vice Presidents, Deputy Directors of various departments, Managers of departments and Directors

of EVNNPT’s subsidiaries shall be responsible for implementing this regulation;

2. The regulation shall be applied comprehensively to EVNNPT head office and its subsidiaries;

3. In addition, this regulation outlines all of EVNNPT’s communication tools including power

transmission news, EVNNPT’s website, and mass media;

4. The regulation also outlines the communication put in place by EVNNPT so as to proactively create

an information channel with partners, consumers of EVNNPT and social community;

5. The aim is to create consistency in communication, messaging and information for the press:

6. The regulation governs all content for communication including (but not limited to):




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a. Policies;

b. Guidelines relating to power activity;

c. Information on management and operation and construction investment activities of

EVNNPT and EVN;

d. Information on the implementation status of various projects;

e. Brand and image for social opinions, locals and partners;

f. EVN’s culture;

g. NPT and its subsidiaries’ behaviour rules;

h. Provide introduction of functions, tasks, model, organizational structure, and operation

activities;

i. Tradition, competition and operation;

j. Information on science-technology, environment, labour safety and sanitation;

k. Initiatives for technical innovation;

l. Operation rationalization with practical efficiency in EVNNPT and its subsidiaries’

business and operation;

7. The regulation defines the spokesperson for the various departments and subsidiaries;

8. There is also clear indication for the need for trained personnel for the communication function;

and

9. The regulation also mentions the need for “spokesperson and information supply in ad-hoc cases”

which implies the need for crisis communication and/or issue based communication.

Summary

1. Though the regulation clearly indicates the need for consistency in communication across all

mediums, there is no clear messaging developed along with the plans that clearly lay out the talk

points for EVNNPT and its various subordinate units and subsidiaries;

2. The regulation outlines the need for professionally trained staff which at present is lacking within

the system; and

3. There is mention of “spokesperson and information supply in ad-hoc cases” which appears to imply

issue based communication / crisis communication. However, there does not appear to be any

communication plan in place focused at anticipating issues/issue management and/or crisis

communication.

Decision No. 1428/QD-EVNNPT and amendment

This document lays out the functions and responsibilities of the various departments of EVNNPT.

In the table below, we have highlighted the functions of those departments whose work relates to

communication activities alongside the stakeholders that are being engaged with by that department.




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Department Communication aspect of the function & responsibility

Stakeholders being engaged by the department


Consult to help EVNNPT’s leaders to direct, manage administration, reception, document filing, propaganda, public relations, traditional customs of EVNNPT; health care of EVNNPT. Help EVNNPT’s leaders to supervise and speed up functional departments and other units to implement assigned tasks.

Employees of EVNNPT

All stakeholders as this

department functions as

communications & PR

department of EVNNPT. These

include media, local

authorities, and affected people

in project areas

Corporate Planning Department

Consult to help EVNNPT’s leaders to direct, manage plan tasks; contract of transmission service supply and related works; transmission pricing and charging; statistic and analysis of business and operation and construction investment activities, undertake supervision, assessment of overall investment of EVNNPT.

Ministry of Industrial and

Trade

EVN

Other departments of EVNNPT

Financial investors

Business partners


Consult to help EVNNPT’s leaders to direct, manage operation management, technical management of transmission network, research and technical-technology-scientific breakthroughs, standardization, quality and environment management (in the field of operation management); technical safety and labour safety.

Domestic and international

technical partners

Officials looking at technical &

labour safety

Power transmission sector in

and outside Vietnam

Regulators of environmental

norms

Investment Management Department

Consult to help EVNNPT’s leaders to instruct, manage projects in the stage of investment preparation and investment implementation as delegation (approval of feasibility study, technical design-estimation) including:

Manage project implementation progress in

the above mentioned stage

Review, submit for approval of documents

related to feasibility study, technical design-

estimation

Management of construction investment

cost of EVNNPT

Departments of Corporate

Planning, Technical,

Information Technology,

International Cooperation,

Material, Construction

Management

Construction Management Department

Consult to help EVNNPT’s leaders to direct, operate construction progress, quality management, construction and erection contract management of construction investment projects and big repairs from the stage of construction preparation until completion and put into use and land acquisition compensation; Mange environment in construction investment field.


