Opportunities in Asia: managing complexity in the fast ......Breakout session Mr. Martin Armistead ,...

KPMG GLOBAL ENERGY INSTITUTE

Opportunities in Asia: managing complexity

in the fast-changing energy landscape

KPMG Global Energy Conference - Asia Pacific Conference Report

kpmg.com/energyaspac

b | Section or Brochure name

Introduction

in Singapore. The institute will serve as a knowledge-sharing platform for energy sector executives in Asia, facilitating the flow of expertise and insights within the energy industry in Asia and globally.

I hope you will find this report to be a useful and insightful summary of the important issues discussed during the conference. I look forward to working together with you in the year ahead as the Global Energy Institute ramps up its operations.

Pek Hak BinHead of Energy & Natural Resources, KPMG in Singapore

KPMG’s Global Energy Institute brought the Global Energy Conference to Singapore in recognition of the importance of Asia as the world’s fastest-growing energy market, and to provide a platform for discussing issues, gaining insights and sharing knowledge about the energy industry in Asia and around the world. Over 300 delegates from international, national, oil, power and mining companies attended as well as finance executives from public and private banks together with governmental organizations from Singapore and the region.

Beyond the learning and networking opportunities offered by the conference itself, the event also coincided with the launch of KPMG’s Global Energy Institute

It gives me great pleasure to present to you this summary of the first annual KPMG Global Energy Conference – Asia Pacific. This year was the first year that we hosted an edition of our flagship energy event outside of the U.S., where it has been held in Houston for the past 10 years.

© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.


Executive Summary

surrounding financing for energy growth and creating value within companies and economies.

An insightful presentation by Mr. Masakazu Toyoda, Chairman & CEO of the Institute of Energy Economics provided an overview of some of the major challenges facing Asia as its energy landscape rapidly transforms to meet growing demand. This was followed by four breakout sessions, each focusing on a specific issue facing the energy sector in Asia: performance optimization at energy companies, operational excellence and shared service centers, the role of power and utilities in smart cities, and containing the schedules and costs of mega projects.

Despite the wide range of topics covered during the conference, there was a common thread throughout − the vast opportunities available in Asia as the balance within the energy industry shifts eastward. These developments spell the need for policy-makers and industry leaders to develop nimble strategies for adapting to the changes, and seize the opportunities that will arise in this rapidly evolving energy landscape.

Another highlight was the official launch of the Global Energy Institute in Singapore, which was officiated by Mr. S. Iswaran, Minister in Prime Minister’s Office and Second Minister for Home Affairs and Trade & Industry, Republic of Singapore; Mr. Michael J Andrew, Chairman, KPMG International and Mr. Tham Sai Choy, Managing Partner of KPMG in Singapore.

What are the best practices for managing the mega projects required to meet growing energy demand? Where will the financing for these projects come from? How does the rise of gas play into the larger energy equation? What role will nuclear and other alternative sources play in future? These questions and many more were debated throughout the conference.

Speakers included Dr. Timothy Stone CBE, Global Senior Advisor, KPMG Corporate Finance, who shared his vast experience in energy policy development. In particular, he focused on the lessons to be learned from the recent overhaul of the U.K.’s nuclear energy industry. There were also two lively panel discussions that involved KPMG’s energy professionals and industry leaders in looking at the issues

The theme for this year’s Global Energy Conference – Asia Pacific was “Opportunities in Asia: managing complexity in the fast-changing energy landscape”. Underlying this was the broader issue of growth, with many of the issues discussed focusing on how to support and manage Asia’s rising stature as the world’s fastest-growing energy market.



Contents

Establishing the Global Energy Institute in SingaporeMr. Michael J. Andrew, Chairman, KPMG International

Singapore’s role in the regional energy value chainKeynote addressMr. S. Iswaran, Minister in Prime Minister’s Office and Second Minister for Home Affairs and Trade & Industry, Republic of Singapore

International energy policy developments and lessons learnedDr. Timothy Stone CBE, Global Senior Advisor, KPMG in the U.K.

