Research Topics: Fuel Supply Analysis

Ryanair Sample Dissertation Literature Review

src=”http://pagead2.googlesyndication.com/pagead/show_ads.js”> Chapter 2 Review of Related Literature   In the business arena, more and more organisations are able to realise the importance of having good relations with their clients. In this manner, many industries are trying to identify ways on how to promote or enhance client relationships. The customer-company relationship is based on a continuum wherein both “always-a-share” and “lost-for-good” relationships occupy the two extremes of the continuum. In an “always-a-share” relationship, transactions are arms-length and discreet. Customers are valuable and at the same time, replaceable. On the other hand, in a “lost-for-good” relationship, the probability that the customer will purchase again from the same company is extremely low when the customer decides to terminate the use of a product due to product defects or problems (Jacobs, Latham, & Lee, 1998). With these problems the performance of the business are being affected negatively. In order to solve the issue, different methods or approaches can be used to ensure good client relations. Hence, this part of the study will provide relevant literatures focusing on the ways on how to improve client relations.   Ensuring Customer Satisfaction                         According to Rust and Subramanian (1995), customer satisfaction brings many benefits as satisfied customers are not very price sensitive, buy additional products, are less influenced by competitors and stay loyal longer. Rust and Subramanian (1995) stated that customer satisfaction has been deemed directly to affect customer retention and companies’ market share (Rust & Subramanian, 1995). In banks, service quality, service features, and customer-complaint handling determine customer satisfaction (Hansemark & Albinsson, 2004). Some factors that affect satisfaction are extended hours of operation and competitive interest rates as confirmed by the study of Levesque and McDougall (1996). In addition, there are researchers who discuss the links between satisfaction, loyalty, and profitability (Heskett et al, 1994). They are proponents of the theory called service management, which argues that “customer satisfaction is the result of a customer’s perception of the value received in a transaction or relationship relative to the value expected from transactions or relationships with competing vendors. Pertaining to this theory, Hansemark and Albinsson (2004) stated: “Loyalty behaviours, including relationship continuance, increased scale or scope of relationship, and recommendation (word of mouth advertising) result from customers’ beliefs that the quantity of value received from one supplier is greater than that available from other suppliers” (p.28). They continued: “Loyalty, in one or more of the forms noted above, creates increased profit through enhanced revenues, reduced costs to acquire customers, lower customer-price sensitivity, and decreased costs to serve customers familiar with a firm’s service delivery system” (Hansemark & Albinsson, 2004, p.28).   Customer Loyalty Customer loyalty is about establishing and maintaining a relationship with your customers. (Chow & Holden, 1997) A key to this mutually beneficial relationship is the awareness of customer preference or the present and potential needs and wants of a customer about any aspect of the business, whether it is about products or services because of possible customer turnover which will lead to decreased profits. Loyal customers can be easier to convince to try new products or services, charge higher prices and use as a willing referral (Khirallah 2000). Accordingly, any business’s most advantageous strategic purpose is to gain customer loyalty. It has a constructive effect on company culture, development and bottom line (Dick & Basen, 1997). Customers will be able to see that the company is geared towards retaining customers through all business processes from management to staff. Aside from being a strategic purpose, gaining customer loyalty is also a key corporate challenge today especially in this increasingly competitive and crowded marketplace because of the eventual profitability it will provide especially in terms of international marketing (Chow & Holden, 1997). it has been noted that customers have both current and potential value to companies. Thus, another advantage of having a loyal customer base is that it is more inexpensive to maintain one than acquiring new customers. The cost to get new customers amount to 5-10 times more than that of keeping a customer because there are a lot more tasks to be done to acquire new customers. Having a regular customer base will shift the focus of business strategies to improvement of product and service quality among others (Bejou & Palmer, 1998). In 1999, fashion retail giant, Marks and Spencer’s (M&S) suffered a big loyalty test in Northern Ireland when customers expressed dissatisfaction about the stagnant fashion, inconsistency of sizes and high prices. Even those who considered weekly trips to M&S a must complained were greatly disappointed with the store.             