TENAGA Nasional Bhd (TNB) has taken from 1Malaysia Development Bhd (1MDB) the mandate to build the 2,000MW coal fired power plant that has been delayed.
According to sources, engineers from Toshiba Corp, IHI Corp and the Hyundai Group – the consortium that won the engineering, procurement and construction contract for the project - were already at the headquarters of TNB as part of the latter’s assessment of the project.
Sources tell StarBizWeek that TNB’s participation in the 2,000MW coal-fired power plant project in Jimah, Negri Sembilan, is certain, as the national utility has also started talks with Mitsui Co Ltd, which has a 30% stake in the project.
It is learnt that TNB was given the approval to take over the project because the job needed to get off the ground fast as the EPC contract has already been awarded and the equity has to start coming in imemdiately.
In this respect, it is learnt that TNB will set aside some RM500mil as equity to start the RM11bil project as soon as possible.
TNB declined to comment when contacted.
There is still no word from the Energy Commission (EC) over its resolutions for Project 3B.
The silence by EC, the electricity and gas supply industry regulator, on the status of project 3B which is also called Jimah East is rather perplexing.
Cash-strapped 1MDB won the project with its consortium partner Mitsui in a controversial open tender last March. But it faced difficulties in undertaking the project that was estimated to have an internal rate of return of only 6%.
1MDB owns a 70% stake in Project 3B, which is scheduled for commissioning in stages from Oct 1, 2018.
The EC did not respond to StarBizWeek’s queries.
Since 2011, the EC has dished out around 4,000MW of coal-fired power plant projects to be commissioned by 2018/2019 to meet the country’s future electricity requirement.
But with Project 3B, which accounts for half of that planned new capacity, not progressing as scheduled, it is highly likely that not all of the 4,000MW will come onstream as planned unless drastic actions are taken to rectify the situation.
The award of Project 3B, which is valued at RM11bil, to 1MDB-Mitsui was contentious.
The 1MDB-Mitsui consortium won the project in March 2014 at a levelised tariff of 25.33 sen per kilowatt hour (kWh), ahead of early favourite YTL Power International Bhd and its joint venture partner SIPP Energy Sdn Bhd, that offered a lower levelised tariff of 25.12 sen/kWh.
The EC had explained that the YTL-SIPP consortium had lost the bid to 1MDB-Mitsui on technical grounds.
But 1MDB has difficulty taking the project off the ground due to cash flow problems; hence, the need for TNB to step in.
The Government has to ensure that Project 3B takes off as the country needs the electricity – and at the lowest cost.
The Energy, Green Technology and Water Ministry (KeTTHA) had said last June that Malaysia’s average actual operating reserve was a mere 8.9% or 1,510MW.
Meanwhile, TNB has on its plate one project that has been delayed, as it has yet to firm up a shareholders agreement with its consortium partner SIPP Energy for Project 4A, which is a contract to build a new 1,000MW-1,400MW combined cycle gas turbine power plant in Johor.
It was reported that the EC had given an extension for TNB to submit its documents on Project 4A.
There have also been reports stating that the joint venture is seeking a higher price for supplying electricity compared with the previous power plant rates awarded on competitive basis.
If this report is true, the EC and KeTTHA would then be subjected to questions as to why the project was awarded through direct negotiations when a competitive tender could have resulted in better rates.
It was in the name of urgency that Project 4A bypassed a competitive bidding exercise, going against the general principle in the reform of Malaysia’s energy sector, and was awarded directly to the consortium comprising TNB, the Johor Sultan’s private vehicle SIPP Energy and YTL in June 2014.
YTL Power subsequently pulled out of the consortium because of the misconception on the way the project was awarded.
In justifying the award of Project 4A on a direct negotiations basis, and pacifying concerns of unreasonable tariffs, the EC and KeTTHA have stated that the rates offered by the participating consortium will have to be comparable to the 34.7 sen per kWh benchmark set during the 1,071MW Prai Power plant tender exercise. This is because the power plant under Project 4A is supposed to have similar specifications as the Prai Power plant.
It remains to be seen whether Project 4A can match the benchmark tariff rate set during the tender exercise for Prai Power plant in 2012. Be that as it may, the EC will surely have to address concerns about the ongoing delay in two crucial power projects for the country.