How energy companies create value and drive economic developmentPanel discussionModerator: Mr. Satyanarayan R. (Satya), Head of Government & Infrastructure, KPMG in SingaporePanellists: Mr. Eugene Leong, Director, Energy & Chemicals, Singapore Economic Development Board (EDB)Mr. Hendi Prio Santoso, President & CEO, PT Perusahaan Gas Negara (Persero) TbkMr. Pek Hak Bin, Head of Energy & Natural Resources, KPMG in Singapore

Financing and securing future energy growth Panel discussionModerator: Mr. Sharad Somani, ASPAC Head of Power & Utilities, KPMG in SingaporePanellists: Mr. Foong Chong Lek, Associate Director, Singapore Exchange (SGX)Mr. Nobuyuki Higashi, Executive Officer for Asia and Pacific, Japan Bank for International Cooperation (JBIC)Mr. Neil MacDonald, Head of Project Finance, Asia Pacific, J.P. MorganMr. Jordan Schwartz, Manager, Infrastructure Policy, The World Bank

Changing energy landscape – Challenges for AsiaLunchtime speechMr. Masakazu Toyoda, Chairman & CEO, The Institute of Energy Economics, Japan

Performance optimization at national oil companies (NOCs) and international oil companies (IOCs)Breakout sessionMr. Martin Armistead, Director, Advisory, KPMG in SingaporeMr. Alex Muir, Regional Director APAC, BP Singapore Pte Ltd

Operational excellence and shared service centers – Best practices in ASEANBreakout sessionMr. Juvanus Tjandra, Partner, Advisory, KPMG in SingaporeMr. Gustavo Penas, VP Controller – Finance Operations, Shell Business Service Centers

Power & Utilities – Smart cities, smart organizationsBreakout sessionDr. Yotaro Akamine, Associate Partner, KPMG in JapanMr. Chan Eng Kiat, Principal Specialist & Project Director – Intelligent Energy System, Energy Market AuthorityMr. Shuji Miyasaka, Partner, KPMG in Japan

Containing major capital investment schedules and costs of mega projectsBreakout sessionModerator: Ms. Hilda Mulock Houwer, Global Head of Advisory for KPMG’s Energy & Natural Resources Practice & Partner, KPMG in the United Arab EmiratesPanellists: Mr. Didik Sasongko Widi, Vice President LNG, PT Pertamina (Persero)Mr. Gary Webster, Partner, Global Infrastructure Advisory, KPMG in Canada

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1 | KPMG Global Energy Conference – Asia Pacific 2013

Establishing the Global Energy Institute in Singapore Mr. Michael J. Andrew, Chairman, KPMG International

the building up of Singapore’s capabilities and capacity in the gas sector, and how surrounding markets are ramping up their production and demand. Australia, for example, will soon be exporting more LNG than Qatar, all into the Asia region. Almost all of this will move through Singapore.

He also touched on the exciting oil and gas discoveries in the Philippines and the many local oil and gas companies throughout the region who are becoming more ambitious and sophisticated in their operations and growth. Mr. Andrew concluded that, on a regional level, ASEAN is growing stronger and seeing better coordination on energy policies and initiatives. India is a huge market that will likely provide massive demand for energy in future.

Its establishment is a clear indication of Asia’s growing importance in the global energy landscape, but also underscores the many challenges that lie ahead. Strong thought leadership and industry insights will be required to shape the strategies for capitalizing on the opportunities that will arise.

It is an exciting time for Singapore and Asia, particularly when looking at what lies ahead in the next decade, noted Mr. Andrew. “Asia will be using 44 percent1

of the world’s energy by 2030, up from 34 percent today. It’s no wonder that energy companies are turning their attention to Asia, and this is also why it’s so important that we are setting up the Global Energy Institute here.”

Among the many developments taking place in the region, Mr. Andrew highlighted

KPMG’s Global Energy Institute in Singapore serves as a platform to facilitate knowledge-sharing and the flow of industry knowledge both in and out of the Asia-Pacific region for energy sector executives.



1 Source: Asian Development Outlook 2013 by Asian Development Bank

KPMG Global Energy Conference – Asia Pacific 2013 | 4

KEYNOTE ADDRESS

Singapore’s role in the regional energy value chain Mr. S. Iswaran, Minister in Prime Minister’s Office and Second Minister for Home Affairs and Trade & Industry, Republic of Singapore

operations in Singapore, Mr. Iswaran expressed his vision that the Global Energy Institute will become an important and valuable addition to Singapore’s energy eco-system. “I hope that the Institute will collaborate closely with the myriad companies and organizations in our energy landscape, to yield insights, gain mindshare and also to generate innovative business solutions in the sector and in the region.”

He cited Singapore’s reliance on imported fuel for its energy needs, and how this inextricably links the country with the trends and uncertainties in regional and global energy markets. “Striking a balance between economic competitiveness, energy security and environmental sustainability has long been, and continues to be, the priority for the Government.”

Noting that many major Asian and global energy companies have established

Mr. Iswaran echoed this strong outlook for Asia’s energy industry and stressed the need for policy-makers and industry leaders to not just think about the current trends and developments. They should also weigh the trends of the future and the profound implication they will have on the countries, industries and people of Asia.




International energy policy developments and lessons learned Dr. Timothy Stone CBE, Global Senior Advisor, KPMG in the U.K.

situation as the region’s energy sector grows to meet burgeoning demand.