Customer loyalty has been one of the most discussed and most misunderstood marketing concepts of recent years. Marketers have rushed to develop so-called loyalty schemes but do not always appear to have considered the key elements of why consumers remain loyal to a brand (Stum & Thiry, 1991). Some schemes have been dropped and new schemes were developed because customers use their card less nowadays. It is clearly a good time revisit the concept of customer or consumer loyalty. Firstly, a loyal customer and a satisfied customer are not necessarily the same thing. Customers may remain loyal for a number of reasons and may not even be happy with the product or service (Ryan, Rayner & Morrison 1999). A lack of customer defections does not necessarily indicate satisfied consumers. The cost of switching to an alternative supplier may be prohibitive or there may be a penalty clause. ·         Switching supplier may be inconvenient. ·         The alternatives may not be attractive. Secondly, there are many reasons why a consumer may be loyal to a product, service or brand. These can include convenience (ease of access in the case of a retailer) or price. The major reason for staying loyal is genuine satisfaction of the customers. It is not about the marketer operating a defined loyalty scheme although this does have the potential to offer benefits in the area of improved consumer understanding and the data mining or merchandising opportunities that flow from this. Countless marketing academicians, statisticians and marketing professionals have beaten the fact that it costs more to acquire a new customer than to retain an existing one. Companies need programs to gain and maintain loyalty of customers in the face of increasing product parity and intensifying competition. However, the issues do not only stop to loyalty programs but also it is about the form and objectives of such programs. Customer loyalty is characterised as the tendency of a client to choose one business or product over another for his or her particular needs or demand. For example, in the packaged goods industry, clients may be described as being “brand loyal” since they tend to choose a specific brand more often than others.  Remember that the use of the word “choose” in the context of customer loyalty becomes more evident when choices are being made and actions were taken by any customers.  It can be said that loyalty is shown by the actions of the customer. Moreover, it is said that customer loyalty has become a catch-all term for the outcome of different marketing methodise in which customer data is used.  Customer loyalty is the output of well-handled customer retention programs; customers who are given emphasis by a retention program demonstrate higher loyalty to a business (Bowen & Shoemaker, 1998). All customer retention programs rely on communicating with customers, giving them encouragement to remain active and choosing to do business with a company. Consequently, there exists an interaction between the desired results and customer satisfaction, customer loyalty and customer retention. They may go by other names such as customers, clients, buyers, etc.  Without the customer it is impossible for any business to sustain itself especially those who are competing in the international arena.  Achieving the desired results is frequently a result of customer actions.  Any business without a focus on customer satisfaction is at the mercy of the market.  Without loyal customers eventually a competitor will satisfy those desires and your customer retention rate will decrease. Loyal client usually don’t leave even for an appealing offer elsewhere.  At the very least they will give you the chance to meet or beat the other organisation with the same products or services.  Maintaining loyal customers is an integral part of any business (Schultz and Bailey: 2000). One of the approaches to get or retain loyal clients is through having quality products and services which are so satisfying that there is very little opportunity that the demands of the customer will not be met. Of course one of the difficulties understands the true customer requirements (Schultz and Bailey: 2000).  Even when you have the requirements in advance the customer can and will change them without notice or excuse.  Having a good recovery process for a dissatisfied customer is a necessity. Customer loyalty studies have been able to discover and measures both the attitudes and experiences which directs to desirable behaviors. (Schultz and Bailey: 2000)  It is a market research practice that is extremely actionable—it identifies areas for improvement, prioritizes them, identifies remedies, and then provides feedback on their effectiveness. On the other hand, market researchers love to debate whether the scope of such research is really “customer satisfaction” or “customer loyalty.” Many will even debate whether loyalty is an attitude or a behavior. It is easy to get caught up in the semantics, but the bottom-line is clear: we are talking about a type of research practice that promotes desired customer behaviors (Fournier, 1998). Granted, this applies each and everyone in the business market. Still, losing customer costs can be considered as a great deal of money, and in market environments that are experiencing slow growth, the existence of customer base company is a precious asset (Shani & Chalasani, 1992). High tech markets have a nasty way of shifting. Contemporary and direct business organisation, or firms offering alternative services and products, can create sudden and unpleasant changes in the competitive business environment. In this regard, an organisation that has a clear comprehension of its perceived strengths and weaknesses are those companies that will be well-prepared to enhance and promote effective competitive strategies (Crosby, Devito & Pearson 2003). Industries with small customer bases are in need of objective feedback as soon as they are able to have real, paying customers and loyal customers. At the heart of all of this is the fact that it is easier and cheaper to gain business from an existing customer than to attract a new one. Too often, it seems, greater focus is placed upon acquisition of new customers than satisfying existing ones. This is ultimately expensive and the lack of current consumer focus inherent in the approach means that opportunities for increasing share of wallet from existing customers through cross-selling and upgrading products and services is lost. Furthermore, this approach may frequently mean that companies are spending heavily to attract disloyal consumers and ignoring those who generate the most revenue and profits.     