IDENTIFYING RISK FACTORS IN THE

GENERATING SECTION OF THE POWER PLANTS

THE N.V. ENERGIE BEDRIJVEN SURINAME CASE

By

SHUNG TAK, CHAN

(SRFHR0407010)

Supervised by

Dr. Hans van Ees

This paper was submitted in partial fulfillment of the requirements for the Masters of

Business Administration (MBA) degree at the Maastricht School of Management (MSM),

Maastricht, the Netherlands, May 2009.

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further information about the theses, their contents, value, grade and overall quality, you are

advised to contact the Academic Degrees Programs Managera

a Copyright Shung Tak Chan, 2009. All rights reserved. No part of this thesis may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise without the prior permission in writing of the author.

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ACKNOWLEDGEMENTS

I would like to take this opportunity to express my sincere appreciation to my thesis advisor,

Dr. Hans van Ees, for his tremendous guidance and support through my research.

To my employer N.V. EBS for giving me the opportunity and support to enrich my

knowledge and skills through this MBA course.

My sincerest appreciation to all the participants in the interviews who gave freely of their

valuable time. These participants are from N.V. EBS, Suralco and SPCS.

I also owe deep appreciation to Mr. Hans Lim A Po and his administrative team from FHR

Lim A Po Institute, for their tremendous guidance, support and good accommodations

facilities.

Finally, to my ever loving family, especially my wife Iris and my sons Yau Tchu and Yau Fa

for their patience, support and encouragement all the times.

Sincerest thanks to all.

Shung Tak CHAN

May 2009

vABSTRACT

Electrical energy is in this modern world indispensable. This commodity cannot be stored and

needs to be generated at the instant when it is needed. The customers also demand for

continuity and reliability of this commodity. Historical data shows that blackouts and rolling

blackouts (i.e. load shedding) are results from shortages of electrical power in the power

plants.

The Surinamese electrical energy sector is regulated. One vertically integrated electricity

company N.V. EBS provides the service through its generation, transmission and

distribution sections. In addition, electrical energy is purchased through PPAs with IPPs

which N.V. EBS is very dependent on. This company is the sole supplier of this commodity

and has to protect its reputation.

Can N.V. EBS (as a monopolist) guarantee a delivery of continuous and reliable electrical

energy? The problem statement is how to achieve an optimal guarantee of electrical energy

supply to customers in Suriname. The guarantee is a direct derivative from the conditions of

the power plants. The general objective of this study is to help the N.V. EBS to understand

the involved risks of the different interconnected power plants for optimal dispatching of

electrical energy. In order to improve the service of electrical energy supply, an integral

approach for the identification of existing and potential risk factors of the power plants is

conducted where the role and the risky ness of the power plants are determined. This

information will give better insight for the N.V. EBS in order to transform into a sound

dispatcher.

The method use in the research is a top-down approach with the pre-determined variables or

sets of variables from the research questions, related to the objectives of the research i.e. the

role of the different power plants, risk models, risk factors, ranking and prioritization. Data

gathering is done through interviews with experts and management in the generating section

of the power plants. An integral methodological approach of the assessed risks is defined and

tested for N.V. EBS. The transformation into a sound dispatcher is described with the

organizational changes needed to achieve this goal for N.V. EBS.

vi

The overall finding is that N.V. EBS can guarantee continuous and reliable electrical energy.

The guarantee lays in the defining of the weighting matrix of the power plants in risky ness

that serves as and input for the improved methodological framework with decision tree for

dispatching electrical energy by N.V. EBS. These topics are the centre focus of this research

and are in details in this paper further described.

vii

LIST OF FIGURES

Figure 1 General overview of the flow of electrical energy from generating to

transmission to distribution and to customer......2

Figure 2 Suriname energy consumption forecast......3

Figure 3 Research model for the thesis topic8

Figure 4 AU-NZ Risk Process....14

Figure 5 General risk-based maintenance (RBM) model ..17

Figure 6 Enterprise Risk Scorecard.19

Figure 7 A block diagram illustrates the research design...22

Figure 8 A methodological framework and decision tree for

dispatching electrical energy53

Figure 9 Improved methodological framework with decision tree

for dispatching electrical energy...54

LIST OF TABLES

Table 1 Weighting matrix of the categories vs. the power plants..51

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GLOSSARY

Definitions

Blackouts:

Power was lost completely

Brokopondo Agreement:

A power purchase agreement of Hydro electrical energy between Suralco LLC and Suriname.

Annually the amount of 800 GWh of electrical energy is dispatched.

GWh (Gigawatt-hour):

One billion watt-hours of electrical energy. A unit of electrical energy, which equals one

gigawatt of power used for one hour.

Load shedding or rolling blackout:

Controlled way of rotating available generation capacity between various districts or

customers, thus avoiding wide area total blackouts

MW Megawatts:

The unit of measure for active power in power systems. When only linear loads are

considered, this quantity is an indication of the amount of power. This power is the sum of

the losses and also the actual rate at which work has been done by the electrical energy in

turning motors and obtaining mechanical energy etc. A 1000 kilowatts make up one

megawatt or MW.

MWh Megawatt-hour:

The unit of measure for electrical energy. It is the amount of electrical energy, which is

consumed by a load or is generated by a generator. It is equivalent to the situation when the

rate of electricity demand or supply (also called the power) is one megawatt and is sustained

for a one-hour period by the load or generator. It is also equivalent to 3600 Mega joules of

energy.

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SCADA:

The Supervisory, Control and Data Acquisition system. In process control, programmable

logic controllers (PLCs) pass information to the central SCADA system, which collates and

presents it to an operator who then has a systems view of the plants control system. The

operator then uses the information from the SCADA system to implement control changes to

the control system using this same SCADA system.

Abbreviations

DEV Dienst Electriciteitsvoorziening

ERM Enterprise Risk Management

EPAR Energie voorziening Paramaribo

COSO Committee of Sponsoring Organizations

GDP Gross Domestic Product

HFO Heavy Fuel Oil

HMI Human Machine Interface

ICT Information and communication technology

IPP Independent Power Producer

ISO International Organization for Standardization

kV kilo Volts

N.V. EBS N.V. Energie Bedrijven Suriname

SPCS Staatsolie Power Company Suriname

SBU Strategic Business Unit

PPA Power Purchase Agreement

RBM Risk Based Maintenance Model

ROI Return On Investment

xTABLE OF CONTENTS

ACKNOWLEDGEMENTS ................................................................................................ iv

ABSTRACT..................................................................................................................v

LIST OF TABLES .............................................................................................................vii

GLOSSARY...................................................................................................................viii

CHAPTER 1 INTRODUCTION.....................................................................................1

1.1 GENERAL ........................................................................................... 1

1.2 Background information....................................................................... 2

1.3 Scope of research.................................................................................. 6 1.3.1 Research area ............................................................................................... 6

1.3.2 Reason for choosing this topic ..................................................................... 6

1.3.3 Research problem ........................................................................................ 6

1.3.4 Validity in management field....................................................................... 7

1.3.5 Research objectives ...................................................................................... 7

1.3.6 Research main question ............................................................................... 7

1.3.7 Research central questions .......................................................................... 7

1.3.8 Research model ............................................................................................ 7

1.4 Limitations ........................................................................................... 8

CHAPTER 2 LITERATURE REVIEW (A description of

alternative approaches to risk) .............................................................. 10

2.1 General............................................................................................... 10

2.2 Risk in different industries.................................................................. 11 2.2.1 Industries.................................................................................................... 11

2.2.2 Categories of risks...................................................................................... 11

2.2.3 Sub-summary ............................................................................................. 12

2.3 Probabilistic vs. Subjective framework............................................... 12 2.3.1 Sub-summary ............................................................................................. 13

