Report on Operation of Kapco

Introduction to theIntroduction to the

OrganizationOrganization

The Kot Addu Power Company (KAPCO) runs a 1600 MW

combined cycle Power plant at Kot Addu, a small town, in the

middle of Pakistan. The company came into existence in the June

of 1996 when the Water and Power Development Authority

(WAPDA) the state run power generation utility of Pakistan,

privatized the plant by offering 36 % stake to strategic investor

“National Power” of U.K. along with management control.

Kot Addu site is situated in District Muzaffargah, 100 KM north

east of Multan on the left bank of river INDUS at a distance of 16

Km from TAUNSA BARRAGE. The area is surrounded by

agricultural land stretched on the north and west side of Kot

Addu. There are some adjacent areas covered with wind blown

sand dunes which were formed with the passage of time. These

sand dunes too are being gradually converted into agricultural

land.

Apart from above, there were very little educational facilities

available in the area prior to setting up of this Power Station

which has now almost been doubled and some of the School

have been upgraded. The essential amenities are also now made

available to the residents.

IINTRODUCTIONNTRODUCTION TOTO THETHE P POWEROWER H HOUSEOUSE C COMPLEXOMPLEX

The complex comprises three blocks, 1, 2, and 3. Each block is

independent in it and can be considered a separate power

station. There are 2 combined cycle modules in each block no. 1

and 2 whereas block 3 has only one module. This is the physical

distribution. For the commercial purpose the complex is divided

into three blocks called Energy block 1, 2, and 3. The power

purchase agreement provides different energy charges for the

electricity generated and dispatched from each block. The

energy block 1 (plant block 3) is the latest and was in

commissioning stage when NP took over management in June

1996 whereas other blocks were completed and commissioned

between 1986-1995. The plant block 3, being latest, is the most

efficient plant and provides the cheapest electricity to customer.

Its total capacity is 397 MW. In order of priority, whenever there

is generation demand from the customer, this block is run first.

When the demand exceeds then only other plants are run. The

complex history over past 4 years shows that plant block 3 runs

round the clock throughout the year at maximum capacity. In

case this plant can not run at full capacity due to any fault or

break down of machines, the customer need is made up from

other available plants that are relatively expensive but the

customer pays lowest energy charges (of block 3) for the deficit

generation. This results in significant loss. Therefore this block is

the most valuable asset of the company.

HHEATEAT R RECOVERYECOVERY S STEAMTEAM G GENERATINGENERATING S SYSTEMYSTEM

The gas turbines, despite of their low installation cost, easy and

speedy erection and high loading rate could not win the

deserving popularity over the steam turbines due to the poor

efficiency of the former. In the conventional gas turbine unit,

substantial amount of heat energy was lost through the turbine

exhaust gases which leave the turbine at about 580 Deg.

Centigrade. To make use of this wasteful energy, an innovative

concept of combined cycle plant, now has been introduced by

the gas turbine manufacturers. Under this design, the exhaust of

the gas turbine is made to pass through a conduction type boiler

(commonly called as HEAT RECOVERY STEAM GENERATOR).

High-pressure steam so generated is then used to run the steam

turbine, which thus produces power without any fuel. This raises

the plant efficiency to nearly 49 % against the 28 % of the

conventional gas turbine.

AAGREEMENTSGREEMENTS BETWEENBETWEEN WAPDA & KAPCO WAPDA & KAPCO

WAPDA entered into an agreement with KAPCO for the purchase

of the power for next 25 years from this plant. The tariff covered

two kinds of payments viz. capacity and energy payment. The

capacity payment is made on the available capacity of the plant

and is mainly used by the company to meet the fixed expenses

and 756 million dollar debt liability that it inherited from WAPDA.

The energy payment is done on the actual dispatch from the

plant. It covers the fuel cost and there is hardly and saving from

this part.

The agreement allows 36 complex days for the scheduled

outages and 500 complex hours for the unscheduled / forced

outages. In case the accumulated outage period over the year

exceeds the agreed allowance, the company is liable to pay the

liquidated damages at a rate of 1.6 times of what it gets as

capacity payment.

The first year of the business went very well. WAPDA was prompt

in making payments, but it did not lost very long. WAPDA as well

as Govt. of Pakistan were in financial crises because of corruption

and in efficiencies. Ultimately WAPDA engaged KAPCO and

National Power in a complicated legal battle over the tariff issue

by filing petitions in the high court. The court finally passed an

interim order in October 1998 that restricts KAPCO to receive Rs.

1.98 per KWh of electricity. The objective behind this legal

wrangling was to pressurize KAPCO / National Power to agree and

out of court settlement for deduction of tariff. With the incoming

of present Govt. the matters have been solved to fair extent.

OORGANIZATIONALRGANIZATIONAL S STRUCTURETRUCTURE

The powerhouse complex is spread over 280 acres. As stated

earlier there are three independent blocks and each block is

independent in itself.

