Strategic Growth and Challenges

A Case Study on Sembcorp Utilities in Emerging Markets

Submitted To

Belayet Hossain

Lecturer
Department of Finance
Faculty of Business Studies
University of Dhaka

Submitted By
Group 01, Section A
Shohana Kabir Priyantu (ID: 26-129)
Valentina Kripa Gomes (ID: 26-123)
Jannatul Ferdose Jarin (ID: 26-198)
Mushfiq Ahmad Sami (ID: 26-132)

Department of Finance
Faculty of Business Studies
University of Dhaka

Date of Submission: October 04, 2024

October 04, 2024

Belayet Hossain

Lecturer
Department of Finance
Faculty of Business Studies
University of Dhaka

Honourable Teacher:

Subject: Submission of report on “Strategic Growth and Challenges: A Case Study on

Sembcorp Utilities in Emerging Markets”

We are pleased to submit the report titled "Strategic Growth and Challenges: A Case Study
on Sembcorp Utilities in Emerging Markets” for the course F-408: Strategic Management.
This report aims to discuss Sembcorp Utilities’ strategic development and the problems this
company encountered while going international looked at from the perspective of the
company’s main priorities of sustainability and profitability when entering emerging markets.
By reviewing the case, we have enumerated main areas including risk assessment, the global
expansion, environmental and social governance concerns that Sembcorp faced to sustain its
growth path. Our hope is that this paper will be of useful and help inform future debates on
sustainability as a business model in global contexts. Not only we are grateful for your
instructions during the work on this project, but we also kindly invite you to share your opinions
or comments with us.

Thank you for your time and consideration.

Sincerely yours,

Mushfiq Ahmad Sami

Department of Finance
Faculty of Business Studies
University of Dhaka
Email: [email protected]
On behalf of the members of Group 01
Executive Summary .............................................................................................. vii

Chapter 1: Introduction ........................................................................................... 9

1.1 Origin of the Report ..................................................................................................... 9

1.2 Objectives of the Report .............................................................................................. 9

1.3 Scope of the Report ..................................................................................................... 9

1.4 Methodology .............................................................................................................. 10

1.5 Limitations ................................................................................................................. 10

Chapter 2: Overview and Background ................................................................... 11

2.1 Brief Overview of Sembcorp Industries and Its Core Operations ............................... 11

2.2 Importance of Strategic Management in Global Operations ....................................... 12

Chapter 3: External Environment Analysis ............................................................. 14

3.1 PESTEL Analysis ...................................................................................................... 14

3.1.1 Political Factors ................................................................................................... 14

3.1.2 Economic Factors ............................................................................................... 14

3.1.3 Social Factors ..................................................................................................... 15

3.1.4 Technological Factors ......................................................................................... 15

3.1.5 Environmental Factors ........................................................................................ 16

3.1.6 Legal Factors ...................................................................................................... 16

3.2 Porter’s Five Forces .................................................................................................. 17

3.2.1 Competitive Rivalry ............................................................................................. 17

3.2.2 Companies’ Bargaining Power on Their Suppliers............................................... 18

3.2.3 Buyer Power ....................................................................................................... 18

3.2.4 Threat of New Entrants ....................................................................................... 18

3.2.5 Threat of Substitutes ........................................................................................... 19

Chapter 4: Internal Environment and Resources .................................................... 20

 4.1 Analysis of Capabilities and Core Competencies ....................................................... 20

4.2 SWOT Analysis: Strengths, Weaknesses, Opportunities, and Threats Related to the
Utilities Business ............................................................................................................. 20

Chapter 5: Strategic Challenges and Risks ............................................................ 23

5.1 Evaluation of the Risks Related to Entering Emerging Markets ................................. 23

5.2 Environmental, Social, and Governance (ESG) Risks................................................ 24

Chapter 6: Growth Strategies in Emerging Markets ............................................... 26

6.1 Market Entry Strategies ............................................................................................. 26

6.1.1 Greenfield Projects.............................................................................................. 26

6.1.2 Joint Ventures ..................................................................................................... 26

6.1.3 Acquisitions ......................................................................................................... 27

6.2 Consequences and Effects of Market Entry Modes ................................................... 28

Chapter 7: Sustainability and Innovation Strategy .................................................. 29

7.1 Sembcorp’s Move Towards Renewable Energy......................................................... 29

7.1.1 Wind Energy ....................................................................................................... 29

7.1.2 Solar Energy ....................................................................................................... 29

7.1.3 Energy-from-Waste (EfW) ................................................................................... 30

7.2 The Role of Technological Innovation In Water And Waste Treatment ...................... 30

7.2.1 Water Treatment Innovation ................................................................................ 30

7.2.2 Waste Treatment Innovation ............................................................................... 31

7.3 Environmental and Business Implications .................................................................. 31

Chapter 8: Corporate Social Responsibilities and ESG Integration ......................... 33

8.1 Implementing Sustainability into Operation ................................................................ 33

8.2 Addressing ESG Challenges ..................................................................................... 33

8.3 Corporate Social Responsibility and Governance ...................................................... 34

8.4 Impact of the Paris Agreement and Environmental Regulations on the Strategy........ 34

8.4.1 Investment in Renewable Energy ........................................................................ 35

8.4.2 Carbon Cutback and Legalization ....................................................................... 35

8.4.3 Challenges and Opportunities ............................................................................. 36

Chapter 9: Financial Strategy and Execution ......................................................... 37

9.1 Funding and Capital Structures for Large-Scale Projects........................................... 37

9.1.2 Debt-to-Equity Structure ...................................................................................... 37

9.1.2 Public-Private Partnerships (PPPs) ..................................................................... 37

9.1.3 Refinancing Strategy through Initial Public Offering (IPO) ................................... 38

9.1.4 Joint Ventures ..................................................................................................... 38

9.1.5 Geographic and Project Diversification ................................................................ 38

9.2 Financial Ratio Analysis............................................................................................. 39

Chapter 10: Strategic Execution and Operational Efficiency .................................. 41

10.1 Sembcorp’s Centralized Utilities Outsourcing Model ................................................ 41

10.2 Replication of Centralized Utilities Outsourcing Model in New Markets .................... 41

10.3 Operational Challenges ........................................................................................... 42

Chapter 11: Future Strategic Direction .................................................................. 45

11.1 Potential for Growth in Renewable Energy Markets ................................................. 45

11.2 Recommendations ................................................................................................... 46

Conclusion............................................................................................................ 48

References ........................................................................................................... 49
The case study "Sembcorp Utilities in Emerging Markets: Strategy and Experience" in the
report "Strategic Growth and Challenges" focuses on the issues, tactics, and experiences that
Sembcorp Utilities faced when it expanded into emerging markets. Utility is the main vertical
of Sembcorp Industries, a global corporation based in Singapore that also operates in the
marine and urban solutions sectors. With Bangladesh, Myanmar, China, India, and
Bangladesh as its target markets, the company grows as these markets demand more energy
and attention to sustainable solutions. The report’s scope chiefly includes identifying and
analysing the strategic approaches established by Sembcorp and identifying the opportunities
and threats in these markets for the company, and analysing the appropriate adjustments
made to manage environmental, social and governance (ESG) factors while progressing with
sustainable yet profitable strategies.

Using secondary data from academic papers, market research, and company documents, this
report employs a case study methodology. Upon analyzing Sembcorp's tactics across several
markets, it became evident that certain significant aspects were influencing the company's
success and causing issues. This is due to the fact that risk management and business model
lock-in techniques benefited from the strategies used in Sembcorp's market entry operations,
including acquisition, joint venture, and green field initiatives. Sembcorp, for example, entered
into power purchase agreements (PPAs) with the governments of Bangladesh and Myanmar
in order to address energy-scarce regions and lock in profits.

A major part of Sembcorp’s expansion effort has been the enhancement of its sustainable
development especially in view of its investment in the renewable energy sector. The company
has moved up the value chain and grown its projects in wind, solar and energy from waste
particularly in India & China. It has enabled Sembcorp to diversify its portfolio and decrease
reliance on conventional fossil fuel-based strategy; and be in tune with the global trend to fight
climate change. Also, through efficiency improvements new technologies in water and waste
management have been adopted in Sembcorp. CO2 emission reductions as well as energy
generation by turning waste into energy are evident at its NEWater recycling facility in
Singapore that is the best industrial water reclamation in the world also the EfW plants in the
United Kingdom and Singapore.

But the report also presents the problem that Sembcorp has experienced in emerging market.
Political risks primarily institutional magnetization, government policies and practices,
regulatory requirements, and more significantly have made room for delays as well as
escalated operational costs bothering projects in India and Bangladesh primarily. In addition,
volatility in economic arenas in the form of uncertainties in currencies and problems in raising
finances have acted as threats to Sembcorp Malaysia in these markets.

However, the study has a number of shortcomings which include; the study sources its
information from secondary sources, secondly, the constraint of the academic assignment
might have limited the extent to which some of the analyses were conducted. However,
through the achievement of the present situation in which Sembcorp has been able to
incorporate sustainability and innovation into its operations, it has created a competitive
advantage of itself as a leader in utilities around the world. Indeed, by managing the threats
arising in its regulatory and operational environments or by building on its technological and
sustainable strategies, Sembcorp can reinforce its position in the emergent markets for
delivering value and boosting their growth.
This report, titled "Strategic Growth and Challenges: A Case Study on Sembcorp Utilities in
Emerging Markets," was assigned by Mr. Belayet Hossain, Lecturer, Department of Finance,
Faculty of Business Studies, University of Dhaka. The report is prepared as part of the course
F-408: Strategic Management. The case study delves into the strategic expansion of
Sembcorp Utilities into emerging markets, highlighting the company's approaches to balancing
growth, sustainability, and risk management in dynamic and often challenging environments.