2.4 Risk models........................................................................................ 13 2.4.1 COSO ERM................................................................................................ 13

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2.4.2 AU-NZ Risk model..................................................................................... 13

2.4.3 Risk-based maintenance (RBM) model..................................................... 15

2.4.4 Real-Time Risk Based Model .................................................................... 17

2.4.5 Enterprise Risk Scorecard Model ............................................................. 19

2.4.6 Sub-summary ............................................................................................. 20

2.5 Conclusion ......................................................................................... 20

CHAPTER 3 RESEARCH METHODOLOGY ........................................................... 22

3.1 General............................................................................................... 22

3.2 Research material ............................................................................... 23

3.3 Research technique............................................................................. 23 3.3.1 Method and data ........................................................................................ 23

3.3.2 Sample ........................................................................................................ 23

3.3.3 Reliability ................................................................................................... 24

3.3.4 Analyzing data ........................................................................................... 24

CHAPTER 4 FINDINGS............................................................................................... 25

4.1 General............................................................................................... 25

4.2 Power plant SPCS .............................................................................. 25 4.2.1 Data set ....................................................................................................... 25

4.2.2 Findings ...................................................................................................... 26

4.2.3 Summary .................................................................................................... 28

4.3 Suralco ............................................................................................... 29 4.3.1 Data set ....................................................................................................... 29

4.3.2 Findings ...................................................................................................... 30

4.3.3 Summary .................................................................................................... 31

4.4 EBS .................................................................................................... 32 4.4.1 Data set ....................................................................................................... 32

4.4.2 Findings ...................................................................................................... 33

4.4.3 Summary .................................................................................................... 34

4.5 Dispatch Centre .................................................................................. 35 4.5.1 Data set ....................................................................................................... 35

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4.5.2 Findings ...................................................................................................... 36

4.5.3 Summary .................................................................................................... 36

4.6 Conclusion ......................................................................................... 37

CHAPTER 5 ANALYSIS .............................................................................................. 38

5.1 General............................................................................................... 38

5.2 Part one: Unitization, Categorization and

Inferences of findings for answering the research

main questions ................................................................................... 39 5.2.1 Research Central Question 1 ..................................................................... 40

5.2.3 Research Central Question 2 ..................................................................... 42

5.2.4 Research Central Question 3 ..................................................................... 44

5.2.5 Research Central Question 4 ..................................................................... 47

5.2.6 Research Central Question 5 ..................................................................... 48

5.3 Part one: Conclusion........................................................................... 50

5.4 Part two: Implementation of the results from part one to EBS. .......... 51 5.4.1 Research Central Question 6 ..................................................................... 52

5.4.2 Research Central Question 7 ..................................................................... 55

5.5 Summary ............................................................................................ 55

CHAPTER 6 CONCLUSIONS, RECOMMENDATIONS

AND FUTURE RESEARCH ................................................................. 57

6.1 General............................................................................................... 57

6.2 Conclusions ........................................................................................ 57 6.2.1 Role of the power plants ............................................................................ 58

6.2.2 Risk models, risk factors, ranking and prioritization............................... 59

6.2.3 Dispatch Centre.......................................................................................... 60

6.2.4 Changes in the organization of EBS.......................................................... 60

6.3 Recommendations .............................................................................. 61

6.4 Future research ................................................................................... 62

REFERENCES........................................................................................................... 63

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APPENDIX 1 LIST OF INTERVIEWEES OF SPCS................................................... 65

APPENDIX 2 LIST OF INTERVIEWEES OF SURALCO ......................................... 66

APPENDIX 3 LIST OF INTERVIEWEES OF EBS..................................................... 67

APPENDIX 4 LIST OF INTERVIEWEES OF

THE DISPATCH CENTRE OF EBS ..................................................... 68

1CHAPTER 1 INTRODUCTION

1.1 GENERAL

The role of the power plants is very important for the continuous and reliable electrical energy

supply, which is important for the development of the country. It is unimagined to stay

without electricity in todays high tech and modern world. The electrical energy sector has

two forms namely de-regulated and regulated. Globally the trend is to move to de-regulated

electrical energy environment. This is already highly improved in many developed countries.

Still in many developing countries, the Government controls the electrical energy sector. This

structure, as the case of Suriname, may result in a not optimal service of the electrical energy.

The problem statement is how to achieve an optimal guarantee of electrical energy supply to

customers in Suriname. The guarantee is a direct derivative from the conditions of the power

plants. In order to improve the service of electrical energy supply, an integral approach for

the identification of existing and potential risk factors of the power plants will be conducted.

The inputs of these identified risks from the different power plants will give better insight for

the N.V. Energie Bedrijven Suriname (from this point on mentioned as EBS) in order to

transform into a sound dispatcher.

Risks are present in every stage, from the planning phase to the design and construction phase

and in the expansion phase. It is therefore important to identify risk factors in every stage,

understanding them and put control mechanism to mitigate them. This will benefit the

organization in performance and avoid negative criticism. Also by not proper understanding

this issue will lead to loosing opportunities and facing with choosing the improper decisions,

actions and planning. This will result in higher costs, inefficiency and ineffectively in the

operation.

To understand the risks of the different plants in Suriname, an analysis of the regulated

energy environment is necessary. It is important to distinguish the different role of the power

plants in a regulated energy environment and understand how the risk appetites are

formulated.

21.2 BACKGROUND INFORMATION

Electrical energy is important for the development of the economy of a country. It is a

cornerstone on which the economy and the daily lives of the Surinamese citizens depend.

This essential commodity has no substitute and cannot easily be stored, so it must be

produced at the same instant it is consumed.

The basic processes of electrical energy consist of a generating part, a transmission part and a

distribution part as it is depicted in figure 1.

Figure 1 General overview of the flow of electrical energy from generating to transmission

to distribution and to customer.

The generating part is in the power plant and may include steam turbines, diesel engines, or

hydraulic turbines connected to alternators that generate AC electricity. Generators produce

three-phase current at voltages ranging from 2,000 to 24,000 volts. This electricity must be

transformed to higher voltages for efficient long-distance transmission.

The transmission part is the interconnection between power stations, through underground

cables and overhead lines, and is terminate at substations.

The distribution part is where the voltage in the substations is reduced to the primary

distribution voltage e.g. from 33 kV to 12 kV. This voltage is then supplied directly to large

industrial users or is further transformed down to e.g. 227 V / 127 V for local distribution.

3The goal of the modern-day power systems is to generate and deliver electrical energy to

customer as reliably, economically, and safely as possible while maintaining the important

operating parameters (voltage, frequency, and phase angles) within permissible limits.

The electrical energy sector in Suriname is still regulated by the Government. In a regulated

market, the regulator decides the electricity price charged to consumers. Regulated electrical

energy systems have been facing major challenges to generate enough resources for future

development to cope up with the demand growth of electrical energy. Figure 2 gives the

predicted relation of the base-, low and high scenarios of energy consumption against time

for the Surinamese situation.

Figure 2 Suriname energy consumption forecast Source: IDB study 2008

EBS is fully Government-owned and has the monopoly position in the transmission and

distribution of electrical energy to customers consisting of households (88%), commercials

(9%) and industries (3%).

The power plants, which are contributing to the electrical grid, are:

- The EBS;

A Government-owned company with its thermal power plant.

4- The Suralco LLC;

A subsidiary of Alcoa with its hydro- and thermal power plants. Part for the

generated electrical energy is for own consumption for the refinery and melt

shops. The rest of the available electrical energy is for the State according to the

Brokopondo agreement and transferred to EBS for further transmission and

distribution.