As a low-carbon and potentially low-cost energy source, nuclear can contribute to the diversity and security of supply, with an added benefit that the building of reactors creates good jobs for people in the country. Yet reaping these benefits can be challenging and requires well thought out approach.

“One of the key points of the white paper was the need to plan and do everything that can be done once upfront – to get rid of the noise and uncertainty,” explained Dr. Stone. “This includes selecting and approving designs ahead of time, and making it difficult to change them, except on safety grounds. It also means building a strong political consensus so that companies and investors gain a sense of security that policies will not change on a whim a couple of years down the road. By doing all of this first, it paves the way for much better development once you get to the build and operate stages.”

The U.K. has been able to achieve many of these goals.

It carried out a complete reworking of the infrastructure and planning regulations for

The negative effects of these shocks have been exacerbated by historically less than stable energy policies and support for various sectors, according to Dr. Timothy Stone CBE, Global Senior Advisor for KPMG in the U.K.

“Before 2006, energy policies, particularly those surrounding nuclear power, have gone up and down repeatedly, and provided little stability for potential investors in nuclear capacity. This resulted in an over-constrained problem, with far too many changes being forced through quickly, and in a context where we don’t have the time to adapt appropriately, and where the problems are not being thought through properly before acting,” explained Dr. Stone.

However, in 2008 the government came out with a white paper2 in strong support of the nuclear industry, identifying it as a key element of the U.K.’s energy mix.

Beyond that, it took active steps to facilitate the nuclear industry’s development, which have proved crucial to achieving results. Dr. Stone believes that there are some important lessons that can be learned from the U.K.’s experience, particularly for policy-makers in Asia who are dealing with a similarly dynamic

Over the past decade, the U.K.’s energy system has been subject to some massive shocks. There were: EU directives that necessitated the shutdown of most of its coal plants in the next couple of years, a volatile gas supply and a self-imposed legal obligation to reduce carbon emissions by 80 percent of the 1990 figure, to name a few.

the whole country, not only for energy, but for all nationally significant infrastructure as well.

A strong political consensus was also built to back nuclear energy development – a vote in the House of Commons saw 520 votes for and only 27 against, the largest majority in any vote, on any topic in the House of Commons since at least 1945, and likely earlier. There is also a complete reform of the electricity market underway to underpin the large investment needs across the whole energy sector.

Building on this strong support, the government has done much to build trust with the nuclear industry players. A forum was established for the industry to hold government to account on its progress in pushing nuclear forward. “Trust is absolutely vital. Political risk is the scariest thing for a developer, followed shortly afterwards by regulatory risk,” added Dr. Stone.

“It’s all about long-term planning and risk management, and getting as much as possible done before the build and operate stage, so that there is stable environment for the developers to work within. If the regulators are held to account to deliver this over the long-run, then there is much better chance of achieving success,” said Dr. Stone.

One of the key points of the white paper was the need to plan and do everything that can be done once upfront – to get rid of the noise and uncertainty


2 Source: Meeting the Energy Challenge: A White Paper on Nuclear Power, January 2008


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PANEL DISCUSSION

How energy companies create value and drive economic development Moderator: Mr. Satyanarayan R.(Satya), Head of Government & Infrastructure, KPMG in Singapore Panellists: Mr. Eugene Leong, Director, Energy & Chemicals, Singapore Economic Development Board (EDB)Mr. Hendi Prio Santoso, President & CEO, PT Perusahaan Gas Negara (Persero) TbkMr. Pek Hak Bin, Head of Energy & Natural Resources, KPMG in Singapore

opportunities presented by the growing region. “One example is Sinopec, which has set up a lubricants plant here, precisely to take advantage of the growth in ASEAN,” said Mr. Eugene Leong, Director, Energy & Chemicals, Singapore Economic Development Board.

“As a natural extension of the manufacturing activities already being undertaken here, companies have also found Singapore to be an ideal location for their pan-Asia headquarters, including shared services and business strategy functions,” he added.

For Mr. Hendi Prio Santoso, President and CEO of PT Perusahaan Gas Negara (Persero) Tbk (PGN), his value driver is the need to develop further transportation and related distribution networks for gas in Indonesia.“Most of the exploration and exploitation in Indonesia is carried out by IOCs,” he noted. “Indonesian’s NOCs, Pertamina

With Asia’s energy sector set to grow at unprecedented levels in the years ahead, it is important to consider the factors that support value creation by energy companies, and see how these can be enhanced to gain maximum benefit from the development that is expected to take place in the region.