Customer Relationship Management   According to Cohen and Moore (2000), CRM is concentrated on the use of information technology so as to aid the organization to stay abreast of its customers’ needs and concerns. Customer Relationship Management also helps the organization to respond in time and appropriately to their customers’ calls. On the other hand, Jarre (2000) stated that Customer Relationship Management is a business strategy and process issue that involves several other strategies other than the application of technology. The approach on CRM covers all business processes that an organization employs so as to determine, select, obtain, enhance and retain its customers. Indeed, at present, CRM is regarded as the integration of business processes, technological solutions and advanced analysis, which enables companies to understand clients from a multifaceted perspective. Through this understanding, companies are able to establish deeper and more profitable customer relations (Zabin, 2004).             The CRM strategy may be thought as a new development in business and management, when in fact, it has been around since time immemorial. There may be variations of the old concept in comparison to the present time. However, the objective remains the same. Before, CRM is applied in businesses through personal interactions. For instance, a shop owner in the past would know all his customers by name, their lifestyles, hobbies, occupations and buying preferences. When needed, all these information are stored and readily accessible for the shop owner to use (Zabin, 2004).  Nowadays, this may not be very much applicable to modern companies. As an alternative, companies now depend on go-betweens to establish the connection for them. These come in the form of marketing vehicles, which act as a go-between communication flows, and contact management channels to intercede service and support flows. No matter how varied people define Customer Relationship Management, its main rationale remains the same, and that is the application of strategies to improve customer relations.             It may appear to be a simple management task. On the contrary, the implementation of CRM requires several factors. For instance, this strategy requires that an organization see customer relations as a means to recognize the needs and wants of its customers. The organization must successfully create, satisfy and sustain its clients while concurrently helping in the attainment of its objectives (Greco and Ragins, 2003). In order to come up with customized solutions geared towards the enhancement of customer functionality as well as to the recognition of new customer functionalities, customer intimacy and partnering are required. In turn, networking of customer relationships, which involves channel members, end users, advertising agencies, research firms are established and require management. In general, three important things must be incorporated to a CRM program. These include how to identify individual customers, how to gain relevant knowledge about individual customers and how to cross-sell to each individual customers in a real-time and context-sensitive manner (Zabin, 2004). Aside from this challenge, the implementation of CRM also requires the organization to view this strategy holistically. This means that CRM should be assimilated well to all the processes within the organization, from marketing to collections. This is said to be a challenge as most companies employing CRM have this tendency to view this strategy narrowly, seeing it as a mere tactical series of transactions. In contrast, the effective strategic implementation of CRM needs information from all related departments for the purpose of using customer information intelligently that will eventually lead to the creation of strong customer partnerships or relations (Butler, 2000). Furthermore, the consistency of the response from different customer points of contact with the company must also be addressed as a possible challenge. For instance, online customers can acquire immediate response to their applications, questions and suggestions. However, this may not be true for customers who have contacted the company using a different channel such as the telephone or a traditional retail outlet (Butler, 2000). Upon the company’s realizations on what it actually needs, several CRM strategies can be employed. Weiss (1999) suggests that personalization and online interactivity can be used to help build emotional connections with stakeholders in ways that no other medium can. Forrest and Mizerski (1996) maintain that the highest use of the Internet among businesses has been as a listening medium. The World Wide Web has progressed into a medium with various generic relationships -building attributes (Weiss, 1999). The higher the quality of the data a company can obtain about its customers, and the more comprehensive the data is, the more the organization will be able to use decision