This article first appeared in The Edge Malaysia Weekly on October 22, 2018 - October 28, 2018

THE completion of Cypark Resources Bhd’s waste-to-energy (WTE) plant in Ladang Tanah Merah, Port Dickson, is at risk of another delay as the construction of an incinerator that generates power from municipal solid waste is behind schedule, sources say.

As Cypark’s 25-year concession agreement (CA) with the government to build, operate and manage the plant commenced upon its signing on Nov 9, 2015, it makes business sense for it to be completed soon. “The longer it takes for the plant to be completed, the more potential earnings Cypark will lose,” says a source.

Forming part of the Ladang Tanah Merah project, the WTE plant was initially targeted to be completed by January this year. However, this was delayed to the end of the year after the main contractor of the plant, SHK Consortium, encountered a difficult geological formation.

A source who works with the contractor sees end-2019 as a more realistic completion date, which, if proved right, will result in Cypark losing a year’s revenue from the non-generation of the WTE plant.

“The construction of the plant is behind schedule because of the technical challenges faced by one of the consortium members,” says another source who has business dealings with the consortium. “But now, the contractors, both onshore and offshore, are rushing to complete the plant.”

Apart from the WTE plant, the Ladang Tanah Merah project comprises a landfill equipped with a biogas facility and a solar plant.

The electricity generated by the WTE plant will be sold to Tenaga Nasional Bhd and is expected to net Cypark an estimated RM80 million a year, or about a fourth of its annual revenue.

The company is in the midst of shifting its business model from one that earns short to medium-term revenue to one that generates income from concessions.

Asked about the WTE plant, Cypark’s management says its targeted completion is the end of the second quarter next year, in accordance with the CA.

“We trust the completion target is achievable and (that) there shall not be any need for the completion date to be revised. The project is currently progressing and has reached an advanced stage of construction.

“Almost all the equipment has been delivered and is in the process of being installed,” Cypark’s management tells The Edge in an email.

The CA was not made available on the Bursa Malaysia website. However, analysts tracking the company expect the construction of the WTE plant to be completed by the end of the year and for the plant to be commissioned and fired up by 2QFY2019.

“After the construction is completed, a series of tests will have to be conducted with TNB before the plant can be fired up and the electricity generated from the waste can be supplied to TNB,” says an analyst with a local investment bank.

However, even if the WTE plant is completed by the end of 2QFY2019 as per Cypark’s projection, it will take another six months before the group can generate electricity and revenue from it, or about four years after the CA was signed.

Developed at a cost of RM300 million, the Ladang Tanah Merah project is the largest investment made by Cypark to date. On Aug 28, 2015, the renewable energy company awarded SHK Consortium — comprising KNM Group Bhd subsidiary KNM Process Systems Sdn Bhd (KNMPS) and Hitachi Zosen Corp — a RM268.38 million contract that consists of offshore work worth RM135.38 million and onshore work worth RM133 million.

It is believed that KNMPS is undertaking the onshore portion and Hitachi Zosen, the offshore portion and supplying the technology for the WTE incinerator.

When completed, the WTE plant will have the capacity to process 600 tonnes of municipal solid waste a day and a power output of 18,000 kWH.

According to analysts, Cypark’s landfill tipping fee is RM30 per tonne per day — lower than the fee at many other landfills — as the government has taken into account the revenue the company would earn from selling the electricity generated from waste.

According to the Solid Waste Management Lab 2015 report published by the Performance Management and Delivery Unit, landfill tipping fee is RM42 per tonne per day.

The stock closed at RM2.52 last Thursday for a year-to-date gain of 8.82%. The company is trading at an estimated price-earnings ratio of 10.37 times and is valued at RM755.5 million. The consensus 12-month target price for the stock is RM2.62 or a potential return of 4%.

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