CR Leaders Corner: Paddy Padmanathan
AccountAbility interviews Paddy Padmanathan, President and CEO of ACWA Power about sustainability challenges and opportunities for the year 2013 and beyond.
Paddy Padmanathan is the President & CEO of ACWA Power, a leading developer of privately financed power generation and desalinated water production plants in the GCC and MENA region. Padmanathan is an Engineering graduate of the University of Manchester, United Kingdom and is a professional Civil Engineer with over 30 years of experience. He started his career with a British Consulting Engineering practice and through two mergers arrived at Black & Veatch, a major Global Engineering and Construction Company, where upon his departure in 2005, he held the role of Vice President and Corporate Officer. In addition to his executive responsibilities at ACWA Power, Padmanathan serves on the board of directors of several companies, all serving the water and power sectors.
AccountAbility (AA): Can you describe your vision for ACWA Power and the challenges/opportunities you see in achieving the vision?
Paddy Padmanathan (PP): ACWA Power’s vision and mission embody sustainability as it is a vital part of the success of all utility providers. Our vision is that, “The ingenuity and entrepreneurship of the private sector makes available electricity and desalinated water in a reliable manner to support social development and economic growth of nations.” This long term objective is supported and delivered by our corporate mission of “providing electricity and desalinated water in a sustainable manner at the lowest possible cost in our target countries.”
As lead developers we direct the activity of deciding what technical solution to use, co-invest capital, and manage the construction of the plant, which we then operate and maintain to deliver electricity and water. We can only fulfill our vision and mission if we are also able to convince all the members of our supply chain to price their respective inputs responsibly and at the lowest possible cost. These members include technology providers, engineering, procurement and construction contractors, other equity providers, debt funders, insurance service providers, and a vast array of consultants and advisors. Our main challenge, which is also our biggest opportunity, is to cultivate a mutually supportive trust-based partnership across our entire supply chain on each and every project to deliver this shared mission.
AA: How do you see CR and sustainability factoring into that vision?
PP: CR for ACWA Power is multilayered with the first and central priority being to ensure compliance with all relevant legal obligations and to ensure the safety of our employees. Ensuring that our people and the entire organization behaves in accordance with our code of governance and that our operational facilities demonstrate legal compliance and avoidance of HSE impacts are the cornerstones of corporate responsibility. Undertaking noble philanthropic activities while overlooking the safety and integrity of your employees, production plants and local communities is of no value as has been tragically proven time and time again.
Our next CR priority is to undertake “good works” within the community that go beyond minimal societal obligations. ACWA Power’s approach is to ensure that CR projects are closely tied to our vision and operational businesses so that they are not seen as add-ons that are vulnerable to budget cuts, but as central to our own long-term success. Current initiatives include the establishment of a vocational training college to encourage and assist young Saudis and Omanis to take up careers in the private water and power sector. We also support research relevant to our business at local universities and we contribute funds and our time to regional NGOs.
The final element of our CR philosophy is to champion change towards a sustainable future by leading and focusing our sector’s debate on the substantive issues of feed-in-tariffs for renewable energy, increasing the efficiency of fossil fuel utilization by repowering and refurbishing old and inefficient facilities, and encouraging conservation by appropriately valuing water and electricity by charging consumers cost reflective tariffs.
AA: As CEO, what kind of culture and performance mindset are you trying to establish at ACWA Power?
PP: Our team has embraced ACWA Power’s core values of integrity, rigor, fairness, ingenuity, and diversity. We are entrepreneurial by nature and attract like-minded professionals who want to make a difference and push through preconceived barriers to reliably deliver electricity and water at the lowest possible cost. The success of this philosophy is evidenced by our ability to provide energy and services at a rate significantly lower than our competitors. In the most recent example for the world’s largest Concentrated Solar Power Plant at Ouarzazate in Morocco, we demonstrated that a transparent competitive tender process, and not a feed in tariff structure, resulted in us delivering a new price level for CSP generated power at below US 20 cents per kWh whereas the previous lowest cost was US 40 cents per kWh.
AA: What are the key initiatives or signature programs that you have championed to drive ACWA Power’s long-term success?
