Qatar Electricity and Water Corporation - Creative Methods to Exploit Renewable Energy Sources - Example

1.0 Internal and external factors that have affected Qatar Electricity and Water Corporation Internal factors refers to factors within the company that impact the approach and success of a company’s operation, the company has control over this factors. On the other hand, external factors refer to factors outside the company doors that the company does not have much control over. To identify internal and external factors affecting Qatar Electricity and Water Corporation (KAHRAMAA), we will use various strategic models which include SWOT and PESTEL models 1.1 SWOT Analysis SWOT Analysis is a technique that can be used to understand KAHRAMAA strengths and weaknesses and to identify both opportunities and threats that KAHRAMAA is faced with. Strengths and weaknesses are internal factors that affects the operations of a company while opportunities and Threats are external factors which the company no control over. The following diagram shows KAHRAMAA SWOT analysis Strengths Existing KM facilities can be utilized to generate a remarkable quantity of power without allocating new land Easy to integrate the power output in KM substations available nearby Reduced Transmission & Distribution losses due to power generation location in load center Diversify energy sources Weaknesses New generation technology for KM system Competition from thermal generation Opportunities Direct Savings due to reduction of Natural Gas consumption Solar generation serves as backup power for emergency security in case of black outs Peak Shaping Reduced emissions along with QNV 2030 Possible carbon trading In line with QNV 2030 Enhance Qatar 2022 commitment Threats Harsh environmental conditions High initial capital cost High tariff in case of IPP business model adopted Decline in Natural Gas global prices PESTEL Analysis 1.2.1 Political Political factors refers to the political situation of a country that may affect running of a business.Qatar Electricity and water corporation political environment can be considered to be stable. The country is ruled by Islamic law just like many other Middle East countries. The political situation is suitable for setting up business as the government has been very stable and has been following a pro business policy for years and therefore one is able operate his/her business within a fairly liberal set of rules for years to come so there is no real need to have any major concerns over the political situation in Qatar (CIA,2014).. 1.2.3 Economic factors Economic factors refer to all those economic indicators that affect the running of a business. Over the last few years, the economy of Qatar has been prospering as reflected by the growth of its real GDP which was at 5.5% end of 2013. When the whole world was experiencing the global financial crisis, the authorities of Qatar made all efforts to protect its local banks using direct investments in its local banks. The GDP of Qatar has been growing constantly with the changes being contributed largely by the changes in the oil and heavy investment in the energy sector. The Economic policy of the country has mainly emphasized on developing the country’s natural gas reserves and advocating for investment in non-energy sectors. . However, oil and gas still contribute to more than 50 % of the country’s GDP. Gas and oil has made the country to have the largest per capital income and the country with the lowest levels of unemployment rate at 0.3% in 2013 (CIA,2014).. At the end of last year, the country has oil reserves in excess of 25 billion barrels which is enough to serve the country’s production units for the next 57 years. This is a good indicator for Qatar Electricity and Water Corporation which mainly relies on oil for its production. When it comes to the taxation policy, Qatar has no individual corporate or individual tax and there are no major taxes other than the custom duties. The tax burden amounts to 2.9% of the gross domestic income. The main sources of income for the government are oil and the public expenditure is 31% of the GDP. The public debt is less than 40% of the economy. Although the economic environment of Qatar is favourable for our business, there is need for further institutional reforms to ensure that the high economic growth is sustained and ensure long term development (Heritage Foundation, 2014). 1.2.4 Social Social cultural factors can be defined as characteristics of a population that will affect the operation of a business. The population of Qatar has been estimated at 2.1 million and this number has been increasing rapidly as more and more immigrant labourers come to the country. Citizens of the country comprise of 15% with the rest being made up of immigrants. When it comes to the standards of living, Qatar’s standard of living is considered to be one of the best in the world with the country being ranked position 33 in year 2009 in a report by UNDP. In the education sector, the report indicates that the illiteracy level has gone down to 6.9%and school admission has risen to 80.4%. Life expectancy has increase to 75.5 years with the income per capita hitting $74.882 (QNB, 2009). 