Developing a Negotiation Framework for Post-Acquisition Operating Lease Agreement (OLA) Contract in Solar Energy Project: A Strategic Transition for Taeyang Energy

Taeyang Energy is a well-known Korean solar energy developer in Indonesia, faces the challenge while doing the business expansion with the M&A structure due to high dependency on Joey, the previous CEO, for their previous all-OLA contract negotiations. This study aims to understand the current negotiation process that is used by Joey and also to structure the negotiation framework for Taeyang Energy post-acquisition. This study implements the single method of qualitative approach by getting insight from interviews with Joey as Taeyang Energy’s previous CEO and also some OLA contract practitioners on the solar energy business. The qualitative findings reveal some of the negotiation processes in dealing with the OLA contract negotiation. The results indicate that Joey has specific negotiation stages for the OLA contract negotiation at Taeyang Energy which consist of initial due diligence, commercial proposal submission, contract drafting and initial explanation, and request client’s feedback on the proposal. The 3D Negotiation offers a practical and comprehensive negotiation framework, considering three dimensions of negotiation: Setup, Deal Design, and Tactics that has been categorized based on the thematic analysis result of the interview excerpts. This study highlights the key success of OLA contract negotiation for Taeyang Energy and will drive the company’s sustainable growth and increase the independence of the new team for post-acquisition. However, the research also acknowledges limitations such as the effectiveness of this framework has not been tested yet. Future research direction is proposed to address the limitation such as measuring the success of the contract using the quantitative approach.

Introduction

RE100 (Renewable Energy 100%) is the global initiative for companies in the Commercial and Industrial (C&I) sector to commit to using 100% renewable energy in their operations. With the pressure from RE100, many factories are competing to switch to renewable energy immediately. Considering many members of RE100 that have operations in Indonesia, this opens a very broad opportunity to develop solar energy projects in Indonesia, especially for companies that already have factories in Indonesia, are usually interested in building new factories because the labor costs in Indonesia are quite cheap, so the opportunity for solar energy is increasingly widespread. Taeyang Energy sees it as the huge potential for their business. Therefore, Taeyang Energy uses this opportunity and becomes one of the solar energy developers in Indonesia that focuses on building projects for the Commercial & Industrial (C&I) sector.

Taeyang Energy was established in November 2019 by a South Korean son, Joey, his father, and a friend. With a firm Korean background, and recognize a lot of Korean RE100 members that operate in Indonesia, the company collaborated with the financier to develop the project. With the potential for the RE100 factories in Indonesia being very high that are interested in solar energy, Joey thought the plan to scale up the business. But to scale up the business, Taeyang Energy needs to secure the funding. One of the financiers of Taeyang Energy heard the news about the plan to scale up the business. The financier is based outside Indonesia but still in the Southeast Asia region. The plan and challenge of Taeyang Energy were used as opportunities and chances by the financier. Joey and the other shareholders agreed that the company to be acquired. Approaching the end of last year, the company began the process for the acquisition.

Business Issue

After post-acquisition, Joey’s role might be very limited in Taeyang Energy, while all projects are owned by Taeyang Energy, Joey plays an important role in securing projects that are none other than obtained from his success in negotiating the Operating Lease Agreement (OLA) Contract with clients. After the acquisition process, the new shareholders want a new management and team structure. The new shareholders also have a pipeline target to have a 50 MW project over the next 1 year. They stated that they are ready to provide the required project funding. However, preparing funding is meaningless if the project to be developed does not exist. Considering the desire of the new management to form a new independent team, as well as the pipeline target this year, a negotiation framework for the OLA contract is needed, because without this framework, Taeyang Energy will have difficulty getting new projects even though funding for the project is available.

With the new pipeline target of Taeyang Energy post-acquisition, but with the limited role that Joey can have, it is required to understand the current OLA contract negotiation process that was performed by Joey. To achieve the target of the solar energy project and installation, a new negotiation framework is required based on the current process that Joey has done. The question arises from the business problem described in the following question:

1. What is the current process of the OLA contract negotiation at Taeyang Energy?

2. What would be the most suitable negotiation framework for Taeyang Energy post-acquisition?

Theoretical Foundation

To build a comprehensive approach to developing a negotiation framework for the post-acquisition OLA contract of a solar energy project in Taeyang Energy, this research will use a multidisciplinary approach such as a review of relevant literature through academic journals and books. The problem exploration will be performed using the Five Whys analysis, while the critical part of this research will be on the development of the negotiation framework as the approach to creating a suitable negotiation framework post-acquisition. By incorporating these theoretical perspectives, this research will create a comprehensive negotiation framework of OLA contracts that is both academically and practically applicable.