Over the past 20 to 30 years, Singapore has worked with international oil companies (IOCs) such as Shell and ExxonMobil to create value from their assets here. They started with refining, before moving into downstream chemicals and now specialty chemicals. This value creation, largely on Jurong Island, has driven integration across the value chain and given Singapore and these companies a big stake in the downstream industry.

Interestingly, national oil companies (NOCs) have also been drawn to Singapore to derive value from the

and PGN, have worked side by side to develop the downstream assets to enable Indonesia to shift towards being a more gas-consuming country.”

Indeed, the downstream landscape in Asia is a very exciting one, according to Mr. Pek Hak Bin, Head of Energy and Natural Resources at KPMG in Singapore. “The growth of the downstream industry is directly related to population growth and rising living standards. If you look at the projected population growth in Asia, in 30 years it is expected to grow by 50 percent. This makes for exciting times.”

All the panel members agreed that the roles played by IOCs and NOCs are changing. IOCs, with the expertise and experience built up from decades of global operations are eager to invest in Asia, but at the same time are facing new complexities. One of these is that NOCs are starting to emerge with more experience

and a strong understanding of their markets, and have ambitions to venture outside their home markets to expand their portfolios regionally and globally.

Mr. Pek suggested that IOCs and NOCs should seek increased collaboration, to share expertise and jointly benefit from the scale of the opportunity in Asia together.

This idea was also supported by Mr. Santoso, who explained that, along with the task of developing infrastructure for the gas network in Indonesia, PGN feels that it needs to take an active role as a catalyst for new development in the exploration and production (E&P) space. “We are definitely looking for more companies to come to Indonesia, either through Singapore or direct to Indonesia, so that we can initiate intensive collaborations to develop the industry. We are about two decades behind in

infrastructure and investing into the E&P space.”

Mr. Santoso added that PGN and Indonesia are looking for more direct cooperation in the form of joint ventures with Indonesian companies due to recent regulations increasing the requirements for local content.

“It is becoming challenging for NOCs and local companies that require services and products but are bound by this local content requirement. We need more local ventures to make it easier for us to access the services and products we need to develop the market,” he said.

This observation led to the topic of talent and its important role in driving value in the industry. “One of the biggest challenges we hear companies facing is the need for talent, not just in Singapore, but also globally,” noted Mr. Leong. “In part

this is because a lot of talent is nearing retirement age. But more significantly, activity is increasing globally, so there is an increased demand for the right skills and experience.”

Singapore has made talent development for the industry a priority, said Mr. Leong. This includes investing in a Chemical Process Technology Center, a live plant where companies can send their staff for training in a real-world setting.

In the upstream sector, the EDB has collaborated with the National University of Singapore to set up a Master’s degree program in offshore technology; as well as with the Maritime Port Authority and Agency for Science, Technology and Research (A*STAR) to set up the Singapore Maritime Institute to develop and coordinate training and research and development (R&D) in areas such as naval architecture, subsea and offshore engineering.

Energy companies have traditionally been major contributors to the economies in which they operate. This holds true in Singapore, where oil and gas companies in particular have created immense amounts of value in both the upstream and downstream segments, and are now the largest contributors to Singapore’s manufacturing sector.



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Asia continues to lead global growth, with rates much higher than in developed Western regions. This growth has significant implications for the energy industry in Asia, as the region’s companies operate at a relatively high energy intensity – high economic growth will thus lead to greatly increased energy demand.

PANEL DISCUSSION

Financing and securing future energy growth Moderator: Mr. Sharad Somani, ASPAC Head of Power & Utilities, KPMG in SingaporePanellists: Mr. Foong Chong Lek, Associate Director, Singapore Exchange (SGX)Mr. Nobuyuki Higashi, Executive Officer for Asia and Pacific, Japan Bank for International Cooperation (JBIC)Mr. Neil MacDonald, Head of Project Finance, Asia Pacific, J.P. MorganMr. Jordan Schwartz, Manager, Infrastructure Policy, The World Bank

underpinning water provision, irrigation, agriculture, industrial production, transportation, education, and many other aspects of development.

Another panellist shared that some US$900 billion in investment is required per year to meet Asia’s energy needs, yet only about $100 billion is flowing in from the private sector and multilateral agencies and banks combined.

One reason that financing is lacking may be that energy exploration and subsequent development are relatively risky activities and require significant capital, suggested Mr. Foong Chong Lek, Associate Director at Singapore Exchange (SGX).

He believes that one of the avenues for exploration companies to access financing is through public listings. This is an avenue

It is therefore important to ask whether Asia’s energy industries are prepared to face this challenge, and perhaps most importantly, whether the region has the financing solutions to fund the energy supply growth necessary to meet rapidly expanding demand. The short answer seems to be no, although it is an issue that the various segments of the energy and financing industry are trying to address.