- The SPCS (Staatsolie Power Company Suriname);

An Independent Power Producer with its thermal power plant. The generated

electrical energy is available for EBS for further transmission and distribution.

- Dienst Elektriciteitsvoorziening (DEV);

Small thermal power stations operated by Ministry of Natural Resources for rural

areas and the interior.

While there may be some commonalities among the risk factors in the generating section of the

different power plants, each risk is unique as for the different roles they play in the regulated

environment.

History has shown that the electrical energy sector in Suriname has many shortcomings.

These shortcomings relate to the generating capacity of the power plants.

In late 2004 there where shortages of generating capacity from power plant of Suralco due to

low lake level at the hydro-dam. Emergency power in the form of mobile containerize units

where forced to be hired at an instant from the company Aggreko. The director of NH

(natural resources) stated that this action was to mitigate the shortages of electrical energy

and to prevent blackouts (where power was lost completely) and load shedding" or a rolling

blackout (controlled way of rotating available generation capacity between various districts

or customers, thus avoiding wide area total blackouts). The Governments opinion was that

Suralco power plant should contribute electrical energy according to the Brokopondo

agreement for 800 GWh annually. Suralcos defence was that the low lake level the result

was of a drought, an act of God, and thus classified as force majeure (Staat en Suralco oneens

over verdeling kosten generatoren, De Ware Tijd; 02/02/2005). In the end, both parties had to

split the bill for the services of the emergency power. In this case, the compliance and

operation risks were present.

5Another shortcoming was, when the power plant of EBS could no longer guarantee the

electrical energy due to the increasing diesel fuel price (Stroomlevering verder onder druk.

Loadshedding onvermijdelijk, De Ware Tijd; 10/18/2008). EBS was not allowed to adapt it

electrical energy tariff with the rising fossil fuel price. The tariff is still controlled and

decided by the Government (EBS niet happy met voorstel energiecommissie, De Ware Tijd;

06/08/2006). In this case, the operation risk was present.

Due to the generating capacity struggle of EBS, an Independent Power Producer (SPCS) was

granted the concession right by the Government to generate electrical energy also (Staatsolie

bouwt elektriciteitscentrale voor energielevering aan EBS, De Ware Tijd; 05/06/2005). In

this case, the strategic risk was present.

In August 2006, SPCS went into operation with a contractual PPA (power purchase

agreement) between EBS and SPCS for purchasing 100 GWh of electrical energy annually.

This agreement did not execute effectively until today. As in the months that follow, heavy

seasonal rain was filling the lake at the hydro-dam with high speed that there was a threat of

excessive water, which had to be spilled in avoiding critical operation of the turbines. The

Government intervened by dealing with Suralco to expand the purchasing contact to prevent

spilling and waste of resources (hydro) and avert a float in the villages in vicinity and

downstream of the dam. With this intervention, EBS made great use of cheaper hydro

electrical energy and was able to manage its cash flow better by using less thermal generation

with fossil fuel (EBS zit goed op stroom, De Ware Tijd; 06/06/2008). In this case, the

strategic-, compliance and operation risks were present.

On October 5, 2008, EBS announced through news ads and TV spots to the households and

industries to reduce the electrical energy consumption. The reason was that the power plant

of Suralco had to reduce its generating capacity due to preventive maintenance at the hydro-

dam (Verlaagde weekend-energie door daminspectie Suralco, De Ware Tijd; 10/06/2008). As

in this case, the dependency on one big power plant is crucial. In this case, the operation risk

was present.

The historical data has shown that in certain times there is not enough generating capacity

from the power plants. This is always the case when demand does not match supply. The

6consequences are discontinuity of electrical energy supply, rolling blackouts (cutting off

electrical energy at interval) and in the worst case a total blackout.

As there are more cases and the list can goes on and on, it is clear from the mentioned

shortcomings that running power plants deals with risk and opportunities. An integral

approach in identifying the risk factors of the generating section of all the power plants and

dealing them with proper will assure better electrical energy for the Surinamese citizens.

The motto of every stakeholder must be Let there be continuous light.

1.3 SCOPE OF RESEARCH

The customers have constantly questioned the quality of service provided by the electricity

company EBS. Todays customers do not tolerate poor quality or discontinuity of electricity.

The guarantee of good service lies primary in the performance of the power plants. These are

the places where the electrical energy is generated. It is therefore of great importance to asses

the risks factors associated with the operation and strategic of the power plants. In the next

paragraphs, the outline of this research will be discussed.

1.3.1 Research area

The research area is the associated risk in the generating section of different power plants and

their role in the regulated electrical energy environment.

1.3.2 Reason for choosing this topic

A continuous and reliable electrical energy service is important for the electricity company.

Electricity is a commodity, has no substitute, and cannot be stored. The demand of electrical

energy must be generated in the power plants at the same moment. If the demand-supply

equation is not managed in an adequate manner, there will be total blackouts or rolling

blackouts (cutting off electrical energy at interval). Shortages, breakdowns and maintenances

are major aspects to consider as these factors influence the demand-supply equation.

1.3.3 Research problem

Can EBS (as a monopolist) guarantee a delivery of continuous and reliable electrical energy?

There should be a thorough understanding of the generating capacities of the different power

plants and their future developments.

71.3.4 Validity in management field

Understanding the risk factors of the power plants will lead to creating and setting up control

mechanism to mitigate these risk factors. This will guarantee the continuous and reliable

electrical energy services. For the companies the benefits will be a positive financial position,

avoiding and minimizing negative critics, operational effectiveness and contributing to

economic growth.

1.3.5 Research objectives

To assess the current and potential risk factors in the different power plants

Formulate an alternative methodological approach to assure a better or excellent

energy supply service by EBS

To assess the organizational changes required for EBS to transform into a sound

dispatcher.

1.3.6 Research main question

Can the supply of electrical energy be improved through an integral methodological approach

by using the assessed risks factors of the different power plants?

1.3.7 Research central questions

What is the role of the different generating sections of the power plants in a regulated

environment?

Which risk models do the power plants pursue?

What are the existing and potential risk factors?

What is the operation and maintenance philosophy?

Are the different risks prioritized and what are the criteria?

How can EBS as the dispatcher of electrical energy guarantees improvement with the

integral methodological approach of the assessed risk factors?

What are the organizational changes required for EBS to transform into a sound

dispatcher.

1.3.8 Research model

The research model is depicted in figure 3. The approach is to focus only on the strategic and

operation risks in the power plants that are relevant for the performances. There are also

financial risks but these will be limited in this research. The primary focus is thus the

8continuous and reliable service of electrical energy contributed by the different power plants.

An assessment of the strategic and operation risks for the different power plants are then

conducted with in mind the different role they fulfill in the regulated energy environment.

Figure 3 Research model for the thesis topic.

The next step is to identify the crucial risks and then tries to incorporate in the electricity

company (EBS) risk-base for a better understanding and judgment to optimize strategic and

operation performances. EBS is the sole provider (monopolist) of electrical energy directly to

customers and is accountable for this service. The integral methodological approach of the

assessed risks will be formulated and tested in EBS. This will result in a transformation of

EBS into a sound dispatcher thus optimize the performances and mitigate poor services. The

follow-up is to establish the conclusions and recommendations for eventually organizational

changes if implementing this formulated methodology.

1.4 LIMITATIONS

The limitation of this research is that the results are case specific and may not be applicable

for other similar industries. The limitations are:

Monopolistic position of EBS

Surinamese regulated electrical energy environment

Distinguish only the role of the power plants in the regulated energy environment and

not the structure.

