Effectiveness Of Governance On Risk Management In Nuclear Energy Sector – A Case Study Of ENEC

Sources and Types of Risk in Nuclear Energy Sector

Effectiveness of Governance on Risk Management in Nuclear Energy Sector – A Case Study of ENEC (Emirates Nuclear Energy Corporation)

The biggest concern in the sphere of production and service provision is the subsequent amount of associated risk. The importance of managing such risk is immense as in most of the cases this risk mismanagement hasten the failure of corporate projects. This is the entry point for role of corporate governance to take care of the risk management properly as most of the corporate collapse are facilitated by corporate governance failure for example the case of Satyam, Enron, WorldCom and so on. The organization for Economic Co-operation and Development publishes report stating the necessity of proper governance in order to take control of the risks associated in any project. Even though the United Nation has framed many sustainable targets for the nuclear energy sector worldwide, the study says only few of them have been agreed by the nation to be achieved by the end of coming decade. United Arab Emirates is the sourcing ground for 5 out of 64 new reactor projects globally.. The importance of the risk management in nuclear energy sector lies in the fact that it is one of the potential sector whose successful implementation would let UAE meet one fourth of its electricity needs which is growing positively with the economic growth (Dua and Director 2012)

• Identification of risk facing the nuclear sector of UAE
• Snapshot of current corporate governance scenario within ENEC
• Analysis of risk management strategies devised by ENEC
• Discussion of the efficacy of governance in the risk management at ENEC

The theme of research revolves around the aim that explores the importance and ability of corporate governance in managing the risk within ENEC operations. The analysis focused upon addressing the following questions helps in achieving the aim of the paper.

• What are major threats of risk exposed to the nuclear sector specially ENEC?
• What is the recent condition or corporate governance within ENEC?
• What are the general risk management strategies adopted and executed by ENEC?
• What extent are the governance strategies effective in managing risk within ENEC?

The research is based upon the data collection and exploration of insights from them operative within the employees of the organization. The research being centrally focused on ENEC, it allows layman get a concentrated picture of the energy sector of the nation.

Serving the designation, Action Manager of Safeguards and Export Control in the ENEC for a decade brings me closer to the responsible act amid the evolution-taking place within sector over time. Being an integrated part of the operation within the organization, the governance applied in managing risk owes much of significance to me. This lays the basis of intention of this research.

The research is erected upon the basic analysis of the concepts like risk management, corporate governance and their mutual relationship with subject to the nuclear energy sector of UAE. The study reveals that almost around 1.08 billion people in the country lie outside the accessibility of energy consumption. The dire energy crisis within the nation owes its importance to the growing need of energy operated through its connection with various other sectors that are directly associated with production and services. Energy poverty is one of the global issue earning global importance. Globally 450 nuclear reactors are operating in 30 nations that produce enough resources necessary to meet 12% of the global demand of energy. UAE has 5 nuclear reactors within its national territory serving around 26% of the national energy requirement (AlFarra and Abu-Hijleh 2012). The estimated hike in the energy is expected to reach 43 GW by 2020 from 14 GW in recent time showing a two-fold increase in the energy generation. The untapped potential of the nuclear sector has not only been indentified bur also has been utilized to act as major source of energy in the nation.

Management and Theories of Risk in Nuclear Energy Sector

As per the policymakers, Nuclear Policy is one if the commercially competitive as well as environmentally sustainable focusing upon the evaluation and potential development of nuclear energy. The policy reinforces the importance of establishing a vigilant regulatory body that would operate independently. One of the important investment made by UAE government is the Barakah nuclear energy project that aims at generating almost 6 GW out of the almost US$21 billion (AlFarra and Abu-Hijleh 2012). Initiative regarding risk management is evident in the underlying model Korean model based upon post-Fukushima incident. Through application of regulatory effectiveness, spreading awareness, training staffs and competent inspection the risk factors are reduced and controlled.

One example of effective corporate governance exerted by the firm is evident in the ENEC being awarded for its “Building Risk Management Capability: among 30 international institutions at Global Risk Award ceremony. The following key concepts aim to shape up theoretical base of this paper.

Owing to the fact that organization in modern world are operating under various environment and market condition, they are exposed to various kind of risk and threats. The management of these risks is a process that ensures avoidance of them with application of various methodical strategies. Management of risk is a process that includes steps that identify the problems in operation of it, asses its graveness and prioritize the risk. Economical application and coordination of or resources and strategies while minimizing or reducing as well as controlling the probable factors that play as source of unfortunate events within an organization follow this up. The broader intention of risk management is to diver the scope of uncertainty to affect the performance of firm and achieve business goals (Bahr 2014). The risk management is associated with measuring the probability through anticipation and takes up strategies accordingly in order to mitigate, avoid or reduce the probability of appearing the risk.

There are various sources of generating risk in the business function of any firm that broadly encompass uncertain fluctuation in financial market, developmental failure in project design and management, legal issues, credit risk, natural disaster and ailments. This requires compact management techniques that would deal with these risks to reduce the possibility of negative atmosphere hindering the business growth of the firm.