The World Bank is an agency that has a keen interest in seeing sufficient energy availability increased, as it underpins its three objectives of contributing to growth of the developing economies of the world, poverty alleviation, and sustainability.

Access to energy and electricity in particular, acts as a driver of growth, and a driver of quality of life. But it’s also

that SGX feels holds great promise, and it is working to make it more attractive to energy companies. “One issue is that retail investors won’t normally get access to the technical knowledge of the energy sector to fully appreciate the risks. So we run investor education programs, particularly for the oil and gas sector, and the response has been very positive,” said Mr. Foong. Mr. Neil MacDonald, Head of Project Finance, Asia Pacific at J.P. Morgan acknowledged the headwinds facing banks who are active in the energy sector such as Basel III, increased regulation, liquidity constraints and high funding costs. Despite these headwinds, however, he believes that there is cause for optimism about the potential for financing energy projects.

The last few years have seen some very large financings, including the world’s largest project financing transaction to date, the $20 billion financing for the Ichthys LNG project. “This transaction fits into a sweet spot for financing,” explained Mr. MacDonald.

“The deal was in Australia, which is a low risk jurisdiction and this made it attractive to a broad group of international lenders as well as receiving strong support from Australian banks. The sponsors were Japanese and European, which resulted in significant commitments from the Japanese and European banks as well as attractive funding from export credit agencies. A further factor is that lenders consider LNG to be an attractive sector in the current environment.”

While many projects sit outside this sweet spot, there is still a good case for optimism because of the increasing capacity of lenders, such as JPM, to provide commodity finance. Commodity financing is broader than traditional project finance because it combines debt funding with the physical flow of commodities and / or commodity hedging. “This introduces a range of innovative financing solutions for the energy sector”, according to Mr. MacDonald.

“These include combining loans with physical offtake, pre-export finance, which involves lending against future physical deliveries of a commodity and prepay transactions where lenders finance an upfront payment and are repaid through the physical flow of commodities,” he added. “Outside the banking sector, we

are also starting to see royalty companies and providers of commodity streaming solutions doing deals in Asia. These deals have largely been in the mining sector to date but also have the potential to be applied to the energy sector.”

For Mr. Nobuyuki Higashi, Executive Officer for Asia and Pacific at the Japan Bank for International Cooperation (JBIC), an area of concern is the challenges that energy companies face in financing local opportunities.

Given that local projects are not as attractive to investors, he believes that promoting local-currency bond markets may be part of the solution. However, he acknowledges that this is a solution that is still in its very early stages of development and needs more attention and work.




To cope with the uncertainties in the regional and global energy markets, Mr. Toyoda suggested four areas for collaboration that could deliver greater stability and benefit Asia and its energy industry.

First, a stronger push for energy conservation. Noting that Japan’s economy has one of the lowest energy intensities (primary energy supply per unit of GDP) in the world, he felt that a sharing of technology and policy experience could help Asian countries to develop more energy efficient economies. This would be beneficial for all importing countries, increasing energy independence and also combating climate change.

Second, an effort needs to be made to eliminate the Asian LNG price premium. Currently, the LNG trade suffers from the lack of an Asian spot market and an Asian hub for LNG. If these can be developed, it will reduce LNG prices, making it more attractive versus other energy sources.

Third, is ensuring safe nuclear energy in Asia. “With nuclear power generation

Mr. Toyoda pointed out that as energy consumption increases, energy independence will weaken, with net oil imports in Asia expanding from 16 million barrels per day in 2010 to 33 million barrels per day by 2035.

This equates to a net oil import ratio of 80 percent by 2035, a significant increase from 67 percent in 2010. The impact of this kind of change could have major implications on global energy markets, leading to issues around both energy prices and supply.

“Oil prices are expected to continue rising as demand exceeds supply. Complicating the matter is the concern that the investments required to expand the global supply of oil are unlikely to be realized,” he added.

Recent developments in Asia and global developments too add another layer of uncertainty to the energy landscape. Mr. Toyoda highlighted issues in the Middle East, the growing importance of shale gas, and worries over the nuclear industry as three areas of concern.

capacity expected to increase significantly by 2035, it is vitally important to be able to add nuclear as an economically efficient and safe option for Asia’s continued growth,” explained Mr. Toyoda. He noted that there are many lessons to be learned from the Fukushima accident, including the importance of an independent nuclear energy authority.

Lastly, Mr. Toyoda highlighted opportunities for cooperation in the form of regional energy networks.

He noted that ASEAN is working on a gas pipeline system, which would help to expand the spot market and establish an Asian hub.

