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It seemed like a perfect fit — Tenaga Nasional, Sarawak Energy and the Sarawak and federal governments pooling their resources to manage Bakun, Southeast Asia’s biggest hydroelectric dam. However, recent events have made it clear that the tussle for Bakun’s power is far from over.

At a recent Sarawak investment event, a seasoned politician was overheard congratulating his younger peer for finally deciding where the power from the mammoth Bakun Hydroelectric Dam would go — to meet the needs of the state in creating an energy-intensive industrial hub called the Sarawak Corridor of Renewable Energy (SCORE).

Even though the comment was made on the sidelines, it was a strong signal that Tenaga Nasional Bhd’s hopes to get cheap power from Bakun were not a certainty despite promises over the past two years that power from the biggest hydroelectric dam in Southeast Asia would go to the peninsula.

However, just as quickly as news alluding that Tenaga will probably not get cheap power from Bakun made the headlines, the Sarawak government backpedalled. Sarawak Deputy Chief Minister Tan Sri George Chan gave the assurance that the power from Bakun would reach Peninsular Malaysia’s shores because a 900mw hydropower plant in Murum was due to be completed by 2013 to meet the needs of the state.

All the same, it is clear that there is still no firm decision on where the power from Bakun will go, with the dramatis personae in the matter unable to come to a decision.

In the end, Tenaga, the recently privatised state utility company Sarawak Energy Bhd, the Sarawak government headed by influential Chief Minister Tan Sri Abdul Taib Mahmud and the federal government must perform a delicate balancing act.

It has been more than a year since the announcement was made that Tenaga and Sarawak Energy will lease the Bakun dam from current owner Sarawak Hidro Sdn Bhd. But little progress appears to have been made by all concerned. No shareholder agreement has been signed, leading to a lot of guessing about who exactly will be in control of the dam and the proposed undersea cable project.

The view so far is that the state government will take a big portion of Bakun while the undersea cable will be under the purview of the federal government and Tenaga. But is this how things will pan out?

While the contrasting viewpoints are confusing enough, maybe the question that should be asked is, what is exactly causing the current impasse?

According to sources, the bone of contention is that instead of Tenaga getting the electricity purely from Bakun, it will draw the power from the state grid.

“What this ultimately means is that Tenaga would not only be obtaining power from hydro plants but also from Sarawak Energy’s coal-fired plants. The net effect is that the cost of generation per unit is much higher. This higher cost is what Tenaga is bristling at,” says a source.

Tenaga CEO Datuk Seri Che Khalib Mohamed Noh, who has been keeping a tight rein on the utility and its cost of buying electricity from independent power producers (IPPs), declined to comment for this article. Neither could officials from Sarawak Energy be contacted for comments.In previous interviews, Che Khalib had maintained that power from Bakun must be cheap or the utility would not take it up. If the cost per unit is higher, how will the utility take it up? Consequently, would it want to hold a stake in Bakun and the undersea cable if the power is not coming to the peninsula?

To recap, Tenaga and Sarawak Energy will lease the Bakun dam from current owners Sarawak Hidro via a special purpose vehicle. Other shareholders of the SPV will be the Sarawak state and the Ministry of Finance Inc, which will hold a golden share.

In a way, Tenaga cannot be blamed for wanting access to the cheapest source of power available. Also, while Sarawak Energy’s ambitious masterplan promises a possible generation capacity of 20,000mw, it should be noted that most of its power plants are still in the conceptual stage.

“Tenaga would rather bet on something that is certain and the only certain source of power generation is Bakun. As for Sarawak Energy, even though it does not require the power at this stage, many of its plants are still far in the future and there is no assurance they will be built,” says a source.

“Tenaga is focusing on Bakun, but Sarawak Energy is looking at the bigger picture. It is not just a matter of safeguarding the state’s interests, but investing in a long-term plan that will result in an abundant supply of power that will benefit both Sarawak and West Malaysia,” says an industry source.

In December last year, Taib was reported as saying that the Sarawak state was packaging a deal to lease Bakun from the federal government so that the power could be used to fuel the heavy industrial projects in SCORE.

Therein lies the problem. With the first turbine at Bakun due to be turned on by the middle of 2011, it makes sense for the power generated by the dam to go to Sarawak first because Peninsular Malaysia’s power margin is high. Also, the high-voltage undersea cable is only expected to be ready in 2015.

What irks Tenaga
One could argue that Tenaga should have no problems with the power from Bakun going to Sarawak Energy while the undersea cable is being built. But the utility company is concerned that the power from Bakun will go directly to the aluminium smelters in Sarawak.

It is easy to understand Tenaga’s apprehension because aluminium smelters are capital-intensive, power-sucking affairs for which electricity makes up one-third of costs. Not surprisingly, most banks will only put in their money if there is a definitive power purchase agreement (PPA).