analysis to predict customer behavior (Butler, 2000). More targeted and customized relationship strategies can result from better predictions of customer needs. Online CRM can enhance the importance of the relationship for both customers and the e-business. Customers can receive more products and communications that are more suitable to their needs and lifestyles, and the e-business can benefit from a group of high-value repeat customers. In spite of the many considerations that management has to make in order to effectively implement CRM into its operations, several others are trying to work on employing such strategy. This is due to the fact that intimate customer relationships provide the marketer several advantages. One of which is the establishment of committed customers. Committed customers are more than simple repeat purchasers as they have an emotional connection to the seller (Dick & Basu, 1994; Lim & Razzaque, 1997). These emotions may come in the form of trust, liking and believing in the organization’s capability to respond instantly and effectively to a customer’s concern (Fournier, 1998). The company considers committed customers as its assets as they can possibly be a source of favourable word-of-mouth referrals. These customers are more resistant to competitors’ offers. Aside from this effect, CRM provide a point of leverage to realize economies of scope. Committed customers are often amenable to line extensions (Bejou & Palmer, 1998). Leveraging the customer base can facilitate cross-selling complementary products as well as selling up to higher quality substitutes. The ability of CRM to reduce costs has been explored as well in the recent years. When CRM is applied along with other work processes, the strategy is capable of reducing churn or turnover in a company’s customer base.  Thus, better customer management can lead to lower sales and service costs, higher buyer retention and lower customer replacement expenditures (Reichheld, 1996).   Case Studies             Various companies have applied CRM into their operations. One of these companies is the Irish Life and Permanent, which offers a wide range of life assurance, investment products and pension for individuals and groups to over a million clients in Ireland. Being the market leader of the business in the area, the company intends to merge with TSB Bank so as to become the biggest provider of financial services within the country (CRMToday, 2004). Between these two separate companies, three customer relationship management systems were in use, making the identification of prospects difficult. Both companies wanted to employ a single CRM system in order to present a united post-merger image and provide its sales power the information it required to sell joint products. So as to maximize revenues and enhance customer satisfaction, a software platform that would sustain seamless, quality sales and services through multiple lines of business, product lines and channels of communication. Through this integrated profile, each client’s policy data and history would make it less difficult for Irish and Permanent to determine prospects for a more advanced business growth. The company had this problem resolved by having an HP server, which acts as the database server.  With this, an integrated, single view of customer information is provided. Moreover, the CRM system gives a comprehensive picture of the company’s different products and services. The implementation of the new system had placed Irish Life and Permanent’s IT department under a great deal of stress and pressure in order to immediately get the solution implemented and in production. However, after overcoming initial challenges, the applied solution had enable Irish and Life Permanent to sell its items and products to their TSB clients through customer information analysis; automatic generation of recommendations; negotiation of financial models depending on the customers’ distinctive profiles and presentation of these solutions in various eye-catching graphical and text-based styles. The CRM system had also helped the company to present personal finance to customers in a highly professional, holistic and tailored approach. Overall, the CRM system applied by Irish Life and Permanent had enhanced customer satisfaction and helped the company to become Ireland’s best provider of personal financial services (CRMToday, 2004).             FAW-Volkswagen had been created in 1991 and was recognized for its production of modern cars in China. It is also the sole car manufacturing company in the country who was able to produce a medium and luxury class sedan. This company was also among the many others who have been dependent on CRM strategies. The company decided to implement a CRM system due to major business challenges such as unresponsive customer service, slow reaction times, lack of real-time information deficient incorporation of data and processes and shortage of IT personnel (SAP AG, 2001). The car manufacturing company put their products on sale through regional dealers. However, FAW-Volkswagen failed to acquire direct customer feedback it required to ascertain superior customer service and obtain market intelligence.  