JAKS to build RM7bil power plant in Vietnam with China partner

Power pact: (from left) Goh, JAKS CEO Ang Lam Poah and CPECC assistant to president/director of international department Xue Danfeng at the JV signing ceremony.

KUALA LUMPUR: Pipe-maker JAKS Resources Bhd will partner China Power Engineering Consulting Group Co Ltd (CPECC) in a 50:50 joint venture (JV) to build a power plant in Hai Duong province in Vietnam for US$1.87bil (RM7.05bil).

The project, which will be facilitated via JAKS unit – JAKS Power Holding Ltd – will see the JV company (JV co) called JAKS Hai Duong Power Company Ltd constructing two 600MW power-generation units that will begin construction in the first half of next year, with completion planned for 2020.

The concession will be for over 25 years on a build-operate-transfer (BOT) basis, and after the expiry of the term, the JV co will transfer the power facility with the attached assets to the Vietnamese government at no charge.

The JV co has also entered into a power purchase agreement with Vietnam Electricity and a coal supply agreement with the Vietnam National Coal-Mineral Industries Group for the duration of the BOT period.

“We expect to see good returns from this JV. The terms are favourable and all pass-throughs have also been built into the agreement. However, the implementation has also got to be efficient so that the returns will come,” JAKS Power’s executive chairman T.H Goh told a press conference yesterday. The project will be funded on a 75:25 debt-to-equity structure and will involve an equity commitment of US$140.1mil (RM528.8mil) from JAKS that will be met via a combination of both internal and bank borrowings.

It will involve JAKS Power and CPECC each subscribing for 140.1 million shares in the parent of the JV co called JAKS Pacific Power Ltd, and CPECC an additional 186.9 million redeemable convertible preference shares at a subscription price of US$186.9mil (RM705.1mil).

“We expect our operating cash flow to be healthy over the next few years. During the project’s execution, JAKS will be able to also recognise an additional revenue from its participation in the engineering, procurement and construction contracts (EPCC) from the JV co,” JAKS chairman Tan Sri Hussin Ismail said.

Goh also said that the 50:50 JV would be treated as an associate company in its financial statements.

“If we can achieve better-than-expected returns, we could see more than US$150mil (RM571.15mil) in annual recurring revenues, while recognising a bottom line performance from this venture,” Goh said. “In terms of technology and EPCC, it will be from JAKS, while in terms of the design and technicality of the plant, CPECC will lead the way. Our experience and understanding of the Vietnamese culture is also key, given the historical linkage between China and Vietnam,” he added.