The Association of Water and Energy Research Malaysia (Awer) has raised issues concerning fair and transparent competitive bidding and its positive impact to electricity tariff, as well as disciplining the electricity generation industry players numerous times.
However, a lack of ethics and discipline within officers from the Energy, Green Technology and Water Ministry (KeTTHA) and the Energy Commission will impose a higher risk to the electricity generation sector in the form of threats to energy security.
Project development rights offered to a particular company or consortium of companies must abide by a few requirements, along with both the Energy Commission Act and Electricity Supply Act.
Firstly, the company or its consortium partner(s) must have existing power plants operating. Secondly, a 49 percent-foreign equity cap must be upheld as it is important for an economy at the size of Malaysia to protect its national strategic assets. Thirdly, the offer letters do not allow the development rights to be sold to any party. Let's look at Track 3B as a reference case.
Track 3B, or widely known as Jimah East, is a 2,000MW coal power plant. 1Malaysia Development Berhad (1MDB) failed to meet the financial close for this project which it won via competitive bidding. Henceforth, 1MDB submitted a letter to inform the Energy Commission that it cannot proceed with Track 3B. After that, the Energy Commission awarded the project to Tenaga Nasional Berhad (TNB).
Based on the information we gathered, TNB and another Independent Power Producers (IPP) were called in to discuss which entity could offer levelised tariff capped at the second lowest bid which is 26.67 cents/kWh. TNB did not buy the development rights of Track 3B and such a move was taken by the Energy Commission as Track 3B being awarded via competitive bidding.
1. The 500MW utility scale solar (USS) project
A written reply by the KeTTHA minister to Parliament for a question on a 50MW USS project given via direct negotiation to 1MDB on Nov 10, 2014 did state that it was a pioneer project which will pave the way for future projects given via competitive bidding whilst protecting the government's interests.
Now the question is, why was 1MDB given 500MW USS via direct negotiation? Was the KeTTHA minister not informing the Parliament of the actual size of the USS project awarded via direct negotiation? More importantly, did the KeTTHA and Energy Commission authorise the sale of development rights of the 500MW USS project in the recent Edra Global Energy Bhd asset sale ?
Now, let's refer to Track 3B as an example. Project development rights cannot be sold and it has to be surrendered back to the Energy Commission if the project owner failed to fulfil set requirements or milestones. If the KeTTHA and Energy Commission did authorise such a sale, it means they have breached both Energy Commission Act and Electricity Supply Act.
2. Track 4A, a 1,000MW-1,400MW combined cycle gas turbine (CCGT)
In a written reply by the KeTTHA minister to Parliament for a question on why Track 4A was given via direct negotiation on June 30, 2014, the minister cited the need to speed up the project completion date and fulfil the system requirements.
The project was awarded to a consortium of SIPP-YTL-TNB. However, both YTL and TNB have pulled out of the project. As mentioned, one important requirement for a power plant project to be awarded to a company or a consortium of companies is that the company or its partner(s) must have an operating power plant.
In the case of Track 4A, both companies with existing power plants have pulled out of the project. Furthermore, SIPP has missed the financial close deadline. Therefore, the award must be cancelled.
Why are the KeTTHA and Energy Commission still dragging their feet to cancel the award of Track 4A and call for a fresh competitive bidding process? The failure by this duo to adhere to both the Energy Commission Act and Electricity Supply Act is causing an unnecessary Power Purchase Agreement extension of inefficient old gas power plants that will pass a higher fuel cost to electricity tariff.
3. Track 4B, a 2,000MW CCGT in Malacca
A written reply by the KeTTHA minister to Parliament for the question on why Track 4B was given via direct negotiation to 1MDB on Oct 9, 2014 stated that it was awarded directly due to its capability in managing and implementing its electricity generation projects as well as 1MDB being a fully government-owned company, and on “the nation’s overall strategic interest.”
The minister also apparently manipulated the reserve margin to justify the award via direct negotiation. His reply specifically highlighted that Track 4B was given to a fully government-owned company and on overall national strategic interest. Therefore, is it really “strategic” to sell off Track 4B’s project development rights?
Again, did the KeTTHA and Energy Commission authorise the sale of Track 4B’s project development rights in the recent Edra asset sale, thus having breached the Energy Commission Act and the Electricity Supply Act?
Both the KeTTHA and Energy Commission must stop playing deaf and start answering important questions raised on issues related to the 500MW USS, Track 4A and Track 4B projects.
Awer stands firm that affordable and equitable electricity tariff can only be achieved via fair and transparent competitive bidding. The cost of power generation technologies is widely known among industry players. For a bidder to win the project, they must be willing to lower its profit margin and bear some of the financial risks to lower its financing cost of the project.
The lower bidding price - due to lower financing cost and lower profit margin - will translate into long-term cost saving for domestic and business consumers via electricity tariff. Therefore, it is preposterous to implement direct negotiation.
Awer also urges MPs to take the KeTTHA minister to task for giving flip-flop answers in Parliament with regard to projects that were awarded via direct negotiation, and the mess that KeTTHA and the Energy Commission have created in the electricity generation sector.
PIARAPAKARAN S is president, Association of Water and Energy Research Malaysia (Awer).
