Qatar General Electricity and Water Corporation Business Environment and Strategic Management

1.0: Introduction

Corporations such as the Qatar General Electricity and Water Company need to understand the business environment in which they operate if they are to run successfully. This is because environmental factors have a major influence on every aspect of a corporation or business organization including its location, its personnel policies, the systems of distribution that it uses as well as the price that it charges for the service or products that it offers. The term ‘business environment’ connotes the various external institutions, forces, and factors that although being beyond the control of a corporation, nevertheless have a major impact on its operations. These include competitors, the government suppliers, as well as the environmental, technological, political, social, economic, and legal factors. Although some of this factor exert an indirect influence on the operations of a corporation, there are others that tend to exert a direct influence on corporations. Based on these observations, the business environment can be described as the total surroundings that happen to have an indirect or direct bearing on the operations of a corporation or business organization.

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The Qatar General Electricity and Water Corporation (KAHRAMAA) takes into consideration external factors when analyzing its business environment. This paper will conduct a business environment analysis so as examine how these factors are taken into consideration by KAHRAMAA. In addition to this, the paper will also investigate the processes and systems that have been set in place by KAHRAMAA to help it in responding to the key stimuli affecting its business environment.

1.1: Company Profile of the Qatar General Electric and Water Corporation

Established in July 2000 with the passing of the Emiri Law Number 10, the Qatar General Electric and Water Corporation (KAHRAMAA) is charged with the responsibility of buying, selling and distributing electricity and water in Qatar. Some of the services that the company provides include the operation and construction of transmission and distribution networks for the water and electricity that it supplies to Qataris; the formulation and development of the various plans and programs that guide the development of electricity and water transmission and distribution networks; development of the codes and regulations that guide Qatar’s water and electricity supply practices to buildings and various facilities throughout the country; the provision of consultancy services in matters relating to its activities and business operations; and the provision of both technical and corporate support in respect to electricity generation and water desalination ventures (KAHRAMAA, 2017).

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The strong government support that KAHRAMAA enjoys has allowed for it to maintain its position as the sole electricity and water distribution owner and system operator for not only Qatar’s electricity sector but also its water sector. Ownership of KAHRAMAA is at the moment divided between the private and the public sector. With a combined shareholding of 57.25% of the corporation’s shares, different entities within the private sector are observed to hold the majority of the company’s shares. The government is a minority shareholder as it currently holds only about 42.74% of the corporation’s shares.

The Qatar General Electricity and Water Corporation has experienced impressive growth over the years to now stand as the second largest electricity generation and water desalination corporation within the North Africa and Middle East region. KAHRAMAA enjoys a commanding 62% of the Qatar’s electricity supply market segment and 79% of its water supply market segment. To satisfy the demand in Qatar’s water and electricity market sectors, KAHRAMAA attained an output generation of 8755 Megawatts of electricity each day as at 2013 (KAHRAMAA, 2017a). In 2011 the company was able to reach its targeted distribution capacity of 325 million imperial gallons of water each day (KAHRAMAA, 2017b). The company’s rapid expansion is as a result of the rapid population growth in Qatar that has translated into a corresponding demand in the increase of electricity and water in the country.

2.0: Qatar General Electricity and Water Corporation (KAHRAMAA) Business Environment Analysis

An environmental analysis is a strategic tool that provides business organizations and corporations with a process via which it becomes possible for them to identify all the internal and external elements affecting their performance. This analysis involves the assessment of the level of opportunity or threat factor that might currently be affecting the corporation. Using the data and results of this analysis, it becomes possible for a corporation’s management to make well-informed and effective decisions. In this regard, an environmental analysis helps to align an organization’s strategies with its environment. In a similar manner to all other markets, the electricity and water supply market is constantly undergoing new changes each day. While there are some factors that a corporation can be able to successfully control in its environment, there is however some factor that it is impossible for a corporation to control. As the operations of business organizations and corporation are greatly influenced by their environment, it is important for them to constantly analyze the market and the trade environment.

