YTL Power seeks arbitration against Petronas

YTL Power International Bhd has launched an arbitration action against Petroliam Nasional Bhd (Petronas), claiming some RM750mil in overpaid gas prices, sources say.

YTL Power is said to be basing its claim on its 1994 gas supply agreement with Petronas.

The sources also said that Petronas, in response to the suit by YTL, has filed a counter claim against the latter, claiming that it is YTL that owes Petronas for buying gas at prices below what was agreed previously.

Sources say the case has gone to arbitration in London, with both sides having appointed their respective representatives, who are well-known British based arbitrators.

Both YTL and Petronas did not respond to questions.

Documents that will be cited in the case are said to be the 1994 power purchase agreement (PPA) and gas supply agreements and subsequent revisions to those agreements.

YTL Power was the first independent power producer (IPP) in the country, having inked its power purchase agreement (PPA) back in 1994 for its Paka, Terengganu and Pasir Gudang, Johor power plants.

YTL is said to have originally inked a gas supply agreement in which it was to purchase gas at a rate that was below what other IPPs were to get.

Subsequently, following the 1997 financial crisis, adjustments were made to fix the gas supply price at RM6.40 per mmbtu (million British thermal units), for all the power producers in the country. Also the gas price was to be the responsiblility of Tenaga Nasional Bhd (TNB) and the IPPs are to generate power.

Notably, YTL Power’s PPA, being the first, had several clauses to ensure it was bankable. Among which is a take-or-pay clause, which compels TNB to take 74% of the power that YTL’s plants generate.

It is understood that the post-1997 gas supply agreements meant that YTL no longer enjoyed that special “discount” that it had secured via its 1993 agreements with the Government, and it is this “additional” amounts that YTL had paid, for which it is claiming back.

YTL operates two combined-cycle, gas-turbine power plants in Paka (808 MW) and Pasir Gudang (404 MW).

The concessions for both power plants end in September 2015.

YTL Power had also been in the news of late for its attempt to win the highly sought-after award from the Government to build a new 2,000 MW coal-fired power plant dubbed Project 3B.

YTL Power had teamed up with the Sultan of Johor, Sultan Ibrahim Sultan Iskandar, via SIPP Energy Sdn Bhd, to bid for the RM11bil project. However the YTL-SIPP consortium lost out to the government-backed 1Malaysia Development Bhd (1MDB) for the award, despite putting in a lower bid.

Government officials have since clarified that the YTL-SIPP group was not chosen due to technical reasons, mainly because the technology it was going to use for the project was not one which was tried and tested.

The next power plant to be commissioned by the Government will be Project 4A, which is a combined gas turbine plant with a capacity of 1,100MW to 1,400MW. A media report recently indicated that the Government has decided to conduct this award on a privately negotiated basis.

The same report speculated that the Sultan of Johor may opt not to partner with YTL for this project but rather team up with a government-backed entity such as 1MDB or TNB.