Five Whys Analysis

Understanding more about the problems that hinder the plan to scale up the business of Taeyang Energy and overcoming the challenge in the post-acquisition management transition, required a deeper analysis. One of the appropriate methods to dig deeper into the root cause of this situation is using the Five Whys analysis. According to Andersen and Fagerhaug (2006), Five Whys can be used to delve ever more deeply into the levels of causes. The purpose of the Five Whys analysis is to constantly ask “Why” when a cause has been identified, thus progressing through the levels toward the root cause.

Using this approach, the challenges of scaling up the business and the company’s dependence on Joey after the acquisition are structurally verified. This analysis can help structure the conceptual framework to guide effective problem-solving for the current issue.

3D Negotiation Framework

According to Pfrang and Wittig (2008), as a rule of two parties that participate in lease contract negotiation, there will be the potential tenant and the party of the landlord. In this regard the relation between a landlord and potential tenants can be characterized as a conflict situation that aims at establishing a tenancy contract. One of the tools that can be used to create the negotiation framework is the 3D Negotiation approach. According to Sebeniuset al. (2021), the 3D Negotiation framework analyzes negotiation in terms of three distinct but intersecting dimensions: the first dimension, or “1D,” the “at-the-table” interpersonal tactics focused on people and process; the second dimension, or “2D,” the type of deal design “on the drawing board” that helps to create sustainable, value-creating agreements; and the third dimension or “3D,” encompassing setup moves “away from the table” that help to put in place a favorable scope, sequence, and overall environment conducive to reaching one’s target deal.

The same statement was also stated by Lax and Sebenius (2003), three barriers prevent successful negotiations: tactics, deal design, and setup. Many negotiators and much of the negotiation literature fixate only on the tactics and deal design. Common problems in the often-neglected third dimension include negotiation with the wrong parties or about the wrong set of issues, involving parties in the wrong consequence or at the wrong time, as well as incompatible or unattractive no-deal options. 3D Negotiators, however, reshape the scope and sequence of the game itself to achieve the desired outcome.

According to the Table I above, the first dimension focuses on the interpersonal skills and tactics “at the negotiation table.” At this dimension, the stage is to foster a more effective process, enhance relationships, develop cultural sensitivity, and make better moves and countermoves. The second dimension stresses the deal and value creation stage. It adds the art and science of diagnosing value, both economic and nanoeconomics, and crafting agreements that unblock the value on a lasting basis. The last dimension confronts an often-overlooked aspect, “moves away from the table” to ensure the most promising setup, ensure that the right parties are dealing with the right issues, in the right sequence, and facing the right walkaway options.

Table I. The 3D Negotiation Framework (source: Lax & Sebenius, 2003)

	Focus	Common barriers	Approach
1-D	Tactics (people and processes)	Interpersonal issues, poor communication, “hardball” attitudes.	Act “at the table” to improve interpersonal processes and tactics
2-D	Deal design (value and substance)	Lack of feasible or desirables agreements	Go “back to the drawing board” to design deals that unlock value that lasts
3-D	Setup (scope and sequence)	Parties, issue, BATNAs, and other elements don’t support a viable process or valuable agreement	Make moves “away from the table” to create a more favorable scope and sequence

The development of the 3D Negotiation Framework did not emerge spontaneously; however, it is the result of a systematic process that combines practical experience, field testing, and deep academic studies. Some quotes from the book written by Lax and Sebenius (2006) strengthen the basis and validity of this approach:

• The framework was structured after systematically analyzing negotiations and teaching it to senior executives, top government officials, and MBAs at Harvard and worldwide (Lax & Sebenius, 2006).

• 3D Negotiation is based on field testing and rigorous academic scrutiny (Lax & Sebenius, 2006).

• The 3D Negotiator plays a more complete game than either the old-school win-lose negotiator, the trendy win-win negotiator, or their many close cousins who cluster around the bargaining table. The 3D Negotiator plays the whole negotiating game rather than just the at-the-table part of it (Lax & Sebenius, 2006).

• This method has been time-tested and yet almost brand-new in its focus, offering a powerful, practical method to prepare for and carry out the negotiation (Lax & Sebenius, 2006).

Conceptual Framework

Adopting the IPO model by Subiyakto and Ahlan (2014), the proposed framework for addressing the development of the negotiation framework of the OLA contract for post-acquisition Taeyang Energy comprises two components: Five Whys Analysis and Development 3D Negotiation Framework.

Fig. 1 shows with the plan to scale up the business and management transition due to the acquisition process, the process that can be performed to tackle the business issue is by performing the stakeholder analysis using Five Whys Analysis and Developing a 3D Negotiation Framework, as the result is the new Negotiation Framework that can drive sustainable growth. Taeyang Energy can have a new independent team for post-acquisition.

Fig. 1. Conceptual framework.

Methodology

Basic research methodology is required for effective writing and publication, it will give a comprehensive guide to research methodology, focusing on essential topics such as literature reviews, data collection and analysis, and ethical consideration. It shows the importance of a well-structured research design, offering practical strategies for formulating research questions, selecting appropriate findings, and interpreting findings (Adeoye, 2024). Research methodology is an approach to describe the problem of the research. It will be used to identify not only the research methods or techniques but also the methodology (Swarooprani, 2022).

Fig. 2 is the reserach design of this study. The initial stage of the research is identifying the business problem. To elaborate on the business problem, the Five Whys analysis will be performed and the result will be verified by interviewing the Taeyang Energy internal team. Following the Five Whys Analysis, the data collection will use the qualitative research methodology by interviewing the Joey and some OLA practitioners through semi-structured interviews. The interview will be divided into two sections, the first is to know the current negotiation practice at Taeyang Energy, second interview will be done with the OLA contract practitioners. The data that have been obtained during the data collection process will be analyzed using thematic analysis and the result will be use to categorize the dimensions of 3D Negotiation analysis to structure the 3D negotiation framework that involves three dimensions consisting of the Setup, Deal Design, and Tactics.

Fig. 2. Research design.

Results

Starting with the Five Why Analysis and its verification through the interview with Taeyang Energy’s CEO to verify the analysis that has been conducted, with the second part of the analysis is analyzing the interview results to know the current negotiation process at Taeyang Energy. Also, the interview result with Joey and with the practitioners will be used to structure the negotiation framework post-acquisition for Taeyang Energy.

Five Whys Analysis

The finding from the Five Whys analysis indicates that within the company negotiation process is heavily relied on by the CEO. The other thing that can be a cause of this situation is there is no separate legal team that handles the OLA contract negotiation process. This condition is also exacerbated due to the absence of the negotiation framework.

Difficulty in expanding project portfolio:

• Why? – Heavy reliance on CEO for negotiations

• Why? – No dedicated negotiation or legal team

• Why? – No structured or duplicated negotiation process

• Why? – Lack of organizational development post-acquisition

• Why? – No established negotiation framework

According to interview for Five Whys Analysis verification that was conducted with Taeyang Energy’s CEO, it can be concluded that the OLA contract negotiation process for the project development heavily relies on him. It is shown based on his statement which mentioned that it is always better to have decisions made to be part of the contract’s negotiation, and he handled the most key contract terms negotiations. It is also verified that the company does not have a separate legal team so the workload is not optimally distributed. The company also lacks the documentation on the negotiation process, while until now the understanding of the commercial necessary bankable projects is heavily dependent on the CEO’s experiences. Regarding the M&A structure, the organization’s development will depend on the available funding from the new shareholders to hire more expert people. These findings have been verified to confirm that Taeyang Energy urgently needs the OLA contract negotiation framework for the company’s sustainability.

Current Negotiation Process Summary

Referring to the current negotiation process interview result and to answer the first research objective to summarize and understand the negotiation process used by Joey for the OLA contract, the process can be summarized into the following stages:

1. Initial Technical Due Diligence: The technical due diligence was performed on-site for a brief feasibility study on how many solar systems can be installed. This stage is very important to indicate what is the potential number that will be used on the OLA contract, it will also be used to calculate the expected construction price and the expected return.

2. Commercial Proposal Submission: Once the due diligence process has been done, the next step is drawing the commercial proposal. Once the number on the commercial proposal has been cleared, the numbers will be used to structure the contract draft.