Each block has machines of different make where different

technology is used. Production department operates the plant

and maintenance departments are responsible for up keep of the

plant through preventive maintenance, trouble shooting, and

major / minor overhauling after predetermined period. At the

face, it is a functional structure. The specialist functions like

finance, IT, Personnel, Legal / Administration are common and

provide service which Production and maintenance departments

need to carry out their work. The production department has it

own centralized structure.

Each block has its separate maintenance department that is

further subdivided into three sections with respect to functions

Viz. electrical, mechanical, and ‘instrument and control’. A senior

engineer head each function. Resident Engineer 1 heads block 1

maintenance department whereas resident engineer 2 is

responsible for block 2 and 3 maintenance teams. However there

is an additional position of Assistant Resident Engineer at block 3

who is responsible to resident Engineer. The senior engineer of

this block report to both resident engineer and assistant resident

engineer.

PPERFORMANCEERFORMANCE H HISTORYISTORY

The project has performed well thought the period ever since it

has been privatized i.e. June 1996. The contribution of block 3 in

overall generation of the complex has been much beyond the

satisfactory levels.

OBJECTIVESOBJECTIVES

The project has been completed to achieve the following

objectives:

a) To reduce mass scale load shedding.

b) To firm up Hydel Power Generation during water

shortage period.

c) To facilitate operation and maintenance of other

power stations.

d) To cover emergencies and power shortages with quick

generation of power supply from this power station

which is the salient feature of gas turbines.

OPERATIONAL STRATEGYOPERATIONAL STRATEGY

CCORPORATEORPORATE S STRATEGYTRATEGY

Whatever the type of firm, top management’s responsibility is to

plan the organization’s long-term future. Corporate strategy

defines the business (es) that the company will pursue, new

opportunities and threats in the environment. Also addressed is

business strategy, or how a firm can differentiate itself from the

competitors. Choices could include producing standardized

products versus customized products or competing on the basis

of cost advantage versus responsive delivery. Corporate strategy

provides an overall direction that serves as the framework for

carrying out all the organization’s functions.

Strategic Choices

Corporate strategy defines the direction of the organization over

the long term and determines the goals that must be achieved

for the firm to be successful. Management sets corporate

strategy by making three strategic choices: determining the

firm’s mission, monitoring and adjusting to changes in the

environment, and identifying and developing the firm’s core

competencies.

AAPPLICATIONPPLICATION ATAT KAPCO KAPCO

Before the privatization the organization was working under

WAPDA like a typical Govt. Organization and had no formal

corporate strategy. However, after privatization in June 1996, the

organization is working on the subject and a draft corporate

strategy has been finalized. The strategy is being kept secrete at

the moment and no further details are available.

MISSIONMISSION

A firm’s mission statement answers several fundamental

questions. An understanding of the firm’s mission helps

managers enter ideas and design new products and services. If

its mission is too broadly defined, the firm could enter areas in

which it has no experience. If the mission is to narrowly defined,

the firms could miss growth opportunities. This should also

include the aspects like environment and core competencies. The

management should be able to identify and deal with

environmental changes when formulating mission statements.


The organization does not have any formal MISSION or VISION

statement ever since its privatization. The employees in the

organization just know that they have to work and produce

electricity / power with minimum possible expenditure.

In the process of the organization development an in formal

Mission Statement has been devised which is kept forth for

achieving the organizational goals. The proposed Mission

Statement is as under:

“KAPCO is an independent power

produces that provides electricity

for WAPDA distribution network. It

will continue to contribute in the

developing economy of Pakistan by

maintaining its capacity and

maximizing availabilities.”

CORE COMPETENCIES ANDCORE COMPETENCIES AND

COMPETITIVE PRIORITIESCOMPETITIVE PRIORITIES

CCOREORE C COMPETENCIESOMPETENCIES

Core competencies are organizational unique resources and

strengths which management considers formulating strategy.

These core competencies include:

1. Workforce

2. Facilities

3. Market and financial know how

4. System and technology

CCOMPETITIVEOMPETITIVE P PRIORITIESRIORITIES

A firm gains an advantage with its operating system by

outperforming competitors in terms of one or more of these

capabilities. There are eight possible competitive priorities for

operations, which fall into four groups.

CCOSTOST

1. Low cost operations

QQUALITYUALITY

2. High performance design

3. Consistent quality

TTIMEIME

1. Fast delivery

2. On time delivery

3. Development speed

FFLEXIBILITYLEXIBILITY

1. Customization

2. Volume flexibility

A firm may organize itself into one or more operating systems,

each designed to support a particular set of competitive priorities

for a particular set of products or services.


CCOREORE COMPETENCIESCOMPETENCIES

WWORKORK FORCEFORCE

A work force of approximately 800 to 900 hundred people is

working in the organization in 4 technical shifts and 1 general

shift as following:

Technical shifts 3 x shifts work 8 hourly daily on rotational

basis

1 x shifts remains at rest

General Shift for 8 hours on daily basis (from 0800 to

1600 hrs)

MMARKETARKET ANDAND F FINANCIALINANCIAL KNOWKNOW H HOWOW

There is no marketing department nor are there any competitor.

The organization do not carry out any marketing function.

