State investment arm 1MDB’s sale of independent power producers (IPPs) held under its subsidiary Edra Global Energy Bhd to China General Nuclear Power Corp (CGN Group) violates Malaysia’s policy restricting the sale of strategic assets to foreign companies, PKR says.

The sale of the IPPs to the China-Qatar consortium would lead to more such contracts being negotiated with foreign companies, PKR secretary-general Rafizi Ramli said at a press conference today.

“Yesterday, 1MDB announced the sale of its entire equity in all of its power assets held under Edra Energy to a China-Qatar consortium.

“This clearly goes against Malaysia’s policy on the 49 percent restriction on foreign equity - that strategic assets such as IPPs cannot fall into the hands of foreign companies,” Rafizi ( photo ), the MP for Pandan, added.

“There will be more IPP contracts that can be handed over to foreign companies, possible influx of foreign workers, as well as possibly increased tariffs in 2016 and 2022 when the concession agreements will be renegotiated,” he explained.

In announcing the RM9.83 billion sale, 1MDB president Arul Kanda Kandasamy had described the purchase by the CGN Group as a clear vote of confidence in the Malaysian economy.

Describing the deal as a major milestone in 1MDB’s rationalisation plan, Arul Kanda also said: “CGN Group was a clear winner in this international tender, based on the objectives announced by 1MDB previously, namely value maximisation, acceptable commercial terms and certainty of transaction execution.”

The deal between Edra Global Energy Bhd and CGN Group, targeted for completion in 2016, is the largest announced transaction in Malaysia and one of the largest in the Asian power sector to date.

The assets are Edra Solar Sdn Bhd, Edra Energy Sdn Bhd, Powertek Energy Sdn Bhd, Jimah Teknik Sdn Bhd, Jimah O&M Sdn Bhd, Mastika Lagenda Sdn Bhd and Tiara Tanah Sdn Bhd.

Rafizi, meanwhile, also said that he had filed two motions to debate the matter in the Dewan Rakyat, but both were rejected by speaker Pandikar Amin Mulia.

“One of the motions was to prevent the government from using TNB to pay-off 1MDB’s loans through making an offer for the IPPs,” he said, in criticising BN MPs for not standing up to protect the country’s strategic assets.

1MDB overpaid for power assets

In a separate statement, Kulai MP Teo Nie Ching also questioned 1MDB’s current capabilities to service its RM13.7 billion remaining debt, now that it no longer has any significant profit-generating capacity.

Teo noted that 1MDB had borrowed approximately US$3.5 billion (RM15 billion) and RM7.4 billion to acquire its power companies for RM12.1 billion, which came with some RM8 billion of legacy debt.

"Despite clawing back RM9.83 billion and getting rid of the RM8 billion of legacy debt, the sale still leaves 1MDB with RM13.17 billion of debt arising from the loans it took for the acquisition.

“Now 1MDB desperately sold its power companies for RM9.83 billion, clocking in RM2.27 billion of losses, despite the fact that government has awarded 1MDB many new power contracts and extended its expiring contracts,” said Teo.

She added that the current losses incurred by 1MDB through the sale is also prove that the company had originally overpaid for the power assets.