Energy Sector © Siemens AG 2008 Energy Sector Contractors Experiences in Project Implementation and Ideas for Improvement Siemens Electrical & Electronic Services - K.S.C.C.

Energy SectorSEES Kuwait - 26th May 2010 Slide 1 © Siemens AG 2010 Overview History of Siemens Substation Business in Kuwait Introduction Project Implementation Analysis of Obstacles Ideas for Improvement Discussion

Energy SectorSEES Kuwait - 26th May 2010 Slide 2 © Siemens AG 2010 History of Siemens Substation Business in Kuwait Delivery of first 132/33/11 kV substation First High Voltage GIS of Siemens outside Europe for MEW From Commissioning of 12 Primary Substations From Commissioning of 47 Primary Substations From Commissioning of 6 Primary Substations From Commissioning of 45 Primary Substations More than 100 turnkey substation projects were executed for MEW which represents more than 30% of the network

Energy SectorSEES Kuwait - 26th May 2010 Slide 3 © Siemens AG 2010 Overview History of Siemens Substation Business in Kuwait Introduction Project Implementation Analysis of Obstacles Ideas for Improvement Discussion

Energy SectorSEES Kuwait - 26th May 2010 Slide 4 © Siemens AG 2010 Introduction Energy transmission is key integral part of the infrastructural development in Kuwait. In order to cater to the growing needs of electrical energy numerous primary substations were planned and executed in the last decade. Efficient project execution of these substation projects to meet the required deadlines has been the main interest of the substation contractors and MEW - the owner and the end user of the substations. During implementation of substations Siemens Project Management encountered obstacles which had mainly negative impact on the execution time and - as a result - on the cash flow in the project. Ideas for improvement in specific areas of the project shall support the owner as well as the contractor to reduce these obstacles in the future.

Energy SectorSEES Kuwait - 26th May 2010 Slide 5 © Siemens AG 2010 Overview History of Siemens Substation Business in Kuwait Introduction Project Implementation Analysis of Obstacles Ideas for Improvement Discussion

Energy SectorSEES Kuwait - 26th May 2010 Slide 6 © Siemens AG 2010 Project Implemetation - Siemens Core Learning Programs Professional project management is a vital success factor for Siemens. Almost half of our revenues derive from project business, and more than 15,000 project managers work for our customers worldwide every day. Our goal is to continually improve our project-related processes. We have to sustainably increase our results and to minimize project risks. Our values – excellent, innovative and responsible – are our guiding principles in doing so. The Learning Programs are long-term training programs which are geared to the job profiles and which ensure the comprehensive and unified training of project managers throughout the Siemens

Energy SectorSEES Kuwait - 26th May 2010 Slide 7 © Siemens AG 2010 Siemens – Certification Levels

Energy SectorSEES Kuwait - 26th May 2010 Slide 8 © Siemens AG 2010 Siemens – General Process Overview

Energy SectorSEES Kuwait - 26th May 2010 Slide 9 © Siemens AG 2010 Overview History of Siemens Substation Business in Kuwait Introduction Project Implementation Analysis of Obstacles Ideas for Improvement Discussion

Energy SectorSEES Kuwait - 26th May 2010 Slide 10 © Siemens AG 2010 Analysis of Obstacles Execution of Substations The successful execution of Primary Substations is related to the achievement of the following Milestones: Site Handover with Building License Civil Completion Manufacturing & Shipment Completion Erection Completion Commissioning and Testing (TOAC) FCC Late achievement of one or more Milestones results in a delay of completion

Energy SectorSEES Kuwait - 26th May 2010 Slide 11 © Siemens AG 2010 Analysis of Obstacles The main impact on delays during execution derives from: - late Design and Building Licenses - late Energizing - late FCC-Clearances. These delays are affecting the customer as well as the contractor. The late submittal of licenses is mainly affecting the contractor The late energizing is mainly harmful for the owner.

Energy SectorSEES Kuwait - 26th May 2010 Slide 12 © Siemens AG 2010 Overview History of Siemens Substation Business in Kuwait Introduction Project Implementation Analysis of Obstacles Ideas for Improvement Discussion

Energy SectorSEES Kuwait - 26th May 2010 Slide 13 © Siemens AG 2010 Ideas for Improvement Areas for Improvement Analysis of the Project Implementation Process leads to the following areas for Improvement: Planning Communication Process and Organization Contract Invoicing

Energy SectorSEES Kuwait - 26th May 2010 Slide 14 © Siemens AG 2010 Ideas for Improvement Planning Handling Municipality related issues (such as building license, site handing over) Handling issues with other Ministry authorities such as MOC, MPW in relocating existing underground services. Co-ordination within MEW to energize substation within contract period. No change in site location.

Energy SectorSEES Kuwait - 26th May 2010 Slide 15 © Siemens AG 2010 Ideas for Improvement Communication Internal communication within MEW departments. Introduce electronic form of communication for correspondences. Implement regular Progress Meeting and Minutes of Meeting with MEW Management. Open day for contractors to address contract issues.

