Hot Topic: Cost Transparency & Joint Ventures
The latest KPMG Global Energy Institute - Asia Pacific business club centered around cost transparency and joint ventures (JVs) in the Energy & Natural Resources (ENR) sector. Hosted at the Mulia Hotel in Jakarta, senior executives from across Indonesia’s ENR sector joined KPMG specialists at the event.
In a period dominated by commodity price and investment uncertainty, JVs continue to be a critical element of business strategies in the ENR sector. Structuring and delivering a successful JV program however, has become increasingly challenging with the growing complexity of projects and JV arrangements.
This workshop explored how companies can adapt their approach to existing JVs, protect value and continue to undertake successful projects in areas where JVs are commonly used to access markets.
The Value of Cost Transparency
Mark Elia, Director for ENR, KPMG in Singapore, outlined core measures JV projects should adopt. He cited the importance of aligning operations to Board expectations and establishing appropriate committees to oversee current and future activities.
For the success and sustainability of JV projects, Mr Elia highlighted the need for robust expense controls and clarity between cash calls and JV agreements, including scheduling and amounts. Due to the myriad of risks associated with JV operations, the capacity to manage risk and ensure business continuity in the event of an incident was flagged as an essential pillar in delivering an effective JV project.
The presentation also gave insight into infrastructure development challenges, outlined the building blocks to successful project execution and pointed out successful traits of cost management across the value chain of JV project development.
Joint Ventures: Best Practices and Trends
Brad Johnson, Director for JVs, KPMG in Singapore, gave insight into the proliferation of JV arrangements in the ENR sector. He argued that JVs are forged increasingly for strategic purposes rather than necessity. An estimated 5,000 new JVs have been established in the last five years, with the 100 largest exceeding US$350 billion.
Mr Johnson also highlighted the common pitfalls that often undermine the success of JV arrangements and pointed out various measures companies can adopt to decrease the risk of sub-optimal performance. He emphasized the merits of building a robust and practical operating model. Mr Johnson stressed the importance of acknowledging that JVs are partnership models, based on mutual understanding and cooperation. They must be handled suitably and not be managed like a subsidiary.
The senior executives in the workshop also completed a survey. Questions focused around the themes of the two presentations. In sum, the answers reflected that business executives embrace a cost-conscious culture but often fail to see how costs impact their business model and JV arrangements.
To download the survey and subsequent analysis, click here:
To download the workshop presentation, click here: