Section A – This ONE question is compulsory and MUST be attempted 1 Rowlands & Medeleev (R&M)，a major listed European civil engineering company，was successful in its bid to become principal (lead) contractor to build the Giant Dam Project in an East Asian country. The board of R&M prided itself in observing the highest standards of corporate governance. R&M‘s client，the government of the East Asian country，had taken into account several factors in appointing the principal contractor including each bidder‘s track record in large civil engineering projects，the value of the bid and a statement，required from each bidder，on how it would deal with the‘sensitive issues’ and publicity that might arise as a result of the project. The Giant Dam Project was seen as vital to the East Asian country’s economic development as it would provide a large amount of hydroelectric power. This was seen as a ‘clean energy’ driver of future economic growth. The government was keen to point out that because hydroelectric power did not involve the burning of fossil fuels，the power would be environmentally clean and would contribute to the East Asian country’s ability to meet its internationally agreed carbon emission targets. This，in turn，would contribute to the reduction of greenhouse gases in the environment. Critics，such as the environmental pressure group‘Stop-the-dam’，however，argued that the project was far too large and the cost to the local environment would be unacceptable. Stop-the-dam was highly organised and，according to press reports in Europe，was capable of disrupting progress on the dam by measures such as creating ‘human barriers’ to the site and hiding people in tunnels who would have to be physically removed before proceeding. A spokesman for Stop-the-dam said it would definitely be attempting to resist the Giant Dam Project when construction started. The project was intended to dam one of the region’s largest rivers，thus creating a massive lake behind it. The lake would，the critics claimed，not only displace an estimated 100，000 people from their homes，but would also flood productive farmland and destroy several rare plant and animal habitats. A number of important archaeological sites would also be lost. The largest community to be relocated was the indigenous First Nation people who had lived on and farmed the land for an estimated thousand years. A spokesman for the First Nation community said that the ‘true price‘ of hydroelectric power was ’misery and cruelty’。A press report said that whilst the First Nation would be unlikely to disrupt the building of the dam，it was highly likely that they would protest and also attempt to mobilise opinion in other parts of the world against the Giant Dam Project. The board of R&M was fully aware of the controversy when it submitted its tender to build the dam. The finance director，Sally Grignard，had insisted on putting an amount into the tender for the management of ‘local risks’。 Sally was also responsible for the financing of the project for R&M. Although the client was expected to release money in several ‘interim payments’ as the various parts of the project were completed to strict time deadlines，she anticipated a number of working capital challenges for R&M，especially near the beginning where a number of early stage costs would need to be incurred. There would，she explained，also be financing issues in managing the cash flows to R&M’s many subcontractors. Although the major banks financed the client through a lending syndicate， R&M’s usual bank said it was wary of lending directly to R&M for the Giant Dam Project because of the potential negative publicity that might result. Another bank said it would provide R&M with its early stage working capital needs on the understanding that its involvement in financing R&M to undertake the Giant Dam Project was not disclosed. A press statement from Stop-the-dam said that it would do all it could to discover R&M’s financial lenders and publicly expose them. Sally told the R&M board that some debt financing would be essential until the first interim payments from the client became available. When it was announced that R&M had won the contract to build the Giant Dam Project，some of its institutional shareholders contacted Richard Markovnikoff，the chairman. They wanted reassurance that the company had fully taken the environmental issues and other risks into account. One fund manager asked if Mr Markovnikoff could explain the sustainability implications of the project to assess whether R&M shares were still suitable for his environmentally sensitive clients. Mr Markovnikoff said，through the company‘s investor relations department， that he intended to give a statement at the next annual general meeting (AGM) that he hoped would address these environmental concerns. He would also，he said，make a statement on the importance of confidentiality in the financing of the early stage working capital needs. (a) Any large project such as the Giant Dam Project has a number of stakeholders. Required： (i) Define the terms ‘stakeholder’ and ‘stakeholder claim’， and identify from the case FOUR of R&M’s external stakeholders as it carries out the Giant Dam Project; (6 marks) (ii) Describe the claim of each of the four identified stakeholders. (4 marks) (b) Describe a framework to assess the risks to the progress of the Giant Dam Project. Your answer should include a diagram to represent the framework. (6 marks) (c) Using information from the case，assess THREE risks to the Giant Dam Project. (9 marks) (d) Prepare the statement for Mr Markovnikoff to read out at the AGM. The statement you construct should contain the following. (i) A definition and brief explanation of ‘sustainable development’; (3 marks) (ii) An evaluation of the environmental and sustainability implications of the Giant Dam Project; (8 marks) (iii) A statement on the importance of confidentiality in the financing of the early stage working capital needs and an explanation of how this conflicts with the duty of transparency in matters of corporate governance. (6 marks) Professional marks for layout， logical flow and persuasiveness of the statement. (4 marks) (e) Internal controls are very important in a complex civil engineering project such as the Giant Dam Project. Required： Describe the difficulties of maintaining sound internal controls in the Giant Dam Project created by working through sub-contractors. (4 marks) (50 marks)
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