Mixed views on revision of power pacts


  • Business
  • Wednesday, 28 Jul 2004

BY KATHY FONG

THE government is finding ways to improve the electricity network, starting from power generation to distribution, so that the country can light up the nights at much cheaper rates. 

An area that was highlighted by Energy, Water and Communications Minister Datuk Seri Dr Lim Keng Yaik was in the power purchase agreements (PPAs) that Tenaga Na-sional Bhd had signed with several independent power producers (IPP) prior to the Asian financial crisis.  

Against the backdrop of low interest rates, Lim said it was financially viable to revise the terms of the PPAs that have high internal rates of return (IRR). 

IPPs could achieve cost savings through refinancing their loans at current low interest rates, making it possible for them to maintain profitability, even if the rate of return on PPAs was lower, he explained. 

In addition, Lim said the gas being used for power generation was subsidised by Petroliam Nasional Bhd (Petronas).  

Petronas has spent RM20bil over the last 10 years at RM6.40 per mmbtu paid by the IPPs versus the market price of RM14. About 70% of the power generation capacity is being fuelled by gas.  

IPPs came into the picture following the nationwide power blackout on Aug 3, 1996. They were brought in to improve the country's power generation so that rising electricity demand could be met.  

The government approved licences to seven IPPs and the first IPP to be listed on Bursa Malaysia was Powertek Bhd, which has since been taken private by Tanjong Plc Ltd. 

Back then, the IPPs were greenfield projects with no prior operating history. Due to their capital-intensive nature, a highly predictable revenue and cash flow stream was crucial to the credit quality of IPPs. It was not an easy task to obtain financing. 

Nonetheless, a PPA that promised an IRR of more than 15% would definitely be ”good collateral” for the IPP to raise funds for the construction of power plants.  

Their steady income stream has made IPPs appealing to investors especially when economic conditions turn unfavourable. 

No doubt IPPs are making good profit and have built up large cash reserves over the years while they ironed out the old problems in power generation.  

But is the strong profit a valid reason to revise the terms of the PPAs? 

Talk of revising the PPAs has left investment analysts puzzling over whether the authorities could and would do so. PPAs are legally binding documents and both parties have to honour the terms and conditions laid out.  

Tenaga Nasional Bhd chairman Datuk Amar Leo Moggie said at a luncheon last week that the PPAs could be revised with mutual agreement. Yesterday, he also indicated that TNB was keen on revising the terms of PPAs. Some analysts commented any revision on those contracts might not look good for the government, in terms of honouring agreements.  

“This will discourage companies from taking up greenfield projects,” said a research manager from a stockbroking house. 

Apart from trimming the purchase cost of IPPs, Lim also sees the need to enhance the efficiency of electricity transmission and distribution, in which TNB is playing a dominant role.  

Lim said TNB should tackle the problem of illegal tapping and improve the billing system to reduce receivables.  

“South Korea, which is sourcing gas at RM14 per mmbtu from Malaysia, can supply electricity at more competitive rates than Malaysia. Something must have gone wrong somewhere here,” quipped Lim when commenting on the energy sector. 

 TENAGA :  [Stock Watch]  [NewsYTLPOWR :  [Stock Watch]  [NewsMALAKOF :  [Stock Watch]  [NewsPOWERTK :  [Stock Watch]  [NewsSIME :  [Stock Watch]  [News]


Article type: metered
User Type: anonymous web
User Status:
Campaign ID: 7
Cxense type: free
User access status: 3
   

Across The Star Online