However, a commercial and financial department exists. For the

billing purpose formal financial procedures are adopted.

SSYSTEMYSTEM T TECHNOLOGYECHNOLOGY

In the recent past the organization has installed new technology

plant for power production. There are combinations of hybrid

technology plants i.e. Gas and Furnace Oil combination, Gas and

High Speed Diesel combination and Steam Operated Turbines.

The company is also shifting their information system on the

modern lines gradually.

CCOMPETITIVEOMPETITIVE P PRIORITIESRIORITIES

CCOSTOST All efforts at every level are directed to reduce the production

cost. This is being achieved by the very extensive use of Gas

Turbine plant i.e. block 3.

QQUALITYUALITY High performance quality in the organization is referred as

efficient use of plant i.e. with minimum cost maximum output.

TTIMEIME

The aspect is of utmost importance. Priorities like Fast Delivery

and On Time Delivery are applicable as the company is

producing required amount of voltage at prescribed timing with

complete accuracy.

FFLEXIBILITYLEXIBILITY

There is no concept of flexibility, which is being implemented.

The company is rather tied up with the strict schedules of using

various plants.

SSTRATEGYTRATEGY B BASEDASED O ONN F FLOWSLOWS

These are five fundamental manufacturing and service strategies based on flows are:

1. Make-to-Stock Strategy

2. Standardized service strategy

3. Assemble-to-order strategy

4. Make-to-order strategy

5. Customized service strategy

AAPPLICATIONPPLICATION ATAT KAPCO KAPCONo concept of strategy based on flows is being followed /

observed in the organization. However, all production is being

done on the orders / demand received from WAPDA. One may

say that make to order strategy is being follows for production of

electricity.

DECISION MAKING INDECISION MAKING IN

OPERATIONSOPERATIONS

Operations managers make many choices as they deal with

various decision areas. Although the basic steps includes:

1. Recognize and clearly defined the problem.

2. Collect the information needed to analyze possible

alternatives.

3. Choose and implement the most feasible alternative.

Sometimes hard thinking in a quiet room is sufficient. At other

times reliance on more formal procedures is needed. Various

methods used are break-even, preference matrix, decision theory

and decision tray.


None of the above method is being implemented by the company

for estimating demand. The demand is received directly from

WAPDA (The only customer of the company) and company

produces power / electricity accordingly.

WORKFORCE MANAGEMENTWORKFORCE MANAGEMENT

TTEAMEAM

Employee involvement, also called worker participation or labor-

management joint-ness, is a key tactic for improving

competitiveness. One way to achieve employee involvement is

by the use of teams, which are small groups of people who have

a common purpose, set their own performance goals and

approaches, and hold themselves accountable for success.

Teams differ from their more typical “working group” because:

The members have a common commitment to an

overarching purpose that all believe in and that transcends

individual priorities.

The leadership roles are shared rather than held by a

single, strong leader.

Performance is judged not only by individual contributions,

but also by collective “work products” that reflect the joint

efforts of all the members.

Open-ended discussion, rather than a managerially defined

agenda, is prized at meetings.

The members of the team do real work together, rather

than delegating to subordinates.

EEMPLOYEEMPLOYEE E EMPOWERMENTMPOWERMENT

The three approaches to teamwork most often used are problem

solving teams, special purpose teams, and self-managing teams.

All three use some amount of employee empowerment, which

moves responsibility for decision farther down the organizational

chart – to the level of the employee actually doing the job.


Generally the concept of problem solving team or special

purpose team exist in the organization culture. This is more

evident when major overhauls of the plants are done. Individuals

are made responsible in different teams (each selected from

respective shift) for specific jobs. However, the culture needs

definite improvement.

TRAININGTRAININGIn a global marketplace, firms face changing market conditions

brought on by new competitors and changing customer

preferences. Firms must rely on their employees to anticipate

possible problems, develop new products and services, and

increase productivity to remain competitive. The emphasis on

efficient process requires the employees have a broader base of

skills so that they can take on greater variety of assignments and

communicate with employees in other areas. Firms engage in a

variety of training programs, including the following:

Global training

Administrative training

Technical training

AAPPLICATIONPPLICATION ATAT KAPCO KAPCOAlthough the company does not have any competitors yet the

company face a grate a most of electricity demand from WAPDA.

To this demand a highly skilled personal, (specially Engineer) are

required. As the project kept on developing in phases i.e. from

1984 (1st phase) to 1992 (last phase), To improve the skill and

update the technical know how of the working staff for the new

machinery, a training program was launched right from the

beginning of the project. As a result of this a number of station

engineers received foreign training in different fields. Entire

program of training to different categories of staff was out in five

Phases.

PPHASEHASE I IAs per contract agreement 7 engineers were trained in Germany

and 9 in Italy. The training was conducted at the training center /

factories of the machine manufacturers. Besides the above one

months local training was also imparted to the staff at site.

PPHASEHASE II IIUnder this phase 30 engineers received training in the field of

operation and maintenance of plant. The training was arranged

in France.

