Govt confirms award of third power plant to 1MDB

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KUALA LUMPUR: The government has confirmed the award of the 2,000mw combined cycle gas power plant in Melaka to 1Malaysia Development Bhd (1MDB), which is deemed crucial for the sovereign wealth fund to list its power assets on the local bourse by year-end or sometime early next year.

This latest award confirms a report by The Edge Financial Daily on Sept 2, 2014, quoting industry sources, that the project would beef up the prospects of 1MDB’s power asset portfolio for a listing. According to bankers familiar with the matter, 1MDB is expected to submit the listing application for its energy unit “soon”.

Yesterday, DAP lawmaker Tony Pua, who is the MP for Petaling Jaya Utara, lambasted the third successive award of the multi-billion ringgit power contract to 1MDB this year, conveniently ahead of its planned listing.

He told reporters at the Parliament lobby that Energy, Green Technology and Water Minister Datuk Seri Dr Maximus Ongkili, via a written reply to him last Thursday, admitted that the Melaka power project had been awarded to 1MDB via direct negotiations.

“The rapid succession of the multibillion power producing contracts awarded to 1MDB proves that the government is pulling all stops to ensure the viability of the initial public offering (IPO) of 1MDB Energy Sdn Bhd, which was postponed twice due to unattractive valuations.

“Basically, what it means is that there is not enough value in 1MDB. [So] the government keeps giving [it] new contracts to create value in 1MDB to make sure 1MDB Energy Sdn Bhd becomes a viable listing option,” Pua said.

According to the opposition lawmaker, the award of “lucrative and directly negotiated contracts to 1MDB is at the expense of higher electricity tariffs that will be implemented in the future”.

He later told The Edge Financial Daily that the value of the 2,000mw power plant “is in the region of RM10 billion”.

Earlier this year, 1MDB won the RM11 billion, 2,000mw coal-fired power plant project known as 3B, which was renamed Jimah East, in a controversial open tender. A month later, it secured a 50mw solar project on a direct award basis.

The minister’s reply was in response to Pua’s questions on whether the award of the power plant scheduled for commissioning only in 2021, had been awarded to 1MDB, and if the project was meant to better equip 1MDB for the listing of its power assets.

Ongkili, in his reply to Pua, said the decision to award the Melaka project via direct negotiations to 1MDB was because the company had proven its capability and had the necessary expertise to operate such power generation projects in the past.

The minister said the selection process by the ministry was based on various factors, including the implementation time of the project, a suitable site (land) and competitive costs.

He rubbished claims by Pua that the awarding of the project was related to the listing of its power unit, which Pua said was because 1MDB needed a successful IPO for its power assets. The listing is targeted to raise some US$3 billion (RM9.78 billion) to pare down the group’s massive RM36 billion debt.

According to Pua, 1MDB has been forced twice to reschedule and restructure an overdue RM6.7 billion loan, incurring heavy costs and penalties in the process.

1MDB, through its subsidiary Powertek Energy Sdn Bhd, controls two power plants in Melaka — Teluk Gong Power Station 1 and Teluk Gong Power Station 2. The power purchase agreement for the 440mw open cycle Teluk Gong Power Station 1 is due to expire in 2016.

This article first appeared in The Edge Financial Daily, on October 15, 2014.