Respond to the Global Trend 2:
Management of Sustainability Risks

Globalisation, technological innovation and business development constantly change the business environment. While providing companies with opportunities for development, they also increasingly create risks in economic, social, environmental aspects and political regulations. Especially for the construction industry, risks are more probable due to the high investment, the large volume, involvement of numerous participants and wide impact of construction projects. Therefore, appropriate risk aversion and management methods are indispensable. In this context, the ‘privatepublic partnership’ (“PPP”) model enables enterprises and the government to establish a communal relationship of ‘sharing interests and risks’, reducing the investment risks of enterprises and the financial burden of the government. Widely used in infrastructure projects, this model can enhance social benefits.

Long-term infrastructure investment projects could be easily affected by regional economic fluctuations and policy adjustments. In addition, the natural conditions and cultural environment vary across regions in Mainland China, and thus different project faces different challenges such as high production cost, long distances and construction period, high level of technical difficulty, complex geological conditions and varied climatic conditions. The Group made full use of the PPP model, avoiding the drawbacks of instability in the long-term operation of the traditional model, and shouldered the project with the government, reducing operational risks.

To manage and control risks, the Group quantifies risks and analyses the probability and impact of risks with risk impact assessment tools to divide the risks during the construction period into nine categories. According to the results of the assessment classification, the Group formulated the strategy to focus on and eliminate risks of medium probability and with greater impact (M-B interval); at the same time, it also pays attention to the changes of risks in the M-M interval, to effectively resolve and respond to risks.

Through the above means, the Group identified key risks, namely project management risks, risks of national policies changes, risks of investment overrun, quality and safety risks, and risks of breaching contract terms regarding project deadlines, as well as formulated the respective preventive measures.

Key risks Details Preventive measures
Project management risks Due to involvement of multiple parties with different demands and ways of management, powers and duties are not defined clearly.
  • Innovative joint management model, adopting the model of ‘Project Company (Social Capital Party) + Chief Supervising Engineer Office (Government Funder)’ to clarify management path.
  • Discussed and negotiated with the government several times to clarify the detailed division of labour and responsibilities of the project personnel assigned by the social capital parties, as well as the work flow.
Policy risks Launch of national policies regulating PPP projects may bring changes to the operational model.
  • Combine the actual learning documents of the project, list and interpret the specific requirements and instructions in the policy.
  • Through communicating with the government and consulting agencies, formulate special rectification plans for the project according to the policy content and contract requirements to ensure compliance with regulations and the law of the project.
Investment risks
  • The geological conditions of project are complex and changeable, and the increased cost of material may raise expenditures.
  • Increased costs of technologies, services and consultancy.
  • Introduce design supervision and consulting units to track the whole design process and continuously improve the project construction design.
  • Introduce tunnel with high geo-stress and gas detection unit to optimise testing in the relevant sections.
  • Adopt dynamic design in extra-long tunnels and high-speed slopes of over level four to reduce the probability of change in design
  • Establish and control the tender price limit of the construction costs, and submit the relevant documents to the government for verification.
Safety and quality risks The complicated geological conditions of the project and the variable construction environment lead to difficulty in safety and quality control.
  • Implement safety production responsibility system in accordance with the Group’s safety management and quality assurance system to implement the production safety accountability system.
  • Perform daily inspections, quarterly comprehensive inspections and leadership shifts, strengthen safety and quality control, and supervise monitoring units and construction units to perform their duties.
Project deadline risks Lagging in land acquisition, demolition and construction.
  • Communicate and cooperate with the government to provide construction site in stages.
  • Improve the schedule management and participate in the schedule planning.