The primary objectives of this report are:

• To analyze the strategic growth path pursued by Sembcorp Utilities in emerging

markets such as India, China, and Bangladesh.
• To assess the challenges faced by the company in executing its global expansion
strategy.
• To evaluate the environmental, social, and governance (ESG) concerns and how
Sembcorp navigates these in diverse markets.
• To draw insights and lessons on how companies can scale in emerging markets while
addressing sustainability issues.

The scope of this report covers the following key areas:

• The strategic approach adopted by Sembcorp Utilities in expanding into energy-hungry

emerging markets.
• The risks and opportunities inherent in internationalization, particularly in rapidly
growing economies like India and China.
• The company’s response to global environmental challenges and regulatory
frameworks.
• The role of energy infrastructure in promoting sustainable development and economic
growth in emerging markets.
To develop this report, a qualitative approach has been used, involving:

1. Secondary Data Analysis: The case study was analyzed based on available
literature, reports, and published data about Sembcorp Utilities.
2. Case Study Methodology: The case method was used to provide a detailed
examination of Sembcorp’s strategic initiatives and performance in international
markets.
3. Comparative Analysis: A comparison of Sembcorp’s strategies in different markets
was conducted to draw conclusions on the effectiveness of their approach in diverse
economic and regulatory environments.

Despite the thorough analysis, this report has the following limitations:

• Limited Access to Primary Data: The report relies heavily on secondary data
sources, including company reports and published articles, without direct access to
Sembcorp’s internal strategies or financial data.
• Time Constraints: Due to the academic nature of the assignment, the time frame for
research was limited, which may have restricted the depth of certain analyses.
• Generalization of Findings: The findings from Sembcorp’s case may not be fully
generalizable to other companies or industries, as each market and organization faces
unique challenges.
Sembcorp Industries is a Singapore organisation which has powerful activities across utilities,
buildings and fittings, and marine industries. It is government-affiliated, with Singapore’s state
investment company, Temasek, having a major stake in the firm. Today, Sembcorp has
become the international company with various core competencies related to sustainable
development and services including electricity, water, and waste sectors. Its operations are
structured into three core segments: Mainly, there are Utilities Marine and Urban development.

The Utilities business is the most significant and the fastest-growing business segment of
Sembcorp today, and serves as the firm’s main moneymaker. The utilities division was
commenced in 1995 to provide power, steam generation, water and waste treatment services
for industrial clusters at Singapore. Jurong Island is also an important local hub of its
centralized utilities model that has introduced solutions for sustainable energy like the
Sembcorp Cogen – the combined-cycle gas turbine (CCGT) power plant based on natural
gas. At some point the company managed to extend beyond its domestic market and operate
in other countries, including the critical planned markets such as India, China, Myanmar, and
Bangladesh – the company is here offering both energy transmission and generation services
which are mainstreamed on efficiency, efficacy and sustainability of economic development.

By end of December, 2017, Sembcorp had stakes amounting to S$22.4 billion; more than 60%
of its utility profits have originated from international operations which depicts the company’s
increased expansion outside the constrained home market of Singapore. This concentration
on international markets especially the emergence markets has been occasioned by high
demand on energy and utility infrastructure in those regions which are fundamental to rapid
urbanization and industrialization.

In addition, Sembcorp has other activities in the marine and urban development industries.
Sembcorp Industries’ marine business covers offshore engineering and ship repair through its
60.6% owned Sembcorp Marine. The urban development segment manages industrial parks
in Asia hence enhancing Sembcorp’s operations across the region.

Sembcorp Utilities business contributes approximately 60% of the company’s total revenue
and has operations in 14 countries outside Singapore, in Asia, the Middle East and Africa. The
company has a robust international presence key in participating in global energy markets by
investing on conventional energy as well as green energies including wind, solar and biomass
energy alongside gas and coal energy.

This is because strategic management plays an essential role in growth and development of
the markets. Multinational strategic management assists in overcoming various regulatory,
environmental, and market conditions of the world regions. For example, extending its
operations to such nations as India, China, and Bangladesh the company has to pay
considerable attention to the local economic and political climates as well as energy
consumption. Strategic management also plays a critical role in the organisation’s efforts to
maintain an equilibrium between sustainability and profitability chiefly for those industries that
bear a considerable responsibility of the environment, such as energy industries.

Strategic management is more critical in the current world, especially for firms such as
Sembcorp Industries in a highly competitive world where companies are looking forward to
internationalization and operation. The importance of strategic management in Sembcorp’s
global operations is evident in several key areas:

Market Entry and Risk Management: Business level strategy making enables Sembcorp to
evaluate the fit and the feasibility of expanding to other regions, other than the mature but
unstable regions of India, China, and Myanmar. As with any new Markets for instance in the
thermal power sector in India or industrial water market in China, Sembcorp had different plans
to consider such as risks involving regulatory structures, access to land and operations. For
instance, the company in India, the firm built strong strategic relationships with local
organizations to avoid entailing with India’s ambiguous institutional environment entry
hazards.

Sustainability and Innovation: Sembcorp as a company has the growth in sustainability that
is associated mainly with energy and water segments. Management of strategy has, therefore,
facilitated Sembcorp to capture sustainable development objectives, including those of the
Paris Agreement, as core competencies in its strategic business model. The company’s initial
diversifications into natural gas cogeneration and renewable power for instance prove that the
company was flexible for the changing energy policies and customer tastes.

Global Portfolio Diversification: Hence, strategic management is crucial to assist Sembcorp

to develop a new portfolio of businesses to reduce the cyclical and dependent nature on
marine and oil business. This transition to utilities as the main growth driver together with
investments in renewable energy, waste-to-energy service, and industrial water management
are considerate strategy to attain balanced and sustainable profit with respect to
environmental inputs. The expansion of the company’s geographical spread has supported
revenue growth across emerging markets that provide a hedge against periods such as the
current low oil and gas markets.

Operational Efficiency and Competitive Advantage: A benefit of the utilities model that
Sembcorp piloted in Jurong Island is a one-stop functional service provider as an energy,
water and waste management provider all rolled in one gives the company a competitive
advantage in terms of costs and operational procedures. In its international operations, this
model has been successfully implemented allowing industrial customers to find complete
solutions at a comparatively lower cost. The capacity to extend this model to the global level
proves the notion that strategic management is key in sustaining competitive benefits as well
as serving local requirements.

Stakeholder Alignment: Sembcorp development management strategic plan focuses on

responsibility and the firm’s success achievement in concern with interest the government,
industrial customers and the community. Cohesively, such roles in assisting governments to
achieve targets on energy and sustainability have enhanced the company reputation and
eased project implementation especially in difficult terrains. For example, establishing
industrial parks and Eco-city concepts with Singapore and Chinese governments is one of the
best examples of stakeholder-centric strategies.

Sustainability in Emerging Markets: Another factor that affects Sembcorp’s operations is

that the company is operating internationally hence it has to deal with different regulations and
environmental conditions. Integrating ESG factors into business strategy remains more
urgent, especially in the developing areas such as SEA and SA where the infrastructure
development is crucial, but so are the externalization effects on the environment. For this
reason, strategic management helps the company to address these challenges and ensure
that it meets the energy requirements while at the same time experiencing growth of
sustainable proportions.
PESTEL analysis tries to analyses six main macro environments factors that shaping
company’s international business: Political, Economic, Social, Technological, Environmental
and Legal. Concepts of this nature are critically helpful in planning for Sembcorp since it is an
international company existing in a number of energy and utility sectors.

The legal factors are very influential in the countries in which Sembcorp set its operations,
especially the utility business is closely regulated.

Government Policies and Regulation: Easy entry as well as ease of operation is usually
driven by political stability and pro-business policies. For instance, through the government-
led policy of concentrated utilities and renewable energy in Singapore, Sembcorp has revealed
advantages. However, bureaucracy is relatively complex in Indian context especially when it
comes to issues regarding land acquisition to develop power projects and regulatory approval.

Energy Policy and Subsidies: In some of these markets, the local government has supported
the expansion of renewable sector through offers such feed in tariffs for instance, in the
Chinese and Indian markets. The Paris Agreement has spurred even more global energy
policies that demand higher environmental compliance, creating even more opportunities in
the renewable energy fields.

Trade Relations and Bilateral Agreements: Political risk relations/ ties affect the admission
of ease to the international trade policies, G2G, and government relations with Sembcorp. For
example, the Chinese "One Belt, One Road” finally provided chances for Sembcorp and
Chinese firms in energy infrastructural investment.

Global markets economic factors influence Sembcorp company’s profitability as well as its
investment plans.

Growth Rates and Market Demand: In other words, economic development is a defining
factor of energy use. For instance, India has a rapid-growing economy with a GDP rate of 7-
8% hence Sembcorp enjoys a high demand for energy. On the other hand, owing to the
slowing economy in China, there has been an oversupply issue with regards to thermal power
plants meaning Sembcorp has to tread lightly before it embarked on developing additional
thermal energy projects there.

Currency Fluctuations: The currency exchange rate affects Sembcorp business since it has
investment in several countries across the world. An overvalued local currency on the other
hand raises concerns of higher costs of raw materials and equipment imported into the country
and this affect the operating margins.