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A number of frameworks are used in the evaluation of a corporation’s or company’s business environment. These frameworks are frequently used together and include the PESTLE analysis which provides an analysis of the corporation’s external environment, the SWOT analysis which provides an analysis of a corporation’s internal environment and Porter’s Five Forces analysis with provides an assessment of a corporation’s competitive environment.

2.1: Analysis of KAHRAMAA’s External Business Environment: PESTLE Analysis

A PESTLE analysis provides a corporation’s management with an overview of its business conduct as well as the current market situation. The analysis can help corporations to evaluate the future of their business. A PESTLE analysis is comprised of a number of factors that have a major impact on the overall business environment. Each letter in the term ‘PESTLE’ is an acronym that is indicative of a set of factors that affect the industry either indirectly or directly, these factors are:

2.1.1: Political Factors

Political factors are inclusive of all the various political conditions and activities undertaken by the government that can end up affecting the operations of an organization. One of the political factors that affects KAHRAMAA’s operations is the company has been able to offer cheap electricity due to the electricity subsidies that are afforded by the Qatari government. Kovessy (2016) argues that although electricity bills across Qatar experienced a marked increase in 2015, the government still covered about 45% of the cost of the country’s energy consumption. Kovessy (2016) points out that according to a recent report issued by the credit rating agency Moody, the typical Qatar household tends to pay about 2.3 cents for every Kilowatt hour (kWh) of electricity that it consumes. This is despite the fact that it costs power companies in the country about 4.2 cents to generate a kilowatt hour of electricity. This essentially means that the Qatari government covers an average of about US1.9 cents for every kWh that is consumed by the country’s residential electrical power users. Using data from 2014, the report by Moody’s estimates that the cost of the government’s subsidies amounts to about $641.9 million.

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By subsidizing the cost of electricity in the country, the Qatari government is able to make the cost of electricity more affordable and in the process encourage more households to get connected to the country’s electrical power distribution system. However, the recent scrapping of electricity subsidies by the government could negatively affect KAHRAMAA’s operations as the high cost of electricity might reduce the per person electricity consumption. Perumal (2016) points out that the global credit-rating agency, Moody’s, indicated that the Qatari government could potentially increase electricity tariffs in the country by 40% and 81% for commercial and residential connections respectively. This would have the effect of reflecting the actual cost per kilowatt hour (kWh) of this electrical power.

Another political factor affecting KAHRAMAA’s business operations is that the corporation receives some funding from the state that allow for the corporation to minimize its cost of operations (oxfordbusinessgroup.com, 2017). Qatar’s water and electricity sectors are structured on a split-sector model where while the production and generation of water and electricity is undertaken by various public and private sector industry player, the distribution and transmission of these resources is the responsibility of KAHRAMAA. Under this system of operation, KAHRAMAA is identified as the sole designated purchaser of all the desalinated water and generated electricity within Qatar. After purchasing the electricity and desalinated water, KAHRAMAA then proceeds to sell these products at greatly subsidized rates. While KAHRAMAA operates on commercial principles it is the funding that it receives from the Qatari government that allows for the corporation to keep the cost of operations considerably low.

2.1.2: Economic Factors

In a PESTLE analysis, economic factors include all the factors that influence a country’s economy and subsequently the fiscal planning of a corporation. These include the fiscal policies, rate of inflation, the foreign exchange rate as well as the interest rates. These factors are useful to a corporation’s management as they suggest the direction in which an economy might move. Qatar was able to post a budget surplus that averaged 9.3 percent between the year 2000 and 2012. In 2015, the government claimed that it expected to experience a budget deficit for a period of at least three concurrent years due to the impact that low oil and gas prices on its revenue earning. Torchia (2015) points out that a long-term report on the Qatari economy that was issued by the Ministry of Development planning and Statistics forecasted a fiscal deficit of about 7.8 percent of the country’s GDP in 2016. This deficit was the first budget deficit that the country had experienced in 15 years. While approving its 2017 budget, Qatar projected a deficit of $7.8 billion, this was the second deficit in a row for the country.

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The current economic condition in Qatar is critically affecting KAHRAMAA’s operations as it is thought to be partly responsible for the government’s decision to remove the electricity subsidies that it was offering to the country’s citizens. The increased cost of electricity can reduce the demand for this product which will, in turn, affect KAHRAMAA’s profit margins as well as its plans for expansion.