Energy SectorSEES Kuwait - 26th May 2010 Slide 16 © Siemens AG 2010 Ideas for Improvement Process and Organization Demarcation of authorities with clear responsibilities for MEW concerned representatives. Define the Process for Change in scope of contract with necessary templates and authorities. Introduce proper Variation Order Workflow. Define scope of FCC general checks with necessary templates and authorities for contractors and MEW for resource management. Soil investigations shall be carried out by the owner before tender opening.

Energy SectorSEES Kuwait - 26th May 2010 Slide 17 © Siemens AG 2010 Ideas for Improvement Contract Provision of Transport and Communication to the concerned MEW employee by MEW. Liability should be limited to the total contract value. Price Variation for raw material like copper, steel, concrete should be considered Contract award for Cable- and OHL Works should be done in parallel to the award of the substation tender. Proper definition of warrenty obligations: The release of 5 percent FCC rate shall be done according to the contractual defined time period of 12 resp. 15 months. Extended warranties for products and erection companies shall be settled with a bond.

Energy SectorSEES Kuwait - 26th May 2010 Slide 18 © Siemens AG 2010 Ideas for Improvement Contract Contractually the site handing over can last up to 6 months. In case more than one substation is contracted, this time period shall be reduced to enable the contractor to stagger the civil works and following activities. As the completion of telemetry and Cable resp. OHL works are separately contracted, the completion cannot be influenced by the substation contractor. Therefore the TOAC should be released after commissioning and testing of the substation equipment.

Energy SectorSEES Kuwait - 26th May 2010 Slide 19 © Siemens AG 2010 Ideas for Improvement Invoicing Spare Parts Payment should be done according to the payment terms for the main delivery. Revision in Payment terms to 20% (advance payment), 65% (progress), 10%(TOAC), 5%(FCC). The contractual due time for payments (45 days) is rarely achieved. Either the payment process could be reorganized or interests for delayed payment should be contractually agreed. Monthly Progress Payment for erection shall be considered.

Energy SectorSEES Kuwait - 26th May 2010 Slide 20 © Siemens AG 2010 Ideas for Improvement Thank You!

Energy SectorSEES Kuwait - 26th May 2010 Slide 21 © Siemens AG 2010 Analysis of Obstacles Aggregation of Time Delays

Energy SectorSEES Kuwait - 26th May 2010 Slide 22 © Siemens AG 2010 Analysis of Obstacles Milestone Achievement

Energy SectorSEES Kuwait - 26th May 2010 Slide 23 © Siemens AG 2010 Analysis of Obstacles Execution Time No delay More than 24 Months 16 to 24 Months 9 to 15 Months

Energy SectorSEES Kuwait - 26th May 2010 Slide 24 © Siemens AG 2010 Analysis of Obstacles Invoicing and Project Progress Terms of payment = 10% Advance Payment + 55% of CIF / Civil / Other Charges / Erection + 30% TOAC + 5% FCC

Energy SectorSEES Kuwait - 26th May 2010 Slide 25 © Siemens AG 2010 Analysis of Obstacles TOAC-Process STEP 1STEP STEP 2STEP 2 STEP 3STEP 3 STEP STEP 5STEP 5 STEP 6STEP 6 TOAC committeeinspection & Punch-list Finalise TOAC CommitteeDate Submission TOAC /Invoice request Clearing TOAC punch-list MEW internal clearance received Required Documentation completed Schedule G Handed over TOAC retentions finlaised TOAC File processed by MEW/CSE TOAC payment certificate received TOAC PROCESS 24 DAYS6 DAYS60 DAYS28 DAYS50 DAYS45 DAYS 48 DAYS 50 DAYS TOTAL 229 DAYS APPROX. DAYS ERECTION TL COMM TL CIVIL TL EISSA JOAQUIM PM /CPM Resource matrix MEW Schedule C/G

Energy SectorSEES Kuwait - 26th May 2010 Slide 26 © Siemens AG 2010 Analysis of Obstacles FCC-Process STEP 1STEP STEP 2STEP 2 STEP 3STEP 3 STEP STEP 5STEP 5 STEP 6STEP 6 General checks & FCCpunch-list Finalise schedule forGeneral Checks with MEW Submission FCC / Invoicerequest Clearing FCC punch-list MEW internal clearance received Required Documentation completed Balance/ Surplus Material Handed over FCC File processed by MEW/CSE FCC payment certificate received FCC PROCESS (132kV/300kV S/stn) 0 DAYS60/110 DAYS 60 DAYS0 DAYS 81 DAYS48 DAYS58 DAYS TOTAL 307/407 DAYS APPROX. DAYS ERECTION TL COMM TL CIVIL TL EISSA JOAQUIM PM /CPM Resource matrix MEW Schedule C/G

Energy SectorSEES Kuwait - 26th May 2010 Slide 27 © Siemens AG 2010 Contribution to enterprise success We generate more than half of our business through projects. Consistent project management and qualified project managers are therefore essential success factors for Siemens. The is a Initiative for professional training of managers of category A,B,C Projects. Implementing Siemens enables us to deliver our services to our customers with great quality.

Energy SectorSEES Kuwait - 26th May 2010 Slide 28 © Siemens AG 2010