Within six months, the company then decided to execute mySAP Customer Relationship Management (mySAP CRM) in order to improve its customer service and acquire more vital information about its client base. The company believed that mySAP CRM can reinforce their relationship with the clients and incorporate all function of customer service. The purpose of the company for implementing such CRM system is generally concentrated on three main aspects: sales, service and marketing. Through the system, the company’s clients are able to access the company’s services by telephone, fax, e-mail and the Internet. The system is tightly integrated, which enables the company to share communication and information with the clients, service representatives and the entire enterprise (SAP AG, 2001). According to the company management, the CRM system had made real-time information on products, dealers and clients more accessible. As a result, the system had been a helpful tool in enabling customer service representatives to acquire the latest product information and attend to customer concerns anytime and anywhere. These assigned representatives can provide more informed decisions provided through firsthand information while monitoring and satisfying customer needs. In the long run, the company expects the system to help them achieve their longer term goals such as faster reaction to market changes, achievement of very high customer satisfaction and become the best automotive manufacturer in China. During the initial implementation, the company had assigned ten FAW-Volkswagen agents to work in the customer department, attending to about 800 calls per minute, both inbound and outbound. At present, the implementation of this system had given immediate positive effects, including inbound and outbound call processing, management of electronic mails and activity management that tracks, monitors and enhances all contact with customers. The Interamerican Group, a leading Greek insurance company, is yet another organization who had implemented their own CRM system. For years the company was capable to sustain the first place position in the life insurance field. Furthermore, the company is among the leaders in property and casualty insurance sectors. Since 2001, Interamerican has been part of a Dutch Holding company, Eureko BV, in which at present, owns 98.07% of the insurance company’s share capital (SAS, 2002). This joint venture of the company was done in accordance to its aim of satisfying the changing needs of people, both in the insurance field and business sector. Through specialized companies, the company is now able to provide various services, including health care, financial and banking services. The companies affiliated to the insurance company in turn, are able to enjoy the support and compatibility of Interamerican’s products and services. This advantage had provided the company a chance to establish itself as a stable company that acts with flexibility and speed, and most importantly, a company that provides a complete range of products and services of high quality both in Greece and abroad. In 1999, insurance activities were able to contribute 417 million (142 billion GDR) of revenue, resulting to a significant increase of 53% in comparison to the 1998 insurance activity. The consolidated revenues for the group exceeded 587 million (200 billion GDR) in 1999. Consolidated profits before tax exceeded 182 million (62 billion GDR) in 1999, an increase of 160% from 1998 (SAS, 2002).             In spite of the progressive growth of the insurance company, competition within the Greek automobile insurance market remains active and strict. For the past ten years, the statistics of the industry have shown alarming results. For instance, a 35% increase on the number of claims has been observed. A 317% increase was observed in the average cost of claims whereas only 226% increase was derived from the average premium (SAS, 2002).  Though these results were not as bad as in the Interamerican case, still the results alone were enough for the company to be alarmed.             In order to resolve this problem, the company had to first determine the loss-ratio or the factor that indicates the gross profit for the business for different segments. For instance, in the automobile insurance, this should refer to the type of use of the vehicle, either private or professional, and so on.  Through this system, segments that contribute to the increase of loss ratio will be revealed. By considering all contributory factors for a high loss ratio, the exact risk exposure for case can also be determined. In response to this, Interamerican adopted the Rate Making Solution created by SAS, which is more than just the application of traditional regression analysis. SAS was chosen by the company to help them employ technology in order to obtain more knowledge about their processes and data. As the largest privately established software company in the world, SAS currently serves over 37,000 customer sites located in more that 111 countries worldwide. Known for its efficient services, more than 3.5 million of its users have witnessed how SAS can transform raw data into extraordinary insights (SAS, 2002).  The application of this CRM system in the company had enabled them to attain their corporate objective based on revenue growth so as to augment market share without leaving profitability behind. The project had helped the company in identifying customer segments and related exceptions. Furthermore, the CRM application had helped the company established underwriting rules through improved comprehension of the pricing policy and its implications. According to the company management, the project has not only allowed them to respond better to the changing trends of their market, but perhaps the most important thing the project has taught them was how to understand and serve their various rate groups better insights (SAS, 2002).     