2.1.4: Social Factors

In a PESTLE analysis, social factors include aspects such as the social lifestyles, the cultural implications, domestic structures and gender of the market that is being targeted by a company or corporation. One of the main social factors that are affecting the Qatar General Electric and Water Corporation is the accelerated rate of urbanization that is straining the already over-stretched infrastructure in the country. According to gulf-times.com (2014), Qatar had a population that stood at just 540,000 as at June 2002, however, the country has since then experienced a rapid population growth that saw the country’s population rise to a high of 2,116,400 as at February 2014. Recent statistical results on Qatar’s population presented by Walker (2016) indicate that there were 2,559,267 residents in Qatar as of April 2015. Gulf-times.com (2014) argues that the population growth in Qatar has been primarily accelerated by the influx of expatriates that are moving to the country to work on its numerous infrastructure projects. There has been a recent surge in the number of expatriates moving to Qatar for work on the back of the government’s increase in infrastructural investment ahead of the 2022 FIFA World Cup (zawya.com, 2016).

Qatar’s rapidly increasing population has increased the country’s demand for water and electricity and this is in turn impacting KAHRAMAA’s operations. Driven by the country’s rapid population and economic growth as well as the low prices that had been caused by state subsidies, Qatar’s demand for electricity experienced rapid growth that saw it more than quadruple during the 12-year period leading to 2012 when it hit a high of 32bn KWh. This demand is reported to have grown to some 36.1bn KWh in 2014. On the other hand, the total demand for water in Qatar rose to some 535m cu meter in 2015, this is up from an initial 195m cu meters in 2005 (Oxfordbusinessgroup.com, 2017). the current per capita consumption of water in Qatar current averages around 5000 liters per day. The Qatar Environment and Energy Research Institute’s research director, Adel Shariff, stresses that this consumption is noted to be well above that of other high income countries such as Australia with a per capita consumption of 290 liters of water each day, France with a daily per capita consumption of 164 liters and the United Kingdom with a daily per capita consumption of water that averages to 150 liters (Oxfordbusinessgroup.com, 2017). The high per capita daily consumption of water in Qatar places the country alongside another three Gulf Cooperation Council countries that are among the seven countries predicted to be at risk of experiencing extreme water shortage by 2040 (Oxfordbusinessgroup.com, 2017).

The high demand for water and electricity in Qatar that has been precipitated by the country’s rapidly increasing population growth rate is having a major impact on KAHRAMAA’s operations. This is because the corporation has been forced to place a lot of focus in expanding its water and electricity supply and distribution capabilities. To increase the volume of water that it supplies to the country’s residents, KAHRAMAA is currently working on a number of projects that include the construction of additional reservoirs in many of the existing water stations as well as the construction of additional water stations aimed at meeting the growing demand of water in the country (KAHRAMAA, 2017b). The growing demand for electricity in the country is affecting KAHRAMAA’s operation as the company was forced to invest in a strategy that saw it increase the number of distribution substations to over 10,000 substations by the first quarter of 2014. These were then increased to 12,000 substations by 2017. To increase the length of cables in its transmission networks as well as that of the overhead cable lines in-line with its expansion operations, KAHRAMAA allocated a budget of $9 billion in the 2009-2012 period. This amount is seen to have been considerably more than the $6 billion in total electricity sector investments that had been made by the company since its establishment in 2000 up until 2008 (KAHRAMAA, 2017a).

2.1.5: Technological Factors

In a PESTLE analysis, technological factors include all the various technological advances that might be affecting the company’s operations. It is important for corporations such as KAHRAMAA to integrate any new relevant technologies into their operations if they are to increase their effectiveness and remain competitive. A major technological factor affecting KAHRAMAA’s operations is that most of the power in the country is generated using fossil-fuel power stations (KAHRAMAA, 2017a). Fossil-fuel power plants generally electricity by burning fossil fuels such as petroleum, gas or coal to generate electricity. These power stations are designed on a large scale to sustain continuous operation. In most developed countries, fossil-fuel power plants are being gradually replaced by nuclear power plants that are able to generate a larger quantity of cleaner electrical power. KAHRAMAA should consider developing nuclear power stations in the country as not only will this reduce the corporation’s over-reliance on fossil-fuel to generate electricity, it will also help it in reducing its emission of greenhouse gasses.

