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MINISTRY OF EDUCATION AND TRAINING MINISTRY OF AGRICULTURE AND RURAL DEVELOPMENT THUYLOI UNIVERSITY DO VAN CHINH RESEARCHING THE IMPACT LEVEL OF RISK FACTORS ON CONSTRUCTION INVESTMENT COSTS OF MEDIUM AND SMALL HYDROPOWER PROJECTS IN VIETNAM Speciality: Construction Management Speciality code: 58 03 02 SUMMARY OF ENGINEERING PHD THESIS HANOI, 2019 The thesis is completed at: Thuyloi University Advisor 1: Associate Prof Dr Nguyen Ba Uan Advisor 2: Prof Dr Vu Thanh Te Reviewer 1: Reviewer 2: Reviewer 3: The thesis will be defended in front of Examination Committee at Room - K1 Thuyloi University at… hours… date… month… year… The thesis can be found at the library: - Vietnam National library - The library of Thuyloi University INTRODUCTION Research significances In Vietnam, the significancy of risk assessment of construction projects in general and in the hydropower sector itself has not been seriously concerned, leading to unforeseen risks during the project implementation process Thus, the goals of the project would be affected Given the context that almost the small and medium hydropower (SMH) projects are built in remote and mountainous areas, rugged terrain with the occurrence of landslides in the flood season, these projects will face many difficulties and their risks are more present and unpredictable The determination, identification and assessment of the impact of risk factors on the project objectives (time, cost, quality) are main sources supporting investors in making a sound decision on the project investment It also helps contractors, state management units and other stakeholders make proactively assessments and solutions in mitigating risks, reducing cost losses for the government Therefore, the topic "Researching the level of impacts of risk factors on Construction investment (CI) costs of medium and small hydropower projects in Vietnam" is necessary, scientific and practical Research Objectives The research aims to identify risk factors, classify and assess the impact of these risk factors on the investment costs of the SMH (SMH) projects, in Vietnam Consequently, the research proposes a number of solutions to minimising risks importantly affecting the SMH project investment costs Research subject and scope 3.1 Research subject The subject of the study is the risk factors in investment and construction of the SMH projects in Vietnam focusing on the quantitative study of the impact of risk factors on construction investment (CI) costs 3.2 Research scope (i) Risk factors in the pre-construction and construction stage (ii) Researching to identify, classify, rank and assess the impact degree of risk factors on CI costs (total investment approved) of the SMH projects in Vietnam (iii) Analysing in research by using primary and secondary data collected from 2005 to present and the strategy for developing SMH in Vietnam to 2020 and the vision to 2030 Research Content (i) Identifying scientific basis to determine the list of risk factors which have effect on CI costs of the SMH projects in Vietnam (ii) Classifying and verifying the reliability of the scale of risk factors affecting the investment costs of the SMH projects in Vietnam (iii) Assessing the impact level of risk factors, pointing out the risk factors that significantly influence CI costs in the SMH projects (iv) Partitioning of risk levels and suggesting mitigation measures of risks that considerably affecting the investment costs of the SMH projects in Vietnam Research methods The following methods used in the study include: Inheritance approach; comparison and synthesis; qualitative research; quantitative research; expert methods; importance weight of risk criteria Scientific and practical significance of the research 6.1 The scientific meaning The thesis provides a scientific basis for determining the list and classification of risk factors affecting the investment costs of the SMH projects in Vietnam (ii) The thesis presentes the method and results of assessing the influence of each risk aspect on cost, showing the risk factors of investment cost of the SMH projects in Vietnam as a scientific basis to propose some solutions to mitigate the effect of risks on CI costs 6.2 The practical meaning (i) The research results are considerred as an important basis for the government institutions, clients and related entities to consult, apply, advise proactive solutions to investment of SMH projects in Vietnam (ii) Research result also is significant for the study of assessing and quantifying the damage of some risks to the project objectives Risks are allocated to stakeholders in the investing process of SMH projects in Vietnam Thesis structure In addition to the introduction and conclusion, conten of