Quality Management Basically, Quality Management is always people-driven and thus its results are seen in terms of high performance team work, enhancement of employee morale and creation of a harmonious organisational climate in addition to attaining excellence (Lakhe and Mohanty, 1995), thus making it compatible with the service industry. On the other hand, in the survey of Coulson-Thomas and Brown (1990), it has been noted that quality, customer satisfaction, and identification of customer value were identified by their respondent companies as either important or very important. Those companies that have high quality of services as well as goods had higher market share, higher return on investment and asset turnover than companies with perceived low quality (Ghobadian et al, 1994). It basically affects the competitiveness of the company, long-term profitability and “repurchase intentions” of both existing and potential customers (Ghobadian et al, 1994). Because it affects those factors, then it certainly affects customer satisfaction (Anderson and Fornell, 1994). Gronroos (1984), Parasuraman et al (1985) and Johnston (1987) have emphasized the link of service quality with customer satisfaction, which is, the degree of fit between customer’s expectations and perceptions of service. According to Groth and Dye (1999), customer criteria determine the definition of quality and the variables that affect perceptions of quality. They explained that variables may change with circumstance, experience, and time. In addition, service providers may influence the variables that drive customer perception to service quality. The perception of the customers may also vary by circumstances, time, and experiences (Groth and Dye, 1999). Groth and Dye (1999) explained that the total perceived value of a service comes from two sources. First, customers perceive value that originates from the service act itself; second, customers perceive value that originates from the quality of the service act. However, as mentioned in the introduction, it is difficult to measure the perception of the customers because of its intangible nature – and this complexity triggers the complexity of controlling or managing service quality. For instance, the intangibility of services and the simultaneity of service production and consumption make it complicated for customers to evaluate the quality of the desired service before it is provided or rendered (Berry et al, 1988).  One of the important management strategies to be considered to achieve quality is total quality management. Total Quality Management is a philosophy of management that is driven by the constant attainment of customer satisfaction though the continuous improvement of all organizational processes (Robbins, 1998).  It is a management philosophy that seeks to integrate all organizational functions such as marketing, finance, design, engineering, production, customer service, and others to focus on meeting customer needs and organizational objectives (Hashmi, 2000). Total quality management (TQM) has long been applied by companies and industries worldwide. The strategy, which is primarily customer-driven, is focused on quality through the emphasis of commitment and involvement of each employee within a working organization so as to produce products and services of quality. Several contributory factors have brought about the introduction and implementation of total quality management among industries. At present, customers are more diverse in terms of their needs. Clientele demands have been increasingly sophisticated as well as complicated. Moreover, local and global competitions have significantly increased implying that quality-driven organizations were the only ones to survive. Thus, so as to make in the business world, companies are encouraged to integrate quality towards the satisfaction of the needs, aspirations and expectations of the customers. Various analysts and authors have defined TQM and identified the concepts behind the approach. Price and Chen (1995) for instance, defined TQM as a general philosophy of management which can be customized to specific work or business environments. The authors also noted that the means of implementing TQM are as diverse as the companies adapting the approach. Some had stated that total quality management is a philosophy that seeks to incorporate various aspects and functions of an organization, including finance, engineering, marketing, customer service, production and many others in order to concentrate all energies towards the satisfaction of organizational objectives and customer needs (Dale et al, 1998). Robbins (1998) on the other hand, focused his definition of TQM on improvement. According to him, TQM is a philosophy of management that is focused on the continuous provision of customer satisfaction by means of constant improvement of the organization’s processes. In simpler terms, Connor (1997) had defined the strategic approach as a means of transforming the methods and ways an organization works. Indeed, as the use of TQM has been extensively applied by quality-oriented organizations, the concept of the approach has grown varied. Most often, the approach has been defined based on the benefits it provides such as the enhancement of customer satisfaction, improvement of the goods and services in terms of quality, generation of efficient production and profit gains as well as reduction of waste and cost (Evans et al., 1993; Choi et al., 1998; Elmuti et al., 1994; Schuler et al., 1991). According to Mercer (1991), there are key issues related to total quality management. For instance, the successful implementation of TQM leads to the improvement of productivity, competitiveness and market share. Due to the benefits and advantages of total quality management, companies and organizations are more encouraged to apply the strategy into their own operations. In this discussion the advantages of TQM, focused on the enhancement of employee potential and creativity, reduction of costs and bureaucracy and improvement of clientele and community services, will be emphasized through previous studies and actual cases.   Credit:ivythesis.typepad.com