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Another technological factor affecting KAHRAMAA’s operations is in respect to the technologies that it employs in its water desalination plants. At the moment, there are only two major desalination processes that are employed in the large-scale desalination of sea-water, these are membrane-based desalination and thermal based desalination. The Water desalination processes that are employed by KAHRAMAA are primarily the Multiple-Effect-Distillation (MED) and the Multi-Stage-Flash (MSF) processes that work by first evaporating out the water before proceeding to re-condense it (Elimelech & Phillip, 2011). Due to its geographic location, the only available source of water for KAHRAMAA’s desalination is drawn from the Arabian Gulf. The semi-enclosed nature of the Gulf coupled with the region’s high evaporation rate of about 1.4-2.1 m/year is responsible for the Gulf’s shallow and hyper-saline nature (Nadim et al., 2008). The average surface salinity of the water in the Gulf is about 40ppt, while the average depth of water is only about 35m. The temperatures in the region range from about 22oC – 33oC (Sale et al., 2011). The physical characteristics of this region that include hyper-salinity, high temperatures, the presence of marine organism as well as turbidity have played a key role in influencing the choice by KAHRAMAA to use thermal based desalination technologies as opposed to membrane-based desalination technologies.

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Recent advances in membrane-based desalination processes such as reverse osmosis that work by force feeding water through a thin semi-permeable membrane that not only dissolves ions but also serves to block out a range of particulates have helped to either reduce or completely eliminate the pre-treatment costs that had previously made the process unattractive for desalination companies such as KAHRAMAA (Misdan, Lau and Ishmail, 2012). At the moment, reverse osmosis desalination technologies enjoy a greater degree of energy efficiency as compared to the thermal based processes. KAHRAMAA should consider adopting reverse osmosis water desalination processes so as improve the effectiveness and efficiency of its operations as well as ensure that it is easily able to maintain the quality of drinking water as per the international standards. According to Kovessy (2015), KAHRAMAA recently announced that it has awarded contracts worth billions of dollars to a number of companies to construct new water storage tanks and desalination plants. When awarding such contracts in future, KAHRAMAA should consider asking the companies that it awards the contracts to install water desalination plants that utilize reverse osmosis processes.

2.1.6: Legal Factors

Legal Factors in a PESTLE Analysis pertain to legislation that affects the business environment. As it was established by the passing of an Emiri Law (Emiri Law number 10), KAHRAMAA was at first a government owned company before it was publicized and the majority of its shares came to be owned by private sector entities (KAHRAMAA, 2017). KAHRAMAA’s water desalination and electricity production activities are outsourced and this allows for the company to focus on distribution. The recent passing of a government legislation to discontinue the subsidization of oil and electricity in the country has affected the water and electricity sector’s business environment as it is now more expensive to desalinate water or generate electricity.

2.1.7: Environmental Factors

In a PESTLE Analysis, environmental factors include the impact of the company’s operations on the weather, climate, and environment. The generation of electrical power and the desalination of water using fossil fuels such as oil and gas has the effect of causing KAHRAMAA’s operations to have a range of negative environmental effects. The nitrogen dioxide and sulfur dioxide gas emissions from plants such as the Ras Abu Aboud power and desalination plant that supplies KAHRAMAA with electrical power are harmful to the individuals living in the areas surrounding these power plants (KAHRAMAA, 2017a). These pollutants can create harmful smog that in turn causes the surrounding community to develop severe respiratory disorders. In addition to this, the emission of carbon dioxide by KAHRAMAA’s electricity and water desalination plants has the effect of contributing to global warming.

