Delay in Tenaga's 70% owned Jimah East Power operations

The commercial operation date (COD) of Jimah East Power Sdn Bhd's (JEP) two 1,000MW ultra-supercritical coal-fired power plant in Jimah, Negeri Sembilan has been delayed.

KUALA LUMPUR: The commercial operation date (COD) of Jimah East Power Sdn Bhd's (JEP) two 1,000MW ultra-supercritical coal-fired power plant in Jimah, Negeri Sembilan has been delayed.

The power plant’s COD was originally scheduled on June 15, 2019 but it has now been delayed owing to some defects detected at the high-pressure turbine during the project commissioning phase. 

Malaysian Rating Corporation (MARC) said on Friday it was informed that remedial works were in progress and JEP expected the power plant to achieve COD within the next three months. 

“At this juncture, MARC views that no rating action is warranted given that the projected cash flow coverage supports its debt servicing ability for a delay of up to three months,” it said. 

Tenaga Nasional Bhd (TNB) owns 70% of JEP while Mitsui & Co. Ltd and The Chugoku Electric Power Co. Ltd hold 15% each.

MARC said JEP was developing the power plant under a 25-year power purchase agreement (PPA) with TNB. Upon completion of construction, JEP will operate the power plant. 
 
MARC affirmed its rating of AA-IS/Stable on JEP’s outstanding RM8.98bil Sukuk Murabahah on March 6, 2019, proceeds of which have been utilised to finance construction of the power plant. 

Commenting on the delay and ongoing remedial works, MARC said at this juncture, no rating action was warranted as the projected cash flow coverage supports its debt servicing ability for a delay of up to three months. 
 
Under MARC’s sensitised scenario of a three-month delay, JEP would be able to comply with the minimum financial service cover ratio of 1.25 times throughout the tenure of the sukuk. 

MARC draws comfort from the credit strength of TNB, a key project sponsor, which has significant strategic and financial interests in the power plant project with the 70% stake.

“JEP is expected to recover the losses in relation to the delay via liquidated damage claims from the engineering, procurement and construction (EPC) consortium,” MARC said. 

The EPC consortium consists of Japan’s IHI Corporation and Toshiba Corporation; South Korea’s Hyundai Engineering & Construction Co. Limited and Hyundai Engineering Co. Limited and Ishi Power Sdn Bhd and TOS Energy Malaysia Sdn Bhd. 
 
“The rating agency will monitor the progress of JEP and take the appropriate rating action if rectification works do not proceed as planned that could lead to a further delay in COD,” it said.