A local training was also arranged at site for the staff where operation and

maintenance of the gas turbines unit 5-8 was taught for a month.

PPHASEHASE-III-IIIFor the combined cycle plant unit Forty engineers were trained in

Germany.

Locally the operation and maintenance staff for these units was trained at

site by the foreign expertise for a period of 24 weeks.

PPHASEHASE-IV-IVFor operation and maintenance of steam turbine units 11&12,

Twenty engineers received foreign training in the relevant field.

Training was imparted at France.

In addition to the foreign training, a local training was also

imparted by foreign experts to the operation and maintenance

staff. A batch of 20 officials attended the course.

PPHASEHASE-V-V15 engineers were sent to Germany under this phase. The

participants of this course received training in the field of

Electrical, Mechanical and I&C maintenance of power plant.

A multi field training course, covering a span of 13 weeks was

arranged at the plant for local training of staff. About 50 persons

availed this training to get acquaintance with the new machinery.

CapacityCapacity

Capacity is the maximum rate of output for a facility. The facility

can be a workstation or an entire organization. The operations

manager must provide the capacity to meet current and future

demand; otherwise, the organization will miss opportunities for

growth and profits.

Capacity plans are made at two levels. Long-term capacity plans.

These plans cover at least two years into the future. Whereas,

short-term capacity plans focus on work-force size, overtime

budgets, inventories, and other types of decisions.

CCAPACITYAPACITY P PLANNINGLANNING

Capacity planning is central to the long-term success of an

organization. Too much capacity can be as agonizing as too little.

When choosing a capacity strategy, managers have to consider

questions such as the following. How much of a cushion is

needed to handle variable, uncertain demand? Should we expand

capacity before the demand is there or wait until demand is more

certain?

MMEASURESEASURES OFOF C CAPACITYAPACITY

No single capacity measure is applicable to all types of

situations. Output measures are the usual choice for line flow

processes. Input measures are the usual choice for flexible flow

processes.

PPEAKEAK C CAPACITYAPACITY

The maximum output that a process or facility can achieve under

ideal conditions is called peak capacity. Peak capacity can be

sustained for only a short time, such as a few hours in a day or a

few days in a month. A firm reaches it by using marginal

methods of production, such as excessive overtime, extra shifts,

temporarily reduced maintenance activities, overstaffing, and

subcontracting.

EEFFECTIVEFFECTIVE C CAPACITYAPACITY

The maximum output that a process or firm can economically

sustain under normal conditions is its effective capacity. In some

organizations, effective capacity implies a one-shift operation; in

others it implies a three-shift operation.

SSTEPSTEPS D DETERMININGETERMINING C CAPACITYAPACITY C CUSHIONSUSHIONS

Businesses find large cushions appropriate when demand varies.

Large cushions also are necessary when future demand is uncertain.

Another type of demand uncertainty.

Supply uncertainty also favors large capacity cushions.

Small cushions have other advantages; they reveal inefficiencies

that may be masked by capacity excesses-problems with

absenteeism, for example, or unreliable suppliers. Once

managers and workers have identified such problems, they often

can find ways to correct them.


PPOWEROWER G GENERATIONENERATION

PPEAKEAK C CAPACITYAPACITY

Peak capacity of the project is 1600 MW which is achieved

through combined cycle power plants.

EEFFECTIVEFFECTIVE C CAPACITYAPACITY

Effective capacity of the plant is 1340 MW at any instance during

the entire year.

According to the contract the company is bound to provide

same amount of power i.e. 1340 MW (equal to effective

capacity for the next 25 years to WAPDA)

Although the demand for power supply is received from

WAPDA is any instance during the year. However as a

process 95 days before the commencement of the next

year, average ten ta demand is received in giga watts / hrs

from WAPDA. Basing on this forecast capacity planning by

the company is done.

Brief calculations for generation of capacity is as

following:

1340 MW x 365 days x 24 hrs = 11738400 MW hrs

11738400 / 1000 = 11738.400 giga watts

hrs

Thus total generation capacity per year is = 11738400 Giga

watts hrs

CCAPACITYAPACITY CUSHIONCUSHION

Keeping in view the unscheduled break downs, prolonged

scheduled shut down for maintenance / overhauls WAPDA has

given a cushion of 670 Giga watts hrs to the company. The

calculations are as under:

Cushion in terms of time = 500 complex hrs

= 500 hrs x 1340 MW hrs = 670000 MW hrs

By dividing with 1000 = 670000 / 1000 = 67 Giga watts hrs

Company must try and maintain the unscheduled breakdowns

and forced outages within this specified capacity cushion of 67

gigal watts hrs. Contrary the company has to pay liquidation

charges to WAPDA.

In case company maintain and efficient work standard and

provide required capacity of power to WAPDA those grace has

(670 MW hrs) are kept in reserve for the company which it can

utilize during major overhauls which normally exceeds the

prescribed time limit for one or the other reason.

LLIQUIDATIONIQUIDATION D DAMAGESAMAGES

In case company is unable to provide required capacity of power

to its customer WAPDA and over utilizes the grace capacity of

670 MW hrs. then the company is bound to pay liquidation

damages to WAPDA at a rate of 160% or 1.6 times.

