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Slide Case Luotang Final
Slide Case Luotang Final
Slide Case Luotang Final
INTRODUCTION
600 MW coal-fired power company. Located in Hubei Province in Central China. General manager, Tan Min Yi need to make presentation about:
Poor financial performance in year 2011 Consideration of 2,000 MW expansion Promotion as the companys Executive Vice President position
MAIN ISSUE
The poor plant performance due to the complexity nature of the contracting environment between Luotang Power Company and its supplier and customer that lead to the poor financial results of the plant
Excess Energy
Total Revenue
237,301
1,503,070
90,566
1,362,104 (140,966)
Operating Costs Coal Cost Fixed Operating and Maintenance Depreciation Expense Variable Operating and Maintenance Insurance Costs Total Operating Costs 362,062 38,115 349,342 60,058 23,432 833,009 320,183 39,068 348,549 51,886 23,666 783,352 49,657
670,061
578,752
(91,309)
VARIANCE ANALYSIS
Price Variance : 2011 2010 2011 = 423.846 421.923 3,000,000 = 5,769,000 (Favorable)
1,000
237,301 937,377
1,000 427,351
1,000
= 129,115,265(Unfavorable)
Price Variance: = 2011 2010 2011 = 397.422 381.744 3,427,351 = 53,734,009 (Favorable) Quantity Variance: 2011 2010 2010 = 3,427,351 3,937,377 381.744 = 194,699,365(Unfavorable)
= RMB 265
= RMB 270
Fuel Efficiency Variance : 2011 2010 = 0.346 0.347 3,427,351 265 = 908,248(Favorable) Fuel Cost Variance : 2011 2010 2011 = 270 265 0.346 3,427,351 = 5,929,317(Unfavorable)
39,068
33,178
5,890
(U)
Depreciation Expense
348,549
304,090
44,459
(U)
Insurance Cost
23,666
20,396
3,270
(U)
411,283
357,664
53,619
(U)
2011
Standard
Variance
39,068
38,115
953
(U)
Depreciation Expense
348,549
349,342
(793)
(F)
Insurance Cost
23,666
23,432
234
(U)
411,283
410,889
394
(U)
THE COAL SUPPLY & THE SPUR TO PROVIDE LOWER QUALITY COAL
enable HT Power to pass over Tan and consider the management team of Pingdingshan for the role of
The contractually obligated to sell electricity to HPPC according to a power purchased contract. Has limited opportunity to sell the energy above the contractual minimum. Coal supply contract with Pingdingshan. No have much option in selecting other supplier. High debt burden - approximately 80% of the initial construction costs being financed by debt. Expansion of 2,000 MW- increased the debt.
SOLUTIONS
RENEW CONTRACT WITH HPPC
Renew contract with customer - HPPC is enjoying the privilege. (not viable) Making a new contract with existing supplier - reduce the privilege and benefits of supplier. (not viable) Replacing hyrowater and tides - cost to acquire and installing and the time taken. (not viable)
Expansion of the supplier network - high bargaining power to renegotiate the price of coal. (viable) Joint venture and having HPPC as shareholders - win-win phenomena for both parties. (viable)
CONCLUSION
Seek new supplier and have joint venture and persuade HPPC to associate for the project. Thus it will