ENTERPRISE RISK MANAGEMENT An ISO 31000 based approach

ENTERPRISE RISK MANAGEMENT An ISO 31000 based approach Fabrizio Bosia Tecnimont Vice President QHSE Frédéric Veny Sofregaz Joint Managing Director ECRI SPONSORS MEETING 6 7 June 2012, Paris

AGENDA 1. Maire Tecnimont Group: Corporate Presentation 2. Sofregaz Presentation 3. Why Implement ERM in Sofregaz? 4. A Few Definitions 5. The Contours of the Concept of Risk 6. Context Elements on ISO 31000:2009 7. The Framework and Risk Process in Sofregaz 8. And Now What? 2

CORPORATE PROFILE A leading Engineering, Main Contracting and Technology Licensing Group operating worldwide in Oil & Gas, Petrochemicals, Power, Renewable Energy and Infrastructure sectors Advanced skills in EPC and Process Engineering services for complex turnkey projects in different countries and regions Safety culture and zero incident target Key competences in Licensing and Intellectual Property Strong technology orientation and innovation culture Specific focus on environment with key competences in renewable and research activities in nuclear energy 3

GROUP S LEADERSHIP Some 140 polypropylene and polyethylene plants delivered worldwide and a share of approximately 30% of global polyolefin capacity installed in the last six years, including a 40% share in LDPE The largest gas treatment plant ever awarded in Abu Dhabi (UAE) on a LSTK basis (US$4.7 billion) More than 230 power plant projects executed or under construction in Italy and abroad, with an installed capacity of more than 20,000 MW Designing more than one-third of the high-speed railway network in Italy and acting as the EPC contractor for the first automated metro system in Italy World market leader in urea technology, with more than 250 plants licensed worldwide. A market share of more than 50% in licensing grass-roots urea plants and in urea revamping technology, and a market share of more than 35% in licensing urea granulation technology World market leader in licensing hydrogen technology, with single train capacity up to 180,000 Nm 3 /h World market leader in licensing Sulphur Recovery and Tail Gas Treatment Technology with design capacity of single train up 1,500 t/d 4

EXTENSIVE INTERNATIONAL PRESENCE: OUR EMPLOYEES About 5,300 employees, half of whom are employed outside Italy Presence in more than 30 countries with over 50 operating companies Italian headquarters: Milan Presence of Maire Tecnimont Group Figures as of 31 December 2011 5

COMMITMENT FOR HEALTH AND SAFETY Maire Tecnimont safety performances: zero incident targets Environment, Health and Safety Management System as core value and personal commitment Integrated HSE Management System constantly reinforced, diffused, checked and upgraded with results considerably higher than international standards * Key Performance Indicator. * * OSHA Lost Time Incident Frequency. * * * OSHA - Total Recordable Incident Rate. (1) Source: International Association of Oil & Gas Producers. Report No 455, May 2011. Safety Performance indicators - 2010 data. Contractor aggregated data. (2) Source: CII Benchmarking & Metrics. Safety Report 2007. Aggregated data 2006 (BMM 2007 02 December 2007). 6

GROUP FINANCIAL DATA - REVENUES In million 2,180 2,536 2,646 Infrastructure and Civil Engineering Power Oil,Gas and Petrochemicals 2011 REVENUES: BREAKDOWN All figures are rounded, ensuring total sum to 100% 7

EPC - OIL, GAS & PETROCHEMICALS and POWER OIL, GAS & PETROCHEMICALS Wide range of competences from feasibility studies to FEED, technology selection and project implementation on a lump-sum turnkey basis: gas production and treatment, LNG liquefaction and regasification, underground gas storage, transmission and compression, distribution and pumping stations, aromatics complexes, refinery units, propane dehydrogenation (PDH) historical leadership in chemicals & petrochemicals, in particular: polymers (PE and PP), ethylene oxide and ethylene glycol, PTA, ammonia and fertilizers complete solutions for fertilizer business including technology licensing, EPC projects and O&M Main Clients The business unit, also thanks to the special know-how in state-of-the-art gas turbines inherited from Fiat Avio, has developed excellent capabilities in Italy and abroad in EPC projects for power plants: simple-cycle and combined-cycle gas-fired power plants coal-fired power plants hydro, biomass and waste-to-energy plants cogeneration re-powering electrical and energy distribution systems for civil and industrial use district heating systems POWER Main Clients 8