LOCATIONLOCATION

Facility Location is the process of determining a geographic site

of a firm’s managers must keep in minds various factors.

Desirability of a particular site including proximity to customers,

suppliers and transportation cost are important.

Managers can divide location factors into dominant and

secondary factors. Dominant factors are those derived from

competitive priorities (cost, quality, time, and flexibility) and

have a particularly strong impact on sales or costs.

Other factors may need to be considered, including room for

expansion, construction costs, accessibility to multiple modes of

transportation, the cost of shuffling people and materials

between plants, insurance costs, competition from other firms for

the work force, local ordinances (such as pollution or noise

control regulations), community attitudes, and many others.


In site selection following factors were kept in view.

Existing PARCO facility for transportation of HSD from

Karachi to Mehmood Kot, which is about 35 km from Kot

Addu. From Mehmood Kot, a 10 inches diameter pipeline

has been to laid this power station and HSD pumping was

commissioned in June 1989. (Later on it has been switched

over to furnace oil since 2nd Feb. 1991.).

Sweet under ground water

Future load center of north west areas

Possible use of gas from nearby Dhodak Field

Near to Kot Addu junction Railway Station

To provide job opportunity to the Location

General uplift and development of area.

LayoutsLayouts

Layouts’ planning involves decisions about the physical

arrangement of economic activity centers within a facility. An

economic activity center can be anything that consumes space.

The goal of layout planning is to allow workers and equipment to

operate most effectively. Before a manager can make decisions

regarding physical arrangement, four questions must be

addressed.

1. What centers should the layout include?

2. How much space and capacity does each center need?

3. How should each center’s space be configured?

4. Where should each center be located?

The location of a center has two dimensions: (1) relative location,

or the placement of a center relative to other centers, and (2)

absolute location, or the particular space that the center

occupies within the facility.


Layout of the company was although initially planned by WAPDA

but basic considerations of expansion and keeping the various

block and storage locations well within the reach of each other

were kept insight. Initial location of the plant which were

constructed in 1985 facilitated the gradual development of the

site till project completed in 1992.

FFORECASTINGORECASTING

A forecast is a prediction of future events used for planning

purposes. Forecasts are needed to aid in determining what

resources are needed, scheduling existing resources, and

acquiring additional recourses. Accurate forecasts allow

schedulers to use machine capacity efficiently, reduce production

times, and cut inventories. One of the biggest challenges in

business is forecasting customer demands. It is a difficult task

because the demand for good, and services can very greatly.

Forecasting demand requires uncovering underlying patterns

from available information.


PPOWEROWER D DEMANDEMAND F FORECASTINGORECASTING

KAPCO does not carryout any forecasting for the demand from its

customer WAPDA. It is rather customer by itself forward the

demand. The demand from WAPDA is received five yearly,

yearly, monthly, weekly and even daily i.e. A day ahead.

As regard demand from WAPDA is concerned at times it is

received right when required that even the demand received it is

always unpredictable and tentative because of the typical

requirement and technology involvement.

FFORECASTINGORECASTING FORFOR M MAJORAJOR / M / MINORINOR O OVERHAULSVERHAULS ANDAND

MMAINTENANCEAINTENANCE

Basing on WAPDA’s demand and running records of the various

plants and personnel experience of the engineers forecasting for

the overhaul minor maintenance and schedule outages is done

by the company. A very comprehensive procedure is being

adopted for scheduled outages which are the major events for

the company ( as these outages has direct bearing on the overall

efficiency of the company).

INVENTORY MANAGEMENTINVENTORY MANAGEMENT

Inventory Management is an important concern for managers in

all types of businesses. For companies which operate on

relatively low profit margins, poor inventory management can

seriously undermine the business. The challenge isn’t to reduce

costs or to have plenty around to satisfy all demands, but to

have the right amount to achieve the competitive priorities for

the business most efficiently.


IINVENTORYNVENTORY OFOF O OUTPUTSUTPUTS

There is no inventory for the power which is being produced by

the company. Whatever power / electricity is generated

transmitted simultaneously to its customers.

IINVENTORYNVENTORY OFOF I INPUTSNPUTS

A huge inventory is maintain for various inputs i.e. Furnace Oil,

High Speed Diesel and Spears.

NNATIONALATIONAL G GASAS

No inventory of the natural gas is maintained. The gas is coming

directly from SNGPL company and is used in the plants. There

are no storage of the gas at location SNGPL daily provide 70

million cubic feet of gas to the company for 8 months i.e. from 15

March to 15 November. If this amount of gas is not received

KAPCO charges liquidation damages from SNGPL Ltd.

FFURNACEURNACE O OILIL ANDAND H HIGHIGH S SPEEDPEED D DIESELIESEL I INVENTORYNVENTORY

An inventory of 21 days requirement of Furnace Oil and High

Speed Diesel is maintain always in the company. Quarterly

demand is sent to Pakistan State Oil (PSO) 44 days in advance.