“So, once you have signed a PPA with a particular power source, your financing is tied to that and you can’t change it. No bank will accept a financial plan that sees a shifting source of energy unless there is a guarantee by the government,” says an industry source.

Thus, all signs are pointing to the fact that Tenaga will not be able to enjoy cheap power from Bakun. While the hydroelectric plant has a capacity of 2,400mw, its firm capacity is only around 1,600mw. In the original plan, West Malaysia was supposed to receive at least 1,600mw via the undersea cable.

Press Metal Bhd, which has a smelter in Mukah, is looking for 510mw from Bakun while Rio Tinto-Cahya Mata Sarawak’s 720,000-tonne smelter is looking for at least 1,000mw. Privately owned GIIG Holdings Sdn Bhd, with its Chinese partner, is also planning to build a smelter with an eventual annual capacity of 1.25 million tonnes. Its initial annual capacity of 330,000 tonnes will require 600mw.

And in an echo of the past, Tan Sri Syed Mokhtar Al-Bukhary is taking another crack at owning Bakun, sources say.

To recap, Syed Mokhtar’s vehicle GIIG Capital put forward a proposal to Sarawak Hidro in 2002 to buy a 60% stake in the dam. However, Syed Mokhtar’s partners from Dubai made an exit and the proposal was allowed to lapse.

Coming to the undersea cable, it should be kept in mind that the project is set to be carried out by Tenaga, Sarawak Energy and the MoF, with the federal government holding the majority stake. But critics are already saying the high cost of laying the cable will dash any hope of getting cheap electricity from Bakun.

“If Tenaga chooses to walk away from Bakun, this could have far-flung implications for the power sector in Peninsular Malaysia. It could mean a faster passage to nuclear power or an extension of existing PPAs,” says an analyst.

Most analysts agree that West Malaysia will see a power crunch in the next 10 years, but Sarawak might argue that it needs the power now for its development to move forward.

And with the state elections coming up in May 2011, it is unlikely that the current Sarawak government would want to renege on its promises and plans for SCORE.

Shades of Iskandar Malaysia?
When the government launched SCORE in February 2008, not all were sold on the story of an investment hub. At the time, a number of investment corridors had been launched throughout the country that had met varying degrees of interest. Despite its clear potential and the announcement of a couple of mega projects, Sarawak was a long-term story for some.

However, it can be argued that the momentum started to build with the surprise privatisation of Sarawak Energy, which most industry observers say was a much-needed catalyst.

“SCORE’s main selling point in drawing heavy industry is its relatively cheap and abundant power,” says an industry observer.

In addition to the aforementioned aluminium smelters, Sarawak Energy has expansion plans of its own. It was recently announced that it will build a 40km-long power transmission line between Miri and Brunei over the next two years.

So far, some US$24 billion worth of investments have been approved for SCORE and early estimates suggest that the corridor needs some RM334 billion worth of investments over the next 10 years.

China’s presence in SCORE has been particularly prominent. Apart from Aluminum Corp of China Ltd’s (CHALCO) partnership with GIIG for an aluminium smelter, state-owned State Grid Corp of China has tied up with 1Malaysia Development Bhd (1MDB) to undertake three hydroelectric dams and one smelter project in SCORE.

“Initial estimates show our joint projects may create as much as US$11 billion worth of economic value,” says 1MDB CEO Shahrol Halmi.

1MDB has also entered into a joint venture with Saudi Arabia’s PetroSaudi International Ltd. It has pledged US$1 billion and PetroSaudi US$1.5 billion.

Other projects in the pipeline include Japan’s Tokuyama Corp planning to invest US$500 million to set up a polycrystalline silicon manufacturing plant and Carbon Capital Corp Sdn Bhd and Japan Carbon Mercantile Co Ltd planning a biodiesel plant worth RM1 billion.

Smaller-scale investments promised for SCORE include Konsortium Galdasar Sdn Bhd-Yuh Yow Fisheries’ 800ha aquaculture project worth RM100 million and Bintulu Development Authority and Zinc Ox Resources England’s planned zinc electro refinery plant worth US$350 million.

Amid all the buzz, however, the story of Iskandar Malaysia might serve as a reminder of how quickly the sparkle can fade. It should also be noted very little has been invested in the ground in SCORE.

“In Iskandar, some pledges did not come through. As a result, it was the government pumping in money to make things move on the ground. And when the crisis in Dubai happened, it put a damper on interest in Iskandar,” says an industry observer.

There is no question that things are moving in Sarawak. The privatisation of Sarawak Energy was the first domino to fall and the other tiles appear to be rapidly falling into place. But if Bakun is going to kick Sarawak’s growth into high gear, it could very well mean Tenaga saying goodbye to its current energy plan with the dam as a keystone and starting from scratch.

This article appeared in Corporate page of The Edge Malaysia, Issue 794, Feb 22 – 28, 2010

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