Strategic.

risks

Operation.

risks

Financing

risks

Power

plant 1

Power

plant n

Identified

Risk

factors

Integral

Methodology

EBS

case

Conclusions

&

Recommendations

9There is no international interconnection between the transmission networks.

Interconnected power plants in the EPAR (Energie voorziening Paramaribo i.e.

supply of energy to Paramaribo and surroundings) system.

The recommended process changes for EBS are limited to Power Plant and Dispatch

sections in mitigating operations and strategic risk.

10

CHAPTER 2 LITERATURE REVIEW (A description of alternative approaches to risk)

2.1 GENERAL

This Chapter deals with some related background information on risks for this research.

Various studies have been done on identifying the risk factors in different industries. Many

policies and strategies regarding risk management have been developed to mitigate failure

rate and uncertainty. Various models are adopted in the environment specific situations such

as the case in the electrical energy environment.

The literature study begins with the description of risks involving in all kind of industries.

The identification of risks is a process where the generic ERM framework, a well-known and

used model, is pursued by all industries for managing risks and mitigates the impact on the

business. Different industries have different risks, but identification and handling process of

these risks factors may be the same. For the identification purposes, risks are grouped in

major risk areas and sub-areas.

Once the risks are identified and categorized the next step is to assess the probability and

consequence. This is done in a probabilistic- and a subjective framework and the results are

then prioritized.

A company can pursue several risk models. For enterprise level approaches, the generic

models like the COSO ERM and the Australian New Zealand risk model has been proven

to work for the electrical energy sector. For businesses with valuable assets as in the power

plant, a more comprehensive and in-depth framework at micro level is being used. This

framework is based on the justification whether and when to plan a maintenance on a system

and sub-system. The data collection and input for this risk-based maintenance model is

nowadays improved with the development and aid of ICT (information and communication

technology). Real-time data is collected and processed for better judgment by the decision-

makers. At the end, the success of a business is measured through several indices related with

the overall performance and the risks assessment. These factors must be balanced and

managed which can be done with the Enterprise Risk Scorecard model to create value for all

stakeholders.

11

2.2 RISK IN DIFFERENT INDUSTRIES

2.2.1 Industries

Risk has been recognized and dealt with several industries e.g. process plants, transportation,

pipelines, environment, health etc. (Taylor J., 1994). Risk is defined in the different industries

as the probability of loss. These losses may be of many kinds: loss of opportunity,

production, equipment failure or breakdown, environmental damage, injury e.g., which have

an overall impact on the financial status of the company. Every industry has different risks

but the handling of these risks can be the same with the overall and general objectives to

mitigate and eliminate risks. The objectives of the power plants are to manage the resource

inflows and identify the impact of their disruption or termination, contingencies and

measurements etc., then consider how best to manage and minimize or eliminate the risk

factors. The resource inflow can be fossil fuel, scheduled preventive maintenance (PM),

environment issues etc.

2.2.2 Categories of risks

The awareness of risk has changed in the recent years (Mitchell and Jones, 2007). In todays

business, one has to consider the multiple sources and type of risks he or she might

encounter. A strategy has to be developed to mitigate these risks. This will not be reached

only with the increasingly hours spent in boardroom brainstorming about risks, but every

organization should develop risk policies for each risk category and having fully accountable

risk owners.

As in the different industries, risks are divided into major areas and sub-areas for

identification purposes. General the three main categories of risks are:

1. Catastrophic risk, 2. Strategic risk and 3. Operational risk.

These risks have the probability of resulting in failures for the business. These failures are not

mutually exclusive. Catastrophic risk has to do with impact on the business due to external

(originate in the business environment) and internal factors (originate within the company).

Strategic risk is when a company pursues an inappropriate strategy or drifting away from the

core missions. This will result in exhaustion of recourses with losses at the bottom line.

Operational risk is when the company cannot deliver its products or services to key

stakeholders in a satisfaction way.

Moeller R. (2007) has a more comprehensive approach of the business risk model.

12

There are four main risks Strategic, Operation, Finance, and Information , which are

further subdivided into relevant risks in the main categories. Some examples are Process risk,

Compliance risk, People risk, Credit risk, Technological risk etc. Thus, the risks are classified

as the result of the impact and the effect that it has on business.

2.2.3 Sub-summary

The involvement of risks is in every industry present. Different industries encounter different

kind of risks but the approach of risk identification and risk response may be the same. For

identification purposes, risks are divided in major areas and sub-areas. The result of a risk is

the probability of failure for a business.

2.3 PROBABILISTIC VS. SUBJECTIVE FRAMEWORK

The next step in the development of a risk model after categorizing the risks, is to assess the

two measurable parameters involving each risk namely probability (or likelihood) and

consequences (or occurrences). Weighting of these factors depends on individual (or group)

perceptions and interpretation of risk and on historical data and events. An overall detail of

knowledge of the studied environment is needed.

In the electrical energy sector, risk is approached in a probabilistic and subjective framework.

A probabilistic risk framework emphasizes a statistically descriptive form and is very

complex, while the subjective framework imposes lack of robustness, transparency and

repeatability because of no formal structured approach to include risk (G. Latorre, R. Cruz, J.

Areiz, and A. Villegas, 2003).

The probabilistic framework uses differently structured approaches like the Monte Carlo

simulations, Fault trees and Event trees analyses. These structuring approaches define the

failure logic to quantify the probability or likelihood of critical failures. These approaches are

well-used techniques especially for random systems and equipment failure interval in a power

plant. It is indented for internal risk factors because they can be easily accessed and

controlled within its boundaries to mitigation core business damages.

A subjective framework has the advantage of capturing the subject matter expertise from the

plant operators and managers in their daily operations. This group, because of their daily

involvement and expertise, must formulate the best-input data and defining risk appetite. The

disadvantage is that the dependence on the operators and managers is high, thus more

subjective and this can influence the outcome of the analyses. This is the effect of missing a

13

formal structured risk approach. The consequence is that this approach will lead to individual

perception and interpretation of risk.

Nevertheless, the subjective risk framework is a frequently used approach in the power plants

because certain events are not yet recorded or missing, for example new installed equipments

where failure rate is unknown. Assigning a probability in these cases is not possible.

2.3.1 Sub-summary

The weighting process of the identified risks is done with a probabilistic- and subjective

framework. The advantages and disadvantages of both frameworks are briefly discussed. For

the electrical energy section, the subjective framework is the most commonly used model.

2.4 RISK MODELS

This paragraph will focus on the applicable risk models for the thesis topic.

2.4.1 COSO ERM

For any activity whether implementation of a project, changing in condition and daily and

routine operation, risk is the only given certainty. It is important to identify measure, assess

and mitigate the effect of such risk. It is therefore not surprising that also the electrical energy

section applies risks assessment and management (Wenyuen Li, 2005). In todays world, risk

cannot be managed in silos. As in a regulated electrical energy sector where an electricity

company is typical vertical integrated (generation, transmission, distribution), a paradigm

shift from silos approach to an enterprise level approach has to be realized. That is why it is

recommended that the electricity companies should pursue the COSO risk model for

achieving enterprise level risk management (online available at

www.coso.org/Publications/ERM/COSO_ERM_ExecutiveSummary.pdf (2004).

2.4.2 AU-NZ Risk model

A commonly used risk model for the electrical energy sector is the AU-NZ (Australian

New Zealand) risk model (Risk management handbook, AS/NZS 4360:2004). The AU-NZ

risk model provides a comprehensive framework for treatment of risk. This model imposes a

generic one and is independent of any specific industry or economic sector. The design and

implementation of risk management system are influenced by the various needs of an

organization, its particular objectives, its products and services, and the processes and

14

specific practices employed. In figure 4 is the AU-NZ risk process depicted. As the figure

shows, there are seven steps approaches Establish the context, Identify Risks, Analyze

risks, Evaluate the risk, Communicate & Consult, and Monitoring & Review.