Financing and Interest Rates: New conventional infrastructure projects are typically capital-
intensive and, by and large, financing terms differ across countries or regions. For example,
high interest rates, in the Indian context, are up to 13% which makes acquisition of power plant
expensive in India whereas, lower interest rates about 5% in Chinese context makes financing
of the projects more affordable.

The social factor includes demographic, societal norms, and public perception concerning the
business which influences Sembcorp’s daily functioning and consumer perception.

Urbanization and Population Growth: Growing populations in emerging markets such as

India, Bangladesh, Myanmar and a high rate of urbanization bring demand for electricity and
utilities. The existence of these regions is marked by the need to develop power plants that
meet the required population growth infrastructure investment by Sembcorp.

Public Awareness and Sustainability: Development of consciousness prepares people,

governments and companies to turn their attention on green energy. A global pressure to cut
carbon emission and shift from relying on the non-renewable source of power is being
experienced across many markets. Renewable energies such as wind energy, solar energy,
and biomass energy are some of the important programs that should be carried out by
Sembcorp to achieve the corporate image and to fulfil the requirements of the society.

The use of technology is a crucial trend in the energy market, as technologies can provide
developments to improve the performance of systems and facilities and reduce expenses as
well as negative effects on the environment.

Innovative Energy Solutions: Sembcorp utilises technology to provide better quality energy
services by means of making them easier on the environment such as with the cogeneration
stations that are used to generate both electric power and steam at the same time.
Technological development of coal plants continues with the company’s investment in high
efficiency coal plant projects in India and biomass plant project in Singapore and United
Kingdom.

Smart Grids and Real-Time Data: Energy management cannot afford to be left behind in the
current move towards digital adoption. Sembcorp’s utilities and environment infrastructure on
Jurong Island, Singapore, has integrated real-time data management solutions for using
predictive analytics for better operations improvement, reduction in cost, and optimal decision-
making.

Environmental factors are very relevant to Sembcorp which is a utility provider as the world
transitions to a sustainable future.

Climate Change and Global Commitments: So, through the Paris agreement and other
climate change agreements, the governments of the world’s nations have been pressured to
cut emissions of carbon dioxide. Consequently, Sembcorp has devoted much effort in
investing in renewable energy due to the regulatory requirements and to be in par with the
sustainable standards all over the world.

Resource Scarcity: These conditions make water and fuel some of the most significant
factors influencing the cost and viability of projects. For instance, investment in water recycling
and wastewater treatment facility Sembcorp’s show case its capacity to address resource
scarcity and in particular a country like Singapore where natural resources are scarce.

Pollution Regulations: High efficiency, low emission plants complicated greenfield projects
as environmental regulation in markets such as China and India remain stringent due to many
fossils fuel power plant that pollute the environment hence the company’s shift towards
renewable energy projects.

Sembcorp also faces the risk of operating under political instability in different countries
through which it conducts its operations since legal structures affect legal systems in those
countries on matters such as compliance and contracts enforcement.

Energy Regulation: It is astonishing that there are so many legal demands for power
production and distribution between countries. The two main risks regarding Sembcorp’s
operations in India are the following: Political environment of PPAs and retrospective tax and
state-owned utilities’ creditworthiness.

Environmental Laws: EIAs and emissions legislation mean that Sembcorp is obliged to meet
high standards of environmental performance across all the countries of operation. For
instance, Sembcorp’s thermal power is affected by China’s recently launched national carbon
trading scheme, but its cleaner technology lessens the blow.

Land Acquisition Laws: While implementing projects in India and other judicial emerging
markets, one is able to grapple with some of the most complicated laws governing land
acquisition that may cause some encumbrances in the execution of the project. This risk is,
however, reduced in Sembcorp as the company wholly depends on local partners in India
where knowledge of the prevailing regulations is key.

Saturated competition, rivalry among existing players, buyer power, intensity of supplier
bargaining power, threats from new entrants and threats of substitute products are viewed
through the lens of Michael Porter’s Five Forces model.

Energy and utilities industry is quite saturated with many firms providing services to large
customers mainly in the developing world.

Existing Competitors: It is for this reason that Sembcorp has stiff competition from both
licensed competitors as well as independent software developers. For example, in India, there
are competition between the state-owned enterprises and private companies for power
generation contracts. The degree of rivalry exerts pressure on Sembcorp to add value by
providing efficiency with decreased costs and environmentally friendly solutions.

Market Fragmentation: Unlike oil and natural gas, the power industry in some areas like
China and Southeast Asia comprises a large number of small companies and hence more
challenging to capture market share. However, the fact that Sembcorp’s long-term plan is to
work directly with governments and engage in government-to-government contracts provide
the company’s major competitive advantage.
The industry of utilities is highly depended on the fuel, equipment, and technology being
supplied to the sector.

Fuel Suppliers: Sembcorp uses feedstocks of coal, natural gas and renewable energy
sources. These supply arrangements include long-term contracts for PT Bayan Resources of
coal from Indonesia to counter price risks and supply uncertainties.

Technology and Equipment Providers: Sembcorp is highly dependent on suppliers of

technology, most of which command high bargaining power due to their role in supplying
technology in renewable energy market. But they can follow the strategies of Sembcorp and
by establishing close cooperation with the suppliers and signing long-term contracts, they can
find more beneficial conditions.

Some of the end user that are found in the utilities market include governments and other
large corporations as well as state owned organizations.

Power Purchase Agreements (PPAs): Sembcorp has long term power purchase
arrangements with government distribution companies hence lowering the effects of buyer
power on the price. However, there is still a problem of buyer credit risk like that faced by
Sembcorp when some of its buyers in India are state-owned utilities that may not be able to
pay on time hence affecting Sembcorp’s cash flow.

Another great force in the utilities sector is the threat which new players pose; this force is low
as the barriers of entry are high.

Capital-Intensive Industry: Due to the large amounts required to initially construct power
plants and then sustained amounts on a continuous basis to keep these plants running, new
competitors’ entry is discouraged. Sembcorp over the years has benefited from long term
financial strength, contracts and scale economies that put newcomers on the defensive.

Regulatory Barriers: Energy sectors of many countries, including India and China, are highly
regulated, and the newcomers can experience severe difficulties when it comes to obtaining
permits and approvals. The strong relationships that Sembcorp has with governments are now
its point of strength.
The threat of new entrant is rising for the utilities sector due to competition from other forms
of energy.

Renewable Energy Substitutes: With the ongoing liberalization of the global energy market
expected to see solar, wind, and hydroelectric power challenging the existing traditional power
plants including coal and natural gas plants. Nevertheless, due to its broad and quite balanced
range of power generation activities, Sembcorp invests in renewables, so this problem is not
critical for the company.

Technological Substitutes: Advances in energy.

Sembcorp Industries is conglomerate based in Singapore operating in utilities, marine and
advanced urban solutions; however, the Utilities is its cash cow. This business entails
providing energy, water and waste management to industrial complexes and this source
makes over 60% of the profits of the firm. Sembcorp’s capabilities are built on three core
competencies:

Utilities Services Expertise: Sembcorp built its initial central utilities in Jurong Island,
Singapore in 1995 exposed the company’s capacity in the supply of integrated utilities. This
includes production and distribution. This comprises power and steam production and
wastewater management. Another competitive advantage is that all those services can be
provided from a single source to large industrial clusters.

Sustainability Innovations: Sembcorp has been innovative in its approach to ensure it adopts
the use of green technology, specifically on its expansion of renewable energy. The first STW
to successfully utilise technology for reclaiming high-grade industrial water from the
wastewater and beaching cogeneration plants from natural gas allowing lower carbon
emission. This positions the company right in the global sustainability trends which makes it
appealing to government and industries embracing green solutions.

Global Expansion: The structure related and integral business skills including the ability of the
company to duplicate the successful business model in the global market and exotic regions
like India and China. Sembcorp’s utilities services in these regions thus are more developed,
and more investment in cleaner energy; particularly solar, wind and biomass and other
diversified energy sources.

Strengths:

Integrated Service Offering: The company’s strength is employees of utility services offered
by Sembcorp such as power generation, steam and water treatment services that provide it
with competitive advantages of cost and operations.
Technological Leadership: The implementation of cogeneration, waste-to-energy, and water
recycling plants of Sembcorp makes it possible to adhere to the environmental needs to meet
green production needs, offering an ideal production value.

Strong International Presence: This Group of company is in 14 countries and most of the big
projects are in the emerging markets of world including India, China and Vietnam. This
ensures that it has diverse revenues which are received from all the corners of the world.

Government-backed Ownership: Sembcorp has a strong association with Temasek Holdings,

which is a major shareholder in the company and who provides the necessary capital,
particularly in governmental contracts.

Weaknesses:

Dependence on Fossil Fuels: Sembcorp has been expanding its renewable energy segment
while it is still dominant in the conventional energy resources like coal and natural gas which
pose major risks coming from the regulations and environmental issues.

Profitability Variability: The requirement of enormous capital to lay down the infrastructure for
utilities makes it financially challenging, which is made worse by the fact that returns only begin
to shape after some time. The profits have been volatile because of the troubles at the start of
big projects, primarily in India.

Geopolitical Risks: They encountered challenges of operating in emerging markets by coming

across hard emerging markets factors like complicated methods of regulations, political
instabilities, and delays on acquisition of land resources that has an impact in its projects’
timescale in countries like India and Bangladesh.

Opportunities:

Expansion in Renewable Energy: The current negative impact on climate change and the
increasing demand of green energy sources makes Sembcorp to enjoy a competitive
advantage. With its focus on solar and wind farms asset, especially in the most populous
countries China and India it is poised for future growth.

