KUALA LUMPUR: Jaks Resources Bhd has cleared a major hurdle to kick-start its US$1.87 billion (RM7.12 billion) power plant in Hai Dong, northern Vietnam, by roping in China Power Engineering Consulting Co Ltd (CPECC).

The power plant project would be a game changer for Jaks in terms of earnings growth and income stream, said its chairman Tan Sri Hussin Ismail.

According to Jaks chief executive officer Andy Ang, the annual recurring income from the project will be from US$150 million upwards.

“Once this project gets under way, Jaks will be able to recognise additional revenue stream from our proposed participation in the engineering, procurement and construction contracts, to be awarded by the JV (joint venture) company.

“Upon completion of construction and upon commencement of commercial operations, the group will then enjoy recurrent concession-type earnings from the generation and sale of power under the power purchase agreement,” Hussin said.

Ang declined to elaborate on the income to be generated from the project, but said it will provide better returns than build-operate-transfer projects in Malaysia. In a statement to Bursa Malaysia, Jaks said the company and CPECC would each own a 50% stake in Jaks Pacific Power Ltd, which in turn wholly owns Jaks Hai Duong Power Co Ltd.

The joint venture will jointly build and run the 1,200mw power plant in Vietnam under a 25-year concession.

Yesterday, Jaks and CPECC signed a subscription agreement, under which the former will reduce its stake in Jaks Pacific to 50%, from 100% previously to enable CPECC to become an equity partner in the power plant project.

Jaks said 75% of the cost of the project will be financed by debt, while the balance 25% will be funded by equity.

Jaks Hai Duong has secured a build-operate-transfer contract from the Vietnam government to undertake the project. According to Jaks, construction of the power plant is expected to start in the first half of 2016, while electricity generation is scheduled to begin in 2020. Ang said the group will also consider other power-related opportunities in Vietnam, as Jaks already has a team based in the country.

“Currently we are very focused on our Hai Duong project. If any opportunities come along we definitely will look into new projects. Currently in Vietnam the population is close to 100 million, and they have a big shortage of power supply.

“If there is an opportunity, sure, we will look into the power sector as we have already developed our team there,” he said.

Ang said that the group is tendering for RM3.5 billion worth of contracts, which comprise projects in Malaysia and also some of the civil works for Hai Duong.

“We are aiming to secure at least 60% to 70% of the projects,” he said, adding that Jaks’ order book currently stands at around RM1.5 billion.

To recap, the agreements with CPECC is Jaks’ third proposed JV for the development of the power plant.

Jaks had previously proposed a JV with Wuhan Kaidi Electric Power Engineering Co Ltd for the development of the power plant, which lapsed as Wuhan Kaidi did not fulfil the conditions under the agreement on or before the extended cut-off date on March 31, 2014.

Prior to that, the group entered into several agreements with Meiya Power (HD) Ltd and Island Circle Investment Holdings Ltd for the project in 2012, but the JV was subsequently called off.

As at March 31, Jaks’ cash and bank deposits totalled RM111.08 million, while short- and long-term borrowings stood at RM271.42 million and RM330.19 million respectively. Its rolling 12-month gearing was 106%.

Jaks traded at 83.5 sen last Friday before its suspension yesterday. Its market capitalisation was RM366.03 million. The counter will resume trading at 9am, today.

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This article first appeared in The Edge Financial Daily, on July 7, 2015.