Figure 4 AU-NZ Risk Process

Source: Risk Management Handbook, AS/NZS 2360:2004 handbook

Establish the context is where strategy, culture and organizational structure play an important

part. The risk appetite is derived from these factors.

Identify risk is the phase where the current and possible risk events are being assess with

questions like what and how.

Com

mun

icat

ean

dC

onsu

lt

Establish the context

The strategic context The organizational context The risk management context Develop criteria Decide the structure

Identity Risks

What can happen? How can it happen?

Analyze Risks

Determine existing controls

Determine

Likelihood

Determine

Consequences

Estimate Level of Risks

Evaluate Risks

Compare against criteria Set risk priorities

Accept

Risks

Treat Risks

Identify treatment options Evaluate treatment options Select treatment options Prepare treatment plans Implement plans

Monitorand

Review

Yes

NoAssess Risks

15

Analyze risks is the step where identified risk events are being analyzed and put against

control plans to determine the likelihood and consequences.

The next step is the evaluation phase where the criteria of the organization (risk appetite) are

put against the results of the risk analyses. The outcome of this comparison is to accept risks

or not. If risks are not accepted then treatment plans should be engaged to mitigate these

effects. Communication, Consult, Monitoring and Review are constantly active throughout

the whole process.

This model is suitable for the power plants and the electricity company (Varadan S.,

Mittelstadt W.A., Aggarwal R.K., VanZandt V., Silverstein B., 2008). The biggest challenge

is to adopt these specified guidelines from the standards to the specific environment. The

organizations culture and the ability to embrace changes play a crucial role of success

because the model with it seven steps must be followed in the structural sequence. A cultural-

and change management is therefore necessary.

2.4.3 Risk-based maintenance (RBM) model

The most important asset (key success factor) for a power plant is to have a good running and

on time maintained piece of equipment. Managing and improving equipment availability with

better prevention of failures will results in reliability and continuity in supply of electrical

energy. Various studies have been done about equipment reliability improvement and

management (Khan F., Haddara M., and Krishnasamy L., 2008). Many maintenance policies

and strategies have been developed in order to minimize failure rate and improve equipments

reliability and availability like corrective maintenance, scheduled maintenance, condition-

based maintenance, and reliability-centered maintenance. The objective of these maintenance

policies is to safeguard the availability of the system so they can perform as its required

function at a given time or over a stated period of time. A well-known and general used Risk-

based model (Arunraj J.M. (2007) is depicted in figure 5. The methodological approach here

is to start with defining a major system and its subsystems. A major system in the power plant

is comprised of several subsystems. The generator for example is a major system and rotating

- , seal oil & lubricant -, cooling system is categorized as subsystems. The analysis is to focus

on a total failure scenario and not on poor performance, or partial production scenarios. The

next step is to investigate the failure modes of the system, and its associated subsystems

(hazard estimation). The data-input comes from the power plants operators, which is then

ranked in a fault trees and event trees. The quality of the input information depends greatly

on human expertise, interest to the method and capability to access the information. In this

16

stage, the difference between continuous and non-continuous subsystems must be cleared.

With non-continuous subsystems are meant components that are not designed to operate

continuously, such as alarm, emergency, and standby systems. These subsystems may suffer

failures while they are in a non-operating state. The failures are not detected until the system

is called upon to operate. These failures are often caused by manufacturing defects, corrosion,

or mechanical fractures. These failures affect the availability of the system. An effective

inspection strategy is required to ensure the availability of the system when it is needed.

After assessing the likelihood and consequences estimation, the result is analyzed in the risk

evaluation phase and rank in high, medium and low risk units. The last two steps test the risk

appetite of the organization and contingency policy in operation. A system must be secure for

(n-1) contingency perspective to guarantee continuous operational. This approach (n-1) is a

well-accepted planning practice where no loss of operation is experienced when any single

component (for a possible n component) in the power plant fails. This means that there

should be redundancy (reserve capacity) built in the system for continuously operation.

17

Figure 5 General risk-based maintenance (RBM) model

Source: Arunraj, 2007

2.4.4 Real-Time Risk Based Model

The disadvantage of the earlier described Risk-Based Maintenance Model is that the quality

of data input relies heavily on human factors. It should be emphasized that focusing on data

retrieval and updated - as automatic as possible - to prevent risks analyses obsolescence, is

very important.

Divide the system in to manageable units

Consider a unit

Hazard analysis

Likelihood estimation Consequence estimation

Risk evaluation

Identify high, medium and low risk units

Is risk

acceptable?

Is there any

other unit?

No

No

Maintenance planning

Yes

Yes

End

Begin

18

Real-Time Risk Monitors are now being used routinely to provide risk information for use by

plant operators in managing the power plant more effective and efficient (Mili A., Hubac S.,

Bassetto S., Siadat A., 2008).

First, data is collected by software programs from the major and subsystems. The data

generates risk information for use in the day-to-day management of operations and provides

an input for maintenance planning. The objective is to ensure that these activities are

scheduled in such a way that high peaks in the risk are avoided wherever possible and the

cumulative risk is low. They provide information on which components should be returned to

service before particular maintenance activities are carried out and which of the remaining

operational components are the most important to ensuring plant safety during specific

maintenance outages. There is even software programs to control and monitor systems

(Supervisory Control And Data Acquisition) and its subsystems which are integrated for the

whole power plant. The user friendly HMI makes decision making very simple with risk

bands that is presented as risk information in the form of colored displays that give the user a

clear visual indication of the level of risk. This is normally done using a four band scheme as

follows:

- low risk band where maintenance can be carried out with no restrictions,

- moderate risk band where maintenance needs to be completed quickly,

- high risk band where severe time restrictions need to be imposed and compensatory

measures may be required, and

- unacceptable risk band which is not entered voluntarily and immediate action needs to

be taken to reduce the risk.

The risk information is sometimes presented in a three band scheme where the moderate and

high bands are combined. Entering a higher risk band will also result in actions to heighten

the awareness of plant personnel and often require higher levels of management involvement

and approval to allow additional or continued maintenance activities.

Second, with the automated collected data the power system operator can made on-line

contingency analysis to provide a continuous assessment of current power system conditions

and vulnerabilities. This analysis is automatically updated periodically (such as every 10 min)

and may consider several hundred worst-case contingencies. Based upon this information, the

probability of falling below (or above) plant acceptance criteria can be determined.

19

Financial risk Perspective

Internal Business risk Perspective

Innovation and learning risk Perspective

Customer risk Perspective

2.4.5 Enterprise Risk Scorecard Model

An overall performance for the enterprise can be approach through several indices. As

performances are measured through the Balance scorecard (Kaplan and Norton et al, 1996) so

is also risks measured through the Enterprise Risk Scorecard. This model was adopted by

Calandro and Lane (2006). The basic idea is that both performance and risk should be

measured and managed to create value. Figure 6 depicts the Enterprise risk Scorecard.

The electrical energy sector is regulated and thus the electricity tariff is fixed. The challenges

for these power plants are to operate efficient, cutting down cost and mitigate risks. It is

interesting to investigate in the power plants if the Enterprise Risk Scorecard is already

applicable and applied. Literature survey shows further on that risk is an uncertain event that

if occurs, has a negative effect on the objective of an organization. Managing risk is a process

where all stakeholders are involved. Processes, tools and techniques should be developed to

cope with risks. The process steps for risk management can be done with quantitative and

qualitative risk analysis (Moeller R., 2007).