Ryanair Sample Dissertation Literature Review

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Hong Kong CLP Fuel Supply Analysis

Fuel Supply A continuous and adequate supply of fuel to generating plant is essential to sustain a reliable electricity supply for off-takers and customers. Fuel also represents the single largest component of the CLP Group’s operating expenditure. In Hong Kong alone, CLP spends an average of approximately HK.4 million each day in supplying fuel to our generating fleet (excluding nuclear fuel cost at Daya Bay). Fuel for the power plants which CLP operates in Hong Kong represented about 40% of Hong Kong’s total energy consumption in 2004. Given the importance of fuel supply to our business, there are several areas where we place uncompromising focus in establishing and implementing our fuel procurement strategy: • Security of supply • Pricing • Environmental performance • Planning ahead In Hong Kong, there are no indigenous fuel sources (other than limited potential for renewable energy). We try to maintain security of supply through:  • operating with a diversified fuel mix of coal, natural gas and nuclear;  • optimizing our coal procurement contracting strategy by balancing the use of term and spot contracts;  • placing early contracts for the majority of our short-termcoal needs; • proactive supplier management and development; • maintaining a strategic coal and oil inventory; • flexible operations at Castle Peak and Black Point Power Stations (including the potential of plant to operate on dual fuel sources such as coal/gas and gas/oil); and • maintaining multiple fuel sources, to guard against the risk of reliance on a single supply source or supplier. For our coal-fired assets outside Hong Kong, such as Ho-Ping and, as from 2006, the new BLCP station in Thailand, we seek to apply a similar approach in fuel supply management. Yallourn Power Station in the Latrobe Valley in Victoria has a dedicated open cut brown coal mine adjacent to the power station. The coal mine provides a secure, continuous source of fuel for generation, with ample reserves to meet the projected needs of Yallourn until at least 2032. TRU energy also maintains a portfolio of gas supply contracts from multiple suppliers and as a result expects to have access to sufficient amounts of gas over the next decade and beyond, with agreements providing for potential increases in contract quantities. In addition, TRU energy can store up to 12PJs of gas and withdraw about a quarter of Victoria’s peak daily gas needs from its underground gas storage facility at the Iona Gas Plant. Iona is the largest gas storage facility in Australia and gives TRU energy greater flexibility in managing its gas requirements. The SEAG as Pipeline, which links the Victorian gas fields and South Australia, also provides the Torrens Island Power Station with greater gas supply security. TRU energy is a one-third stakeholder in the pipeline, which commenced operations in January 2004. In recent years, there have been significant problems in securing coal supplies in the Mainland. We have generally been successful in mitigating the effect of coal supply shortages, although this is a matter which requires continuous management focus and the proactive management of relationships with domestic coal Suppliers.   Pricing The supply of fuel for nuclear capacity at Daya Bay and for gas-fired power stations at Black Point, Torrens Island and GPEC has been largely unaffected by the recent rise in global energy prices. However, unprecedented rises in coal prices started in 2003. These reached a peak in mid-2004, by which time coal prices had increased by a factor of two. Prices have since declined gradually, but at the end of 2005 were still 50% higher than historical norms. Higher coal prices have supported production and infrastructure expansion by suppliers, as well as the start-up of new marginal facilities, thereby providing additional production to meet demand. Demand strength was driven primarily by Asia Pacific economic growth and has since subsided. Freight costs, which increased by a factor of four starting in 2003, are also declining but still show extreme price volatility, with current levels at about twice the historical norms. Coal freight rates were affected by the strength of the overall dry bulk industry which includes iron or other steel industry related freight movements.                                                         