PP: Our principal focus is on sustainable growth that includes geographic and technological diversification coupled with robust asset and risk management. Therefore, we embed a renewable action plan into our business strategy which means that we aim for an asset portfolio containing between 5 and 10% of renewable energy. This has resulted in the commitment to develop plants that deliver at least 2,000MW of electricity generated by renewable energy over the next decade.
ACWA Power’s main shareholders view our business as a long-term intergenerational investment and have distinct views about asset operations and performance. NOMAC, a wholly owned subsidiary that is a regionally-based industrial operational and maintenance service provider, was established to address these views. Over the past 5 years, First National Operation and Maintenance Company has matured into an international O&M contractor supported by a nucleus of local professionals delivering best practices.
AA: How does talent and knowledge management factor into your strategy and management practices?
PP: We have recruited and developed a professional multinational team with a diverse range of skills that has been vital to building and operating the business, as well as monitoring and managing risks. We have established a robust code of corporate governance and a code of conduct that have been embedded into our culture and way of life.
AA: What do you see as the “next big CR challenge” facing your industry?
PP: ACWA Power is fundamentally a Middle Eastern power and water desalination company that has ambitiously but deliberately expanded into international markets. The next big challenge in our domestic market is distinct from the challenges to the international power sector. The main domestic corporate responsibility challenges (and opportunities) are first to diversify the fuel mix and embed a suitable level of renewable energy to fulfill electricity demands, and second to increase the efficiency of use of fossil fuels, which will inevitably be needed to meet the demand. We also support the conversation to manage demand for electricity by encouraging the introduction of tariffs that reflect cost of production. This spectrum of policy direction will support the much needed reduction in domestic consumption of oil (that is used to produce electricity and water), which will lead to a consequent drop in regional carbon foot prints. A secondary effect will be increased commercial viability and attractiveness of renewable technologies.
The big issue waiting in the wings for the international power industry is carbon. All pollution reduction plans have a hierarchy of control that starts with avoid/eliminate and then moves onto reduce. Carbon emission reductions plans, from a power producer’s perspective, must start by avoiding emissions which is achieved by harnessing renewable energy sources. ACWA Power is avoiding emissions by fast tracking the development of our renewables portfolio and by investing in initiatives such as the Desertec/Dii project, a private industrial consortium whose objective is to create a market for renewable energy from the deserts. We are tackling the second step of reducing carbon emissions by increasing conversion and thermal efficiencies, thereby reducing the carbon intensity of electricity and water. Our newest gas fired combined cycle plant at Qurayyah in Saudi Arabia has a world class performance of 390gCO2/KWh which is exceptional. Furthermore, as our facilities are comparatively new, the overall carbon intensity of our fleet is significantly better than old coal and oil based power plants. Going forward, we will continue to strive for the most efficient conversion of carbon into water and power as it inherently provides simultaneous commercial and environmental benefits.
AA: What are the key CR and Sustainability issues that you are most concerned about and why?
PP: In addition to the issues discussed previously, attracting, developing, and retaining professional staff to support our rapid local and international growth is a major challenge – this is a common challenge that is raised by all CEOs and understood to be the bottleneck to sustainability of our business. In addition, the Middle East suffers from a chronic shortage of nationals with the necessary technical and professional skills to operate and maintain industrial facilities. The scarcity of competent and trained personnel spans all levels from semi-skilled apprentices, artisans, and technicians all the way up to the management and executive level. This shortage is further exacerbated in the regional private sector due to the preference given by candidates to seek jobs in government and semi-government organizations. ACWA Power is addressing this issue by actively supporting tertiary educational facilities such as the King Abdullah University for Science and Technology (KAUST) and by establishing a vocational power and water training institute near Jeddah. The technical institute currently has 600 trainees in the two-year program, all of whom are employed by one of the nine participating organizations that have also guaranteed them a job upon graduation.
AA: What do you see as the biggest CR-related reputational challenges for the industry today? How are you handling these at ACWA Power?
PP: Carbon and climate change are the biggest sector challenges and our approach has already been covered in some of the previous answers. A secondary issue is governance and risk management, which ACWA Power has addressed by establishing and resourcing an independent internal audit function that meets international standards.
AA: ACWA Power develops projects that involve the participation of a wide variety of partners, from governments to construction contractors. What role does ACWA Power’s CR reputation and credentials play in facilitating these relationships?