3. Contract Drafting and Initial Explanation: After the contract draft has been received by the client, it is mandatory to explain to the client how the contract was structured to explain what is the commitments that the client is making and what is the risks that Taeyang Energy is taking.

4. Client’s Feedback and Revision: After the contract’s structure has been understood by the client, then the client will be able to say what is their concern and request, this stage is where the negotiation is started because it will lead to the clause modification or adjustment.

3D Negotiation Framework Analysis

This analysis is structured based on the result of thematic analysis of the interview result that has been carefully categorized into three dimensions of the 3D negotiation framework, it consists of Setup, Deal Design, and Tactics. This approach is allowing the identification of the main aspect based on the interviewee in the practical of OLA contract negotiation for the solar energy.

The result of the thematic analysis has been structured into a 3D Negotiation Framework, which categorizes the aspects into three dimensions: Setup, Deal Design, and Tactics, as presented in Table II. In the third dimension, the main focus is on scope and sequence. The aspect related to this dimension involves approaching the Korean HQ as the foundation for conducting local negotiations with the client’s team in Indonesia. If approaching the Korean HQ is not possible, then leveraging the Korean angle will be the best option.

Table II. 3D Negotiation Framework Result

	Focus	Themes
3-D	Setup (scope and sequence)	• Approach to Korean HQ as the Foundation of Local Negotiations • Leverage the Korean Angle
2-D	Deal Design (value and substance)	• Share Social Purpose to Tackle Climate Change Together • Clients as Partners, Not Opponents in Negotiation
1-D	Tactics (people and processes)	• Intensive Legal Mind Training for Internal Team • Maintain a Positive Attitude During the Negotiation

Discussion

To drive the company’s sustainability growth and create new independence for Taeyang Energy post-acquisition, the company could apply the 3D Negotiation framework (Setup, Deal Design, Tactics) as the main strategy to arrange and conduct the OLA contract negotiation. The whole practical negotiation strategy and framework that can be applied by Taeyang Energy are as follows.

1. Setup:

• Approach to Korean HQ as the strong foundation to conduct the comfortable and open negotiation process with the local team in Indonesia by getting the “green light” from the HQ.

• If approaching the Korean HQ is not possible, leverage the “Korean angle” by showing a successful track record with other Korean companies in Indonesia since Korean companies in Indonesia tend to have strong informal communication networks and give reference to each other.

2. Deal Design:

• Share social purpose to tackle climate change together, and explain to the customer that from the honest heart, the company does the business for the next generation and for making Indonesia better by improving Indonesia’s overall energy mix.

• Involve the client as the partner, not the opponent in negotiation and the company needs to keep a high commitment to educating and guiding the client to understand the content and structure of the contract considering the clients are very unfamiliar with the OLA contract.

3. Tactics:

• Have intensive legal mind training for the internal team to ensure that the team is knowledgeable enough to give confidence to the clients and can communicate with the client’s lawyer team.

• Maintain a positive attitude during the negotiation process. The strategy starts with “Yes, we will look into it” rather than saying “No, that does not make sense”. If at the end of the day, it is something that cannot be accommodated, then the company will come back to the client and say “We have tried our best, but there is a limit to what we can do.”

Conclusions and Recommendations

Based on the analysis result, in doing the OLA contract negotiation, considering that Taeyang Energy’s segmented market is blue-chip Korean companies in Indonesia, in the Setup stage, the company should approach to Korean HQ as the foundation to conduct local negotiations with Korean client in Indonesia, if approaching the Korean HQ is not possible, the company should leverage the “Korean angle” by showing the successful track records with other Korean companies. In the Deal Design stage, the company should share the social purpose of tackling climate change together with the client and see the clients as the partners, not the opponents in negotiation. In the Tactics stage, the company should have intensive legal mind training for the internal team and maintain a positive attitude during the negotiation process. This study highlights the key success of OLA contract negotiation for Taeyang Energy and will drive the company’s sustainable growth and increase the independence of the new team for post-acquisition. However, the research also acknowledges limitations such as the effectiveness of this framework has not been tested yet. Future research direction is proposed to address the limitation such as measuring the success of the contract using the quantitative approach.

Conflict of Interest

Conflict of Interest: The authors declare that they do not have any conflict of interest.