Figure 6 Enterprise Risk Scorecard Source: Calandro and Lane

20

2.4.6 Sub-summary

The generic COSO ERM and AU-NZ risk model are accepted in the electrical energy sector

and are applied at macro level for assessing risks. At micro level, risks are assessed with the

risk-based maintenance model. The enterprise risk scorecard is a model for expressing the

performance and managing risk process in a scorecard.

2.5 CONCLUSION

The literature review point out that risk is present in every business and industry. The

assessment of risks involves every stakeholder of the organization. It starts with the

companys vision and mission. To reach the target objectives of an organization, a balance

between performance and managing risks should be maintained. Organization in todays

business environment is dealing with risk in a broader way. Enterprise Risk Management is a

common tool for doing business today.

The overall objective for the power plant is to strive for continuity, reliability, and keeping

least cost option. A very well known Risk-based maintenance model is used as a basis for the

data collection, identification and evaluation. In the fast changing technology world, ICT

simplifies the data collection of events and make the identification and ranking of risks easier

and faster.

In general, the electrical energy sector is facing many challenges. One is the constant pressure

for more reliable and stabile power from the electricity provider(s). This is especially the case

in a de-regulated electrical energy environment where the different entities - generation,

transmission and distribution with separate owners have to operate efficient and effectively

to reduce cost. In the de-regulated environment, the customers (end-users) have the obligation

to choose and switch to any electrical energy provider. These providers search for the best

offering from the power generating sections. Competition is encouraged alone the whole

process line.

On the other hand, in a regulated electrical energy sector one electricity company has been

granted for the operation of the three entities: generation, transmission and distribution,

which are vertically integrated in one company. This does not necessarily imply a monopoly,

only that competition is regulated and less intense.

21

In both cases, the Government has put emphases on the utilities to guarantee continuously

electrical energy because it affects the development of the economy, which results in socio

benefit for the country.

The objective of the different entities, generation, transmission and distribution, is to

safeguard the electrical energy supply. This thesis will focus only at the primary source

namely the power plants in Suriname where electrical energy is generated. As in the past

there was only one power plant in Suriname, nowadays there are four power plants tide in the

transmission grid. The development for the future is unpredictable and for now it is of

importance to maximize the output of these power plants in a most efficient and effective

way. Future incremental changes have to be considered and planned. To achieve this goal, the

power plants have to identify the risk factors effecting their operation and strategic goals for

pursuing the continuity of service to the whole nation without any interruption.

The electricity company with its Dispatch Centre plays a crucial role in the demand-supply

chain. It is in this centre where all the Power Purchase Agreements (PPA) are performed.

This centre must be able to oversee in advance the availability of the different power plants,

especially in the Surinamese case where there are few generating stations.

In the process of identifying risk factors in the generating section of the power plants, the

relationship and the applicability of the topics from the literature study are being investigated.

The investigation consists of the following major steps:

Determine the power plants existing vision and mission.

Determine the power plants risk model

Determine the evolvement of the used risk model

Determine the major risk areas and sub-areas

Determine the risks assessment and appetite

Determine the process maintenance schedules

Determine the relationship with the dispatcher of electrical energy (EBS)

Further explanation on the investigation is described in the research methodology Chapter 3.

22

CHAPTER 3 RESEARCH METHODOLOGY

3.1 GENERAL

This chapter explores the research technical design as depicted in figure 7 more in-depth.

Figure 7 A block diagram illustrates the research design

The research was conducted in the power plants of Suriname. The research strategy was to

collect data by taking semi-structure interviews with the key persons responsible for the

generating section of the power plants. The sample for the data collection consisted of

operational-, maintenance and management staff. An individual and focus group semi-

structure interview technique was used for more broad view where then the qualitative

analysis approach was followed. In this phase the risk models or equivalent models of the

power plants where reviewed and the similarities and differences were analyzed. An integral

methodological approach of the assessed risks was defined and tested for EBS. The

transformation into a sound dispatcher was described with the organizational changes needed

to achieve this goal for EBS

Analysis

Interview for Identifing risk factors of the different power plants Plant A: .. Plant B: ..

Literature review - risk models - industries - regulated environment - mitigation plan - ERM etc

Sound dispatcher

EBS case

Secundary data

Primary data

Qualitative analysis

Improvement

Integral approach

Results

23

3.2 RESEARCH MATERIAL

The research material for the topic of this thesis consists of:

- Primary data through interviews with keys stakeholders.

- Secondary data through literature studies focusing on risks, different industries, risk

framework, control and mitigation processes, ERM and implementation, etc.

- Records (maintenances, failures, accidents) of the power plants.

3.3 RESEARCH TECHNIQUE

3.3.1 Method and data

The aim of the study is to help the electricity company EBS to get a better understanding of

the involved risks of the different power plants for the dispatch operation of electrical energy.

The result will benefit the improvement of the quality and reliability of electrical energy

supply.

The literature review and secondary data serve as the basis for a better understanding of the

risks involved with the generating section of a power plant. Several risk model approaches

will be questioned and an in-depth exploration of the existing and used models of the power

plants will be conducted.

The method use in the research is a top-down approach with the pre-determined variables or

sets of variables from the research questions. Data gathering will be through interviews with

experts and management in the generating section of the power plants. The interview will

focused on what are the risks and why. Further on the how to mitigate, prioritize and

ranking. The independent variables may consist of organization structure, culture, risk

appetite and human factors. The moderate variables are the different role of the power plants

in the regulated electrical energy environment. The dependent variables are the various

potential risks the dispatcher has to encounter and manage to mitigate the effects.

3.3.2 Sample

The studied objects are the four power plants of the three different entities in Suriname

namely Suralco, SPCS and EBS (also dispatcher)

24

The selection of the sample is focused on plant operators, maintenance crew, mangers and

decision makers for their expertise. This will limit the sample size to less then 20.

3.3.3 Reliability

To achieve high reliability of data, the interviews are mostly conducted in focus group where

the subjectivity is minimized. The personal interviews with the managers and decision

makers will complete the data set.

3.3.4 Analyzing data

After assessing the different risks factors, the data is categorized and grouped. The risk

factors are then prioritized and serve as input for the integral methodological approach for the

dispatcher for day-to-day operation, which leads to improvement in this function.

25

CHAPTER 4 FINDINGS

4.1 GENERAL

The general objective of this study is to help the electricity company EBS to understand the

involved risks of the different interconnected power plants for optimum dispatching of

electrical energy. To do so, data is collected from the different power plants with their role in

the regulated energy environment.

The data sets are derived from the interviews with the different stakeholders. The selection of

the interviewees is based on the experience and expertise in- and around the power plants.

The interviews are focusing on the role of the power plants, risk models, risk factors,

operation and maintenance - and prioritization and ranking philosophy. The purpose is to

assess the risky ness of these power plants.

4.2 POWER PLANT SPCS

The power plant of SPCS consists of two diesel generator sets of 7.5 MW each (an installed

capacity of 15 MW) and running on HFO (Heavy Fuel Oil). This power plant produces

electrical energy since August 2006 and operates as a subsidiary of State Oil Company. This

co-generation plant produces also heat (steam), in the process of generating electrical energy,

for the oil refinery in the surrounded area. With the expansion vision of State Oil Company in

its refinery capacity, SPCS has to adopt also the strategic plan for increasing its electrical

generating capacity and secure the heat demand. Currently SPCS is considering installing an

additional 15 MW of generation. The current PPA is to supply 100 GWh and delivers 15

MW, approximately 10% of base load to EBS.