Improved power grid interconnectivity is also on the ASEAN agenda, which would minimize excess capacity and allow for better absorption of unstable generation from renewable energy sources. Plans for similar collaborations in Northeast Asia and existing networks in Europe point to the clear benefits that come with closer integration and connectivity, he added.

As the predominant center of economic growth today, Asia is also a leader in energy consumption. Indeed, the two go hand in hand, explained Mr. Masakazu Toyoda, Chairman and CEO of Japan’s Institute of Energy Economics. This growth will bring with it a number of challenges.

LUNCHTIME SPEECH Changing energy landscape – Challenges for Asia Mr. Masakazu Toyoda, Chairman & CEO, The Institute of Energy Economics, Japan

Improved power grid interconnectivity is also on the ASEAN agenda, which would minimize excess capacity and allow for better absorption of unstable generation from renewable energy sources.



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To optimize performance, companies need to be able to identify value.Yet the only time that this is closely looked at is when a company is being bought or sold. The acknowledged experts in this field are private equity houses, whose disciplined, rigorous approach is ideal for the purposes of finding and quantifying value.

BREAKOUT SESSION

Performance optimization at national oil companies (NOCs) and international oil companies (IOCs) Mr. Martin Armistead, Director, Advisory, KPMG in SingaporeMr. Alex Muir, Regional Director APAC, BP Singapore Pte Ltd

“SPI was created to make opportunities understood and actionable, and to drive improved rigor and discipline in the approach to performance improvement – to be highly data-driven and analytical in that approach.”

SPI operates as a number of small teams that are on the ground with a specific business unit for four months. The teams follow a highly structured assessment process that focuses on data collection and analysis, followed by detailed planning for the execution and monitoring of improvement initiatives.

“One of the keys to success for this process is that it works in stages, so that business owners do not feel they are being pushed into an engagement they do not fully understand at the beginning,” explained Mr. Muir. “All we’re asking for is five to six weeks. And all we want at that stage is data. If we can’t provide any ideas that you want to act on, then we’ll go away and won’t trouble you anymore.”

The approach is highly data-driven, yet Mr. Muir noted that it is important to only

“We try to take the private equity level of rigor and understanding, and apply it to businesses that are not for sale, but may be looking to enhance their performance or value,” explained Mr. Martin Armistead, Director of Advisory at KPMG in Singapore.

This approach is underpinned by hard data, realistic comparators, transparency on the trade-offs between risk and value, and engagement with leaders at all levels of an organization. It allows for clear opportunity identification that defines what the benefits are, how much they will likely cost, and when they maybe done and when value is expected to be realized.

At BP, an international oil company, a dedicated unit called Sustainable Performance Improvement (SPI) which acts as a shared service function across the company’s global upstream and downstream portfolio, has delivered close to 50 business unit assessments globally and identified over $2 billion in signed off improvement opportunities over the past five years.

Mr. Alex Muir, Regional Director APAC at BP Singapore and head of SPI explained,

ask for data that already exists within the business. “If it exists, we want it in as raw a form as possible, and we’ll do the heavy lifting. As soon as you require a template or a report, you’ve created workload and you may not have asked the right questions. And, interestingly, you can probably tell as much about an organization from the data that doesn’t exist, as from what they can provide – it shows where blind spots might be.”

It is also important to note that there is also a human element to the analysis. “The data is one half of the equation. The business context, provided by 20 to 25 interviews, is the other,” he added.

Once the analysis is complete and improvement opportunities have been identified, a key element of SPI’s activities is the implementation and activation stage. SPI ensures that opportunities are not just identified, but also followed through on to achieve improved performance. This is done by building the key milestones and operational KPIs that are used to hold the business accountable for delivering the improvements that have been identified.



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Since the early 1990s, organizations have been cashing in on shared services – the shifting of common administrative activities from individual business units to a dedicated entity within the organization or to external entities – to improve service delivery and cut costs.

BREAKOUT SESSION

Operational excellence and shared service centers – Best practices in ASEAN Mr. Juvanus Tjandra, Partner, Advisory, KPMG in SingaporeMr. Gustavo Penas, VP Controller – Finance Operations, Shell Business Service Centers

While this strategy can help an organization build economies of scale and take advantage of labor arbitrage, businesses must expand on this approach further in order to gain a competitive advantage, said Mr. Juvanus Tjandra, Partner at KPMG in Singapore.

“The value proposition for shared services operations is evolving from cost to value. While this model has become the norm, few have used shared services to advance their business. To extract value from shared services going forward, organizations must shift from a shared services outsourcing model into global business services,” noted Mr. Tjandra.