Any firm is exposed to various kind of operational risk broadly, which can be categorized in two sets: Operational failure risk and operational strategic risk. While the former deals with internal sources of risks and issues, the latter one deals with the external threats that affect the business operation of the firm. Few important set of risk are associated with credit, market, liquidity or funding, operations, reputations, commodity, rate of interest and compliance issues. An operational risk pertains to failure of internal business systems causing direct and indirect losses. Operational risk can be caused by both internal and external factors.

ENEC Model for Risk Management

Management of risk can be done effectively through application of various methods as suggested by different theories. Modern Portfolio Theory suggest risk as both an issue as well as opportunity and better deals with unsystematic risks than the systematic ones which remain unaffected. Stakeholder Theory ensures good relations with stakeholders in any business maintaining ethical conducts and social responsibilities.  It mainly focuses on improving the business performance integrating the business as well social and economic environment. One important theory regarding risk management can be Legitimacy theory which focuses on legitimacy as driving factor in reduction of social and environmental risks.

Operating within a firm that deals with operations of nuclear reactor generates much more complicated risk regarding various issues involving health and safety concern as well as various financial and market based risks. Multi dimension of risks associated with the operation of nuclear power plant in today’s global energy environment. This requires managers to consider them and come up with risk management integrated strategies that would allow the firm to stay competitive and profitable in energy market.

The ENEC incorporates proper environment model as measure o frisk management that identifies three broad aspects of entire operation to be dealt with and they are related with production, financial and safety issues (Dua and Director 2012).

The framework of the model for risk management brings forth an action plan that further includes four broader activities:

• Identification, listing, ranking and measurement of the risk factors
• Identification of techniques regarding reduction, retention and transfer of risk
• Implementation of strategies that manages risk efficiently
• Monitoring the efficacy of solution taken up to mitigate the risk

Following are the major risk identified in the operation of nuclear sector:

Health and Safety Risk: The nuclear reactors deal with nuclear powers that further takes into account the nuclear fission, meltdown. This releases enough radioactive particles and radiations that pose serious threat to the health safety of the employees working within as well as surrounding environment. This can lead to severe risk of growing chronic diseases within human body.

Operational Risks: Lack of proper skill set, qualification and training required by the employees, challenges in management of inventories and operational techniques, lack of organizational structures, lack of securities provided to the workers combined with various human factors leading to inefficient production with higher probability of operational risk.

Strategic Risk: This might source form the market competition and regulation, political backdrop, legal complexities, improper safety regulation and various public settlement issues.

Commercial Risk: Any volatility in financial market and consequent fluctuation in rate of interest, exchange rate can cause disruption in cash flow and investment conditions, which in turn create lot of problem for the business of firms.

Conclusion

The most frequently experienced risks appearing in Nuclear Energy Sector are:

Radiation: Most dreadful impact of nuclear power generation is the harmful radiation and its impact on the health of people. The impact of radiation is extreme as it causes damage to human body causing major ailment and chronic diseases like cancer and many generic diseases that sustain for long time (Brunnengräber and Schreurs 2015).

 Reactor Accidents: Explosion, meltdown and various other kinds of accidents take place within nuclear reactors that can cause financial as well imagery loss for firm in concern (Caron 2013).

Radioactive Waste: One of the negative implications of nuclear power generation, which further produces radioactive wastages. It poses threat not only to the environment but also to the health of population. The worst long-term effect of these kinds of wastes is that it reduces life expectancy of people continuously (Brunnengräber and Schreurs 2015).

The general ways to deal with these risk factors include risk management strategies that broadly encompass reduction of risk, retain it and transfer them efficiently. Bringing massive change in the organizational structure, enforced standards and codes, engineering processes and management techniques operational risks can be reduced largely (Haimes 2015). Through application of various regulations, insurances, risk can be transferred to different parties than one person

Corporate Governance refers to set of rules that is practiced and processed to shapes up the direction and control of a company. It helps to balance the interest of range of people including shareholders, suppliers, financiers, management bodies, customers, community and government (Fernando 2012). A proper corporate governance act as blueprint guiding the company toward achieving its objectives. It take control of the design regarding action plan, corporate disclosure and performance measurement by internal controls. The mechanism of governance in the corporate structure rightly identifies and distributes roles and responsibilities among the participants within the organization such as managers, shareholders, board of directors, creditors, regulators, and auditors. It also makes the decision-making process regarding corporate affairs efficient. An efficient corporate governance method helps in setting as well as achieving the target of the company, which operates under different contextual situation regarding market condition, social regulation and environmental codes and conducts. This makes the monitoring or supervising the actions of agents, adoption and implementation of policies ethically important.

The procedures followed under the broader governance define the goals and roles for every associated agent within organization starting from suppliers at small level to managers and directors at broader level. The core intention of the mechanism is to ensure efficient allocation of resources, proper execution of performance and close inspection of the process in order to maintain the efficiency for long time so that enough profit is generated. The distribution of profit evenly and securing higher or decent pay back to the shareholders and dividend payment is important concern in designing the corporate governance system. It is major source of greater image regarding credibility and responsibility concern of the company among mass population through generating market confidence and integrity in the business. There is greater link between a good governance and better performance of a firm and also provides access to equity investments. Thus it is very crucial in managing the overall execution of functions.