4.2.1 Data set

The data is gathered by carrying out interviews with a focus group consisting of the

employees directly involve with the power plant. These are Manager, Superintendent,

Operation Supervisor, Maintenance Supervisor and Electrical Engineer. The experience in

this group varies between inexperience to experience respectively 1 year of working skills to

many years. The place of interviews is at the power plant of SPCS on Monday April 6, 2009

26

and last about two hours. A focus group is chosen because of the researcher time-frame and

the availability of the interviewees for this research.

The interviews are semi-structure with flexibility in question design and follow up, especially

in a focus group with diversity of expertise. Questions are asked to every participant of the

focus group and there is no dominator noticeable that monopolizes and influences the

answers. It is further noticeable that the respondents in this focus group are willing to

corporate and give complete response to the questions.

The details of the interviewees are in appendix 1.

4.2.2 Findings

The electrical energy business is a new branch of core business for State Oil Company. SPCS

operates as a SBU and arises from the Corporate Vision 2020. According to the power plant

manager, this SBU is a challenge for the State Oil Company for entering into the electrical

energy sector. Equipped with the Corporations management skills and experience, the power

plant manager hopes to succeed its mission. The rest of the interviewees agree that SPCS will

add value to the Corporation.

All the interviewees agree that this SBU adopts the overall strategic, operational, reporting

and compliance rules of the Corporation. They understand that the oil and electricity

businesses are different. That is why this SBU strives to adopt the existing best practice

proven model to its business environment and learn from the peers i.e. from the power plant

of EBS and own Corporations small emergency back-up power plants.

The power plant Manager and the Superintendent are responsible for the formulation and

description of processes. Both agree that these tasks are doable due to the advantage of

having processes of the Corporation that mostly are ISO certified and accessible for using in

the SPCS power plant. The well-proven standardized processes in the Corporations oil

business can be easily adopted for the electrical energy environment.

The Operation Supervisor, Maintenance Supervisor and Electrical Engineer find the

execution of processes with the ISO certification structural and effective. They all agree that

SPCS still has to standardize some specific processes regarding the generation of electrical

energy to get an ISO certification. Their input to the overall process is thus important.

27

The focus group does not know and have not heard about the COSO ERM framework or

AU/NZ risk model. The interviewees recognize some part of these frameworks when

confronting with the content. The focus group further states that this SBU does not pursue a

specific risk model. Their risk model does have the essential components of identification-,

analysis-, evaluation-, response process and communication. They agree that their risk

process is not so structural and formal like the COSO ERM framework and the AU/NZ risk

model and that is limited to department or division level. Thus a more silos approach,

managing one risk at a time and not holistically.

The overall opinion of this focus group is that in the quantitative risk analyses process, the

probabilistic approach is used for the justification of a new project or a project affecting high

financial consequences. For existing processes and sub-processes, the overall approach is a

combination of subjective and probabilistic method with skewing to the subjective method.

The power plant Manager explains further that the ranking and prioritizing of the assessed

risk factors rely on experience of the appointed team that participates in the risk process of a

project or system and is highly subjective. The remaining interviewees agree with this

statement.

The Superintendent, Operation Supervisor, Maintenance Supervisor and Electrical Engineer

agree that they have to manage the costly assets. Their priority of ranking varies from

manufacturing recommendation to fault events to human judgment. Their opinion is that the

working force will achieve higher goals if they adopt the learning process.

The power plant Manager states that he is responsible for the learning and training programs

so that the working force can make better judgment for the maintenance and operation of the

power plant.

The power plant Manager also states that he is responsible for contracting and hiring

experienced personnel for key processes to become competitive. He strives for empowerment

in this organization and let everybody knows their role and accountability. The

communication is from top-down and vice versa and across. The rest of the interviewees

agree to this statement.

28

All of the interviewees state that SPCS has a good infrastructure in fuel pipeline from the

refinery that guarantees the fuel intake. Their opinion is that SPCS operates optimum, which

results in cost and time reduction, by having a sound procurement and purchase system for

major- and minor parts and consumables. Owing to this, the organizational external risks i.e.

depending on suppliers are mitigated significantly.

All of the interviewees state that the corporate evaluation process is not supporting

performances with risk management. This is still a vague and new concept. The employees

are review from their performance indices.

The power plant Manager states that at this moment, the PPA is not adequate executed and

the supply of electrical energy to EBS is merely 25%. The below-target realization is due to

the low off-take by EBS, as a result of the availability of excess hydropower from Afobaka

power plant. The sole customer under this PPA is EBS. Nevertheless, the need for expanding

the installed capacity is under debate and confidential at top level of the Corporation. The rest

of the interviewees agree with the low off take of electrical energy but do not have an opinion

about the expansion plan. This is above their competence.

All of the interviewees state that the objective is to be available, contribute at any moment to

EBS, and make a profit for further existence.

4.2.3 Summary

The findings of SPCS are listed below.

a) SPCS is a young and learning organization with minimum experience in running a

power plant.

b) SPCS aspires to guarantee continuity in electrical energy supply.

c) SPCS uses ISO certified models from the Corporation and adapts to its organization.

d) SPCS uses no specific risk model but recognizes part of elements from the COSO

ERM or AU/NZ risk model i.e. the identification-, evaluation-, response process and

communication. The risk processes have a more silos then holistically approach.

e) SPCS empowers the work force, communicates from top-down and vice versa, and

across and holds each individual responsible for his or her actions.

f) SPCS uses probabilistic approach for justification of new project.

29

g) SPCS uses probabilistic and subjective approach for existing processes with more

emphasis on the subjective approach.

h) SPCS prioritizes and ranks risk factors on organization and personal experience.

i) SPCS maintenance philosophy ranks from manufacturing recommendation to failure

rate to human judgment.

j) SPCS has minimum suppliers threat.

k) SPCS wants to expand its installed electric generating capacities.

l) SPCS PPA contract with EBS is not optimal executed.

m) SPCS measures only performances indices and no risk management indices.

4.3 SURALCO

Suralco is a subsidiary of ALCOA and operates as an independent company that owns and

operates generation, transmission and distribution in the southern part of Suriname from

Afobaka to Paranam. This system contributes and serves to the Surinamese power system as

the main source of power. Suralco operates two power plants.

1. The Afobaka Hydro Power Plant consists of six turbine generators and an installed

capacity of 189 MW (3x33 MW and 3x30 MW turbines). The generated electricity is

transported from Afobaka to Paranam through a 161 kV transmission double circuit. A part

of this electrical energy is used for the alumina refinery and the rest is transferred to the

Government according to the Brokopondo Agreement, a PPA between Suralco and the

Government of Suriname. After closing of the Suralco aluminum smelter at Paranam in 1999,

the availability from the hydro electrical energy for the Government (i.e. to EBS) has

increased considerably, especially with the high seasoning rainfalls resulting in the high

water inflow into the lake of the dam. This covers almost 90% of the load of EBS.

2. The Paranam Thermal Power Plant has an installed capacity of 78 MW and is located at

the Suralco alumina production plant in Paranam. The main objective of this power plant is to

supply heat and electrical energy (co-generation plant) for the Suralco operations. This power

plant does not contribute to the PPA.

4.3.1 Data set

The data is gathered by carrying out interviews with a focus group consisting of the

employees directly involve with the power plant. These are Manager, Superintendent,

Operation Supervisor, Maintenance Supervisor and Electrical Engineer. This group has many

30

experiences in managerial- and operational fields. The place of interviews is at the power

plant of Suralco at Paranam on Thursday April 9, 2009 and last about one and a half hours. A

focus group is chosen because of the researcher time-frame and the availability of the

interviewees for this research. The interviews are semi-structure with great flexibility in

question design and follow up, especially in a focus group with diversity of expertise.

