Monday, March 03, 2014

Project 3B Awarded To 1MDB: An Attempt To Prop Up 1MDB

The Energy Commission’s award of RM11 billion 2,000MW Coal-fired power plant
(“Project 3B”) to 1MDB confirms earlier speculations and the complete lack of
transparency and accountability.

The Ministry of Energy, Green Technology and Water (KeTTHA) openly attacked me on 20th
February that my comments regarding the tender for the 2,000 MW greenfield coal-fired plant or
Project 3B was “baseless and mere speculation”. I had earlier accused the Government of
intending to make the award to 1MDB despite it not submitting the lowest bid for the tender to
supply electricity to Tenaga Nasional (TNB).

However, exactly 8 days later on 28th February, KeTTHA confirmed my “baseless speculation” that
1MDB will be awarded the new Independent Power Producer (IPP) power plant concession.

In the statement by the Energy Commission (EC), it said that “the selection of the preferred
bidder of Project 3B is based on the criteria of full compliance with all the bid requirements as
stipulated in the request for proposal (RFP) document and the lowest levelised tariff offered”. The
EC also announced that the power plant would involve a levelised tariff of 25.33 sen/kWh.

Where is the transparency and accountability promised based on the open tender system?

As highlighted in my previous statements, YTL Power has submitted a qualified and cheaper
competing bid at a levelised tariff of 25.23 sen/kWh to supply electricity to TNB. The Edge
Malaysia has also reported that the levelised tariff by 1MDB was 25.65 sen/kWh.

Worse, the EC’s own technical evaluation committee had recommended YTL Power as the
preferred bidder to the Board, based on documents sighted by The Edge, before the decision was
overturned in favour of the more expensive 1MDB.

The question hence arises – were the goalposts shifted midway through the evaluation by the
Ministry in order to justify and ensure that the 1MDB, which is facing financial difficulties, will win
the concession?

Was 1MDB given unfair preferential treatment to allow the levelised tariff to be reduced from
25.65 to 25.33 sen/kWh?

More importantly, why was the lowest bid by YTL Power at 25.23 sen/kWh not deemed as the
“lowest levelised tariff offered”? As far as I can tell, despite the mysterious adjustments to the
1MDB tariffs, the 25.33 sen/kWh is still higher that YTL’s 25.23 sen/kWh.

In the interest of transparency, accountability and the credibility of this government, the EC must
disclose the bids submitted by the various tenderers, and explain to Malaysians why the lowest bid
was not chosen, especially since the Government overturned the recommendations of the
technical evaluation committee. This is highly important because at the end of the day, it is the
rakyat who will be paying the higher tariffs for electricity as a result of the Government’s bias
towards 1MDB, at the expense of the lowest qualified bid.

The Government cannot blame the rakyat for thinking that this is a clear-cut desperate attempt to
prop up 1MDB, which is labouring under a mountain of debt estimated in excess of RM30 billion.

The debt has been accumulated in part because 1MDB has since 2012 pursued a reckless
acquisition strategy to takeover independent power producers with expiring contracts at very high
premiums. 1MDB acquired Tanjong Energy Sdn Bhd for RM8.5 billion, Genting Sanyen for
RM2.35 billion and Jimah power plant for RM1.2 billion, costing a total of RM12.05 billion.

However, as reported by the last week’s issue of The Edge Malaysia, the cashflow generated by
these acquisitions barely covers the annual interest expense to finance the loans it took. It does
not take a financial genius to wonder how 1MDB will be able to repay the principal of these
multi-billion ringgit loans.

Unfortunately there are no right-thinking Ministers who are willing to speak up and object the
pricier bid, and pick the concessionaire who will charge less.

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