KUALA LUMPUR: The government does not plan to cancel the concession contracts with 1Malaysia Development Bhd-Mitsui & Co Ltd (1MDB-Mitsui) and Malakoff Corp Bhd or impose any penalty on the companies due to the delay in the construction of of the respective power plants.

Energy, Green Technology and Water Minister Datuk Seri Dr Maximus Ongkili said the government will not cancel the contracts because there is no delay in the critical milestone.

“[A] power purchasing agreement ... signed between Tenaga Nasional Bhd (TNB) and [a] developer to build a power plant [is] so that TNB can purchase the power from them ... a financial penalty on the approved developer [can be imposed] should there be any violation of contract.

“The government can also cancel the awarded project to any developer if the specific critical milestone was not fulfilled or delayed up to a certain period enshrined in the agreement,” Ongkili said in a written reply to Petaling Jaya Utara MP Tony Pua.

Pua had asked whether the ministry would take action against 1MDB and Malakoff which had failed to commence their projects, and whether their agreements allow the ministry to impose a financial penalty or terminate the contracts.

The Jimah East 2,000mw coal-fired power plant had sought a six-month extension, while the Tanjung Bin 1,000mw power plant had asked for a six- to 12-month extension. The former is controlled by 1MDB through its ownership of a 75% stake in Jimah Energy Ventures Holdings Sdn Bhd. 

Meanwhile, the Tanjung Bin plant, the largest coal-fired power plant in Southeast Asia, was undertaken by Malakoff which is controlled by tycoon Tan Sri Syed Mokhtar Al-Bukhary’s MMC Corp Bhd.

Ongkili said the ministry has always ensured that the companies awarded have financial capability and were formally backed by financial institutions. However, he added, there are many challenges on the field such as land ownership, reclamation, and other issues that may cause a delay in completing the project and affect the implementability of the project.

“In this case, 1MDB-Mitsui and Malakoff obtained written support from a financial institution to support the projects which suggests the companies are capable of investing and getting support to build the projects.

“Furthermore, both developers have shown that they have experience in power plant construction projects,” he added.

This article first appeared in The Edge Financial Daily, on March 25, 2015.