PP: ACWA Power’s ability to demonstrate international performance on EHS, governance, ethics, and corporate responsibility is seen as a de facto license to operate and a necessity to our stakeholders. For example, all our projects must meet World Bank/IFC EHS standards to enable funders to comply with their obligations under the Equator Principles. As part of our reputation and engagement program, we have voluntarily (as we are privately owned) been publishing an annual corporate report since 2009 that provides our partners and stakeholders with confirmation of commitments to transparency.
AA: From the vantage of corporate responsibility and sustainability, how has the job changed since you started?
PP: The fundamental issues we must recognize, address, embrace, or manage have not materially changed over the past seven years. However, as the company grows from a start up to an organization in midlife; as the early-day focus on development and management of construction widens to include operations, maintenance, and dispatch of electricity and water; and as the company evolves from a local entity to an international utility, all with rapidly increasing number of staff, the challenge continues to be that of ensuring that the vision and mission are understood and strategies and actions are implemented consistently and with the correct intent. This broader geographic and temporal perspective has necessitated and permitted a wider visioning and advocacy role.
ACWA Power is a developer, investor, co-owner and operator of plants capable of producing 13,000 MW of power and 2.3 Million m³/day of desalinated water with an investment value in excess of USD 15.2 billion and providing direct employment to more than 2,300 people.
The company, incorporated in the Kingdom of Saudi Arabia, is owned in majority by private corporate shareholders. The paid up capital and shareholder loans total USD 1.5 Billion. ACWA Power’s core business is the delivery of electricity and desalinated water from assets in which the company has a meaningful stake that ensures operational control.
ACWA Power’s complete team of multidisciplinary professionals has autonomously completed several transactions including taking the role of the Lead Developer. The key success factors of the organization’s growth has been the ability to consistently select the optimal technical solution, partnering with the most efficient engineering, procurement and construction (EPC) service provider and implementing effective operation and maintenance strategies. Business cases and financial models are twinned with the most competitive equity and debt financing with the primary objective of delivering electricity and desalinated water in a sustainable manner at the lowest possible cost to our customers in our target markets. Over the past 5 years, ACWA Power has established demonstrable competence in acquiring and integrating existing/brown field assets and staff into the company and subsequently increasing asset value through enhancing operational efficiency and improving performance.
The current portfolio of 16 plants deliver 12% of power and 40% of desalinated water consumed in Saudi Arabia, 12% of power and 17% water consumed in Oman and 59% of power consumed in Jordan in addition to a 60MWp photo voltaic power plant in Karadzhalovo, Bulgaria. In addition; 5,200 MW of new generation capacity is under construction in Saudi Arabia; 835 MW is in advanced development in Turkey; 50 MW Concentrated Solar Power (CSP) plant at Bokpoort, South Africa, another 1600 MW CSP plant at Ouarzzate in Morocco and a 45,460 m³/day Reverse Osmosis desalinated water production plant at Barka in Oman. The portfolio also includes two sea-going barge mounted, self-contained desalination plants each capable of producing 25,000 m³/day of water currently operating at Yambol in Saudi Arabia.
In 2009 ACWA Power sponsored and led the establishment of the Higher Institute of Water and Power Technologies (HIWPT) to train local high school graduates as power and desalination operators and technicians. The Institute is located in Rabigh, Saudi Arabia, and is fulfilling its strategic objective of providing technical training and employment for local youth to ensure the long term sustainability of the water and power sector while reducing the dependence on the expatriate workforce. The second academic year commenced in September 2012 with more than 600 registered trainees who are employed and sponsored by ten sector partners.
In September 2012 ACWA Power took full ownership of the First National Operation and Maintenance Company (NOMAC). NOMAC, established in 2005, is now the leading independent operations and maintenance (O&M) services provider for the power and desalination industry in Saudi Arabia which is enabling steady international growth. NOMAC has 660 employees and is responsible for the operation and maintenance of a portfolio of over 10,000 MW of power generation and 2.2 Million m³/day of desalinated water.
From its hub in Saudi Arabia, ACWA Power has expanded throughout the GCC and into Jordan. Recent opportunities and new assets have increased the company’s operational reach to include Turkey, Morocco, Southern Africa and Eastern Europe.