This demand is based on WAPDA’s requirement of power which is

received 46 days before the start of the quarter. These supplies

are kept in storage tanks at location. The company has 27 tanks

each having capacity of 8,000 metric cubic oil. PSO is the only

supplier and there are no problems on supply.

SSPARESPARES I INVENTORYNVENTORY

Minor maintenance scheduled outages for major overhauls,

unscheduled outages and washing outages requires availability

of huge amount of spares round the clock at location.

All the spare parts are imported. Therefore, to meet emergent

needs spare parts are kept in stock for worth Rs. 2 billion. In

addition a huge numbers of spare part are imported keeping JIT

system in vogue.

IINVENTORYNVENTORY R REVIEWEVIEW

Periodic inventory review (monthly basis) is conducted in the

company.

QUALITY MANAGEMENTQUALITY MANAGEMENT

Quality can be defined in a various ways. In a general sense,

quality may be defined as meeting or exceeding the expectations

of the customer. For practical purposes, it is necessary to be

more specific. Quality has multiple dimensions in the mind of the

customer, and one or more of the following definitions may apply

at any one time. Quality can be defined in terms of:

Conformance and specification

Value

Fitness for use

Support

Psychological impressions

One of the important element of quality (TQM) is employees

involvement in totality. Good quality or total quality can pay off

in terms of high profits. The new and latest concept of quality is

continuous improvement or exceeding the level of customer’s

satisfaction.


In KAPCO the concept of the quality is followed but in slightly

different form. Instead achieving customer satisfaction or

exceeding the level of customer satisfaction the organization

measure quality in following terms:

Display of best efficiency in running the Furnace Oil / HSD

plants, Gas Turbine Station, Heat Recovery Steam

Generators and Boilers.

Least utilization of raw material i.e. Furnace Oil, HSD. Their

priority remains to use gas and steams.

Excellent maintenance mechanism.

No line losses

No unscheduled outages

No extra tripping out

Maintenance of regular operations

Quality is also measured in terms of:

Preventive Maintenance

Break down maintenance

Condition based Maintenance

Pro-active maintenance

ISO 9000 CISO 9000 CERTIFICATIONERTIFICATION

The company, does not have any certification from international

standard organization.

MMONITORINGONITORING Q QUALITYUALITY

Quality is monitored through National Power central station

at Islamabad. The company has direct Hot Line

(electronically controlled) as well as a special monitoring

system called SCADA. Any break down, fluctuation and

tripping is monitored at National Power Central Station

Islamabad. This contributes to the overall quality /

efficiency of the organization.

It is from this station that various demands are placed and

in-turn plants are operated.

The best measure of the company’s quality is to have the

least or No liquidated damages during the year.

Since there are no threats to the company from the market,

other competitors, threats of raw material, gas or HSD the

company maintains high standard of efficiency. Thus

achieve required quality.

Another important quality measure is to maintain 1340 MW

hrs output throughout the year. This standard is expected

to last for the duration of contract of 25 years ever since its

privatization.

QQUALITYUALITY P POLICYOLICY

An explicit quality policy does not exist. In last three years many

procedures, local management instructions have been issued

and operational procedures defined from time to time

The quality policy for KAPCO is defined as:

The company business is to generate and sell

electricity to its only customer “WAPDA” as and

when it demands. Therefore quality for KAPCO

means, “Meeting agreed WAPDA’s

requirements”. This is possible by

maintaining the reliability and

performance of the plant at minimum cost

but with care for people, plant and

environment.

SCHEDULINGSCHEDULING

Scheduling allocates resources over time to accomplish specific

tasks. Normally, scheduling is done after many other managerial

decisions have been made. Sound scheduling can help an

organization achieve its strategic goals. Operational scheduling

focuses on how best to use existing capacity, taking into account

technical production constraints.


WWORKORK FORCEFORCE S SCHEDULINGCHEDULING

There are two types of workforces:

1. Direct Employees.

Those who work in the energy blocks and on plants and

boilers.

2. Indirect Employees

Those who work for general duties other than the energy

blocks.

The organization has 3 x shifts of 8 hours working daily, whereas

1 x shift remains on rest for 6 days. General shift works for 8

hours daily.

OOPERATIONALPERATIONAL S SCHEDULINGCHEDULING

This is one of the best application being applied in the company.

In operational scheduling major outage plans for the next 5 years

are scheduled. Basing on this 5 year planning annual plan is

made and approved from WAPDA. Normally outages are

scheduled from July to November which is low period for the

Thermal Power Stations. This scheduling process includes:

Scheduling for outage starts 18 months before when a

particular plant is indicated for major overhaul.

15 months before the commencement of the project the

purchase requisitions are sent to the purchase department.

It takes 3 months to receive the quotations.

12 months before the start of the project of the overhaul or

scheduled outages the final demand is placed to the

suppliers by the purchase department.

1 to 2 months before the start of the project spares are

received at location. (Since the spares are imported from

abroad therefore a cushion of 1 to 2 months is kept for

negotiating the hurdles of the process).

Many major items are received just in-time (JIT) as well.