Planning, Investment

Management, International

Cooperation, F&A,

Procurement, Material

Appointed and bidding

contractors

Regulators of environment

norms

Labour

Local authorities

People at project sites

Inspection Department

Consult to help EVNNPT’s leaders to manage direct, control inspection tasks; Settle claim,

Anti-corruption authorities




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Department Communication aspect of the function & responsibility

Stakeholders being engaged by the department

denouncement; anti-corruption, security, protection of the government, EVN, EVNNPT secrets; national defence.

Government legal authorities

Local authorities

People at project sites

Legal Department Consult the Management Board to manage and oversee activities of management of the implementation of legal regulations in EVNNPT, any legal issues related to its operations and protection of EVNNPT’s interests.

Government regulators

Corporate planning

department

International Cooperation Department

Consult the Management Board to manage and oversee activities of arranging foreign funding sources and ODA funding, multilateral or bilateral funding sources and international cooperation and foreign relations development of EVNNPT.


Planning, Finance &

Accounting, Investment

Management, Construction

Management, Technical and

Procurement

Visa and Passport authorities

Foreign business partners

Foreign consultants

Detailed process charts for investment planning



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Appendix 6 - Detailed process charts for investment planning

Process Chart 1: First stage approval

Power Transmission Company

identifies the need of new transmission

system (line / sub-station / reactive

compensation etc.) based on own need (e.g.

reduce overloading) or based on inputs

received from Discom(s)

PTC prepares the investment proposal and

sends it to IMD after seeking approval of the

Director of the PTC

After taking inputs of the Technical

Department, IMD forwards the investment

proposal to VP (Operation & Investment)

Review and approval by VP (Operation &

Investment)

Review and approval by President & CEO

Review by Management Board

Whether the project is technically

feasible?

Submitted to MoIT for firs stage appoval

YES

Disapprove (NO-GO)

OR Ask for more information

NO

IMD issues the decision of first stage

approval to respective departments




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Process Chart 2: Approval of FS

National Master Plan

(Current Plan VII: 2011-20)

Based on National Master Plan, NPT prepares Five-year Transmission Plan and

Annual Detailed Plan (both these plans are revised annually)

Based on the decision of the President & CEO, the

respective PPMB/PTC will initiate the project

PTC/ PPMB hires an external consultants to prepare a

Feasibility Study (FS)

Whether FS meets the

prescribed criteria? FS is submitted to IMD

PTC/PPMB seeks

additional

information

Yes

No

Review of the FS by IMD

Review of Technical

feasibilityCost estimation and

Financial Analysis

Review of design

and technical

parameters by IMD

Telecommunicati

on and IT review

by IT deptt

Review in respect of

O&M and fire

protection by

Technical Deptt etc.

Review of fund

requirement & project

planning by Corporate

Planning Department

Review of financial

& economical

analysis and cost

estimation by IMD

C

After the approval of the Annual Detailed Plan, President & CEO will decide that who will execute the

project depending on the location of the project and work load of each PPMB/ PTC. President & CEO

may decide to hold or stop the project




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All the comments and review report will be compiled by the IMD

Reviewed proposal to

be submitted to

Management Board

FS will be submitted to MoIT

If not approved, it will go

back to IMD who will make

the suggested amendments

in the proposal through

meetings and consultative

process with various

departments

After the approval of MoIT, it will go to IMD for

issuance of Implementation Decision

C

IMD will issue the Implementation Decision to all

the concerned departments

Project is ODA or

domestic funded?

Project cost < 1500

billion VND

NPT

management

can approve

ODA funded

Ye

s

If project c

ost >= 1500 billio

n VND

Project cost < 1500

billion VND Domestic funded

In case the project is funded by domestic sources and project cost is < 800 billion VND,

President & CEO can decide otherwise it will be submitted to the Management Board

NPT

Management

Board can

approve

Ye

s

If project cost >= 1500 billion VND

NPT

Management

Board can

approve

Ye

s




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Process Chart 3: Approval of DTD

After the issuance of Implementation Decision by IMD,

the PPMB/ PTC will prepare the Detail Technical Design

(DTD)

Review of the DTD by IMD

IMD will consult with all the relevant departments

After consulting with all the relevant departments, the

IMD will submit the DTD to President & CEO

President & CEO will submit the DTD to MoIT

After the comment from independent consultant, MoIT

will approve the DTD

MoIT will hire an independent consultant to review the

DTD

MoIT will send the approved DTD to President & CEO

President & CEO will issue a Implementation Decision

in respect of approval of DTD

In c

ase

the

ind

ep

en

de

nt c

on

su

ltan

t ha

s a

ny c

om

me

nts

, it will g

o b

ack to

NP

T fo

r am

en

dm

en

t/ mo

dific

atio

n




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Process Chart 4: Process for procuring loans from DCB

