For Malaysia, the stakes are especially high considering the oil, gas and energy sector currently contributes more than 20% of the gross national income while Petronas tax revenue accounts for 40% of total government income.
It is critical that the capital projects undertaken are on schedule and within budget. The immense capital outlay and uncertainties due to the credit crunch, weak global economic sentiment and domestic contention of other deserving recipients of Petronas’ coffers only makes this all the more urgent. Bringing effective rigour and challenge to decisions at all stages of the capital project lifecycle is crucial in determining any project’s success.
From project appraisal right through to start-up and commissioning, a sturdy project management strategy will optimise capital project delivery, to ensure survival in a downturn, mitigate risks and position the organisation to better deal with competition. From the stakeholder standpoint, a well managed capital project not only prevents cost overruns but will possibly avert any catastrophic disasters.
Capital projects are notoriously difficult to deliver: they are inherently complex, carry considerable risk and each faces its own unique complexities. Some known experiences based on our firsthand account of these troubled projects are, amongst others:
Informed project owners and stakeholders are increasingly turning to independent risk advisers to ensure that their projects – and their organisations – are ready to proceed and have controls in place to monitor progress.
We have seen how important adequate and thorough attention needs to be given at each stage of a capital project lifecycle – which in turn can be broken down into four major phases - namely appraisal, development, execution and recovery. Getting decisions right from the start (Appraisal) the organisation needs a robust project appraisal process in place in which all market, technical and execution uncertainties are taken into consideration when making major decisions.
Securing funding and getting the right partners/ contractors (Development) capital projects undertaken need to be selectively assessed to ensure the optimum return on investments is obtained. Due consideration should be given to bringing on board the right partners and contractors to share the risks.
Making sure the project is on track (Execution) by having in place strong project management governance and oversight, risk is mitigated while costs are managed prudently.
Getting projects back on track (Recovery) for projects in distress, management’s focus must shift from normal operations to recovery. The initial decisions that managers make will set the course for the recovery programme and have a substantial influence over its success.
Although Malaysia is currently the world’s third largest oil and gas exporter, the International Energy Agency recently predicted that Malaysia would become a net importer of oil and gas in 2017 as a result of rising domestic demand.
The good news is that we’re on the right track to address this predicament, with the many oil and gas initiatives underway and projects in the pipelines.
With proper management of its capital projects, Malaysia should be able to meet its four oil, gas and energy key thrusts – sustaining oil and gas production, enhancing downstream growth, building a sustainable energy platform for growth and making Malaysia the number one Asian hub for oilfield services.
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