Public-Private Partnerships (PPP): Namely, established in the emerging markets, such as

Bangladesh and Myanmar, Sembcorp believes to be able to attract government support and
investment for the development of large-scale PPPs.
Technological Innovation: Energy-from-waste and biomass technologies therefore provide
Sembcorp with opportunities to expand organically, given industries’ need to source more
sustainable utilities service offerings which are not necessarily limited to price.

Threats:

Environmental Regulations: Rising prominence of carbon abatement and environmental

concern across the world can lead to regulation and policy changes that harm profitability of
Sembcorp thermal power plant.

Economic Volatility in Emerging Markets: This has a downside because the fast-growing
market comes with the possibility of a downturn, change in exchange rate and instability of the
economy all of which could cost the company revenue.

Competition from Local Players: Sembcorp will also need to contend with competition from
local utilities providers who may operate with government backing offering the service at lower
prices.

With integrated utilities services, Sembcorp’s vision is centered on increasing its renewable
energy portfolio as it contains factors risky in fossil fuel and geopolitics in developing countries.
Assessment of the Risk Contingencies Associated to Market Entry in Emerging Economies.
The opportunities for expansion with emerging markets are enormous in the cases of India,
China, Bangladeshi, and Myanmar, but the strategic issues and risks are even more enormous
accordingly for the companies who wanted to enter the emerging markets. These risks can be
categorized into several types:

Political and Regulatory Risks: Regulations in many emerging markets may be unstable
because political systems in these economies may also be unstable. Such changes can easily
occur either due to changes in government politics or system with vested interested in the
market or due to change in Political leadership. For example, companies may have challenges
with acquiring long term permits, acquire land, or experienced bureaucratic challenges. Some
of the challenges confronting builders in India are that licenses and land for development may
take years to secure hence prolonging projects and raising costs. Also, there is uncertainty of
the regulation of these markets as it may be immature or randomly experienced which affects
the time it takes to complete projects as well as profitability.

Market and Economic Risks: Fluctuations of economic conditions in emerging markets may
lead to fluctuations of financial environment. Energy consumed in areas such as India or
Myanmar may be rich but due to fluctuations in the ability of the utility or government to pay
for services may be wanting. The non-payment of guarantees by DISCOMs due to India’s
prevalent power deficit and the generally poor financials of state-run utilities reflect this
difficulty. Further, considering interest rate differentials; while India borrows at 13%, China has
it at 5% – which makes it even costlier to finance the large infrastructure projects.

Operational and Execution Risks: New market entry demands high levels of operational risk
in relation to projects, including project timelines and costs. Sembcorp’s US$3bn Sembcorp
Gayatri Power Complex in India sums up the execution challenges characteristic of such
markets. Local factors such as disruptions of supply chains, logistical problems or difficulties
in sourcing for qualified labour can complicate operations.

Cultural and Social Risks: There is much that has to be understood about the emerging
markets, their culture, and the society they operate within. For example, project delay or
abandonment comes as a result of community rejection or poor support. Myanmar, where
Sembcorp conducted social impact assessment migrated to the company’s social assessment
model to engage and understand local needs. In some markets, the local strengths in terms
of skilled workforce may be a problem, which adds to the problems of project delivery.

Competitive Risks: There may be high level of rivalry from domestic and international
competitors in emerging markets. For instance, SOEs control new and renewable energy
industries in China. Yet, as with the case of market entry, achieving sustained competitive
profit margin is not always so easy if the company is not to differentiate itself with such aspects
as innovative technology or efficient production methods.

Environmental Risks:

Environmental concerns under ESG frameworks have emerged as an essential factor of

corporate concern in organizations all over the world. Companies are now under pressure to
addresses its usage of natural resources, emissions control, management of wastes and effect
on biological diversity. The external environment is characterized by Political, Legal, Social,
Technological, Economic and environmental factors, including new laws like climate policies,
carbon pricing and new stiff environmental standards can influence business. For instance,
industries that rely on fossil energy, they are under pressure to shift towards renewable energy
because of changing global treaties like the Paris accord. As a result, delayed or ineffective
adjustments could lead to penalties – including monetary ones, juridical troubles, or negatively
influenced image.

With such problems, many firms now understand that risk management for environmental
issues is not solely about legal obligations. The shift towards low carbon future is a mixed
complex of opportunities and threats. The failure to change is dangerous for many businesses
since markets are gradually transitioning towards sustainable solutions. Also, climate related
risks such as floods, drought and hurricanes affect supplies chains, damages assets and
increases operational cost.

Social Risks:

Social risks refer to those that are related to people: the workers, the customers, the society
in which a company operates and the wider society. This gives a notion that in any given
business environment, the management of social risks is a critical component of social license
to operate for any business entity. Some of the social risks involve; social; labour relations,
Diversity and inclusion, Human rights, and Community. Hazardous working conditions,
discrimination and perhaps negative attitude by the community towards the project must cause
loss of face and therefore loss of money through strikes, protest or legal cases.

For example, firms competing in international markets and especially in developing countries
are under pressure to assure proper wages, no forced or child labour, safe working
environment etc. In addition, there is a lot of focus on how firms must interact with local
populations in order to gain acceptance and not cause disputes. Neglecting these concerns
may lead to the outbreak of protests and demonstration or even project abandonment if people
resist such project.

Governance Risks:

Corporate Governance is the structure used in directing and controlling of company’s

corporate governance framework. That is why it can be emphasized that good corporate
governance is the key to high levels of responsibility, openness, and organizational integrity.
Governance risks stem from the following issues, such as inadequate monitoring mechanisms,
unfair board of directors’ structure, low ethical tone or no response to shareholders’ issues.
Accounting manipulation, fraud or corruption breeches can provide penalties in the form of
fines or legal action and often reflect badly on the companies involved.

There is growing attention given to governance practices by the investors. Specifically, if a

board is not diverse, independent or packed with professional expertise, the board is
considered high risk due to the fact that the board may not be well placed to address the
strategic delicate issues that come with corporate leadership or manage the new risks that
crop up from time to time including the cybersecurity risks or changes in regulatory
environment. Over the last few decades especially the last decade there has been a rising
need and call for more and more companies to disclose information about the remuneration
of their executives and even the decisions made within the company. Firms that under or over
supply these products risk losing investors’ confidence or facing shareholder activism or,
worse still, lower stock prices.

In conclusion, ESG risks depict a mesh of risks and they must be handled in such a manner.
Of these environmental ask for new regulation and market change to encourage originality,
social essences demand ethical response to risks involved in social engagements, and
governance as they appeal for transparency, accountability, and leadership. Managing these
risks deserve not only to minimize probable economic losses, but also create favourable
conditions for increasing a company’s distributional sustainability and competitiveness.
Newly, Sembcorp extends its business activities into emerging markets such as Bangladesh,
India, China, and Myanmar, where different market entry strategies in greenfield projects, joint
ventures, and acquisitions are applied. All these strategies have been specific to the weather
of applicable laws in these countries, existing market conditions, and growth prospects. Here's
how Sembcorp applied these strategies in its expansion efforts:

Greenfield projects are implemented by creating wholly owned establishments outside the
home country. This strategy was used effectively in regions for instance China where
Sembcorp faced little local support for operations, and infrastructure, hence requiring absolute
control.

Bangladesh: Sembcorp has started its journey in Bangladesh with the 414 MW Sirajganj
power project where it entered the public-private partnership (PPP) method in year 2015. This
was a green field because it was the first attempt of Sembcorp to enter the country’s energy
sector which was severely energy starved at the time with 40% of the population having no
access to electricity. This also involved a 22.5-year power purchase agreement so that long-
term revenue generation is ensured. Greenfield projects of this nature provided Sembcorp
with the opportunity to enter markets that were previously underdeveloped but allowed
operational flexibility and long-term capital guaranteed.

Myanmar: Another greenfield achievement in the year was Sembcorp’s Myingyan

Independent Power Plant (IPP). In Myanmar, in which the electricity access rate remains one
of the lowest in Southeast Asia, Sembcorp built a 225 MW CC&G T power plant in 2017. This
project helped Sembcorp get into a new industry, which aligns with the government's vision of
attaining 100 percent electrification by 2030. The plant was the pioneer in acquiring funds from
multilateral sources such as ADB and IFC and proved the inherent capacity of Sembcorp to
mobilize international funds for fresh ventures.

Joint ventures are entry mode that requires collaboration with local firms so that risks are
divided, local knowledge can be utilized, and the speed of obtaining approvals and market
data can be enhanced. This was particularly applicable in countries that had several layers of
regulatory bodies or states where partnership was critical to operations.
China: Sembcorp adopted the joint venture approach to enter the Chinese market which was
increasingly becoming a hub for energy business. Sembcorp launched 2003 a joint venture
with Chongqing Energy Investment Group (CEIG) over the construction of the Chongqing
Songzao supercritical coal-fired power plant which turned out to be among the most efficient
power plant projects in China. This was important because the energy sector in China operates
in a highly regulated fashion for investors who do not possess experience in the Chinese
market and connections with the authorities. Furthermore, this venture was in line with the
Chinese energy security and efficiency strategies, regarding Sembcorp as a significant actor
in the China market.

