The Government is pulling all stops to bail out 1MDB Energy after multiple Initial
Public Offering postponements with lucrative directly negotiated power contracts at
the expense of higher electricity tariffs in the future.
The Minister of Energy, Green Technology and Water has confirmed in his reply to me on
Thursday last week that the Government has awarded another power plant project via direct
negotiations to 1Malaysia Development Berhad (1MDB). This 2,000MW gas-turbine power
plant sited in Melaka was rumoured to have been awarded in late August this year.
Earlier in April, Tenaga Nasional Bhd (TNB) had signed another power purchase pact with
1MDB on the construction of a solar power plant. 1MDB will design, construct, own, operate and
maintain a 50MW solar photovoltaic energy facility in Kedah and supply electrical power to TNB.
Before that 1MDB was also controversially awarded an RM11 billion 2,000MW coal-fired power
plant in February despite offering a higher power tariff in an “open tender” exercise.
The rapid succession of multi-billion ringgit power producing contracts awarded to the 1MDB
proves that the Federal Government is pulling out all stops to ensure the viability of the initial
public offering (IPO) of 1MDB’s energy arm. This is especially since the company already had to
postpone its IPO twice due to unattractive valuations, now set for the first quarter of 2015.
The Najib administration is so wanton that they have eschewed any further pretence with
“open tenders”, and proceeded to award new lucrative contracts directly. They were so
desperate that the Government has to hastily bring forward the award of this new contract
despite the fact that the gas-turbine power plant is only scheduled for commissioning in 2021,
or in 7 years’ time.
In fact, based on the reply given by the Minister, the latest award to 1MDB was granted even
before key terms such as the electricity tariffs were set or agreed upon! This is worse than a
directly negotiated contract because there’s no negotiations at all!
The underlying reason is obvious – without a successful IPO, 1MDB is already an insolvent
company awaiting a painful bankruptcy which will create an earthquake in the Malaysian
financial markets. 1MDB and its key subsidiaries’ inability to even submit routine financial
accounts in a timely manner only adds to the suspicion of financial woes in the Group.
1MDB’s only hope for short-term salvation is to convince the markets to investment a reported
RM9 billion for its IPO in order to pare down its massive RM36 billion debt at the group level.
As of today, 1MDB has been forced to twice reschedule and restructure an overdue RM6.7
billion loan incurring heavy costs and penalties.
Therefore by hook or by crook, the Najib administration has to ensure a viable and successful
IPO to temporarily prevent 1MDB’s collapse, even if it means a highly negative impact for both
the industry and consumers.
The immediate impact of such bias towards 1MDB would be the crowding out of the private
sector and the deterrence against any foreign direct investment in the country. This is despite
the Prime Minister harping on a “private sector-led economy”. Ultimately, the losers will be
ordinary Malaysians who have to foot higher electricity tariffs as a result of higher tariffs
awarded to 1MDB as well as a drastically reduced competitive environment in the power