The organization came into operation from 2009 and since then it has been delivering efficient and reliable services. The broader ambition of the firm is to provide safe, clean and reliable nuclear energy to the mass population of UAE. It also serves as important investment body to the government of Abu Dhabi and the domestic as well as international decision making regarding investment are channelized through strategic mode. The firm also engages sin constructing the design of first nationally owned nuclear plant in UAE (ENEC Overview, 2017). Apart from these the firm has grown engagement with the government to align investment for industrial infrastructures, promote educational sector, develop human resource and also spread widely awareness among people of different communities within nation (Dua and Director 2012). The vision of the firm based upon which its huge operations are held underlies the powering the future growth and development of UAE through safe as well as sustainable civil nuclear energy program (AlFarra and Abu-Hijleh 2012). The firm ethically follows four corporate values within its core, which are safety, efficiency, integrity and transparency.

One of inseparable part of good corporate governance is managing risk associated with functioning of the firm. It allows the firm to create a sustainable environment facilitated by efficient management of risks and achieving the business goals the organization has. A well maintained corporate governance ensures that economic, social, environmental managements are executed maintaining balance. The strategies that a corporate governance adopt actually plays critical role in monitoring the overall strategies of company hence managing the risk properly (Caron 2013).

One of the core issue with the failure in the risk management is the impediment of financial crisis that affect business of a company very deeply. It takes attention to the important fact regarding risk management, which not only means elimination of risk, but also evoking understanding and proper communication regarding the probable sources of risk (Kardes et al. 2013). Rather then treating each business units individually managing enterprises with wider approach help in bringing effective implementation of risk management. The alignment of corporate strategies is needed to be reviewed by the board in order to provide guidance to mitigate the risk appetite and internal risk probability within the business structure. Overtime the evolution in the legislation of the risk management practices has allowed more stringent regulation across world.

As per the corporate governance framework provided in the COSO report (2013), coexistence of internal risk management as well as internal control are required. The establishment of internal control would come by following up of few rules that suggest compliance with the corporate strategies while enhancing the efficiencies and effectiveness of the corporate practices. Security should be provided to the values of activities and protection should be provided from the risk factors. Information play pivotal role in reducing the risk factors implying for accounting and management detail to be authentic and reliable. Compliance of the operations with laws and regulations are important (Fernando 2012).

OECD also outlines few recommendation regarding good governance practices that should be followed up by the organizations mandatorily. This includes the enterprise wide approach instead of unit based approach in mitigating risk process in the company. The board must review on the strategies that corporations take up and match with the alignment of company structure (Caron 2013). The functions of risk management should be independent of the profit motives and this emphasizes the requirement of the recruitment of risk management officer who would present report directly to the board. It is the duty of the board to ensure that market risks are communicated with clarity and transparency by the team looking for risk management without hiding information relevant to the business operations.

The aim of the research is to find out the efficacy of corporate governance in conducting the risk management in nuclear energy firm and takes up ENEC as firm under case study. Primary and secondary data usage form the basis of qualitative approach the research undertakes.  The data mostly pertain to the corporate governance and risk management of the nuclear sector in Abu Dhabi. The research is done based upon the following framework

The paper aims to focus on the effective role corporate governance play in order to manage the risk a firm is exposed to. The research is thus more explanatory with a descriptive essence at its core. There is little scope for exploration in the research.

The research topic brings forth the importance of deductive approach over inductive approach for the present discussion. The rationale behind choosing for deductive approach is the availability of two known variable. This along with literature backed by secondary data constructs the framework of the paper. The findings are presented in deduced format.

Self-administered questionnaire survey form the basis of investigation as it helps to reach up to the employees and their perspective subsequently through the responses made by them. The employees are enquired of mainly corporate governance and risk management practices operative in the ENEC. The questions revolve around various types of risk pertaining to operational, audit, credit, financial, economic, social, environmental and so on (Bahr 2014). The intentions is to assess the responses in line with effectiveness of corporate governance exert on risk management.

Sample Technique and Size: 

The important sample technique followed in the research is stratified sampling that includes at least 100 people in each strata and the data is collected from operational executive sources of ENEC in Abu Dhabi.

The application of both primary and secondary data forms the basis of the data collection. The primary data collection follows interview taken through questionnaire. Secondary data are collected from the company reports, newspaper reports and various literatures. The secondary data collection aims in analyzing the current corporate governance situation in the ENEC.

Data Analysis:

The data analysis is conducted using Statistical Package for the Social Science with main focus being on statistical analysis of the resultant effect of corporate governance in identifying, managing, monitoring and assessing risk management (Haimes 2015).

Importance of nuclear sector is undeniable as source of power generation in UAE hence making it one of the emerging sectors in the national economy. The research project will deliver important detail about the current corporate governance practices in the sector and its effectiveness in risk management of it. For owning a senior designation in the organization proposing for recommendations will be easy in order to bring improvement in the firm operation. The risk management practices are also analyzed and they further contribute to the addition to theory. This overall will help in confirming development and introduce newer approaches of improvement in the nuclear energy sector of UAE.

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