1.2.5 Technological Qatar has one of the most advanced technological systems in the world. Most of their infrastructure has been put in place over the last twenty years. The country has made tremendous technological growth in its IT and telecommunication infrastructure over the past ten years. Its GIS system implementation has left the country being modeled by other countries. The country has continued modernizing its infrastructure and with its relatively small population, the country has had an advantage as it can manage its small population well and leave enough capital for investment in infrastructure(CIA,2014).. 1.2.6 Environmental Environmental factor refers to laws and regulations protecting the environment from activities of a business.Qatar have put in place a number of environmental legislation with the Ministry of Environment putting forth conditions and regulations that should be met before establishing, producing and carrying out business activities that may endanger or pollute the environment. Law No. 30 of 2002 provide for protection of the environment by giving preventive measures as well as fines and sanctions for the law offenders. Some of the sanctions include closing down of the business, imprisonment and confistication of business equipment (CIA,2014)..   1.2.7 Legal Legal environment comprise of laws and regulation that may affect the operations of a business. Qatar has a well-established legal system that ensures fairness. The country is governed by Islamic law which is fairly strict compared to other laws. The freedom of press is fairly free as compared to other countries in the Middle East. Although critics say that Qatar government lack transparency especially in the procurement procedures, the corruption record of Qatar is the best in Middle East. The rule of law is solidly respected in Qatar with a well-functioning legal system in place. However, the judicial system here is more prone to political interference and is also bureaucratic (Heritage Foundation, 2014) 2.0 Assess current strategies offer a good fit between the its resources and capabilities Strategic fit refers to the extent to which a company is matching its resources and capabilities with the various opportunities in the external environment (Grant & Robert, 2007). The matching is achieved through strategies and it is very important that the company possess the actual capabilities and resources and support the strategy. Strategic fit can be utilized through evaluating the current strategic situation of an organization and opportunities such as mergers and acquisitions (Grant & Robert, 2007). We will use Resource based view model to evaluate whether KAHRAMAA is matching its resources and capabilities with various opportunities in the external environment 2.1 Current strategies KAHRAMAA current strategies include growth and cost reduction strategies. The company has between 2012 and 2013 undertaken several projects which aim at trickling the increasing demand of the different sectors as well as upgrading its electricity and water (Dr. Al-Sada, 2014). One of the projects is the execution of the second phase of developing the strategic management for the company which aims at complying with National Development Strategy 2011-2016, Qatar nation vision 2030 as well as and the five-year corporate plan for the period 2014-2018. In addition, company has put in place plans to follow up on a feasibility study of using nuclear energy to produce water and generate electricity and to expand its production capacity of water and electricity up to 2036 (Dr. Al-Sada, 2014). The company is undertaking a project to provide capacity to produce electricity and water to meet the demand of the two years of 2017 and 2018 by signing a purchase agreement for the construction of a power and water desalination plant at Qatar Economic Zone 3 (QEZ3) using thermal technology and reverse osmosis technology as well as signing another purchase agreement for the construction of a desalination plant using reverse osmosis technology on behalf of Qatar Petroleum to meet the demand for industrial water for 2017 in Laffan Industrial City. Kahrama is involved in a feasibility study on regional water linking as well as the implementation of a project which aims at developing a long team strategy (Dr. Al-Sada, 2014). Between 2012 and 2013, Kahrama has undertaken 71 projects in Qatar which includes carrying out the construction work of underground cables, the expansion of major power transmission grids in the country, overhead lines and stations with a total of 965 internal and external stations as well as renovation projects at high pressure stations, towers and transformers. In addition, the corporation has