For the investment projects, which are approved by the CPD and funds not identified for the project, F&A

Department is responsible to procure domestic loans

F&A Department will seek offers from the domestic banks

The domestic banks will submit their offers to F&A Department

F&A Department will negotiate the terms & conditions of offer with the domestic bank

After agreeing upon the rates of interest and other terms & conditions of the offered loan, F&A

Department will submit the loan proposal to President & CEO for approval

If loan amount >= 500 billion VND

YesNo

Approval of Management Board

neededApproval of President & CEO needed

After getting the approval of the Management Board of NPT or President & CEO, F&A Department may

sign loan agreement with the domestic bank

After signing the loan agreement, the disbursement function is delegated to the PPMB/ PTC

PPMB/ PTC will withdraw the fund as per the loan agreement

The obligation for interest and repayment of loan will be on F&A Department of NPT

During the process, F&A Department will have to submit the details to the bank in respect of economic

efficiency of the project such cash flow, NPV, loan repayment capacity, etc.




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Process Chart 5: Process for procuring loans from OICB

Decision of CPD in respect of procuring loan for the investment project from Other International Commercial

Bank (OICB)

F&A Department will take offers from OICB based on the decision of CPD

F&A Department negotiate with OICB in respect of interest rates and other terms & conditions of loan

Based on the negotiation, the OICB will revise the offer

F&A Department will submit the negotiated offer to President & CEO for approval

NPT hires external consultant to prepare a

document (as per decree 15 and a circular

issued for providing format for applying for

guarantee). It is supported by details of

economic efficiency, benefits from projects,

capacity to repay loan etc.

MoF will issue the gaurantee

Based on negotiation, NPT will sign the loan agreement with OICB

President & CEO submits he offer to the Management Board for approval

Management Board submits an official letter and negotiated offer letter to EVN

EVN will issue its consent to loan proposal and submit it to MoIT for its approval

In parallel to the submission to MoIT by

EVN, NPT will apply to MoF for guarantee

After the issuance of consent letter by EVN (pending

approval of MoIT), the OICB will send the draft loan

agreement (DLA)

By this time, MOIT provides its approval to the proposal

submitted by EVN

MOIT submits the proposal to Ministry of Finance (MoF)

and Ministry of Justice (MoJ).

Based on the DLA, MoIT, MoF and MoJ will negotiate the

DLA. By this time, the report on Environment & Social

Impact Assessment must have approved by MoNR&E




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Process Chart 6: Process for procuring loans from ODA

ICD discusses with ODAs to finalize terms & conditions for project selection

ICD reports NPT’s leaders regarding the amount, criteria for project selection based on which the CPD to

make a list based on the identified criteria

CPD submits the proposed list for consideration and approval to President & CEO

President & CEO submit the list of project to NPT’s Management Board for approval

After the approval of the Management Board, ICD prepares project outline (PO) for the approved projects

as per the regulation of Decree 38

The final version of PO is submitted to MPI (Ministry of Planning & Investment) for its approval- MPI

reviews the PO

NPT submits the PO to EVN for approval with a written request

After review and approval by EVN, it is submitted to MoIT for approval

After the approval of EVN, the PO request is submitted to MoIT for approval

MoIT reviews the PO

C

Any questions/

clarification?If yes, the NPT/EVN has to clarify and modify the PO

No

MPI sends the PO for comments from related ministries (MOF, MOFA, MOJ, SBV) and collects all the

comments and consolidate

Any questions/

clarification?If yes, the NPT/EVN has to clarify and modify the PO

PO is submitted to PM for approval




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EVN reviews the project document and submits to MoIT for review and approval

MoIT, after its review, submits the project document to Ministry of Planning and Investment (MoPI),

Ministry of Finance (MoF) and Ministry of Justice (MoJ) for seeking their comments

Approval of the project document by MoPI, MoF and MoJ

After approval of PO from President, the NPT is required to prepare the project document. It is prepared

by PPMB and other concerned departments - CMD, ICD, IMD, F&A, etc. It is consolidated by ICD

The project document must contain the report on Environment Impact Assessment approved by Ministry

of Natural Resource & Environment, project details with project objective and its economic efficiency