All prose and cons of the shipment of material either by air

or by sea are considered and efforts are made to have the

least possible cost with best possible delivery means at due

time.

SSHUTHUT DOWNDOWN S SCHEDULINGCHEDULING

There are three types of scheduling for shut down as following:

1. Scheduled outage or planned outages.

2. Unscheduled outages or forced outages.

3. Washing outages for gas turbines

Following parameters are kept in view for scheduling of various

types of outages discussed above.

1. For scheduled outages WAPDA gives 36 complex days for

each machine.

2. For major overhauling 50 to 60 days at average are

preempted by WAPDA for each machine.

3. For hot gas path inspection 30 days are given.

Basing on above parameters formal scheduling of shut down is

made on annual basis. This scheduled plan is approved by

WAPDA and the maintenance are under taking accordingly.

SSCHEDULECHEDULE F FOROR C CRANESRANES A ANDND L LIFTINGIFTING E EQUIPMENTSQUIPMENTS

Schedules for cranes and lifting equipment have been developed

very recently for the first time. Inspection of these items is in

progress nowadays through an independent agency.

Identification no is being punched on each equipment. In addition

red color market is also being put on tested equipments.

DISTRIBUTION OF POWERDISTRIBUTION OF POWER


PPOWEROWER T TRANSMISSIONRANSMISSION

For export of electric energy, this station is equipped with a two

level (132 KV & 220 KV) switchyard. Six machines (Unit No. 1, 2,

3, 4, 9 to 10) of the plant are connected with the National Grid

through 132 KV swithcyard whereas the remaining nine

machines (Unit No. 5, 6, 7, 8, 11, 12, 13, 14 & 15) terminate at

220 KV Switchyard. Four auto transformers further provides an

interlink between the two switchyards thus the system flexibility

for power transmission of all the machines is enhanced. The

power generated by this station is transmitted to the National

Grid through network of ten lines as detailed below:

Line 1: KAP 4 ---- 132 KV, 100 MW. Industrial State, Multan

Line 2: KAP 5 ---- 132 KV, 100 MW. Muzaffar Garh I

Line 3: KAP 6 ---- 132 KV, 100 MW. Muzaffar Garh II

Line 4: KAP 7 ---- 132 KV, 100 MW. D. I. Khan I

Line 5: KAP 8 ---- 132 KV, 100 MW. D. I. Khan II

Line 6: KAP 9 ---- 132 KV, 100 MW. Kot Addu

Line 7: Multan I ---- 220 KV, 250 MW. New Multan I

Line 8: Multan II ---- 220 KV, 250 MW. New Multan II

Line 9: Multan III ---- 220 KV, 250 MW. New Multan III

Line 10: Multan IV ---- 220 KV, 250 MW. New Multan IV

SUPPLY CHAIN MANAGEMENTSUPPLY CHAIN MANAGEMENT

Supply chain management seeks to synchronize a firm’s

functions and those of its suppliers to match the flow of

materials, services and information with customer demand. a

basic purpose of supply chain management is to control

inventory by managing the flows of materials.


The KAPCO has an efficient supply chain management

system for provision of Natural Gas, Furnace Oil, HSD and

Spares.

As regard gas it is directly coming from the SNGPL Ltd. to

the plant on daily requirement basis. A minimum and

maximum requirement levels have been finalized with

SNGPL Ltd. by the Government on permanent basis. In case

SNGPL Ltd. does not meet the requirement liquidated

damages are charges by KAPCO.

For Furnace Oil and HSD the contractor is PSO. The demand

is placed 44 days in advance of the requirement on

quarterly basis as the oil had to be transported from Kamari

to Lal Pir and then to KAPCO location.

A special 59 Km long pipeline has exclusively been laid

from DHODAK to KAPCO for provision of Furnace Oil. This

meets the major supply for the company’s requirements.

Aggregate PlanningAggregate Planning


As such no formal aggregate planning is done in the

company. However the company has a performance

section, which maintain all records on day to day basis.

Physical coordination of various executives is done very

frequently. Meeting are held quite often.

Commercial and performance manager, 2 engineers,

Computer qualified staff, billing staff and HR staff monitor

aggregate operations and insure followings:

1. Liquidated damages (if any) are reduced to minimum.

2. company must generate power to its requires capacity

and demand, with minimum possible cost.

FINANCIAL IMPLICATIONSFINANCIAL IMPLICATIONS


A formal finance / billing section exists in the company. It

ensures the billing is done to the customer (WAPDS) on monthly

basis according to the contract and power provided. At the same

time it maintain all bills received from suppliers and make

necessary arrangements and adjustments of payments. In this

connection following parameters are kept in view by the

department:

Prices of the Furnace Oil, Gas and HSD were kept as the

base and energy charges were decided. The bills are made

accordingly.

With the increase or decrease in prices the rates are

automatically adjusted with the same ratio.

This work is efficiently being performed by finance

department.

Bills for the raw material are also prepared and paid

according to the contracts deeds.