India: Sembcorp commenced its operation in India in the year 2011 in a Joint venture with
Gayatri Energy Ventures. The venture produced Sembcorp Gayatri Power Complex, which is
a $ 3 billion undertaking in two supercritical coal-fired plants. Local partners were very valuable
because managing India is very difficult in terms of India having a lot of bureaucratic
procedures and regulatory compliance in terms of land acquisition and project clearances. The
joint venture meant that Sembcorp was able to avoid the various risks relating to investment
in a new unfamiliar industry in a highly regulated market while Gayatri was able to use her
expertise in the local market.

Many acquisitions offer a faster way of establishing itself in the market since the acquirer
acquires an organization with existing operations and business channels. This strategy allows
an organization to acquire assets, cash flow, and market share in the shortest time possible,
but it also comes with the main problem of managing acquired companies.

India: However, to boost the proportion of power generated from renewable resources,
Sembcorp went further in the Indian market not only through a joint venture but also by
acquiring 60% in Sembcorp Green Infra Ltd (SGI) in 2015. This business was a strategic move
of Sembcorp towards the focus on renewable energy especially wind energy in India. Another
advantage of entering the Indian renewable sector was that Sembcorp opted for the
acquisition of an already developed renewable energy firm that helped the company expand
its business quickly in India without waiting for long project developmental stages. This
addition became part of Sembcorp’s renewable business that expanded over the years in
response to India’s national renewable energy mission.
➢ Risk Mitigation: Each of the strategies enabled Sembcorp to mitigate market risks
associated with the specified market. Greenfield's concept allowed synthesizing every
aspect of the development process; however, it was time-consuming and demanded
much capital. By engaging in joint ventures, risks could be split with local partners and
best practices could be tapped into whilst also recognizing the political sensitivities of
places such as India and China which Sembcorp operated. Acquisitions whilst more time
efficient, introduced its own problems concerning integration and ensuring that the
operations being acquired were in line with Sembcorp’s long-term strategy.

➢ Long-term Growth Potential: These entry strategies allowed Sembcorp to establish

long-term predictable cash flows from PPAs and partnerships. In Bangladesh and
Myanmar, greenfield projects were required to meet the serious energy deficits that exist
now and are likely to persist in the future. In the Indian and Chinese markets, Sembcorp
implemented Joint Venture and Acquisitions to address an increasing need for total
energy while also catering to their national targets concerning energy efficiency and
Renewable Resource deployment.

➢ Diversification: These entry methods helped Sembcorp to de-risk the business and
spread out across various markets and energy sources. Sembcorp was able to diversify
its portfolio by entering renewable energy sectors in India and China and managing its
thermal projects in Bangladesh and Myanmar to not only reduce dependence on fossil
fuels but also promote the company’s sustainability.

In conclusion, it is possible to note that the fleet and varied approaches to market entry with
greenfield investment, joint ventures with companies, and acquisitions gave Sembcorp a solid
base for its future in the selected emerging markets. All these strategies were custom-made
to suit Bangladesh, India, China, and Myanmar and focused on the specific opportunities and
threats and a combination of instant and long-term returns.
This has been a strategic direction change since the company has sought to align itself with
both regional and global trends of focusing on renewable energy. The renewable energy focus
of the company includes multiple large investments in wind, solar, and EfW power facilities.

Sembcorp has invested considerable capital in wind power, especially in the states such as
India and China since they both have liberal policies pertaining to renewable energy sources
and have rich resources for wind power supply.

India: In 2015, Sembcorp bought a 60% controlling stake in Sembcorp Green Infra (SGI)
which was touted to be the platform for funding and developing renewable plants in India.
SGI's specialization is wind and solar energy the major source of SGI’s renewable generation
capacity is wind energy. By 2017, Sembcorp’s wind assets in India had reached 936 MW, with
plans to increase this to 1,400 MW by 2022. Wind power projects in India enjoy the backup of
long-term PPAs with state utilities that guarantee wind power producers’ revenues regardless
of the issues of grid connectivity and SDIs’ creditworthiness.

China: Sembcorp started its endeavor in the Chinese wind energy sector in 2012 through a
JV with Guohua Energy Investment. This partnership allowed the company to build wind farms
with a combined capacity of 745 MW, contributing significantly to China's renewable energy
goals under its Five-Year Plan. Cost reduction on wind power has helped the Hebei wind
project, which Sembcorp believed could cut CO2 emissions by 650,000 tons per year, and is
an important step in its wind energy plan in China.

It has remained that Sembcorp has also sought out opportunities in solar energy, especially in
the Indian market which has emerged as the largest solar market in the world.

India: Sembcorp forays into solar power in India as a way of expanding the company’s
footprint on renewable energy power. By 2017, Sembcorp had 35 MW of solar capacity in
India, with plans to expand further. India has been experiencing a very young solar market
backed by the government's adoption of goals that wash from attaining 100GW solar power
by 2022. Sembcorp Indian mainly supplies solar power to industrial and commercial
consumers; thus, it gains beneficial experience of the decrease in module price across the
industry and competitive prices achieved in solar power PAs reverse auctions.
EfW has been an essential part of Sembcorp’s renewed energy plan, especially, in those areas
where waste management and energy production can be combined to develop more solutions.

United Kingdom: In the UK, the company currently owns two EfW plants which include:
Wilton 10 and Wilton 11 which are viewed as being a key long-term structure to generate
power from waste. Wilton 11 is an operating center that was commissioned in 2016, the plan
is with a processing capacity of 430,000 tons of municipal/commercial waste per annum and
generate 50 MW of electricity. These plants also contribute to reducing CO2 emissions by
roughly 130,000 tons per year. The experience at EfW shows that Sembcorp can effectively
utilize waste as an energy source for generating electricity with an opportunity to solve
environmental issues associated with landfilling and carbon emissions.

Singapore: In Singapore, Sembcorp has also eased into EfW and started building bigger
facilities; Sembcorp established its first biomass steam production plant in 2011. These plants
process industrial and commercial waste, contributing to Singapore’s sustainability efforts and
reducing the need for landfill space.

Hence, Sembcorp’s switch to renewable energy is a strategic direction to sustainability and

the decarbonization trends globally. Through wind, solar, and energy-from-waste markets,
Sembcorp is minimizing its environmental footprint, ensuring a sustainable revenue stream,
and platforming itself for a cleaner energy world of the future.

Sembcorp is one of the front runners in the integrated utilities sector. It understands the
demand for water and sanitation services that ensure efficient and sustainable water
resources and waste management. To expand production and reduce costs Sembcorp
incorporates modern technologies. Through this, they cover the need for quality and
dependable water and waste services.

NEWater Technology: NEWater Plant is one of the world’s largest water recycling facilities in
Singapore. This is the solution by Sembcorp for high-grade industrial reformation. This plant
is responsible for the treatment of the wastewater to high-quality NEWater. This is used for
industrial and potable uses. As water is precious and rare in Singapore, every drop of water
must be used effectively. So, the plan is applied to recycle water. This innovation reduces the
reliance on natural sources of water and ensures long-term water sustainability.
Reverse Osmosis Desalination: Fujairah 1 Independent Water and Power Plant in the UAE
are among the best examples of the application of modern technology as embraced by
Sembcorp. Desalinated water from Fujairah 1 is done through seawater by using a hybrid
reverse osmosis process that yields 130 MIGs of potable water per day. This technology
becomes very essential in areas where fresh water is scarce, and desalination of water is all
that can be done.

Nanjing International Water Hub: Nanjing International Water Hub of Sembcorp was
established as a global innovation hub for water treatment research. This hub, together with
the Nanjing Tech University from China and Singapore’s national water agency PUB, supports
the innovation and commercialization of new and advanced water treatment technologies. This
facility makes it possible for companies across the globe to pilot and scale up such innovative
water treatment solutions and this places Sembcorp in a better place in this emerging market.

Energy-from-Waste (EfW): Sembcorp manages several Energy-from-Waste (EfW) plants that

generate power from the waste fed to them. For instance, the UK-based Wilton 11 EfW facility
deals with 430000 tons of municipal and commercial wastes annually converting it to power
while minimizing landfill usage and CO2 emission. This technology is an effective solution for
sustainable waste management because it turns the bad into an energy asset.

Biomass Technology: The company also revealed biomass energy solutions in waste
treatment innovations under its innovation processes. Wilton 10 biomass facility in the United
Kingdom, the first big-scale wood-burning biomass power plant uses organic waste products
in the production of electricity. This particular facility uses renewable biomass sources instead
of conventional fossil fuels to generate electricity and hence lowers the emission impacts on
the environment. In the UK, the country’s first large-scale wood-fired biomass power plant
generates power using organic waste materials. By utilizing renewable biomass sources
instead of fossil fuels, this facility reduces carbon emissions and contributes to sustainable
energy production.

Sustainability and Carbon Reduction: Among Sembcorp’s solutions, particularly in water

recycling, for instance, and waste-to-energy, both are instrumental in carbon emissions and
environmental impacts. Efforts to reduce the effects of climate change are made through the
use of these facilities; the EfW facilities themselves cut a staggering 130, 000 CO2 emissions
annually.
Economic Efficiency: Technological applications such as those applied in the Fujairah 1
desalination plant or NEWater technology research not only fulfill the water requirements but
also enhance the effective utilization. From, tackling water and waste in a unit, Sembcorp cuts
expenses such as using water that has already been treated for industrial use or converting
waste into energy. efficiency. Sembcorp’s integrated approach to water and waste treatment
reduces costs by recycling resources, such as reusing treated wastewater for industrial
purposes or generating energy from waste.