NPT submits the project document to EVN

C

Any questions?If yes, the NPT has to clarify and modify the project document

C

Prime Minister submits it to President for approval

President approves the PO

After approval of project documents by various ministries, ODA will initiate the pre-evaluation of project

document

Depending on the loan source (BL/ML), SBV or MOF will submit its recommendation for establishment of negotiation team to the Prime Minister

Negotiation team will be formed by the PM




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After the approval of PM,, MoF will sign loan agreement with ODA

After signing of loan agreement, the disbursement plan will be validated by MoF

MoF will sign the loan disbursement form as a part of approval

After the signing of loan withdrawl form, NPT can withdraw the fund

The loan agreement needs to be registered with SBV

MoF will appoint an On-Lending Agency (such as EVN Finance Corporation / any other commercial

bank) to monitor the loan disbursement and verify the expenses to get disbursements

NPT has to submit disbursement withdrawal form (as per the Circular no 86 of 2011on ODA loan

management) to On-Lending Agency

On-Lending Agency will escalate the loan withdrawal form to MoF for approval

C

Negotiation team generally comprises of MoF, MoIT and State Bank of Vietnam (SBV). The team

negotiate jointly with the funding agency/ donor

The results of negotiation are to be submitted to PM for approval




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After approval of project documents by various ministries, ODA will initiate the pre-evaluation of project

document

After pre-evaluation by ODA, NPT will initiate negotiation. Negotiation will be jointly done by MoF, MoIT

and State Bank of Vietnam (SBV)

After the completion of negotiation, MoF will sign loan agreement with ODA

After signing of loan agreement, the disbursement plan will be validated by MoF

MoF will sign the loan disbursement form as a part of approval

After the signing of loan withdrawl form, NPT can withdraw the fund

The loan agreement needs to be registered with SBV

MoF will appoint an On-Lending Agency (such as EVN Finance Corporation / any other commercial

bank) to monitor the loan disbursement and verify the expenses to get disbursements

NPT has to submit disbursement withdrawal form (as per the Circular no 86 of 2011on ODA loan

management) to On-Lending Agency

On-Lending Agency will escalate the loan withdrawal form to MoF for approval

C

MoU signed between ADB and EVNNPT



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Appendix 7 - MoU signed between ADB and EVNNPT




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Project level and corporate level financial model for EVNNPT (IP Reco#5)



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Appendix 8 - Project level and corporate level financial model for EVNNPT (IP Reco#5)

Training on principles of regulatory economics and international practices (TP Reco#1)



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Appendix 9 - Training on principles of regulatory economics and international practices (TP Reco#1)

Integrated transmission pricing model (TPM) (TP Reco#3)



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Appendix 10 - Integrated transmission pricing model (TPM) (TP Reco#3)

Training to EVNNPT spokespersons on media handling skills (PR Reco#6)



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Appendix 11 - Training to EVNNPT spokespersons on media handling skills (PR Reco#6)

Workshop on the fundamentals of effective public relations (PR Reco#7)



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Appendix 12 - Workshop on the fundamentals of effective public relations (PR Reco#7)

EVNNPT feedback on three workshops / trainings on public relations



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Appendix 13 - EVNNPT feedback on three workshops / trainings on public relations

1. Mr. Tran Quoc Lam (Vice President, EVNNPT): “The Media Handling Skill workshop is really useful

for my work. I appreciate what the consultants shared with us.”

2. Mr. Tran Minh Tuan (Vice Director, PTC1): “The workshop is helpful especially the hand-outs with

short and simple tips.”

3. Mr. Tran Minh Tuan (Vice Director, PTC1): “The Effective PR workshop is a good chance for both

leaders and executives as we can understand more the importance of PR/communication and support

each other in work.”

4. Mr. Nguyen Manh Hung (Expert, PTC1): “I’ve learnt a lot from the Effective PR workshop and the

knowledge that we shared is useful for my current job as a communication executive. The workshop

provided me with framework that would help me plan and implement communication work more

logically.”

5. Mr. Bui Duy Hung (Director, Admin Department, EVNNPT): “As the head of Admin Department and is

in-charge of communication work I find the workshop is necessary and important. The workshop

provided us a structure that we can apply in our communication work professionally.”

6. Mr. Le Xuan Hoan (Expert, Admin Department, EVNNPT): “I’m in charge of communication work at

EVNNPT but I’m not professionally trained so I often implement communication activities based on

my experience. The workshop helps me with structure and framework to better my work.”

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