INFORMATION SYSTEMINFORMATION SYSTEM

Information is one of the most important corporate assets but, to

unlock real value you need to ensure that it can be easily

retrieved, managed and shared. The IT system recently installed

at KAPCO fulfils the requirements. More than 120 officers /

engineers have been provided with the network computers and

are connected with each other through a server installed at a

central place. The most modern computer aided maintenance

management and stock control system has also been installed

and made accessible for all the users. The documents and other

forms of information can be scanned and converted to electronic

form. From any workstation, user can retrieve documents rapidly,

review or annotate them, communicate to other people for

comments or approval and incorporate the information into other

popular business applications.

EXECUTIVE SUMMARYEXECUTIVE SUMMARY

Until 1996, Government of Pakistan had monopoly over power

generation and transmission all over the country. Government

ran this business through State owned “Water and Power

Development Authority” (WAPDA). In 1996, the then Government

decided to privatize WAPDA in different stages. because of

excessive in-efficiencies in the operation of WAPDA’s and to

encourage in-ward investment into Pakistan.

Kot Addu Power Company came into existence in June 1996

when the Government privatize its 26 % shares to National

Power England through open bidding with an option to purchase

another 10 %. This 10 % was purchased by National Power

England. Therefore, in June 1996 a new company named “Kot

Addu Power Company” came into existence.

The power complex is spread over 280 acres of land. It has three

independent blocks and each block has machines of different

make where different technology is used. Production department

operates the plant and maintenance department is responsible

for up keep of the plant through preventive maintenance, trouble

shooting and major / minor overhauling after predetermined

period.

Forecasting of the company is entirely dependent upon the

forecasting received from WAPDA. Mainly forecasting is done for

various maintenance operations. Forecasting is also done for the

provision of raw material supplies i.e. Furnace Oil, High Speed

Diesel and Spare Parts for the plant machinery.

The company maintains an inventory of 21 days for Furnace Oil

and High Speed Diesel. It also maintain a huge inventory of spare

parts. A fairly good Supply Chain Management System exists

within the organization.

The company’s basic business is to produce required amount of

power according to the customer demand with No liquidated

damages. The company believes in quality by maintaining high

efficiency level of its operations. There are no ISO 9000

certification obtained by the company.

The company is shifting its existing manual information system

to modernized information technology based system in which

approximately 120 new computers along with a server had

already been installed.

In this report a detailed analysis of various operations

management procedures has been carried out. This analysis

provides an opportunity to look into the organizational

functioning of KAPCO deeply.

ACKNOWLEDGEMENTACKNOWLEDGEMENT

To start with, I with my all humility convey, my sincere thanks to

GOD the ALMIGHTY for having granting me the Wisdom and

energies to complete this assignments with in the stipulated

time.

In the process of the preparation of report I required lot of

guidance and directions. I could receive these from highly

learned, experienced and most elegant personality Dr. Hayat

M. Awan. Let me admit openly that without his dedicated

guidance, most useful advises and wholehearted assistance the

task was uphill. I have learnt a lot and added to my experience

during this process. I extend my deep gratitude and most sincere

thanks to him.

I also extend very sincere thanks to the following executives of

KAPCO who have really provided me with the most useful

information about the project.

Mr. Nisar Asim Ex. General Manager

Mr. Amjad Ali Sheikh Resident Engineer (Opeartions)

Mr. Muhammad Yasin Manager Human Resources

I am also thankful to all others who assisted me in completion of

this report.

Author

PrefacePreface

To become an expert in any field, only theoretical

knowledge does not provide a concrete base. This is a unique

approach of business education that provides an opportunity to

the students to observe daily life business practices and

problems. Operations Management is one of the core subject of

MBA Program that gives us an idea as to how the various aspect

of operations are dealt in the different organizations. Therefore,

the study of this subject is incomplete without observing the

applications in the real working environment.

During the process of study, I made a couple of visits to

meet with the executives of KAPCO. A formal questionnaire was

prepared before the discussions were made with the General

Manager of the Organization and Resident Engineer (Operations).

A very informative, exhaustive and valuable material has been

collected during the discussion with experts. All this prove to be

an effective source of learning.

Contents Contents

INTRODUCTION TO THE ORGANIZATION________________________________1

OBJECTIVES___________________________________________________________5

OPERATIONAL STRATEGY______________________________________________6

MISSION_______________________________________________________________7

CORE COMPETENCIES AND COMPETITIVE PRIORITIES___________________8

DECISION MAKING IN OPERATIONS____________________________________11

CAPACITY____________________________________________________________15

LOCATION____________________________________________________________18

LAYOUTS_____________________________________________________________19

INVENTORY MANAGEMENT____________________________________________21

QUALITY MANAGEMENT______________________________________________23

SCHEDULING_________________________________________________________26

DISTRIBUTION OF POWER_____________________________________________29

SUPPLY CHAIN MANAGEMENT_________________________________________30

AGGREGATE PLANNING_______________________________________________31

FINANCIAL IMPLICATIONS____________________________________________32

INFORMATION SYSTEM________________________________________________33

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Report on Operation of Kapco

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