KUALA LUMPUR: The Energy Commission (EC) over the weekend announced that it had awarded a fast-track power plant project, better known as project 4A, to a consortium consisting of YTL Power International Bhd, Tenaga Nasional Bhd (TNB) and SIPP Energy Sdn Bhd, which is linked to the Johor royalty, through direct negotiation.

The project will give a new lease of life to the YTL group’s local power generation operation, as its power purchase agreement with TNB will expire by the end of next year.  

However, the EC did not disclose the cost of the project and tariff offered by the consortium. Also, the shareholding structure of the consortium was not disclosed in the statement issued on Saturday.

The announcement confirms an earlier report in The Edge Financial Daily that the Cabinet had last month approved the award of Project 4A through direct negotiation instead of an open tender in order to expedite the country’s plant up programme.

“In consideration of the medium term planning scenario and current operational parameters, the EC has decided that there is a requirement to fast track the construction of a plant that was scheduled to be operational in 2020 to an earlier date in 2018 to meet the system requirements,” the EC said in its statement.

“The optimal way to meet this deadline is through a conditional offer whilst still stipulating the need for competitive bid for the EPC [engineering, procurement and construction] portion of the project,” it explained.

The latest development is perceived as an indicator that the EC, which was once committed to improving transparency and governance through the competitive bidding process for the planting up programme, is backtracking or rather reverting to the old system of awarding power plant projects, through which the first generation of independent power producers had gotten their “sweetheart deals”.

Like it or not, direct negotiations enable certain parties to “enjoy privileges” when they participate in power projects. In the end, the projects may not go to the parties that can do the job best, in terms of efficiency and costs. This matter is of concern to the public, which has to cope with higher electricity tariffs as the government is restricting the supply of natural gas at a substantially low regulated price. The inefficiency of power generation plants is likely to be passed down to end-consumers in the form of higher tariffs.

Project 4A is the second power plant project that the EC has awarded through direct negotiation. In April, 1Malaysia Development Bhd (1MDB) bagged a 50MW solar plant contract. Details, such as the project costs and tariff, were not revealed to the public, let alone the reason why 1MDB was qualified for the greenfield project.

In its statement last Saturday, the EC pointed out that the award was conditional upon comparable “levelised tariff” as in current prctice, and that the consortium was required to justify the engineering, procurement and construction selection through competitive bidding.               

“Based on their ability to offer competitive rates in the recently concluded tender exercises, SIPP Energy, with participation by YTL Power and TNB as consortium members, has been awarded the development of a fast track combined cycle power plant (CCGT) using proven technology with a capacity of 1,000MW to 1,400MW in Pasir Gudang, Johor on condition that the technical and commercial proposals are acceptable to the EC,” the EC said.

“The levelised tariff that may be considered competitive must be comparable to the Prai CCGT tender exercise concluded in 2012.”

This article first appeared in The Edge Financial Daily, on June 2, 2014.