the thesis includes: Chapter 1: The overview of research issues related to the study Chapter 2: Theoretical framework and research methods Chapter 3: The evaluation of the impact level of risk factors to the cost of CI in SMH projects in Vietnam Chapter 4: Inspecting of research results and proposing solutions to reduce risk influence affecting the cost of investment in building SMH projects in Vietnam CHAPTER 1: THE OVERVIEW OF RESEARCH ISSUES RELATED TO THE STUDY 1.1 The overview of the SMH projects in Vietnam 1.1.1 The definition of SMH Globally: Small hydropower is defined as the hydropower with its capacity ranging from 0.1 MW to 10 MW, while medium hydropower is with its capacity from 10 MW to 100 MW In Vietnam: Small hydropower is with its capacity from to 30 MW, SMH is the hydropower with a capacity of 50 MW or less 1.1.2 The role of SMH Hydropower in general and SMH itself plays enormous roles in the electricity industry as ensuring electricity supply for the whole country, promoting economic development, preserving ecosystems, accumulating and discharging power according to the electricity system requirement, mitigating environmental pollution, solving multi-objective problems and improving social equity 1.1.3 Characteristics of the SMH projects in Vietnam Not only hydropower projects but SMH are mostly built in mountainous areas, where complex terrain and geology exit The catchment area of the SMH projects is relatively large depending on the size and capacity of the plant CI capital for the SMH projects is often large and long payback period The SMH projects have a moderate construction period, but the operation period is relatively long The benefits of hydropower projects depend heavily on nature because hydropower projects relies on source of water Hydropower projects have a profound effect on the environment and society 1.1.4 The potential of SMH in Vietnam As stated by theoretical calculations, the hydropower potential in our country is considerable with a total potential capacity about 35,000 MW and electricity output is about 300 billion kWh/year However, in terms of feasibility, about 26,000 MW can be exploited with electricity volume of more than 100 billion kWh / year, particularly SMH accounts for 15-20 billion kWh / year 1.1.5 Construction investment costs of the SMH projects in Vietnam Depending on each stage of the CI process, the CI cost is indicated by the total investment cost at the pre-construction stage; construction cost estimates at the construction stage; the value of payment and settlement of investment capital upon the completion of construction and post-construction stage In the thesis, the author studies the risks in the stages of pre-construction and construction that increase the initially approved investment value of the project The investment unit cost for construction of hydropower plants is the necessary unit expense for the new construction projects, calculated on a basis of a design capacity unit of the project The investment unit cost is the basis for determining the total CI, determination and management of CI costs of hydropower projects at the pre-construction stage In the world: the average investment unit cost for SMH ranges from 1300-8000 USD / Kw; large hydropower ranges from 1050 - 7650 USD / Kw In Vietnam: the investment unit cost of hydropower plants for Kw of the installed capacity of small hydropower averages VND 25-30 million; Large hydropower fluctuates 20-25 million VND 1.2 The overview of studies on risks in construction investment 1.2.1 Risk definition According to traditionalism, the risk is damage, loss, danger or factors related to danger, difficulty or uncertainty that can happen to people Some authors who agree with traditionalism may include: Allan Willett, Ricardo Antunes and Vicente Gonzalez, Jorge Cunhaa & Paula Ferreiraa According to modernism, the risk is uncertainty that can be measured, both positive and negative Risks can bring losses to people but can also bring benefits and opportunities The same point of view can be mentioned by the authors: Frank Knight, Irving Preffer, Ratna S Shrestha, Marcello N Cabral Da Costa 1.2.2 Research on risks in construction investment (CI) Research on risks in CI are very diverse in all areas such as Transport (Trinh Thuy Anh, 2006), Petroleum (Le Dang Thuc (2017), Rural Agriculture (Tran Quang Phu, 2016), etc Some authors mentioned above have identified and classified risk groups, determined the impact level of risk factors, introduced measures and solutions to mitigate risks in CI in general 1.2.3 Research on risks of construction investment costs Studies on risks of construction projects investment cost have recognised and categorised risk groups affecting the project objectives, some studies have expressed