TNB, SIPP Energy sign agreement for power plant project in Johor

PETALING JAYA: One day ahead of the deadline to firm up an agreement among shareholders to build and operate a power plant in Pasir Gudang, Johor, Tenaga Nasional Bhd (TNB) and SIPP Energy Sdn Bhd have entered into a heads of agreement (HoA) to undertake the job.

In an announcement yesterday, TNB announced that it had signed a HoA with SIPP Energy to outline the principal terms of the proposed joint venture (JV) to build, own and operate a power plant of approximately 1,000MW to 1,400MW in Pasir Gudang.

TNB said further announcements would be made if required.

The announcement puts to rest questions over the status of Project 4A after YTL Power International Bhd had dropped out of the consortium amidst criticism that the project was awarded on a direct negotiation basis as opposed to the normal competitive tender method.

SIPP Energy is the vehicle of the Johor Sultan, in which he has a 51% stake, while the rest is owned by two company directors – Datuk Daing A Malek Daing A Rahaman (24.5%) and Anuar Ahmed (24.5%).

On May 31, the Energy Commission (EC) had announced that a three-party consortium led by SIPP Energy with the participation of YTL Power and TNB had been conditionally awarded the contract to build a new 1,000MW-1,400MW combined cycle gas turbine (CCGT) power plant in Johor. The power plant is scheduled to be operational in June 2018.

The award was a departure from the norm, where the EC would conduct competitive tenders for the planting up of new power plants.

The condition the EC had stated in awarding the project was that the tariff should be comparable to the 34.7 sen per kilowatt-hour tariff that TNB had offered for the 1,071MW Prai CCGT power plant that the utility company had won in 2012 from a competitive tender.

This gave rise to criticism that subsequently led to YTL Power announcing its withdrawal from the project on June 19.

The reason given was that it wanted to dispel any misgivings over the Government’s commitment to transparency and good governance. Nevertheless, the company said it remained interested in participating in the project on a competitive basis.

The deadline to respond to the conditional offer by the EC lapses today.

TNB’s decision to accept the offer for Project 4A comes as a surprise because its unions had called for a competitive bidding exercise for all large-scale energy generation awards and had voiced opposition to the power company collaborating with YTL Power.

The unions had contended that the direct negotiations would result in an inefficient price discovery process and TNB would eventually end up paying a higher price for electricity.

When TNB was invited to be a part of the consortium, it had said that it needed more time to ponder over the project and its role in it.

In the past, TNB has been a minority shareholder in a number of independent power producers.

At this stage, it is not known what kind of stake TNB would have in the JV.

But analysts said TNB would be the party bringing in the experience and track record to SIPP Energy for the construction and operations of the power plant.

The EC and the Energy, Green Technology and Water Ministry contended that there was a need to award the project on a direct negotiation basis to fast-track the construction of the power plant.