Global Market Leadership: Sembcorp has been able to sustain innovation in water and
waste management, making it a world-class utility solutions firm. The successful expansion of
these technologies around the world can be evidenced by the Nanjing Water Hub and projects
in the United Kingdom and the United Arab Emirates as evidence of its solutions. These
innovations provide Sembcorp with the ability to extend its markets while fulfilling the
sustainability criteria of the regions where it operates.

Thus, Sembcorp Utilities has to focus on technological advancement in the water and waste
treatment division for proper growth in emerging markets. Through applying smart
technologies in water reclamation, integrated water management, and renewed treatment of
wastes, Sembcorp responds to the problem of water scarcity and management of wastes. All
these programs go a long way in improving operational effectiveness, minimizing the effects
of the firm on the environment besides improving sustainability of the regions the firm operates
in. With an increasing need for clean water and successful waste management solutions,
Sembcorp has emerged as a key technology-driven utility company ready and capable of
shaping the change toward a sustainable future.
▪ Investment in Renewables: It has dedicated significant capital to renewable power
generation in developing countries. For instance, India’s Sembcorp has set up many
solar and wind plants to help the country meet its green energy goals. This commitment
not only alleviates dependency on fossil fuels but also is beneficial regarding
international sustainable development.

▪ Sustainable Energy Solutions: Through supplying sustainable energy solutions,

Sembcorp increases energy security and economic development in its regions of
operation. currently, this company has developed a diversified energy policy that
improves the local economy and decreases the amount of greenhouse gas emissions.

▪ Innovative Water Treatment Technologies: The firm applies new technologies in

water treatment, including membrane filtration and reverse osmosis to improve water
quality and uptake. Through a commitment to these technologies, Sembcorp
guarantees the availability of safe drinking water while at the same time embracing
efficient use of resources.

▪ Water Recycling and Reuse: Sembcorp is also very keen on water recycling and
reuse. Through the effective treatment of the wastewater, it uses for circulation in
industrial processes and irrigation, the company minimizes the use of fresh water and
encourages water conservation.

▪ Carbon Management: On mercury, the company has pledged to cut emissions by

90% in 2020, and has other goals for slashing greenhouse gas emissions in its
operations. Strategically focusing on low-carbon capital equipment and improving
energy productivity, the company intends to bring its business to parity with global
climate policies and reduce the vulnerability arising out of future unfavorable legislation
changes.

▪ Biodiversity Conservation: Sembcorp understands that the health of ecosystems

depends on the levels of bio-diversity. Currently, the company undertakes
environmental audits of its projects to minimize the effects on the environment and the
 biodiversity of the areas in which it operates. showing its concern to the environmental
conservation, Sembcorp has put measures to conserve habitats.

▪ Community Development Initiatives: The other social investment areas that

Sembcorp directs its resources to are education and health as well as other
infrastructure needs. In meeting these needs, the company earns the right to stay in
the eyes of the community hence improving community relations.

▪ Stakeholder Engagement: Sembcorp respects and encourages communication and

interaction with all interested parties starting with the communities in which the
company operates, government structures, and NGOs. Such engagement makes sure
that the company is aware of the local public concerns and expectations and thus can
design sustainable programs to comprehend.

▪ Transparency and Accountability: It operates with a strong degree of sound

corporate governance policy to address issues to do with the implementation of its
policies and overall corporate management. Sembcorp has an established method of
sustainability reporting that way, stakeholders can evaluate the company’s
performance towards green initiatives.

▪ Ethical Business Practices: Sembcorp runs ethical operations throughout the

company to ensure a positive reputation. Business integrity, legal compliance, and
sound corporate governance practices remain key values that run through the firm as
well as its interaction with its employees and partners.

Contributed to global agreement and signed in Paris by 195 countries in 2015 setting a goal
of limiting global warming to below 2°C, with the possibility of at least 1.5°C. In addition to this
agreement, the increased environmental legislations that the company wants to embrace as
it expands and becomes a power plant development company have proved to be influential in
shaping its strategic plans. The global climate goals and increasingly stringent rules on
emissions in the Asia-Pacific have also led to the replacement of fossil fuels with clean energy
in the form of wind, solar, and energy-from-waste (EfW) which has been a big positive for
Sembcorp's business strategies.
Such goals include the majority of the countries satisfying their requirements as per the Paris
Agreement along with raising the bar on renewable energy generation as well as the restriction
of greenhouse gas emissions. In response, Sembcorp has ensured that invests on renewable
energy, especially in wind, solar, and EfW in line with these objectives.

Wind and Solar Energy: Through acquisitions, Sembcorp doubled its renewable energy
capacity to 4GW during the year, especially in India and China. For instance, the acquisition
of a 70.4 percent stake in Sembcorp Green Infra provided big-ticket capacity in wind and solar.
By 2017, renewable energy assets made up 17% of Sembcorp’s total power capacity, aligning
with both global trends and the company’s commitment to sustainability. Sembcorp’s wind
farms in China, for example, reduced CO2 emissions by approximately 650,000 tons annually,
further supporting the goals of the Paris Agreement.

Energy-from-Waste (EfW): The Singapore-based EfW technologies have also contributed

significantly to its global strategy to minimize its environmental impact. In Singapore,
Sembcorp EF&W plant cuts CO2 emissions by converting municipal and industrial waste into
electricity and steam. The use of EfW allows Sembcorp to address both waste management
and energy generation challenges, making it a core element of its sustainability strategy.

Sembcorp has also transitioned to the renewable energy market due to rising environmental
standards in the areas it operates. The pledges made under the Paris Agreement have brought
about faster carbon-cutting measures, especially in young economies such as that of, China
and India.

China: By the end of 2020, under its 13th Five-Year Plan China pledged over US$361 billion
for renewable energy. As per the commitments made under the Paris Agreement, the
government of China has also introduced carbon trading and has also given priority to cut the
use of coal. In response, Sembcorp scaled up its wind and solar capacity in China, aligning
with the national push for greener energy sources and reducing reliance on fossil fuel-based
energy generation.

India: India’s government has therefore been an active advocate of renewed energy,
especially about the Paris accord to have installed 100GW of solar power generation and
60GW of wind energy generation by the financial year 2021/2022. Such regulatory changes
have been direct causes for Sembcorp to invest more into the Indian renewable business;
especially the wind farm business through Sembcorp Green Infra. Long-term Power Purchase
Agreements (PPAs) with state utilities have ensured that renewable energy projects are
financially viable and compliant with the country’s environmental goals.

On the one hand, the shift from fossil fuel-based energy to renewable energy forms has
displayed immense growth prospects in front of Sembcorp Industries Limited But on the other
hand, these changes have posed the following problem to Sembcorp Industries Limited. These
challenges include grid integration, intermittency, and regulatory challenges since many
renewable energy projects are established in emerging markets. Moreover, local regulations,
such as India’s Renewable Purchase Obligations (RPOs), need to be strictly enforced to
ensure consistent demand for renewable energy.

Nonetheless, due to the adoption of the Paris Agreement, as well as continually tightening
regional environmental legislation and standards, Sembcorp has been driven towards building
a less environmentally detrimental business. Sembcorp has not only met the regulatory
requirements but also established sustainable business opportunities for the organization in
global energy conversion by using renewable energy resources in line with climate change
objectives. Lastly, the Paris Agreement and changing environmental laws form the major
influence behind Sembcorp’s transition to renewable power business. Capitalizing on wind,
solar, and EfW investments, Sembcorp is on par with international sustainability standards,
has minimized its emissions, and is now a firm guided by ESG factors
Sembcorp Utilities' takes a very unique approach to manage the funding and capital structuring
for large-scale projects. It is a core element of its overall financial strategy and designed to
support sustainable. It manages the significant risks involved in infrastructure development.
As a company that operates in the energy, water, and waste management sectors, Sembcorp
has undertaken large-scale capital-intensive projects. It has started operation in emerging
markets such as India, China, and Bangladesh.

Sembcorp primarily adopted a high-leverage financing model. Under the structure, 70% to
80% of projects were funded from debt and the remaining 20% to 30% from equity. This
structure enables the company to take advantage of leveraged returns on its investments.
Debt financing for infrastructure projects typically comes from a variety of sources as long-
term loans. It helped to fund projects with long gestation periods.

In the case of Sembcorp's projects in Myanmar and Vietnam, the company followed this model
to fund the projects. In Myanmar, Sembcorp won its first international tender advised by IFC.
This was Myanmar’s first project to secure financing from China-backed Asian Infrastructure
Investment Bank (AIIB), commercial banks (Singapore’s Clifford Capital, DBS Bank, OCBC
Bank, and DZ Bank), IFC and ADB. In Vietnam’s first build-operate-transfer power project,
three-quarters of the projects cost was financed by commercial banks, ADB, and JICA. These
institutions provided significant capital, allowing Sembcorp to reduce its reliance on internal
cash reserves while benefiting from favorable loan terms.

Sembcorp has effectively utilized public-private partnerships (PPPs) in some of its undertaken
projects. The process reduces financial burden and share project risks with government
entities. The involvement of government entities often improves creditworthiness. The model
makes it easier to secure financing at lower interest rates.

In Bangladesh, for example, Sembcorp entered into a PPP with North West Power Generation
Company Ltd. It is a state-owned entity. The project was carried to develop a 414 MW dual-
fuel combined cycle power plant. The PPP model allowed Sembcorp to secure public sector
support, access government guarantees, and mitigate risks related to land acquisition,
regulatory hurdles, and project financing. This partnership also provided a 22.5-year power
purchase agreement (PPA). It ensures long-term revenue streams and stable returns for
Sembcorp.