LICENSING & TECHNOLOGY UREA Thanks to Stamicarbon, the Group sells proprietary know-how and delivers services to current and prospective urea producers. Its main activities are: Description licensing new urea plants and urea granulation plants revamping existing plants, with several debottlenecking services supply of proprietary equipment delivering Full Life-Cycle Support comprising a range of services, from planned inspections and maintenance, troubleshooting, to round-the-clock emergency assistance. Stamicarbon s continuous high-quality innovations, in close cooperation with research institutes, suppliers and customers. Main Licenses 9

ENERGY & VENTURES Maire Tecnimont aims at leveraging on its unique set of EPC and Engineering and Technology Services, to fully address the complex projects value chain from project development and financing down to operation & maintenance, including acquiring stakes in selected assets in a private equity perspective Investments promotion in renewable energy through Met NewEn, with a particular emphasis on biomass and solar 20 MWe Olevano Biomass Power plant under realization: deliver 140 Gwhe/y of renewable energy, consuming roughly 200,000 tons/year of biomass. 70% of the plant s wood chips will come from a short supply chain, with economic and social benefits to the local area. Next target: developing know how and promoting technical innovation, leveraging on synergies and competences of the Group s companies Analyse and select investment opportunities based on technical/economic feasibility studies, guarantying all the required permits and relevant project financing 10

INFRASTRUCTURE As General Contractor, Maire Tecnimont offers integrated services in the design and construction of transport systems Providing partial or global services for the realization of: railways including high speed/high capacity underground metro systems - building of the Italy s first completely automatic (driverless) underground mass transportation system in Turin, implementing the VAL (automated light vehicle) Technology highways and motorways tunnels Highly specialized services in re-qualification of industrial sites, design and build of complex works (hospitals, universities, offices, facilities) Multidisciplinary approach with special focus on risk management and environmental issues Main Clients 11

MET GROUP STRUCTURE F. Veny Joint Managing Director Other Companies 12

SOFREGAZ: AN OVERVIEW A fifty-year experienced Engineering and Contracting Company specialised in natural gas Worldwide experience with more than 850 executed projects in 70 countries Organisation based on 150 employees including all engineering disciplines Based in Paris area, SOFREGAZ is fully integrated within Maire Tecnimont Group SOFREGAZ is certified ISO 9001, ISO 14001 and OHSAS 18001 14

SOFREGAZ HISTORY acquisition of 66% of the capital by Tecnimont Sofregaz fully integrated in 1959 2000 2005 2008 Creation of Sofregaz, Subsidiary of Gaz de France Tecnimont sole shareholder of Sofregaz 15

SOFREGAZ: AN OVERVIEW All through the Gas Chain, SOFREGAZ offers: Feasibility/Conceptual studies SOFREGAZ references Breakdown by geographical area Basic & Detailed Engineering Project Management Consulting Procurement / Sourcing Construction Supervision Commissioning & start-up EPC Projects in Partnership or integrated within Tecnimont 16

ALL THROUGH THE GAS CHAIN Production, treatment LNG RECEIVING TERMINAL HAZIRA INDIA LNG and LPG Transmission systems Pumping GAS TREATMENT WAFA LIBYA and compression COMPRESSION STATION S3-S6 IRAN 17

PROCESS AND KNOW-HOW PRODUCTION AND TREATMENT (gas and oil fields) Oil/gas gathering & separation Dew point adjustment Sweetening Dehydration LPG extraction Crude oil stabilisation Gas-lift Gas re-injection References: Dalan natural gas treatment plant (Iran) Mesdar natural gas reinjection facility (Algeria) R4-R5 natural gas boosting stations - phases II and III (Algeria) Wafa gas treatment facilities (Libya) FEED for the Kharg Island NGL recovery plant (Iran) 18

PROCESS AND KNOW-HOW LIQUEFIED NATURAL GAS (LNG) Peak shaving plants LNG production units Receiving and storage facilities References: Revithoussa LNG receiving facilities (Greece) Bilbao LNG terminal (Spain) Shanghai PuDong LNG peak shaving facilities (China) Guangdong LNG Terminal (China) Hazira LNG Terminal (India) Expansion of Revithoussa LNG receiving facilities (Greece) Fos Cavaou LNG Terminal (France) FEEDs for Dunkerque (France) and Panigaglia (Italy) LNG terminals FEED for Hainan LNG Terminal (China) 19