A move towards global business services (GBS) requires a shift in how businesses manage their shared services model. Instead of operating numerous shared services centers and outsourcing vendors independently, organizations must consolidate their capabilities, resources and systems in one location on a global scale and be multi-function in scope. To help organizations with the challenges of implementing GBS, KPMG Global conducted a survey3 to examine the global services delivery efforts of a mix of Fortune and Global 500 corporations.

Some critical factors stood out in helping organizations drive business efficiency and value through GBS – a common leadership and governance structure tied to organizational objectives, a strong push towards commercial orientation in running their GBS organizations, and a strategy of continuous improvement.

“Organizations must evolve in GBS maturity because they run into the risk of going backwards in the performance of their shared services and experience

performance stagnation. GBS maturity creates value and is a source of competitive advantage for organizations,” said Mr. Tjandra.

One organization that has achieved GSB maturity is Royal Dutch Shell, he noted. “They have one service delivery model and have optimized their location to process certain finance functions, IT transactions and their global activities. They also have an integrated portfolio with multiple support functions to support end-to-end processes in a global manner.”

As a global energy company with business units located around the world, Shell now operates one of the world’s largest “captive” Global Business Operations networks. The Shell Business Centers portfolio consists of six sites located in Krakow, Glasgow, Chennai, Kuala Lumpur, Manila and Cape Town, with more than 9,300 staff which equates to approximately 10 percent of Shell’s employee-base. They provide the business with centralized finance, human resources (HR), information technology (IT), customer related and other services.

Shell first opened a Shared Service Center in Glasgow in 1998, followed by Kuala Lumpur, Manila, Krakow, Chennai and Cape Town. With centers developing into multi-function operations, a decision was taken to manage the common infrastructure and support services across the rapidly developing SBSC network, but leaving the execution of and accountability for the business processes with the respective businesses and functions. This strategic choice has facilitated standardization of service delivery across what was a fragmented network and has removed duplication of effort and therefore cost.

Shell’s approach to improved performance is to simplify and standardize business processes across its global operations by consolidating functions and systems, as well as leveraging the latest advancements in technology, and the network of global business centers has been core to support the delivering of that strategy by the different functions in Shell, explained Mr. Gustavo Penas, Vice President Controller of Finance Operations, which accounts for near 6000 staff at Shell’s business centers.

“The Function organizations based in these centers are process driven, with a key focus on end-to-end process performance and continuous improvement. For example, in the case of Finance Operations, our business centers in Krakow or Manila support Shell’s global finance operations including expenditure, revenue and data management.

Consolidating our resources in a few locations per process enables greater collaboration, better work efficiency and faster response to the needs of the business. In our model, there is also complete clarity that the accountability for the process resides with the Function, with the head of Finance Operations reporting directly to the CFO,” he said. Besides Shell’s board-level sponsorship and management commitment, structured processes, including how to migrate activities from the previous to the new organization, and usage of consistent metrics to measure and benchmark progress against the competitors, Mr. Penas said that the company’s development of a widespread continuous improvement capability has been crucial in driving its success.



3 KPMG 2012 Global Real Estate and Facilities Management (REFM) Outsourcing Pulse Survey


In recent years, the question of how we can live ‘smartly’ in a city has become the focus of policymakers and private industry alike. But what does it mean for a city to be smart?

BREAKOUT SESSION

Power & Utilities – Smart cities, smart organizations Dr. Yotaro Akamine, Associate Partner, KPMG in JapanMr. Chan Eng Kiat, Principal Specialist & Project Director – Intelligent Energy System, Energy Market AuthorityMr. Shuji Miyasaka, Partner, KPMG in Japan

its carbon emissions by 40 percent, Malaysia also promotes green technology usage in buildings through tax incentives. Various smart city developments focusing on green technologies have also been started in Malaysia, including intelligent cities such as Iskandar Malaysia, Putrajaya and Cyberjaya.

When cities consider new ways to deliver services, support from their citizens is essential. Citizens who are uninformed cannot support and may actively oppose even the best policies. As such, cities must rethink their relationships with citizens and view them as partners in seeding change.

“Vietnam’s FPT City Danang project may be underway but the government has not convinced the residents about the benefits of smart city development. What they need to do is apply for international standards to increase competitiveness,” he said.

For cities to address urbanization and environmental challenges of the future, there is a need to constantly seek out viable ideas, technologies and smarter solutions. Cities must also cultivate a culture of continuous improvement.

Leveraging new technologies to further improve the capabilities of Singapore’s power grid, the Energy Market Authority (EMA) launched the Intelligent Energy

Mr. Shuji Miyasaka, Partner, KPMG Management Consulting in Japan explained that while there are varying ‘smart city’ definitions, they all point to the use of technology to utilize resources more efficiently and create sustainable urban environments.