established and operated 1200 electricity distributing stations, examined 587 covered and outdoor stations, operated 46 feeders from the main new stations, and operated 1900 electric adapter at the electric distribution network, connected 7200 new building to electricity. To enable the company handle emergency cases efficiently, it has put in place a summer plan by offering emergency offices with specialized personnel and technical team so as to accelerate response to repair and fault detection (Dr. Al-Sada, 2014) . In the water sector, the corporation has choosen several projects which will be undertaken soon which include new water stations in Zekreet and Mukaynis so as to secure drinking water supply to Qatar Petroleum Dukhan. Moreover, Kahramaa has in this year alone finished 12 water projects serving the areas of Al Gharafa, Al-Shahaniya, Airport, Musaimeer, South Doha, West Bay, Dukhan, and Muaither (Dr. Al-Sada, 2014) 2.2 Resource Based View model Resource Based View (RBV) refers to a management tool that determines strategic resources in a firm. This model views a company as a bundle of resources and what differentiates one company from another is in the way they combine their resources to deliver products and services in the market (Barney 2006). This model also states that particular resources controlled and possessed by a company have the ability to generate competitive advantage and hence the company is in a better position to perform better than the other companies in the industry (Barney 2011). For this resources to be transformed from shorter competitive advantage into a sustainable competitive advantage they must be not be perfectly mobile and heterogeneous in nature. There we will use a Resource Based View model to show how KAHRAMAA has used its resources and capabilities to gain competitive advantage to support the company’s current strategies 2.2.1 Key resources of KAHARMAA Human resources In order to accomplish its vision, mission, and objective, Kahramaa has invested in its human resources. The company has prioritized quality Qatarization through competency development and effective talent management programs (Annual reports, 2013). This has enabled the company to develop as well as retain dedicated employees with superior qualification and experience Financial resources In the year 2013, Qatar Electricity and Water Company achieved outstanding financial performance with a net profit of QR 1,384. The company has diversified its sources of income which has enabled it to achieve higher revenue, optimal use of its resources and higher profits (Annual reports, 2013). The company has used its finances to invest in new and existing projects as well as and investments and future plans in the continued pursuit of the company towards achievement of its strategic goals Physical resources The company owns and operates following power generation and water desalination stations (Annual reports, 2013) Ras Abu Fontas (A): Capacity of 497 MW of electricity and 55 MIGD of water Ras Abu Fontas (A1): Capacity of 45 MIGD of water Ras Abu Fontas (A2): Capacity of 36 MIGD of water (Under Construction). Ras Abu Fontas (B): Capacity of 609 MW of electricity and 33 MIGD of water Ras Abu Fontas (B1): Capacity of 376.5 MW of electricity Ras Abu Fontas (B2) : Capacity of 567 MW of electricity and 30 MIGD of water Moreover, The Company also owns and operates the following substations (Annual reports, 2013) Al Saliyah Station with a capacity 121 MW of electricity Doha South Station with a capacity 62 MW of electricity Dukhan Desalination Plant with 2 MIGD of water Organization capital These include organization’s culture and structure. KAHRAMAA has embedded it organization culture in the company values which includes; social responsibility, integrity, team work, and innovation (Annual reports, 2013). 2.2.2 Key capabilities of KAHRAMAA Experience Over the last twenty years of operations, KAHRAMAA has earned experience to enable them to assess the expansion opportunities available outside Qatar especially in the North Africa region and Middle East as well as in the East Asia which can raise the company’s status as a result of successful completion of various projects (Annual reports, 2013) High level of technology The company has adopted the latest technology with the view of making its operations effective as well as reducing operational cost. For instance is implementing Sea Water RO Desalination technologies with an initial water production of 200-500 cubic meters per day. 2.2.3 The VRIO Framework Resources & capabilities Valuable? Rare? Costly to Imitate? Exploitable by the Organization? Competitive implications Economic performance Strengths or Weaknesses Human resources Yes Yes Yes No Competitive Advantage Normal Strength Financial Yes Yes - No Sustained competitive advantage Above normal Strength and sustainable distinctive competence Physical Yes Yes Yes No Sustained competitive advantage Normal Strength and sustainable