2.2 Analysis of KAHRAMAA’s Internal Business Environment: SWOT Analysis

A SWOT analysis is an analytical tool that is commonly used by corporations and other business enterprises to aid them in the assessment of themselves in respect to other competing corporations. A SWOT analysis provides a quick way of examining the prevailing business environment as well as determining the changes that might affect this environment in future. A SWOT analysis examines the Strengths, Weaknesses, Opportunities and Threats of a business organization or corporation.

2.2.1: Strengths

One of the main strengths that are enjoyed by KAHRAMAA is that the corporation was set up by the passing of Emiri Law number 10 to be Qatar’s sole electricity and water distribution owner and system operator. As such, the company faces little to no competition in the distribution of water or transmission of electricity within Qatar. An associated-strength to this is that KAHRAMAA enjoys significant support from the Qatari government in the form of financial support.

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Another strength that KAHRAMAA enjoys is that as the company does not involve itself directly in the desalination of water and generation of electrical power, it is easy for it to expand its operations as it will only need to give out more contracts for the supply of water and electricity. The corporations existing facilities can as such be harnessed to support the generation of more power without the company necessarily having to secure more land and human resources. Another strength that is enjoyed by KAHRAMAA is that the company has been able to significantly reduce the costs it incurs in the transmission of electricity and distribution of water by employing a strategy of encouraging the companies that it contracts generate electricity and desalinate water on behalf of KAHRAMAA to locate their plants in the main load centers. This is seen to be the case with the location of the Ras Abu Fontas power plant within the Ras Abu Aboud industrial district in Doha.

A key strength displayed by KAHRAMAA is that it has embarked on a project of working to diversity its energy sources. While KAHRAMAA has traditionally relied on the use of steam turbine power plants to support the generation of electrical power, recent advances have seen it diversify its sources of power by increasing its investment in solar power. According to Varghese (2016), KAHRAMAA is on record as having committed itself to deploying a minimum of 200MW of solar energy by 2020. At the moment, the corporation has planned several significant projects including the setting up of a 100MW solar farm that the will comprise of an estimated 800,000sqm of photovoltaic panels. This project will go a long way towards helping Qatar in attaining its goal of producing at least 20% of its electricity from solar power by the year 2030 (Varghese, 2016).

2.2.2: Weaknesses

One of the main weaknesses affecting KAHRAMAA is that the company has not been quick to replace its electricity transmission and water distribution technologies with new modern equipment. In addition to this, the companies that KAHRAMAA has contracted to generate electricity and desalinate water on its behalf are also observed to be using relatively dated technologies. This has proven to be a significant weakness for the company as it has reduced the efficiency of its operations. KAHRAMAA is affected by operational issues as it does not directly control the desalination of water or the generation of electricity. It’s lack of control of the water desalination and electricity generation plants is a weakness that limits the control that the company has in respect to the operations of these plants. In the event of a technical breakdown, KAHRAMAA has no control over how soon normal water and electricity supply will resume.

2.2.3: Opportunities

One of the main opportunities available for KAHRAMAA is that it can participate in various long-term investment initiatives. Some of these include the plans to expand its solar power generation capabilities by 2020; the development of new electricity substations; and the expansion or upgrading of the old electricity substations. In respect to the distribution of water in the country, KAHRAMAA has embarked on a long-term project that will see it increase its reservoir capacity. At the moment, the amount of water that can be held in Qatar’s reservoirs will be enough for only 48 hours. However, KAHRAMAA is working to increase the number of water reservoirs in the country such that they will be able to hold at least a week’s worth of water supply based on the 2026 water demand forecasts. Once this objective has been attained the project will then move on to its second stage of increasing its water storage capabilities to a week’s worth of water based on the 2036 water demand forecasts (Kovessy, 2015).

Another opportunity that can be taken advantage of by the company is that there have been positive trends in Qatar’s water and Energy sectors. The demand for water and electricity in the country is growing at a relatively exponential rate and this is driving KAHRAMAA to support projects that serve to increase the volume of water and amount of electricity that it supplies in the country and as a direct result also increase its profit margins.

