Tenaga’s coal contract attracts interest

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TENAGA Nasional Bhd’s wholly-owned subsidiary TNB Fuel Services Sdn Bhd is looking for bulk carriers to transport coal, which fuels four power plants in the country.

The plants belong to TNB Janamanjung Sdn Bhd in Perak, Kapar Energy Ventures Sdn Bhd in Selangor, Tanjung Bin Power Sdn Bhd in Johor and Jimah Energy Ventures Sdn Bhd in Negeri Sembilan.

It is understood that Tenaga has prequalified 10 to 12 shipping firms for the job and, according to industry players, a tender is likely to be called later this year.

While the tonnage requirements may vary, industry sources say the tender notification for the contract is only likely to be awarded in the middle of 2015, after a tender notice has been made by the end of this year.

“It’s routine and comes out once every couple of years,” says a source. “If I’m not mistaken, the upcoming contract is for 10 million tonnes over two years.”

Some of the names commonly associated with such contracts are billionaire Robert Kuok’s Malaysian Bulk Carriers Bhd (Maybulk), Tan Sri Frank Tsao’s IMC Group partnering Global Maritime Ventures Bhd’s Wawasan Bulk Services Sdn Bhd, Tan Sri Syed Mokhtar Albukhary-controlled DRB-Hicom Bhd’s unit PNSL Bhd, Scomi Marine Bhd, Selayang Shipping Sdn Bhd and Duta Marine Sdn Bhd.

The contract value may vary considerably. For example, Scomi Marine bagged a RM158.7 million bulk contract of affreightment (CoA) for coal for two years in July 2013 while in August 2008, PNSL won a RM550.8 million CoA to provide shipping services for the transport of bulk coal for three years with an option for a two-year extension.

While these contracts may not excite as similar awards have been made over the past few years, there are murmurings about coal supply to Tenaga that are generating much interest.

It seems there could be far-reaching changes in how Tenaga awards CoAs for the transport of the fossil fuel, industry sources say.

Tenaga is said to be conducting a study to award larger contracts for longer durations that would enable local companies that participate in the tender exercise to obtain funding to buy or book the building of a fleet of vessels.

“Tenaga is contemplating longer charter periods, for instance, 10 years, so that the companies that are bidding for the charter contract can obtain financing to buy a fleet of bulk carriers to transport the coal.

“Under the present arrangement, Tenaga gives out two-year or sometimes three-year contracts ... this does not encourage banks and other financial institutions to fund shipping companies looking to buy their own fleet. So they charter vessels, usually not Malaysia-flagged, to do the task,” the source adds.

This has not sat well with some in the government who are cautious about Malaysian dependency on foreign-flagged ships to ferry the nation’s coal requirements. 

“It would be safer if we had a fleet of Malaysia-flagged vessels carrying Tenaga’s coal. The Straits of Malacca is not exactly safe. In the event of an emergency, we could even get the (Royal) Malaysian Navy to escort the vessels to ensure the supply of coal is not disrupted.

“It’s a case of safety of supply, actually. At present, while the companies that bag the contracts are Malaysian, most of the vessels that handle the cargo are not Malaysia-flagged, so it is a concern,” the source says.

TNB Fuel Services’ website indicates that the four coal-fired power plants could consume as much as 19 million tonnes of fuel a year. A 10-year contract for coal may be a tad less than 200 million tonnes for the four power generators. This figure could escalate if more coal-fired power plants are built in Malaysia.

“Once you have locked in a charter contract for a long period, say, 10 years, you can get the requisite funding. It’s also possible to set up a joint venture with a company that has a ready fleet and is willing to flag ships locally,” the source explains.

But whether the shipping companies bite and go along with Tenaga’s plan remain to be seen.

Other than Maybulk’s 20-plus bulk carriers, there is a dearth of locally flagged dry bulk vessels. Also, Maybulk’s vessels are never idle as they are part of the bigger Kuok group. 

MISC Bhd sold 15 of its bulk carriers in March 2004 to Thailand’s Precious Shipping for US$98 million and at the end of that year, it hived off another 32 ships to Greece’s Restis group for US$740 million.

Halim Mazmin Bhd, which operated a 150,000 dead weight tonne Capesize bulk carrier, the Meridian Polaris, has since been delisted and is not into shipping anymore.

In fact, several shipping companies — not just those operating bulk carriers — have either gone under or are no longer actively involved in the business. Nepline Bhd, PDZ Holdings Bhd, Hubline Bhd, Global Carriers Bhd and Swee Joo Bhd, to name but a few, have gone belly up or changed their core business after being adversely affected by a downturn in the industry.

To recap, after hitting a record high of 11,793 points in May 2008, the Baltic Dry Index lost more than 90% of its value by the end of that year, falling below the 1,000-point band. Last Thursday, it was below the 1,060-point band, which means nothing much has changed since 2008.

“It all depends on the terms of the CoAs. If they are good, lucrative enough, surely there will be parties keen to handle the cargo … or else it will remain status quo, I guess,” the source says.

Other than Maybulk’s 20-plus bulk carriers, there is a dearth of locally flagged dry bulk vessels.

This article first appeared in The Edge Malaysia Weekly, on October 06 - 12, 2014.