This concept has started to gain momentum in Southeast Asia, with some countries building smart cities from scratch. Dr. Yotaro Akamine, Associate Partner, KPMG Management Consulting in Japan noted that there is a wide variation in the stages of smart city development in Southeast Asia and many still face barriers to achieving success.

Using Indonesia as an example, Dr. Akamine said: “While Indonesia has identified some plans for sustainable development in the Jabodetabek region, bureaucracy and red tape have kept the city from realizing its full potential. Jakarta’s traffic congestion problem also poses a major challenge and there are no further concrete plans from the government to improve the city’s infrastructure and transform its prospects for growth.”

Unlike Indonesia, Dr. Akamine pointed out that Malaysia has achieved success in its smart city initiatives as a result of strong government support. With plans to reduce

System pilot test bed in 2009 to help consumers better manage their energy demand and usage.

“The IES Pilot project tests and evaluates smart grid technologies and applications that can improve network operations and facilitate active participation among consumers. Consumers can access real-time information on their electricity consumption, which enables them to make better decisions on their energy usage,” said Mr. Chan Eng Kiat, Principal Specialist & Project Director – Intelligent Energy System at EMA.

Dr. Akamine also highlighted Japan’s openness in responding to the energy challenges caused by the Tohoku earthquake and tsunami. Faced with severe energy shortages after the Fukushima nuclear accident, Japan turned to alternative sources of sustainable energy.

“This led to new opportunities for businesses and a chance for Japan to pull the plug on the nation’s power monopolies, and restructure the energy industry. The government also introduced feed-in tariffs to encourage investments in energy sources such as wind and solar, and provided support in the form of co-financing to promote environmental sustainability,” said Dr. Akamine.




The projected growth in the energy sector in Asia translates into a need to spend around $1.6 trillion dollars every year up to 2035 to meet the increase in energy demand.

BREAKOUT SESSION

Containing major capital investment schedules and costs of mega projects Moderator: Ms. Hilda Mulock Houwer, Global Head of Advisory for KPMG’s Energy & Natural Resources Practice & Partner, KPMG in the United Arab EmiratesPanellists: Mr. Didik Sasongko Widi, Vice President LNG, PT Pertamina (Persero)Mr. Gary Webster, Partner, Global Infrastructure Advisory, KPMG in Canada

is strong strategic management of the project, the panel summarized. Mega projects require the management to take on a broader view, such as macro issues, rather than just the scope, schedule and budget of projects. Understanding stakeholder concerns is one element of a more strategic management approach.

“Stakeholder management is critical, and becomes exponentially more complex with mega projects, compared to smaller initiatives,” explained Mr. Webster. “Bank and lender expectations have gone up significantly in terms of the reporting and predictability of delivery for major capital projects. There will be political issues to consider, and since mega projects run over several years, you cannot assume that the government that is in power when you start a project will still be there when it is completed.”

These kinds of macro considerations are often ignored in mega projects that underperform. For example, the huge demand that mega projects can generate can influence supply dynamics within markets, which then filters back into the

It is expected that half of this amount will be spent on mega projects in the oil and gas sector.

This raises some concerns, as the industry does not have a particularly impressive track record when it comes to executing mega projects.

Some major projects fail to deliver on one or more of the three core areas of project management: scope, schedule and budget. 85 percent are delayed; 45 percent are more than 15 percent over budget; 30 percent of all work is rework; and 10 percent fail to deliver their original scope.

“Many of the issues that I see in projects could have been avoided before any shovels hit the ground,” said Mr. Gary Webster, Partner, Global Infrastructure Advisory at KPMG in Canada. “A lot of the pre-work and procurement methodologies that have been used are inappropriate for the form of the project and the environment that it is operating in.”

One of the keys to addressing these shortcomings is to ensure that there

costs of the project and the availability of labor, equipment and other resources.

This kind of proactive risk management is critical to the success of mega projects, commented Mr. Webster. “Companies need to build a culture of proactive risk mitigation and collaboration versus reactive risk management and policing. The one guarantee in a mega project is that things will change during the lifetime of the project, and you will have to deal with this as much as possible ahead of time.”

A careful assessment of the macro environment allowed Pertamina to optimize its contracting and procurement strategies for a major gas pipeline project in Aceh province on the northern tip of Sumatra.

The physical pipes for the pipeline were identified as one of the largest cost components of the project, and thus one of the biggest risks. Realising this, Pertamina worked closely with their partner Pertagas to complete all pipe procurement at an early stage in the project, delivering a savings of $80 million, without compromising on quality.

Stakeholder management is critical, and becomes exponentially more complex with mega projects, compared to smaller initiatives.



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Opportunities in Asia: managing complexity in the fast ......Breakout session Mr. Martin Armistead ,...

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