Questions are asked to every participant of the focus group and there is no dominator

noticeable that monopolizes and influences the answers. It is further noticeable that the

respondents in this focus group are willing to corporate and give complete response to the

questions. The details of the interviewees are in appendix 2.

4.3.2 Findings

The power plant Manager explains the vision and mission of the Corporation. Alcoa is known

for its alumina businesses around the world. Suralco as an independent subsidiary add also

value to its mission by delivery of electrical energy at the lowest attainable cost, consistent

with economic conditions. The rest of the interviewees state that signs with missions are

hanging in every building and these are well known to all employees.

The power plant Manager knows the COSO ERM framework and had work with this model

in previous Corporation projects, especially in feasibility studies. The power plant does not

use this comprehensive model. The other interviewees do not know and have not heard of the

COSO ERM framework or the AU/NZ risk model.

The focus group states that experience and knowledge are inputs to higher management for

risk evaluation. The risk processes start with an internal proven document BLITZ This

document starts with the identification phase of a process or project by the power plant or

Corporation. Several stakeholders from different discipline and background are then selected

by their experience for brainstorming. They aim for least impact on environment, health and

safety, cost saving, sustaining, strategic modernization and growth. The interviewees state

that this approach is more holistic.

All interviewees agree that a combination between probabilistic and subjective approach

influences the decision-making. The power plant Manager states that he is fully responsible

and accountable for the success or failure of the approved projects or processes.

31

According to the Superintendent, the power plant adopts the Reliability Excellence (ReX)

program. This program involves all employees in the ReX continuous improvement process

that will reduce maintenance, material and operating costs and improve equipment efficiency

by re-engineers business processes around materials management, work management and

reliability engineering. The focus group further state that the ReX program is updated, tested

by benchmarking and undergoes an annual audit process.

The power sector seems to evolve with the need of electrical energy for the alumina industry.

According to the power plant Manager and the Superintendent, the installed electric

generating capacity (Afobaka Hydro power plant and Paranam Thermal power plant) is

enough to sustain contractual and refinery demand. They further state that the PPA is

executed based on long-term agreements and system limitations. The rest of the interviewees

agree with this statement.

The focus group states that Suralco guarantees for continuity of processes due to a sound

procurement system. Listed alternative suppliers of Alcoa worldwide cover also the resource

replenishment for Suralco.

The power plant measures its performances but not in combination with the risk management

process. All of the interviewees agree that their performances are measured through only

performance indices. The opinion of the power plant Manager is that managing risks do not

have to add direct noticeable value to the performances in the same period. That is why it is

difficult to link these two indices.

All of the interviewees agree that the operation of Suralco depends heavily on the bauxite

reserve in Suriname. The organization faces at this moment some setback in the world market

price of alumina.

4.3.3 Summary

The findings of Suralco power plants are listed below.

a) Suralco is an old and experienced organization that operates two power plants with

enough knowledge and expertise in the energy business.

b) Suralco aspires to guarantee continuality in electrical energy supply.

32

c) Suralco does not use a comprehensive risk model like COSO ERM. They use standard

in-house working procedures i.e. BLITZ document and ReX. These processes

have more a holistic approach.

d) Suralco appoints the overall responsibility to the manager.

e) Suralco uses probabilistic approach for justification of new project.

f) Suralco uses probabilistic and subjective approach for existing processes with more

emphasis on the subjective approach.

g) Suralco prioritizes and rank risk factors on collective input from their Blitz working

document process.

h) Suralco uses ReX for maintenance philosophy that is benchmarked and audited.

i) Suralco has minimum suppliers threat.

j) Suralco has no need for expanding its installed electric generating capacities and the

PPA contract with EBS is within the limits.

k) Suralco measures only performances indices and no risk management indices.

4.4 EBS

EBS owns a thermal power plant that is located in Paramaribo. The plant consists of 11

Diesel Generator Sets. Four of the machines are recently (2005- 2008) installed, while the

rest are other diesel generator sets varying between 14 to 30 years old. The output of these

older engines is approximately 25% less than the nameplate capacity. The total installed

capacity of the power plant is 82 MW with an actual output of about 68 MW, an average of

83% actual capacity. EBS has managed to convert four old engines to HFO (Heavy Fuel Oil)

use and the performances of these engines are optimum. Only three remaining engines, which

are also the oldest ones, run on premium diesel fuel. The conversion on the engines is not

feasible.

The electricity company EBS is 100% Government owned with a vertically integrated

organization structure of generation, transmission and distribution.

4.4.1 Data set

The data is gathered by carrying out interviews with a focus group consisting of the

employees directly involve with the power plant. These are the Director of Generation &

Transmission, Manager, Operation -, and Maintenance Mechanical Engineer. Further, an

individual interview with the Operation Electrical Engineers is conducted. These groups have

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many experiences in managerial- and operational- and maintenance fields. The place of

interviews is at the power plant of EBS at Saramaccastreet on Wednesday April 8, 2009, for

the focus group and Tuesday April 14, 2009 for the individual interview. The duration is

respectively two hours and one hour. A focus group is chosen because of the researcher time-

frame and the availability of the interviewees for this research. The interviews are semi-

structure with great flexibility in question design and follow up, especially in a focus group

with diversity of expertise. Questions are asked to every participant of the focus group and

there is no dominator noticeable that monopolizes and influences the answers. It is further

noticeable that the respondents in this focus group are willing to corporate and give complete

response to the questions.

An individual interview with the Operation Electrical Engineer is chosen due to the

organizational structure of the power plant, which is divided into mechanical- and electrical

division. The details of the interviewees are in appendix 3.

4.4.2 Findings

According to all interviewees, EBS is in a transformation phase for realizing its corporate

vision and mission 2009-2013. This process is thoroughly explained and exercised from top

to bottom. Every employee is responsible and accountable for his or her actions.

The Director of Generation and Transmission points out that one of the core missions is to

supply reliable and affordable electrical energy nation wide. This is achieved by applying

improved technology and obtaining the operational excellence tactics, which is agreed by all

the interviewees.

The power plant Manager and the Operation Electrical Engineer agree that the power plant

does not use a specific risk framework. All of the interviewees do not know and have not

heard about the COSO ERM framework or AU/NZ risk model.

The Director of Generation and Transmission states that processes are now standardized and

executed. According to the rest of the interviewees, the process begins with the formulation

and identification with a probabilistic and subjective method. The emphasis is more on

subjective method.

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According to all interviewees, the risk appetite is low due to the commitment of the

Corporation for continuous supply of electrical energy. The power plant uses high-tech

system for monitoring and controlling. The collected data serves as input for the operation

performance and maintenance frequency.

The opinion of the Operation -, Maintenance Mechanical Engineer and the Operation

Electrical Engineer is that with the improved system the maintenance and operation is more

efficient.

The power plant Manager explains further that the ranking and prioritizing of the assessed

risk factors relies on experience of the appointed team that participates in the risk process of a

project or system and is highly subjective. Their risk processes have more a silos approach

and limited to divisions. The remaining interviewees agree with this statement.

All of the interviewees state that the Corporation does not link the performances with risk

management. It is also not one of the objectives of the corporate mission.

The Director Generation and Transmission and the power plant Manager state that the power

plant depends heavily on fuel and consumables for the generating of electrical energy. There

is only one supplier of the HFO, namely State Oil Company. Their opinion is that the

procurement processes are not always optimum and need improvements.

The rest of the interviewees agree with this statement.

The opinion of the interviewees is that the power plant has to expand the generating capacity

to sustain the (n-1) criteria. This will guarantee the supply of electrical energy.

4.4.3 Summary