PROCESS AND KNOW-HOW PIPELINE TRANSMISSION & COMPRESSION Gas and liquid pipelines Pumping and compressor stations Telecommunication and SCADA systems References: Beattock natural gas compressor station (United Kingdom) Brighouse Bay natural gas compressor station (United Kingdom) S3 S6 natural gas compressor stations (Iran) FEED Turkey - Greece natural gas pipeline FEED GALSI: Algeria-Sardinia-Italy natural gas pipeline stations 20

WHY IMPLEMENT ERM IN SOFREGAZ? How Sofregaz pioneered the implementation of an ERM As in many organizations, only brutal events give sufficient momentum to start a change. In 2009, the sudden realization, at Management Committee level, that the yearly anticipated Company s result could be compromised by one single event (not a project risk known but not considered to be potentially immediate) pushed SOFREGAZ to put in place a systematic identification and treatment of such risks. 22

WHY IMPLEMENT ERM IN SOFREGAZ? This implementation project was named ENRICO, an acronym that stands for ENterprise RIsk Control. 2009 Early 2010 Mid 2010 Beginning of the project Support from an external company Running tool Risk start to be manager 23

ERM A FEW DEFINITIONS ENTERPRISE An organization created with the purpose to achieve a given set of objectives RISK The effect of the uncertainty on the achievement of objectives MANAGEMENT Coordinated activities to direct and control an Organization towards the fulfillment of its goals 25

ERM A FEW DEFINITIONS ERM (Enterprise Risk Management) ERM is a structured process, coherent and continuous, applied across the enterprise, designed to identify, evaluate, manage and report potential risks, either adverse or beneficial, that may affect the entity and provide reasonable assurance regarding the achievement of organization objectives. 26

CONTOURS OF THE CONCEPT OF RISK Contours of the concept of risk evolution in time: From time immemorial Risk has been equal to Danger (hence the adverse concept of Safety) RISK = DANGER For example: Fire is a danger. Risk prevention is: eliminate fire. 28

CONTOURS OF THE CONCEPT OF RISK Contours of the concept of risk evolution in time: Then the concept of Risk broadened to Effect of danger RISK = EFFECT OF DANGER For example: Fire has beneficial effects but also adverse effects. Risk prevention is: reduce adverse effects. 29

CONTOURS OF THE CONCEPT OF RISK Contours of the concept of risk evolution in time: Then again the concept grew to the possibility of a damaging effect RISK = POSSIBILITY OF A DAMAGING EFFECT For example: Fire has beneficial effects but also adverse effects. Risk prevention is: reduce adverse effects. 30

CONTOURS OF THE CONCEPT OF RISK Contours of the concept of risk evolution in time: A more recent acceptation of risk is «the combination of the occurrence and the impact» of an event. RISK = COMBINATION OCCURRENCE/IMPACT The risk prevention is: reduce either the occurrence (or its probability), or the impact, or both. However, this concept introduces also some notions of thresholds, limits, acceptability. Security is defined as the absence of inacceptable risks: is this acceptable? 31

CONTOURS OF THE CONCEPT OF RISK Contours of the concept of risk evolution in time: ISO 31000 has come up with a new contour of risk: RISK = EFFECT OF UNCERTAINTY ON THE ACHIEVEMENT OF OBJECTIVES Emphasis is placed on: the objectives; the fact that uncertainty will always be there; Risk prevention is: the decisions made to increase the chances of achieving the objectives. 32

CONTOURS OF THE CONCEPT OF RISK Contours of the concept of risk (continued): CONTOURS OF RISK CONCEPT CENTERED ON DANGER POTENTIAL EVENT ACHIEVEMENT OBJECTIVES TYPE 1 PHYSICAL ABSTRACT HUMAN TYPE 2 DETERMINISTIC PROBABILISTIC UNCERTAIN ACTORS TECHNICIANS ENGINEERS MANAGERS & ALL PREVETION ACTORS CONTROL THE TECHNOLOGIES ANALYZE MODELS OPTIMIZE & ARBITRATE 33