the risk factors that have strong and weak impacts, risk mitigation solutions as well as cost and time control models have been developed 1.2.4 Research on risks in hydropower investment construction Research on risks in hydropower investment construction in the world shows that the authors have identified and classified the risk factors affecting the construction project, specifying the risk groups that have major effects on the project objectives and the research have also provided effective risk management solutions for participants to make better decisions 1.3 Research gap Studies around the world focus primarily on risk management in hydropower projects In Vietnam, there are a few risk studies in the hydropower sector concentrating mainly in the field of investment construction in general (oil and gas, transportation, civil ) and some areas such as banking and insurance Only several papers studied on risks of project schedule delays and of construction contract in hydropower projects 1.4 Research objectives and orientation The thesis focuses on clarifying the following issues: (i) Developing a scientific basis to identify and classified risk factors; (ii) Building a scale of risk factors influencing the investment costs of the SMH projects in Vietnam, verifying the scale suitability and the research questionnaire; (iii) Categorising the impact of risk factors on investment costs of SMH; (iv) Assessing risk factors on the investment costs of SMH, and proposing mitigation measures for major risks 1.5 Conclusion Risk in the CI of SMH project is a new issue in Vietnam There has not been any research done in the field of hydropower in general, SMH itself including identification, classification and evaluation of the scope of influence and assessing risks to CI costs There are numerous risks, but we may not control and prevent all risks Thus, it is necessary to identify, classify, evaluate and assess risks to know the frequency of risks and the level of risk impact As a result, appropriated risk mitigation solutions would be made CHAPTER 2: THEORERICAL FRAMEWORK AND RESEARCH METHOD 2.1 Theoretical framework for determining the typology of risk factors affecting CI costs of the SMH projects in Vietnam 2.1.1 Preliminary classification of risk factors in studied the SMH projects Depending on the purpose of the risk assessment, the author has categorised risks according to different ways The researcher synthesizes and preliminary classify the risk groups as follows: Table 2.2: Preliminary risk classification in the SMH projects No Risk factors No Risk factors A Political and policy factors 11 Political conflicts 12 Frequent change of legal documents E Corruption, collusion of parties in project implementation 13 B Natural elements 14 Contractor capacity Collaboration between clients and stakeholders Factors in the process of project implementation Risks in compensation, support and resettlement Risks in design and cost estimation The extreme climate 15 Risks in construction stage 16 C Irresistible circumstance Geological and hydrological risks at complicated construction site Economic and financial risk factors 18 Risks in contract changes Delay in the supply of materials and equipment Risk in payment Inflation risk 19 Risk in low technology Interest rate risk F Project environmental factors Exchange rate risk 20 Air pollution, noise, water, and waste D Capacity of stakeholders 21 Impact on flora, fauna, aquatic life 10 Client capacity 22 Sliding, erosion, river sedimentation 17 2.1.2 Determining risks affecting the investment costs of the SMH projects The author uses risk-based identification method through completed projects, under-construction projects and projects that have been removed in the past to identify, supplement and remove the risks influencing the investment costs of the SMH projects in Vietnam The author has identified 29 influential risk factors according to the following table Table 2.7: Risk factors affecting CI costs of the SMH projects in Vietnam No A B C 10 11 12 D Influential risk factors Group of policy factors and state management Risks from the management decentralization of the SMH projects Weakness in decision-making process Legal documents system changes frequently Inappropriate local hydropower development policy Corruption, collusion of parties in project implementation Group of natural elements The extreme climate Irresistible circumstance (natural disasters, enemy-inflicted devastation) Geological and hydrological risks at complicated construction site Group of economic and financial risk factors Inflation Interest rate Exchange rate Economic growth rate Group of capacity elements of stakeholders Probability analysis Monte Carlo simulation Importance weight of risk criteria - Provides