2001 Electricity Sales Total unit sales to customers in Hong Kong increased by 2.4% for the year ended 31 December 2001. Electricity sales to Commercial and Government sectors grew by 3.6% and 6.1% respectively. The growth of the Commercial sector can be attributed to the increase in sales to offices, estaurants and shopping malls. The growth in the Government sector can be attributed to the continuous infrastructure development and enhancement to public facilities. The Manufacturing sector recorded a decline of 7.0%, which reflects further reduction of manufacturing industry in Hong Kong. Sales to Guangdong Guang-Dian Power Grid Group Company Limited were 909GWh, representing 3.2% of total unit sales. Sales to Shekou increased by 1.5% to 672GWh.                                         2002 Electricity Sales The growth of government and other sector were 7.0% due to  The growth in the Government and other sectors was 7.0%, due to housing and infrastructure developments. This sector mainly consists of Government, hospitals, schools, water services and drainage, public transport corporations, the airport and container terminals. The Manufacturing sector recorded a 4.9% drop, which was attributed to the continuing decline of manufacturing industry in Hong Kong. The manufacturing sector now accounts for only 10.3% of total sales. Sales to Guangdong Guang-Dian Power Grid Group Company Limited were 1,429GWh, representing 4.8% of total unit sales. Sales to Shekou increased by 11.0% to 746GWh. The total export sales of 2,175GWh in 2002 (2001: 1,581GWh) were the highest export sales in a year since 1996. This reflects the strong economic growth in Guangdong Province. CLP has concluded a third supply contract with Guangdong which extends into 2003. This will assist Guangdong to meet its electricity demand and provide additional sales revenue that will offset costs for CLP’s Hong Kong customers and contribute to shareholder earnings. This is because the earnings from such sales are allocated on an 80/20 basis between customers and shareholders. Overall total sales in 2002 grew by 4.8% over 2001. As there was no tariff increase in 2002, total turnover only increased by 4.2% to HK,844 million due to change in sales mix.                               2003 Electricity Sales Total unit sales increased by 3.9% to 31,043GWh for the year ended 31 December 2003, and comprised 28,035G Who sold to Hong Kong customers and 3,008GWh to customers in the Chinese mainland. As there was no basic tariff increase in 2003, the slight decrease in turnover by 0.4% to HK,739 million was mainly due to fuel clause adjustment as a result of lower composite fuel price for the year. Electricity sales to customers in Hong Kong grew by 1.2% in 2003, with increased contributions from the Residential and Infrastructure and Public Services sectors. Sales to the Residential sector increased by 3.6%, in line with the increase in the number of customers. The Infrastructure and Public Services sector (formerly described as Government and Others sector) recorded sales growth of 3.8%, which was supported by the new infrastructure projects in 2003. Low sales growth in the Commercial sector was mainly due to the effect of the outbreak of SARS in the second quarter. Sales to the Manufacturing sector recorded a 7.4% decrease, resulting from Hong Kong’s continuing transformation from a manufacturing to a services-based economy. The Manufacturing sector now accounts for less than 10% of total sales. Sales to the Chinese mainland increased by 38.3% and represented 9.7% of the total sales in 2003. They consisted of 2,165GWh (2002: 1,429GWh) sold to Guangdong Guang-Dian Power Grid Group Company Limited and 843GWh (2002: 746GWh) to the Shekou Industrial Zone. The total export sales of 3,008GWh in 2003 (2002: 2,175GWh) were the highest sales to the Chinese mainland in a year since 1996 and were the result of the strong economic growth and hot weather in Guangdong during the year. The export sales assist Guangdong to meet its electricity demand and provide additional revenue that will offset costs for our Hong Kong customers. They also contribute to shareholder earnings as the profits from such sales are allocated on an 80/20 basis between customers and shareholders.                 2004 Electricity Sales Total electricity unit sales for 2004, including those to the Chinese mainland, grew 2.2% to 31,719GWh. As there was no tariff increase during the year, the increase in turnover by 4.0% to HK,773 million was mainly due to fuel clause adjustment as a result of higher composite fuel price. Local electricity sales recorded moderate growth of 2.1% to 28,632GWh. Sales were affected by the weather, which on average was cooler compared to 2003. The Commercial sector registered a rebound with 3.6% growth in sales, reflecting the economic recovery. Sales to the Infrastructure and Public Services sector also increased by 3.6%, attributable in part to the new railway infrastructure. The Residential sector recorded marginal decline of 0.4%. The decline in sales to the Manufacturing sector slowed down as a result of improved export performance. Sales to the Chinese mainland increased by 2.6% to 3,087GWh and comprised 2,200GWh sold to Guangdong Guang-Dian Power Grid Group Company Limited and 887GWh to the Shekou Industrial Zone. The export sales assist Guangdong to meet its electricity demand and provide additional revenue that will offset costs for our Hong Kong customers. They also contribute to shareholder earnings because the profits from such sales are allocated on an 80/20 basis between customers and shareholders.   The break down as follow.                         2005 Electricity Sales The demand for CLP’s services continues to grow. Our total electricity unit sales in 2005, including those to the Chinese mainland, grew by 6.8% to 33,879GWh. Revenue registered a 5.9% increase to HK,303 million (2004: HK,733 million).This was mainly attributable to higher unit sales and a fuel clause adjustment as a result of the higher composite fuel price.   Credit:ivythesis.typepad.com

Hong Kong CLP Fuel Supply Analysis

Fuel Supply A continuous and adequate supply of fuel to generating plant is essential to sustain a reliable electricity supply for off-...