CONTEXT ELEMENTS ON ISO 31000:2009 Context: The ISO 31000:2009 Risk Management is an international reference published in 2009, a synthesis of national standards. As the other ISO standards, it is based on a voluntary implementation in Organizations. It does not give rise to Certification, at least not until 2014, when ISO 31004 will be published a guide that will codify the implementation of Risk Management. 35

CONTEXT ELEMENTS ON ISO 31000:2009 Consequences: For the time being, the decision to implement ISO 31000 is left to each organization. Each organization can decide to: suits its own pace be prepared to adopt a later more formalized approach. 36

ISO 31000: PRINCIPLES-FRAMEWORK-PROCESS 37

RISK MANAGEMENT IN SOFREGAZ CLASSIFICATION The risks are classified along 4 main defined sectors: OPERATIONS RISKS Projects Financial INFRASTRUCTURE RISKS Work Environment Lack of Resources People Skills IMAGE RISKS Image Juridic STRATEGIC RISKS Innovation Non Development Strategical 39

RISK MANAGEMENT IN SOFREGAZ For each of the identified risks, two dimensions are defined: PROBABILITY The probability is also graduated with 4 levels, from 1 to 4 very probable GRAVITY The impact for each risk adopts 4 levels from 1 to 4. Each level is graduated on a different scale, appropriate to the classification of the considered risk. improbable not severe critical 40

RISK MANAGEMENT IN SOFREGAZ RISK CARTOGRAPHY Each risk can now be placed in a Matrix 4x4 (Probability/Gravity), along the two defined dimensions: 41

RISK MANAGEMENT IN SOFREGAZ RISK CARTOGRAPHY Then all the identified risks can also be presented in this same Matrix 4x4 (Probability/Gravity): 42

RISK MANAGEMENT IN SOFREGAZ RISK SHEET Each Risk is described in a dedicated sheet with the following important characteristics: the number and designation; the classification type; the gravity and probability levels; the description; the control level; the risk prevention actions; the expected new levels of gravity and probability, once the actions have been completed; the expected new level of control; 43

RISK MANAGEMENT IN SOFREGAZ Then the overall risks identified can be cartographied in two matrices Probability/Gravity: one with the number of risks in each of the cells before treatment. the other after treatment by the actions. 44

RISK MANAGEMENT IN SOFREGAZ Then two other dimensions are defined: CRITICITY The criticity level is obtained by adding the Gravity level and the Probability level. Hence the criticity level associated to an individual risk may vary from 2 (1+1) to 8 (4+4) CONTROL The control level is the amount of control that the organization possesses on the risk. It varies from 1 (no control-external) to 4 (tight control-documented). 45

RISK MANAGEMENT IN SOFREGAZ RISK CARTOGRAPHY Then similarly the risks can now be placed in a new Matrix (Criticity/Control): 46

RISK MANAGEMENT IN SOFREGAZ TURBOLENCE INDEX From these matrices Criticity / Control, an indicator is derived, called Turbulence Index, which is calculated: Before treatment after actions are completed 47

RISK MANAGEMENT IN SOFREGAZ THE USE OF THE TURBULENCE INDEX IS THREEFOLD: 1 - the index being displaced by the preventing action towards the lowest criticity and the highest control is an indicator that actions are being fruitful. 2 - the index should stay close to the diagonal that is the optimum area where control efforts are in relation with the criticity. If under the diagonal, then one can question a disbalance on the Risk Management efforts: too many efforts (index on the right quadrants) spent on a low criticity (index on the lower quadrants). 3 - the turbulence index is used for communication since it has been selected as an indicator for the Risk Management activity. 48

ERM AND NOW WHAT? As a conclusion, the ERM put in place in SOFREGAZ is based on: a Framework a Risk Management Process as required by ISO 31000. 50

ERM AND NOW WHAT? As such, the ERM implementation in SOFREGAZ has now passed the first stage: to have the system running. However the Risk Management in place is not fully compliant yet with ISO 31000 This is the consequence: partly of the choice of having a running system first, Party of simplifying assumptions taken along the way. 51

ERM AND NOW WHAT? Hence, the ERM is subject to continuous improvement actions in order to: Better suit the needs of Sofregaz organization, Strenghten the adequation with the principles of ISO 31000. 52

ERM ISO 31000 : Principles-Framework-Process 53

ERM AND NOW WHAT? How do we do on ISO 31000 principles? 54

ERM AND NOW WHAT? How do we do on ISO 31000 principles? 55

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