results probability conditions in - Difficult to historical data collect - Processes information from - Based on subjective various sources judgment - Provides results probability conditions - Requires much cost in and time - Must have probabilities - Considers different sources of input variables of risk - Limits on solving - Can model decision chains interactions between variables - Evaluates the level of influence through rating the - Probability based on risk level subjective judgment of Provide results in experts probability conditions Based on analysis of advantages and disadvantages of methods; objectives and scope of research; content and research results are expected to be achieved; data collected for analysis, the author selected Risk importance weight criteria to analyse and assess the impact of risk factors through ranking the importance of each risk factor and risk classification 2.2.4 The selection of analytical tools and the inspection of research data - The selection of analytical tools: In the thesis, the author selected SPSS software to analyse and process data because it is particularly popular software, straightforward to use and fully demonstrate the results for research - The verification of research data: Scale reliability testing and EFA discovery factor analysis are applied to eliminate garbage variables before being included in the analysis 2.3 Conclusion of chapter 11 The researcher provides a scientific basis to identify and classify risk factors Risk factors in the process of comprehending SMH construction projects including both under construction and completed projects in Vietnam are additionally identified and eliminated The method used to rank the impact level of risk factors and analyse the influence of each factor group on CI costs of these projects in Vietnam is also selected CHAPTER 3: THE EVALUATION OF THE IMPACT LEVEL OF RISK FACTORS TO THE COST OF CI IN MEDIUM AND SMALL HYDROPOWER PROJECTS IN VIETNAM 3.1 Preliminary study survey 3.1.1 Encoding scale - The group of policy factors and state management includes elements coded scale from CS & QL1 to CS & QL5 - Natural elements consists of elements are encoded scale from TN1 to TN3 - The group of economic and financial factors includes elements that are encoded from KT-TC1 to KT-TC4 - The group of factors related to the capacity of stakeholders consists of elements encoded scale from NLCB1 to NLCB3 - The group of factors in the process of implementing the project includes 11 elements that are encoded scale from TKDA1 to TKDA11 - The group of environmental risk factors of the project consists of elements encoded scale from MT1 to MT3 3.1.2 Analysis of preliminary research results The author selected 15 experienced experts in the field of hydropower currently being in charge of many important positions and roles in businesses / companies Client/Project Management Board, Design Consultant, Construction Supervision, Contractors, Departments, to conduct interviews 12 By carrying out the test of the scale through the reliable coefficient method of Cronbach’s Alpha factors, the researcher has synthesized and identified 24 risk factors included in the official survey 3.2 Official survey 3.2.1 Data description - Research samples: The researcher selected samples from Bollen point of view, 1989: minimum samples for research variable Thus, the number of required samples in the survey is 24 x = 120 samples - The period of survey: from July 2018 to October 2018 - Sample results are included in analytical research: 150 samples 3.2.2 Scale reliability test - Cronbach’s Alpha analysis results Table 3.10: Analysis results of Cronbach’s Alpha influence scale Scale Cronbach’s Alpha inspection coefficient Cronbach’s Alpha inspection coefficient (If removing variables) Group of policy factors and state management 0.809 0.863 Group of natural elements 0.787 0.787 Group of economic and financial risk factors 0.872 0.872 Group of capacity elements of stakeholders 0.749 0.749 Group of factors in the process of project implementation 0.805 0.878 Group of project environmental factors 0.855 0.855 13 Table 3.11: Analysis results of Cronbach’s Alpha frequency of occurrence Scale Cronbach’s Alpha inspection coefficient Cronbach’s Alpha inspection coefficient ( If removing variables) Group of policy factors and state management 0.699 0.728 Group of natural elements 0.698 0.698 Group of economic and financial risk factors 0.744 0.744 Group of capacity elements of stakeholders 0.907 0.907 Group of factors in the process of project implementation 0.680 0.71 Group of project environmental factors 0.832 0.832 - KMO test results The KMO coefficient of the two scales including the impact and the frequency are 0.842 and 0.769 respectively, matching the condition of 0.5