distinctive competence Organization capital Yes Yes Yes No Competitive Advantage Normal Strength Experience Yes Yes - No Competitive Advantage Normal Strength Technology Yes Yes Yes No Sustained competitive advantage Above normal Strength and sustainable distinctive competence 2.2.4 Threats to sustainability Unpredictable changes in external environment which may render the physical and technology resources obsolete Factors beyond the firm's control Powerful suppliers Government legislations and regulations such as Harsh environmental laws Strategic options and Recommended Strategy Strategic options From the above analysis, the company is faced with the following two strategic options; Maintain and build valuable resources and capabilities This can be attained through maintaining and building on its strong human, physical, financial, and organization capital resources as well as on its capabilities. The company should undertake it proposed projects such as the Sea Water RO Desalination technologies with an initial water production of 200-500 cubic meters per day which will enable the company to meet its demand as well as reduce operating cost (Dr. Al-Sada, 2014) Continually upgrade number and quality of resources and capabilities Under this strategic option, the company should continually upgrade the number and quality of its resources and capabilities in line with Qatar vision 2030. This can be achieved the adopting renewable energy technologies which will enable the company to protect the environment as well as reduce its production and operational cost which is in line with Qatar vision 2030. Moreover , the company should upgrade its resources and capabilities to enable it handle emergency cases efficiently, if should offer emergency offices with specialized personnel and technical team so as to accelerate response to repair and fault detection Recommended strategy Exploiting Renewable Energy Sources This strategy is based on Qatar Vision 2030 which is based on four pillars, namely; social development, human development, environmental development, and economic development. This strategy is mainly based on two of the four pillars that are economic and environmental developments. On the economic development pillar of Qatar, the company will be able to enhance the Sustainability of the state water & energy recourses we have to create new method to exploit renewable energy sources in economical ways and the company will achieve it commitment to no carbon or low carbon emission to maintain sustainable environmental development which is one of Qatar vision 2030 pillar (Saleh AL Marri, 2013). The recommended strategy should be implementation in line with Qatar vision 2030. Where the company should consider the following the following issues so as to achieve economic and environmental development pillars Environmental development Harmonizing economic growth, along with environmental protection Maintain balance between development needs and protecting the environment Complying with health, safety, and environmental standards Minimize carbon emissions, preserving the environment and distributing clean and pure potable water Economic development Promotion of sophisticated economic management, business and international collaboration Minimize the consumption of non-renewable natural energy resources by Renewable resources as a complement energy sources Run its operation on cost effective basis Explore and exploit new water and power production technologies to serve national targets KAHRAMAA should maintain a sustainable Electricity and Water Supply for Qatar’s need through cost effective means Setting a concrete National Action Plan for RE to diverse the economy and minimize the power cost References Annual reports (2013) Qatar electricity and water corporation Retrieved on 24th June 2014 from www.qewc.com Saleh AL Marri (2013) Kahramaa toward Creative Methods to Exploit Renewable Energy Sources: Head of Renewable Energy Technologies. CN Department –Kahramaa Dr. Al-Sada (2014) transformation from objective based strategy to results based strategy; KAHRAMAA launches Long- Term Strategy; Retrieved on 24th June 2014 from https://www.km.com.qa/MediaCenter/pages/NewsDetails.aspx?ItemID=45 Energy Business Review (2012) Qatar Electricity & Water Company Q.S.C. Retrieved on 17th June 2014from http://www.energy-business-review.com/companies/qatar_electricity_water_company_qsc Morning Star (2014) Qatar Electricity & Water Company Q.S.C Financial review. on 17th June 2014from http://quotes.morningstar.com/stock/QEWS/s?t=DSMD:QEWS®ion=usa&culture=en-US&productcode=MLE Qatar Electricity & Water Company (2014) About QEWC. Retrieved on 17th June 2014from https://www.km.com.qa/AboutUs/Pages/WaterSector.aspx Heritage Foundation, (2014) Qatar: 2014 Index of Economic Freedom. Retrieved on 17th June 2014 from http://www.heritage.org/index/country/qatar Robert D. Buzzell and Bradley T. 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