State-owned utility Tenaga Nasional yesterday signed a power purchase agreement with a local company which plans to raise RM6 billion to build two coal-fired plants.

The agreement will enable Jimah Energy Ventures, which is wholly owned by the Negeri Sembilan state royal family, to start seeking funds for the 700-megawatt plants which are to be built within the state south of Kuala Lumpur.

Jimah chairman Tunku Naquiyuddin Tunku Jaafar told a news conference that of the six billion, it hoped to raise RM4.8 billion through the issuing of Islamic bonds on the domestic market.

One plant is expected to start operating by early 2009 and the second by July the same year, he said. They will supply power to Tenaga under a 25-year concession at 13.6 sen a kilowatt hour, he added.

Tenaga president and chief executive Che Khalid Mohamed Noh said Tenaga had agreed to pay for 85 percent of the power produced by the plants, while both parties would share the cost of maintaining unused capacity.

Chairman Leo Moggie said Tenaga would own 20 percent of the project while the state government would be offered 15 percent.

Last IPP award?

Asked what Jimah's internal rate of return would be, Tunku replied: "Ours is very much on par, if slightly less, than some of the other IPPs (Independent Power Producers), but it's a respectable level."

The Asian Wall Street Journal estimated that the agreement would produce an annual internal rate of return of 12 to 14 percent for Jimah, compared to the 20 percent return enjoyed by other IPPs which secured favourable deals with Tenaga in the mid-1990s.

The newspaper cited industry sources as saying the Jimah deal could be Malaysia's last big privatization award for power generation, with future needs met by expansion of Tenaga's own network or by increasing capacity at some of Malaysia's five existing power producers.