A key feature of Sembcorp’s capital strategy is use of IPO process for refinancing its projects.
This is a self-sustaining process for the long-term projects. This approach frees up capital for
new investments. The rationale behind this strategy is to align with the financial preferences
of institutional investors who prefer to invest in projects once they are operational and cash
flow positive. This approach enhances the shareholder value. By monetizing the value created
during the development phase of the projects, it can be reinvested without accumulating
excessive debt in the balance sheet.

For example, in the Salalah Independent Water and Power Plant (IWPP) in Oman, Sembcorp
took a larger initial stake in the project and retained the option to sell equity upon completion
of the project or at the start of the operations. This strategy of participating in IPO generated
a one-time gain of $117 million, comprising $37 million on the sale of its 20% equity and $80
million as fair value gain of the remaining 40% stake.

Another strategic partnership that Sembcorp undertook is Joint Ventures where two or more
companies collaborate for financing a specific project or business activity while sharing
resources, risks, and profits. By pooling their financial, technical, and human resources, the
partners can leverage each other’s strengths. This model makes it easier to finance large-
scale projects that might be too risky or expensive for a single entity. This arrangement allows
companies to access resources through combined expertise. It gives companies a competitive
edge by increasing market reach, ultimately leading to greater financial stability and growth
potential.

In 2014, Sembcorp formed a joint venture with state-owned Chongqing Energy Investment
Group (CEIG) to develop a 1,320MW coal fire project in the largest Chinese municipality.
Sembcorp also entered into the Middle East market in 2006 through a 40% owned joint venture
with Abu Dhabi Water & Electricity Authority.

One of the key aspects of Sembcorp’s success is its effectiveness of managing the finances
of its capital-intensive projects through geographic and project diversification. The company
operates across 70 locations in 14 countries. It allows the company to spread its financial
exposure and reduce dependency on any single market.

For instance, while projects in India and China account for a significant portion of Sembcorp’s
utilities portfolio, the company has also invested in energy and water projects in countries like
Oman, Bangladesh, and Myanmar. This diversification strategy helps to mitigate country-
specific risks. Moreover, it provides access to different financing sources tailored to local
market conditions. Sembcorp’s investments in different projects and power plants
demonstrate its ability to balance risks. By maintaining a diversified portfolio, Sembcorp can
smooth out its earnings and attract a broader range of investors.

In the turnover analysis on the basis of the company’s business mix, it is seen that there are
four different types of business portfolios including, utilities, marine, urban development, and
other corporate dealings. From the mentioned four types of business mix, the highest amount
of turnover and profit comes from the utility segment. It has contributed more than 50% of the
turnover in the recent past years of the company. The turnover was 52% in 2016 from utility
which was 55% in 2012. But we can see a very interesting picture from the net profit analysis
of the company. Here, the contribution from the utility segment is increasing with the passing
year. In 2012, the contribution in net profit was 50%, whereas, in 2016, it grew up to 88% of
the net profit. Among the four business mixes, urban development contributes very little to the
total portfolio of the company.

The sector-wise investment summary provided in the case reveals that the solar sector has
been given the highest investment priority. Between 2014 and 2015, the solar segment’s
contribution increased by 12%, achieving a Compound Annual Growth Rate (CAGR) of nearly
27% from 2004 to 2015. It has been marked as the fastest-growing segment. From the
geographical perspective, the Middle East and Africa have been identified as key regions for
future growth, with a strong focus on expanding into these emerging markets. In contrast,
Europe has contributed the least to growth, with only a 6% increase in the current period.

From 2012 to 2014, Sembcorp experienced steady growth in both turnover and net profit. It
showed a positive financial trend. However, in 2015 and 2016, there was a noticeable decline
in turnover, which can be attributed to increasing operational and finance costs. These rising
costs put pressure on the company’s profitability. It led to a drop in profits from operations. In
2012, the company had a Net Profit Margin (NPM) of 7.4%, but by 2016, this margin had
reduced to 5%. It reflects the impact of higher costs and lower revenues.
At the end of the year, the balance sheet reveals a consistent growth of company’s value over
the past several years. Between 2012 and 2016, the company's assets have doubled,
indicating strong financial performance and effective asset management. The company has
enhanced its equity position, which has contributed to a healthier balance sheet. This shift has
allowed Sembcorp to strengthen its capital structure, reducing financial risk and improving its
ability to invest in growth opportunities. As a result of these efforts, the value of the company's
equity has increased by nearly 45% over the past five years. This growth reflects Sembcorp’s
commitment to delivering returns to shareholders while maintaining a robust financial
foundation.

The ratio analysis highlights that Sembcorp has prioritized wealth maximization over profit
maximization. This means the company is focused on increasing shareholder value rather
than simply boosting short-term profits. It has led to a significant increase in the value of net
assets per share, but earnings per share (EPS) have decreased over the same period.

Upon further analysis, we observe that both Return on Equity (ROE) and Return on Assets
(ROA) have declined. This decrease is primarily attributed to lower net income. One of the
major reasons for decreasing the level of net profit is the higher level of debt financing cost.
As Sembcorp has relied more on debt financing, the associated interest expenses have
increased, further straining net profits. The increasing level of debt in the capital structure is
evident by the higher debt-to-capitalization ratio outlined in the case over the period.

Additionally, the company's interest coverage ratio indicates operational inefficiency. In 2012,
Sembcorp was able to cover its interest expenses 10 times with its net profit. However, this
coverage has declined to only 3.3 times in the current period, suggesting that the company is
now more challenged in meeting its interest obligations. This decline in the interest coverage
ratio reflects higher debt costs. It also focuses on potential operational inefficiencies. Overall,
these factors illustrate the need for Sembcorp to enhance operational efficiency while
managing its debt levels effectively to improve profitability and return metrics.
Sembcorp’s centralized utilities outsourcing model is a very critical component of its business
strategy. The model revolves around bundling essential services while offering it to industrial
clients within large industrial zones. The services include power generation, steam, water
treatment, and waste management into a single platform. This approach allows for cost
efficiency, reduced environmental impact, and operational synergy.

Sembcorp’s centralized utilities model started on Jurong Island. It is Singapore’s

petrochemical hub. It provided a combination of services that otherwise would have been
outsourced separately by different industrial players. Centralized utilities outsourcing model in
Singapore has contributed by different ways outlined below:

• Natural Gas Management and Power Generation: Sembcorp was the first
commercial importer and retailer of natural gas. The company pioneered in2001 with
815MW Sembcorp Cogen. It was the first combined-cycle gas tribune power plant
fueled by natural gas. It was simultaneously producing electricity to allow industrial
customers to receive energy more efficiently.

• Water and Waste Treatment: Sembcorp also provides water and wastewater
treatment services. It includes managing industrial water recycling, desalination, and
sewage treatment for industrial zones. In Singapore, Sembcorp was the first reclaim
high-grade industrial water from wastewater effluent. NEWater plant also won “Water
Reuse Project of the Year” at the Global Water Awards 2010.

• Energy-from-Waste (EfW): In 2011, Sembcorp used 400 tonnes of waste wood

shredded to woodchips to produce 60 tonnes per hour of steam. The company was
completing a $250 million EfW steam generation facility which has grown its capacity
to produce 200 tonnes per hour of seam in five years in Singapore. EfW plants
contributes to reduce costs and create a competitive advantage.

Sembcorp’s success in Singapore allowed it to replicate these centralized utilities model in

various international markets, particularly in Asia. The expansion into these regions
demonstrates the model's adaptability and scalability. It provides a tailored solution to meet
the growing demands of emerging economies.
 • China: Sembcorp entered the Chinese market in 2003 with a cogeneration project in
Shanghai’s Caojing industrial park. Its strategy in China mirrors the model deployed in
Singapore. In China, Sembcorp has developed a 961MW Shanghai Caojing
cogeneration project operating in 21 sites in 12 provinces. Sembcorp became a
leader in industrial water treatment in China’s industrial parks in 2014 and 2015,
leveraging its expertise to serve customers in water-scarce regions. In response to
China's need for efficient coal energy production, Sembcorp built the Chongqing
Songzao supercritical coal plant. It is among the most efficient plants in China,
reducing CO2 emissions while maintaining high energy output.

• India: India’s growing industrial sector provided a very good opportunity for Sembcorp
to replicate its model. Sembcorp entered into the Indian market in 2011 after being
approached by Gayatri Energy Ventures. In Andhra Pradesh, Sembcorp developed
the Sembcorp Gayatri Power Complex. It is the country’s largest foreign direct
investment in a thermal power project. Sembcorp built two supercritical coal-fired
power plants, offering power to industries and governments. Additionally, it provides
water desalination and recycling services to meet industrial needs.

• United Arab Emirates: Sembcorp’s model was also replicated in the Middle East. In
UAE, Fujairah 1 Independent Water and Power Plant (IWPP) consisted of a gas-
fired plant and hybrid desalination plant. It supplied 130 million imperial gallons per day
(MIGD), of water and 893MW of power under the agreement.

• Oman: Sembcorp also implemented the same centralized utilities outsourcing model
in Oman. Salalah was a project that has been operated in Oman in 2012. It worked a
445MW gas-fired power plant and a 15MIGD seawater desalination plant. It was
Dhofar’s biggest and most efficient energy plant. It has been the only source of
desalinated water under a 15-year PWPA to Oman Power & Water Procurement
Company.

