1MDB incurs cost of RM8mil for Project 3B

PETALING JAYA: The consortium of 1Malaysia Development Bhd (1MDB) and Mitsui Co Ltd of Japan had paid less than RM8mil to assemble and submit its bid for the highly sought after Project 3B and not US$100mil (RM325mil) as speculated by a business daily.

1MDB said that it was coming on record to reveal this information to put to rest “baseless insinuations” that it had overpaid to bag the power plant project. The amount, it stated, was also about half the sum other bidders had spent for that stage of the bid.

In a lengthy statement addressing a host of criticisms against it, the fund said: “1MDB would like to state that its consortium paid less than RM8mil to assemble and submit our bid for Project 3B. This is about half the amount a business daily claimed other bidders spent for this stage.

“To our knowledge, no other bidder has come on record to reveal this information because this is confidential business information. We are making this known because we want to put to rest these baseless insinuations. 1MDB did not spend US$100mil to win Project 3B.”

The business daily had reported that the consortium was planning to recover as much as US$100mil in “development costs” that it was said to have incurred in winning the controversial Project 3B tender.

According to the report, the amount would be extracted from the consortium’s 70:30 owned subsidiary, Jimah East Power Sdn Bhd, following the issuance of some RM8.4bil sukuk that is supposed to fund the development, design and construction of the 2x1,000MW coal-fired power plant in Jimah, Negri Sembilan.

In its response, 1MDB said that upon the award, the consortium moved to the next development stage to bring the plant into operation, expected in 2018, and that this development period made up the bulk of the development costs.

It also explained that development costs were what was paid to the project sponsor for the development work done by the sponsor to bring the project to realisation, from the bid process all the way through to the plant operation. 1MDB stressed that it was not a reimbursement cost.

“For project financing in the power industry, development costs typically run to between 5% and 8%. Our development costs – which are inclusive of any development fees incurred by the project partners, 1MDB and Mitsui – are 5.5% of the project cost, which is at the lower end of the scale,” 1MDB clarified.

1MDB said it was confident of its international-style project financing done in close partnership with its international partner Mitsui, one of the largest general trading companies in Japan.

Project financing of this kind where equity is back-ended, is a first for Malaysia but common for large international projects.

1MDB said it would help improve the project sponsor’s equity return, due to the effect of time value of money, as the payment was made upfront rather than from the operational cash flow of the project and that amount was negotiated and subject to lenders’ approval.

“Furthermore, any accusations that our 3B sukuk bondholders will bear any hidden risks are completely untrue and irresponsible. Our bond exercise comes with a bank guarantee which ensures the promoters’ commitment on the injection of equity. The security of cash flow and returns to bondholders is assured,” it explained.

1MDB also refuted suggestions that it received preferential treatment, and that its joint bid for the Project 3B was not as good as that submitted by other participants in the process.

“Any award is based on a number of considerations to ensure secure and cost-effective energy supplies to consumers, for instance: the technical standards of the bid, the track record of the company, the bidding price, the urgency of the project and energy security and the whole systems cost of the bid,” it noted.

1MDB pointed out that the Energy Commission, in awarding the contract, noted that the consortium had won the bidding exercise “in a fair and square manner with a well-proven technology that would enhance security of supply expected of a 2,000MW coal-fired power plant operating in a grid system of our size”.

“It is also worth noting that 1MDB was not successful in other tenders it had participated in, namely the gas-fired Prai plant bid and the 1000MW coal-fired power plant. Both projects went to Tenaga Nasional Bhd, whom the authorities viewed as offering a better package, despite 1MDB offering the lowest bid price for the Prai bid,” 1MDB said.

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