JANUARY 29, 2013
ROBERT SIMONS CRAIG CHAPMAN
Luotang Power: Variances Explained
As soon as Tan Min Yi received the 2011 Report of Operations for the Luotang Power Company, he called company Controller Fiona Zhu and Sales Manager Ricky Wang into his office to discuss the results. Tan was general manager of the Luotang Power Company, a 600 Mega Watt (“MW”)1 coalfired power plant, located in Hubei Province, China. He was scheduled to make a presentation to the Board of Directors of his parent company, China Hua Tong Power (“HT Power”), the following week about the most recent results and was concerned about their reaction to the disappointing results.2 Tan knew ...view middle of the document...
(Source: http://www.eia.doe.gov/emeu/recs/recs2001/enduse2001/enduse2001.html) 2 For additional background information on Mr. Tan and his colleagues, please refer to Exhibit 1. 3 Plant availability measures the percentage of time over the year that the plant was available to dispatch electricity if requested by the power purchaser. The plant is deemed unavailable when it is offline for maintenance and only partially available if maximum output is reduced for any other reason. ________________________________________________________________________________________________________________ HBS Professor Robert Simons and Kellogg School of Management Professor Craig Chapman prepared this case solely as a basis for class discussion and not as an endorsement, a source of primary data, or an illustration of effective or ineffective management. Although based on real events and despite occasional references to actual companies, this case is fictitious and any resemblance to actual persons or entities is coincidental. Copyright © 2013 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.
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913-533 | Luotang Power: Variances Explained
over him and consider one of his coal supplier’s management team for the role instead? After all, there were several ambitious, young, capable executives working within their main coal supplier, the newly listed Pindingshan Coal Company (“Pingdingshan”). Tan had no doubt that the team from Pingdingshan wanted to place some of these individuals with major customers to strengthen longterm supply relationships.
Background to the Luotang Power Company
In 1997, the Provincial Planning Commission, working on behalf of the Hubei Provincial Government, had solicited bids from international power developers to finance, design, construct and operate a 600 MW coal-fired power plant. The plant was to be located in Luotang City, Hubei Province in Central China, approximately 100 kilometers south of the provincial capital, Wuhan. Additionally, the project would be contracted on a Build Operate Transfer (“BOT”) basis; the power plant would be given to the Hubei Provincial Government after 20 years of operation at no cost. Although the area around the power plant was primarily rural in nature, Luotang City’s economic development had been rapid since the plant had opened. New auto-part and electronic manufacturing businesses sprung up that added to the economic growth provided by traditional linen and fabric manufacturers already in operation. Approximately 30 power developers were invited to bid on the project; an American independent power producer...