Sembcorp Utilities faces several operational challenges in implementing its centralized utilities
outsourcing model across different countries. These challenges vary depending on local
regulatory environments, infrastructure quality, political stability, and market-specific issues.
Challenges Faced in India

• Bureaucratic Delays: India’s regulatory framework is complex. It was difficult to

secure the necessary clearances, permits, and licenses. Sembcorp faced delays of up
to 3-4 years in necessary approvals for its projects in India.
• Land Acquisition Issues: Acquiring land for large infrastructure projects is particularly
challenging in India due to local resistance and lengthy legal processes.
• High Financing Costs: Interest rates in India are significantly higher than in other
markets. In India, the interest rate is around 13%, which is 5% in China. This increases
the cost of capital and affects project profitability.

Challenges Faced in China

• Thermal Power Overcapacity: In China, the power sector has experienced

overcapacity in thermal power generation, particularly in areas far from coal mines.
This creates operational risks, as plants might not be fully utilized.
• Carbon Emission Regulations: China’s environmental policies are becoming stricter,
with the introduction of carbon trading and caps on CO2 emissions. Sembcorp must
comply with these evolving regulations. This can affect the operational costs of its
thermal power projects.

Challenges Faced in Bangladesh

• Weak Infrastructure: Bangladesh's energy infrastructure is underdeveloped. It leads

to issues such as power transmission losses and inconsistent supply. This impacts
the efficiency and reliability of power projects.
• Political and Regulatory Uncertainty: There is an uncertainty regarding laws and
regulatory factors in Bangladesh. Hence, Sembcorp faced challenges in ensuring
compliance with regulations, land disputes, and delays in project approvals.
• Local Workforce and Capacity: Limited local expertise in energy infrastructure
projects means that Sembcorp must invest in training local workers or rely on external
contractors, which can add to costs and complexity.

Challenges Faced in UAE

• Water Scarcity: In the Middle East, providing water services is challenging due to the
scarcity of freshwater. Sembcorp operates large-scale desalination plants like the
Fujairah IWPP in the UAE, but these plants are capital-intensive and energy-
consuming.
• Managing Contractors: In Oman’s Salalah IWPP project, Sembcorp faced difficulties
with contractor management. Western contractors are typically engaged in Gulf
 projects, but Sembcorp partnered with China’s SEPCOIII for engineering and
procurement. Convincing Omani authorities to accept different construction standards
and quality controls was challenging.
• Financial Crisis Impact: Sembcorp undertook the Salalah project amid the 2009
financial crisis, which complicated financing arrangements as lenders became more
risk-averse.

Challenges Faced in Singapore

• Competitive Market: Sembcorp faced intense competition in the Singapore utilities

market. Despite having a significant foothold, Sembcorp profit in the Singapore market
drop from $134 million in 2014 to $59 million in 2016 due to overcapacity and falling
electricity prices.
• Environmental Standards: Singapore’s stringent environmental regulations require
Sembcorp to continuously upgrade its facilities to maintain compliance with energy
efficiency and emissions standards.

Challenges Faced in Vietnam

• Regulatory Hurdles: In Vietnam, Sembcorp facer challenges regarding regulatory

framework. It was difficult to comply with local regulations and navigating the
bureaucracy to execute its energy and utilities projects.
• Political Risk: Vietnam’s political landscape may encounter it risks related to policy
changes, especially in the energy sector.
The renewable energy market presents substantial growth opportunities for Sembcorp,
especially in key regions such as India, China, Southeast Asia, and the Middle East. By
expanding its renewable energy portfolio through wind, solar, and energy-from-waste projects,
Sembcorp can position itself as a leader in the transition to sustainable energy. The financial
benefits of these investments and strong alignment with global sustainability trends will
contribute to the company's long-term growth and profitability.

1. Exploration in India and China:

India and China are two of Sembcorp’s most significant markets. In India, Sembcorp has
substantially increased its renewable energy capacity through its investment in Green Infra
Ltd. and various wind power projects. This positions the company well to capitalize on India’s
goal of achieving 100 GW of solar energy and 60 GW of wind energy by 2022. In China, the
government has set ambitious targets as part of its 13th Five-Year Plan, which includes
significant investments in renewable energy of 2.5 trillion yuan by 2020. Sembcorp’s
established projects in wind energy allow it to leverage these commitments.

2. Investment in Energy-from-Waste (EfW) Projects:

Sembcorp’s existing Energy-from-Wast facilities provide a significant opportunity for growth.

By converting waste materials into energy, Sembcorp can address urban waste management
challenges. It can also generate renewable energy from it. This dual benefit aligns with global
goals to reduce landfill waste and improve energy sustainability, enhancing Sembcorp's
sustainability profile and creating additional revenue streams. In the time period of
industrialization and development, the potential importance of processing energy from waste
is very crucial. This is a part of the goal of creating a green world, which also aligns with the
goal of ESG activities carried by Sembcorp.

3. Development of Hybrid Energy Solutions:

By integrating multiple renewable energy sources, such as solar and wind with energy storage
systems, Sembcorp can create hybrid energy solutions. It has very much positive future
potential in the market in the emerging markets. These systems can provide more reliable and
consistent energy supply, which is particularly valuable in regions with variable renewable
energy generation. This development will help Sembcorp meet growing energy demands while
improving grid stability. In the growing need of operational efficiency and effectiveness, the
necessity of hybrid plants is very crucial. In this sector, Sembcorp has a wide range of
expertise and experience focusing on different geographical locations. This would help the
company to serve the growing demand of hybrid energy solutions in the near market.

4. Smart Grid and Digital Technology Integration:

Implementing smart grid technologies and digital solutions can optimize Sembcorp’s energy
management processes in the future. By utilizing data analytics and automation, the company
can enhance operational efficiency, reduce energy wastage, and improve customer
engagement. As Sembcorp already has extensive experience in working with different country
and their personnel. This would give Sembcorp to adopt any of the new integration of
technology in the operational system. The future possibility of technological dependence and
Sembcorp’s ability to adopt would help it to pose a strong value in the market.

To balance financial performance and sustainability, Sembcorp Utilities should adopt a

strategic approach that integrates both its business goals and environmental commitments.

1. Diversify the Renewable Energy Portfolio

Sembcorp should continue to expand its renewable energy investments in India and China.
The countries in Asian sub-continent have strong government support and growing demand
for clean energy. The option of expanding in solar and wind sectors will provide long-term
growth. It will also reduce the company's carbon footprint. Sembcorp has already invested in
EfW plants that generate energy from waste in Singapore. This model could be replicated in
regions like the Middle East where waste management is a significant challenge. It will provide
environmental benefits and additional revenue streams.

2. Optimize Capital Allocation in Developing Countries

Sembcorp should allocate more capital to regions like India, Bangladesh, Vietnam etc. where
renewable energy growth is strong. Securing long-term power purchase agreements in these
regions will guarantee stable revenue streams and mitigate risks related to volatile energy
markets. Sembcorp can also explore green bonds and sustainability-linked loans to finance
its renewable energy projects. These financing options often come with lower interest rates. It
helps to align with investors looking for sustainable investments, reducing overall financing
costs while promoting environmental goals.

3. Improve Operational Efficiency in Existing Assets

Sembcorp should focus on improving the efficiency of its existing assets, particularly its
supercritical coal plant and water treatment facilities by integrating digital solutions. This will
reduce operational costs, emissions, and environmental impact. In markets like China and
India, where grid integration is a challenge, Sembcorp can invest in energy storage systems.
It will ensure renewable energy is efficiently used and stored. This will minimize power
curtailment and improve the financial viability of its renewable energy projects.

4. Strengthen Partnerships for Sustainability

To overcome regulatory hurdles and land acquisition issues in regions like India, Bangladesh,
Vietnam; Sembcorp should strengthen partnerships with the government and private sector
players. This will streamline operations and help secure favorable contracts for new renewable
energy projects. In emerging markets, Sembcorp should continue leveraging PPPs,
particularly in large-scale renewable projects. These partnerships not only distribute risk but
also provide access to government-backed guarantees. It can stabilize returns in markets with
regulatory and financial uncertainties.

5. Integrate Sustainability into Long-Term Strategy

Sembcorp should set clear, measurable targets for increasing its renewable energy capacity,
reducing carbon emissions, and enhancing energy efficiency. These goals should be
communicated transparently to stakeholders to finish the project within deadline. It has been
noticed in some of the countries, that it takes more than the anticipated timeframe to complete
the project. Clear communication and integration with the responsible party in local countries
should be emphasized to ensure the effectiveness and efficiency of the project.
Therefore, Sembcorp Utilities' example as a utility company that strategically developed into
emerging countries can be regarded as a successful illustration of how the business manages
the conflict between sustainability and growth. Upon closely examining its operations in other
markets, such as Bangladesh, China, India, and Myanmar, it becomes evident that
Sembcorp's success was largely driven by the flexibility of its business model, namely its
market entry strategy, which included joint ventures, acquisitions, and green field investments.
The company has refocused its strategic goals to include sustainable technology and
renewable energy, particularly in the areas of wind, solar, and energy from waste (EfW)
solutions, which give the company a competitive edge in guiding the global energy transition.
However, these chances came with hazards, including difficulties with politics, regulations, and
Sembcorp's ability to operate in such markets. However, based on Sembcorp's expertise, the
risk has been controlled and transformed into a reliable source of income through the creation
of long-term PPAs through technical advancement and creative solutions in the water and
waste sectors. To further advance, Sembcorp must still counter these market-specific risks as
well as diversify its renewable energy segment and commit to sustainability to sustain its
competitive edge. Combining the key technology and deepening cooperation with investors,
Sembcorp can remain the growing pace and positively affect the development of emerging
countries.
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