TNB yet to decide on Johor project
Tenaga Nasional Bhd (TNB) has yet to decide on jointly developing Project 4A, a power plant with a capacity of between 1,000 and 1,400 MW to be constructed in Pasir Gudang, Johor, scheduled to be operational in June 2018.
In a statement to Bursa Malaysia yesterday, TNB said it had received a conditional letter of award from the Energy Commission (EC) and had been given until July 25 to respond to the offer.
“TNB is currently evaluating the offer as well as TNB’s role in the project. TNB shall make further announcements once a decision has been made,” the statement said.
Meanwhile, in a separate announcement, YTL Power International Bhd confirmed that it had received a letter of award from the EC for the development of a 1,000-MW combined-cycle power plant.
The proposed combined-cycle gas turbine (CCGT) power plant, which is a fast-track development known as Project 4A, has been awarded to SIPP Energy Sdn Bhd, with the participation of YTL Power and TNB as consortium members. It is reported that SIPP Energy is linked to the Sultan of Johor.
The inclusion of all three parties under a consortium and the award, the EC said, was based on their ability to offer “competitive rates” in the recently concluded tender exercise. The EC, however, did not disclose any details on the tariff and shareholding structure of the consortium.
While analysts are positive on TNB securing Project 4A together with other parties, they opined that it was another step backward in the EC’s commitment to reforming the power industry.
“Although TNB has been a beneficiary in the award of Project 4A, the process of direct negotiation is another step backwards in the EC’s commitment to reforming the power industry with an emphasis on transparency and meritocracy,” PublicInvest Research said in a report.
StarBizWeek had reported last week that the new power plant would be awarded based on a direct negotiation basis, and that the benchmark for Project 4A was the 34.7 sen per kilowatt-hour (kWh) tariff of the new 1,071-MW Prai CCGT power plant.
On the same day, the EC offered “a conditional award” for the development of a new power plant in Johor to a consortium made up of all three prominent bidders of the project.
PublicInvest pointed out that all eyes will be on the upcoming tariff review in mid-2014. It said if a tariff review failed to materialise, then TNB might need to absorb the extra costs incurred by the increased gas generation and higher liquefied natural gas prices of RM45 per million metric British thermal units (mmBtu) as opposed to RM41.68 per mmBtu provided in the last tariff revision in December 2013.
“We estimate the project will cost between RM2.5bil and RM3.5bil, based on the cost of the Prai CCGT power plant which TNB won in 2012. While the tariff has not been disclosed, the EC has stated that the award was conditional upon a comparable levelised tariff, with the Prai CCGT’s winning bid of 34.7 sen per kWh as reference,” it noted.
Nonetheless, PublicInvest believes that earnings contribution to TNB, while positive, will not be significant, given the joint-venture structure of the project and TNB’s generation capacity which will be close to 15,000 MW by 2018.
RHB Research said the announcement came as a surprise, given that the EC chairman Datuk Abdul Razak Abdul Majid had earlier reaffirmed that the award of Project 4A would be done on an open bidding practice.
“While this came as a surprise, we believe the inclusion of TNB as part of the consortium should help to ensure the interest of the national utility company,” it said.
Nonetheless, it said the latest decision came after the EC’s move to bring forward the operational date of Project 4A to 2018 from 2020. “To accelerate the implementation, we deem this a necessary move,” the research house said.
RHB Research estimates the project’s internal rate of return (IRR) at around 10%-12%, against the usual high single-digit returns under an open bidding environment.
Meanwhile, Hong Leong Investment Bank Research was positively surprised with the inclusion of TNB into the equation, which acts as the check-and-balance party to ensure the new power purchase agreement (PPA) only earns a justifiable return on investment or equity.
It noted that the IRR for the Prai CCGT is expected at around 8%, substantially lower than the first-generation PPAs’ of more than 15%. It added that based on an IRR of 8%, the new PPA is expected to provide a value-add of RM240mil.
“However, no detail of the equity stake breakdown was provided. Should we assume similar stakes by each party, then TNB and YTL Power will enjoy an additional RM80mil (in revenue) or 14 sen per share and 10 sen a share, respectively,” it said.
