TNB inks deal with SIPP Energy, a private vehicle owned by the Johor Sultan

The national utility company told the stock exchange that SIPP

PETALING JAYA: After two years of uncertainty and negotiations, SIPP Energy Sdn Bhd has finally received the go-ahead from the Government to build a 1,440MW power plant in Pasir Gudang, Johor.

Towards this end, it inked a 21-year power purchase agreement (PPA) with Tenaga Nasional Bhd (TNB) yesterday.

The national utility company told the stock exchange that SIPP’s unit, Southern Power Generation Sdn Bhd, will construct, own, operate and maintain the gas-fired combined cycle electricity generating plant.

SIPP, which is a private vehicle owned by the Johor Sultan, was first awarded the project in June 2014 as part of a consortium with TNB and YTL Power International Bhd to build a 1,000MW-1,400MW power plant.

However, YTL Power and TNB subsequently left the consortium, leaving SIPP to negotiate the deal on its own.

SIPP continued its negotiations, but was reportedly faced with roadblocks in getting the final go-ahead, mainly due to tariff rates.

The company is believed to have sought a tariff rate of about 39 sen per kWh. However, the rate of new concessions has to be benchmarked against the last completed gas-fired power plant.

In this case, Malaysia’s last completed gas-fired power plant was built by TNB in Prai, Penang, and was paid a tariff of 34.7 sen per kWh.

According to an industry source, the tariff rate for the Pasir Gudang power plant is likely to be slightly above the 34.7 sen per kWh benchmark.

This, he said, was in relation to the stronger US dollar, which translates to higher costs for the contractor.

“The Energy Commission makes the final decision on tariff rates and will inform the related parties.

“In this case, the rate is likely to be slightly higher than that of the power plant in Prai, because of the currency exchange rate,” he told StarBiz.

Previous reports, quoting industry sources, stated that SIPP had put in a revised submission of 36.7 sen per kWh after its initial submission of 39.19 sen per kWh was rejected by the Energy Commission (EC).

TNB, in its brief announcement yesterday, said the new plant would comprise of two generating blocks, with each block having a capacity of 720MW and an expected commercial operation date of Jan 1, 2020.

“The PPA governs the obligations of the parties to sell and purchase the generating capacity and, to the extent despatched, the electrical energy generated by the facility.

“The PPA will be for a period of 21 years from the commercial operation date of the first generating block,” said the power giant.

It said the signing of the PPA would not have any effect on the issued and paid-up share capital and the shareholdings of its substantial shareholders.

It added that the PPA would have a neutral impact on its earnings over the term of the PPA.

Back in 2014, the project, dubbed Project 4A, had been awarded directly to the consortium, without going through a competitive bid.

The move raised eyebrows as it went against the general principle in the reform of the energy sector, whereby all power plants are to be awarded based on a competitive tender.

In response, the Energy, Green Technology and Water Ministry (KeTTHA) had stated that the project was directly awarded as it needed to be fast-tracked and brought forward to 2018 from an earlier planned commissioning period in 2020.

It added that there had been an emergency situation on May 7, 2014, during which six states were affected by power outages and TNB had to exercise load-shedding in order to stabilise the system.

YTL Power subsequently pulled out of the consortium due to the misconceptions, leaving SIPP to work with TNB.

However, TNB later confirmed that it had also exited the consortium after their proposal, submitted in May 2015, was not accepted by the EC.

Following TNB’s exit from the project, SIPP was reportedly given a three-month extension to put in its proposal.

In November last year, StarBiz reported that SIPP submitted its proposal for the 4A project with at least two different options for the Government to consider.

The submissions reportedly included revised tariff rates.

They also included a possible increase in the capacity of the power plant.