#Frankly Speaking* Why no open tender?

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ENERGY, GREEN TECHNOLOGY AND WATER Minister Datuk Seri Dr Maximus Ongkili has confirmed that the government is planning a 50mw solar plant to be awarded through direct negotiation.

The minister didn’t reveal the party it is negotiating with, but according to reports, it is none other than 1Malaysia Development Bhd (1MDB). And 1MDB did not deny it.

It is not clear why the country needs a solar project of this size, but beyond that, why is the government even considering direct negotiation?

Ongkili says the project will not be tendered out because it is a pilot project, but without an open tender, it will be hard to convince the public that the government will be getting the plant at the best price.

The country is still paying a high price for the first-generation power purchase agreements (PPAs) signed 20 years ago with independent power producers, all through direct negotiation. The solar plant deal seems to be going back to the same path.

Meanwhile, solar power is much more costly to produce than power from conventional sources. Will it be subsidised by the recent increase in the renewable energy fund surcharge on electricity bills, from 1% to 1.6%? The last thing the country needs is expensive electricity and overpriced mega projects subsidised by the rakyat.

As the first commercial solar project of its kind in Malaysia, there are risks and the project owner will want a higher return to justify these risks, like the first-generation IPPs.

According to the ministry, the solar project will cost an estimated RM530 million to build, not including the land cost. It is believed a 50mw solar farm will need at least 150 acres and require extensive earthworks to level the land for the panels.

For the sake of transparency, especially for a project awarded via direct negotiation, the government should reveal the actual cost and rate of return for the solar plant.

This article first appeared in The Edge Malaysia Weekly, on March 24, 2014.