Resolutions in the power sector
FOR the last few years, the energy sector has been thrust into some level of uncertainty and some would even argue, chaos.
Despite the country having laid out a detailed future energy plan, the government decided to embark on a direct negotiation awarding process rather than the best practice of competitive bidding.
As a result, there were hiccups. One major award, for a project dubbed 4A, originally slated for commercial operation next year, saw its consortium shareholders fall out with each other. It was awarded back in 2014 and since then, there was little sign of the project kicking off. However, a week ago, 4A got a boost when Tenaga Nasional Bhd (TNB) acquired a 51% stake in the operating company for the power plant, namely, Southern Power Generation Sdn Bhd (SPG) for RM51.
Then this week, YTL Power International Bhd and TNB said they have finally reached an agreement to extend the operations of the former’s power plant in Paka, Terengganu.
This is in relation to an older power plant, awarded to YTL Power back in 2015 under the short-term capacity bid for the supply of 585MW. The Paka plant should have begun firing since March 1, 2016.
The plant, however, sits on TNB’s land and there were problems with both parties working out a lease extension although the power plant itself has been granted an extension by the government.
With both the 4A and this plant seeing some resolution, it is a positive development in the energy sector. More needs to be done. And secondly, the process of direct negotiations should be halted.
In August 2016, another direct award was given to Tadmax Resources Bhd for the development of a 1,000MW combined cycle gas turbine plant. The award raised questions, as Tadmax had no track record in developing power plants. Tadmax is primarily a property company. It is left to be seen if this project will also need a resolution of sorts before it takes off.
THIS week, Works Minister Datuk Seri Fadillah Yusof revealed that two toll concessionaires are facing the risk of bankruptcy and have sought help from the federal government.
Fadillah also revealed that another concessionaire was in the midst of restructuring its company to avoid facing the same problem. In fact, the minister pointed out that only five highway routes in the country are able to generate profit. So, what is the problem? Could it be that too many highway concessions had been dished out in Malaysia?
It does seem as if Malaysia has a very high number of tolled roads for a country of our size. Still roads are needed to be built.
The problem is concession holders have a balancing act to perform – they have to raise huge debt to build their highways and hope that there would be sufficient toll collections to cover the debt repayments. On the other hand, the public often feels that it is getting the raw end of the bargain when toll rates go up. It does seem as if we have not figured out a solution that is equitable to the concessionaires, the financiers as well as the consumers. Going forward, more highways are being built. But so too are rail networks, namely, the planned high-speed rail and East Coast Rail Line.
Once these are built, they would take a chunk off highway usage. How will that impact highway concessionaires? The good news is established highways have become an investment choice of large investment funds in Malaysia such as the Employees Provident Fund. The trick is to get the highway into an operationally efficient state and to do that, the concessionaire has to get his costing and projections right.
Will changes happen in Proton?
The battle for national car manufacturer Proton Holdings Bhd seems to heading the way of China.
According to latest news, China’s automobile manufacturer Zhejiang Geely Holding Group Co is looking at taking a minority stake in Proton and a majority stake in Proton’s subsidiary, Lotus Group.
The report stated that the board of DRB-Hicom Bhd, the owner of Proton, is slated to discuss the matter next week.
Going by the way DRB-Hicom shares have been on the rise in the past few days, the news probably has some credence. After all, there is no smoke without fire.
However, the bigger question that looms is whether the changes in the shareholding of Proton would lead to a transformation of the national car manufacturer.
If Geely were to take a minority stake in Proton, would it have the clout to bring about the much-needed changes in the company? Would it be able to improve the technology of Proton cars that would enhance its brand appeal?
These are nagging questions that ordinary Malaysians would like to see answered, as they aspire for the national car manufacturer to sustain its operations in the highly competitive automobile sector without financial assistance from the government.
Proton’s problem is two-fold. Its cost of production is high because it has not achieved the economies of scale required for car manufacturers to sustain operations.
And because it does not have the volume in production, its vendors also suffer. At the end of the day, the product does not command a premium position in the market.
As for Lotus, it is easy to see why the Chinese want to buy a majority stake in the United Kingdom car engineering company. Lotus cars are well sought-after in China and it only makes sense for Geely to pay a premium for it.