IHA 2013 World Congress: Judith Plummer: Special Lecture on the Impacts of Delays on Hydropower Projects

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Special Lecture Impacts of Delays on Hydropower Projects by Judith Plummer given at the IHA 2013 World Congress.

For more information on this event, see: http://ihacongress.org/

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  • So what?!take more care over time -
  • IHA 2013 World Congress: Judith Plummer: Special Lecture on the Impacts of Delays on Hydropower Projects

    1. 1. Judith PlummerUniversity of Cambridgejudithplummer@farmline.com
    2. 2. Five Myths ofDelays inHydropowerProjectsJudith PlummerUniversity of Cambridge
    3. 3. Myths “Pre-construction delays are annoying, but it’sconstruction delays you really want to avoid” “The more time you spend on preparation the lessthe risk of expensive construction delays” “The costs of construction delays are fullycaptured through contractual penalties andinterest during construction” “It does not really matter when you start becauseyou still get a 40 year project benefit stream” “Projects involving international financinginstitutions get delayed in pre-construction, butthen move more smoothly in construction”
    4. 4. Myth 1 “Pre-construction delays are annoying, but it’sconstruction delays you really want to avoid”
    5. 5. Annoying to whom?“Definitely the delay in the start of the actual construction of the projecthad wide ranging delays in the reaching of many of the socio-economicbenefits to the local people. Access to school, hospital and other facilitieswere delayed to that extent of the pre-construction activities being behindschedule.” Survey response For many stakeholders the effects of pre-construction delayare as serious, if not more serious, than the effects ofconstruction delay (including): - Affected families Government Environment Off-takers Consumers
    6. 6. Increased cost during pre-construction delayResearch on the impact of delays inenvironmental licensing forHydropower Projects in Brazil Direct costs Indirect costs Unquantifiable costsA matter for debate?3-7% ofproject costIn survey results 59% of respondents reported that the cost of theconstruction increased by more than inflation during the pre-construction delay
    7. 7. Myth 1 “Pre-construction delays are annoying, but itsconstruction delays you really want to avoid” Annoying to whom? For many stakeholders the effects of pre-constructiondelay are as serious, if not more serious, than the effectsof construction delay Affected families Government Environment Off-takers Consumers Delayed projects suffer cost increases in excess ofinflation Positive spin – have collected more data in time and know more Negative spin – bidders add a risk premium for sluggish projects.
    8. 8. Myth 2 “The more time you spend on preparation the lessthe risk of expensive construction delays”
    9. 9. Myth 2 “The more time you spend on preparation the lessthe risk of expensive construction delays” Data suggests that projects which spend longer inpreparation are more prone to construction delay – notless. Assertion would only be true if the additional time wasall spent on better preparation, of items which are onthe critical path But, this is not a call for rushed preparation, simplythat preparation time should be properly plannedand used to reduce construction risk
    10. 10. Myth 3 “The costs of construction delays are fullycaptured through contractual penalties andinterest during construction” Not true of negative impacts on stakeholders May not even be true of developers/contractors whomay gain reputation for delay?
    11. 11. Survey results – Impacts of delayCommon to Pre-construction and constructionNature of impact• Delay to promised local development impacts - such as access to markets (e.g.roads and bridges)• Delayed energy supplies - resulting in additional cost to obtain additional energysupplies• Delayed financial returns to Government or state project sponsor• Delayed wider economic benefits (e.g. impact on industry or potential investorsdeterred by lack of secure power supply)• Industrial and commercial investors discouraged by lack of firm power supply• Carbon emissions from alternate electricity supplies (typically coal or diesel)• Delayed energy supplies - resulting in groups of the population remaining un-served (delayed development outcomes)• Poor communities remain un-served by electricity with implications for localdevelopment and alleviation of poverty
    12. 12. Myth 3 “The costs of construction delays are fullycaptured through contractual penalties andinterest during construction” Not true of negative impacts on stakeholders May not even be true of developers/contractors whomay gain reputation for delay?
    13. 13. Myth 4 “It does not really matter when you start becauseyou still get a 40 year project benefit stream” If this were the case then there would be times when itwas preferable to build a project later? “Real options” analysis shows that it is rarely the casethat it is better to wait for better information than tobuild now with flexibility** Water Resources Planning under Climate Change: A “Real Options” Application to Investment Planning in the Blue Nile MarcJeuland, Dale Whittington – forthcoming publication
    14. 14. Economic analysis shows that economic returnsare lower from a later projectBumbuna – Sierra Leone – construction delay Economic rate of return of project 42.2% With two year delay 28.5%“But is still a very healthy rate of return”Data From Economic Analysis report – Bumbuna Power Project
    15. 15. “The impact of delays in construction oneconomic returns depends upon when that delayoccurs. If it occurs before construction begins (ineffect delaying all costs and all benefits) there isno impact.”World Bank Project appraisal report
    16. 16. Rampur Hydropower Project On time DelayConstruction delay Economic rate of return of project 14.5% With one year delay 12.4% Financial rate of return 9.3% With one year delay 7.7%Pre-construction delay Economic rate of return of project 14.5% With one year delay 13.9% Financial rate of return 9.3% With one year delay 9.3%Data From World Bank Project Appraisal Report estimates and calculations
    17. 17. Myth 4 “It does not really matter when you start becauseyou still get a 40 year project benefit stream” If this were the case then there would be times when itwas preferable to build a project later? “Real options” analysis shows that it is rarely the casethat it is better to wait for better information than tobuild now with flexibility Economic analysis shows that economic returns arelower from a later project Standard project economic rate of return analysisdoes not reflect the true impact of delay and thescenarios on project delay should not beconsidered as guidance for management of delay.
    18. 18. Myth 5 “Projects involving international financinginstitutions get delayed in pre-construction, butthen move more smoothly in construction” Survey data revealed a link between the extent of pre-construction delay and funding source
    19. 19. Delay by funding source0%5%10%15%20%25%30%None Less than1 year1-2 years 2-3 years 3-5 years 5-10 yearsMore than10 yearsPercentageofprojectsLength of Incidence of Pre-construction DelayIFI funding involved Private Funding0%5%10%15%20%25%30%35%40%None Lessthan 1year1-2 years2-3 years3-5 years 5-10yearsMorethan 10yearsPercentatgeofprojectswhereadelaywasidentifiedLength of Incidence of Construction DelayIFI funding involved Private Funding
    20. 20. Myth 5 “Projects involving international financinginstitutions get delayed in pre-construction, butthen move more smoothly in construction” Survey data revealed a link between the extent of pre-construction delay and funding source But the same link existed for construction delay – whichis generally not sensitive to funding source Do IFIs cause delay – or do they just get involved inriskier projects that the private sector wont fund?But
    21. 21. Myths “Pre-construction delays are annoying, but it’sconstruction delays you really want to avoid” “The more time you spend on preparation the lessthe risk of expensive construction delays” “The costs of construction delays are fullycaptured through contractual penalties andinterest during construction” “It does not really matter when you start becauseyou still get a 40 year project benefit stream” “Projects involving international financinginstitutions get delayed in pre-construction, butthen move more smoothly in construction”
    22. 22. Thank you
    23. 23. Judith PlummerUniversity of Cambridgejudithplummer@farmline.com

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