2.2.4: Threats

KAHRAMAA is threatened by the operational issues that result from its having little control over the electricity generation and water desalination plants that supply it with water and electricity for distribution. KAHRAMAA needs to develop a system that will allow for it to enjoy more control over these plants. Another threat that is affecting the corporation is the recent fluctuation affecting the price of electricity. The removal of the government subsidies on electrical power in the country triggered a sharp increase in the price of electricity in the country (Kovessy, 2016). This fluctuation in the price of electricity has negatively affected the demand for the product.

2.3: Porter’s Five Forces Analysis of the Level of Competition within KAHRAMAA’s Electricity Transmission and Water Distribution Industry

The Porter’s five forces is an analytical tool that provides a framework that can be used in the evaluation of the intensity of the competition that exists within a given industry. By understanding the level of competition that exists within an industry, it is possible for companies and corporations that plan on venturing into a new industry to determine the attractiveness of that industry. Companies that already operate within a given industry can conduct Porter’s five forces analysis to determine the degree of threat that might be offered by any new competitors that happen to venture into their market.

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2.3.1: Competitive Rivalry: Low

As KAHRAMAA was set up by the passing of Emiri Law number 10 to operate as the sole electricity and water distribution corporation in Qatar, the threat of competitive rivalry that the corporation is exposed to is relatively low (KAHRAMAA, 2017). As the sole water and electricity distributor in the country, KAHRAMAA enjoys the loyalty of all its customers.

2.3.2: Threat of New Entrants: Low

While the electricity and water distribution industry are relatively attractive as a due to the exponential growth that it has experienced on the back of the influx of expatriates in the country, the threat of new entrants into this market is low. This is because not only would the setting up of a power supply and water distribution network be prohibitively expensive, there is little to no possibility that the Qatari government will enact a new Emiri law to allow for the operation of a corporation that would compete with KAHRAMAA.

2.3.3: Threat of Substitution: Low

Electricity and water are basic necessities and as such there are no substitute products that can be used to replace them. However, the recent fluctuations in the cost of electricity coupled with the government’s drive to promote the use of solar energy might drive some Qatari’s into installing their own solar electricity panels so as to substitute the power that they receive from KAHRAMAA with cheaper solar power (Varghese, 2016).

2.3.4: Bargaining Power of Suppliers: Low

The companies that supply KAHRAMAA with the water and electricity that it distributes have low bargaining power as they rely on obtaining contracts from KAHRAMAA so as for them to find an outlet for the water and electrical power that they produce (Kovessy, 2015). In addition to this, KAHRAMAA’s powerful position allow for it to be able to negotiate for the best prices with its suppliers.

2.3.5: Bargaining Power of Buyers: Low

The bargaining power of buyers in the market in which KAHRAMAA operates in is low. This is because KAHRAMAA is the sole supplier of the water and electricity that is used by people in the country. The electricity and water distribution market in Qatar is served by only one company, KAHRAMAA. As such, KAHRAMAA’s customers (buyers) do not have any other company that they can possibly turn to so as to obtain similar products to those which they are able to obtain from KAHRAMAA.

3.0: The Processes and Systems that have been Implemented by KAHRAMAA to respond to these Stimuli

To respond the Stimuli that have been identified by the results of this environmental analysis, KAHRAMAA has set in place a number of processes and systems that include its working with the government to expand the country’s supply of water and electricity via the funding of more water reservoirs, electricity substations as well as water desalination plants (KAHRAMAA 2017a: KAHRAMAA, 2017b). The expansion of Qatar’s water supply network is intended to help in covering the entire country with a water pipeline network as opposed to the current system where some regions are only covered by water tankers. These processes are intended to address the stimuli of a growing demand for electricity and water in the country due to various social and economic factors in addition to dealing with the threat of the country having a low supply of water in its reservoirs. To address the question of the environmental pollution that is emitted by power plants in the country as well as its not using modern technologies, KAHRAMAA is responding to these stimuli by setting up solar power electricity generation plants that it hopes will allow for the country to attain its goal of producing at least 20% of its electricity by the year 2030 (Varghese, 2016). To help in speeding up the expansion of its electricity and water networks, KAHRAMAA has instituted a new system where new tenders are prepared within 3 months and shop drawings and detailed designs are reviewed and commented upon within a maximum of one month.

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