Tuesday, April 15, 2014

Direct Award From Tenaga Nasional To 1MDB

The direct award by Tenaga Nasional Bhd to 1Malaysia Development Bhd (1MDB) of
a 50MW solar power plant proved a desperate attempt by the Najib administration
to bailout the heavily indebted sovereign wealth fund.

It is bad enough for the Malaysian power sector when the Ministry of Energy, Green
Technology and Water (KeTTHA) shifted goalposts with the qualifying criteria to award
1Malaysia Development Bhd with a 2,000MW coal-fired plant on 28th February despite offering
a higher power tariff in an “open tender” exercise.

Yesterday, Tenaga Nasional Bhd (TNB) said it had signed another power purchase pact with
1MDB on the construction a solar power plant. 1MDB will design, construct, own, operate and
maintain a 50 megawatts solar photovoltaic energy facility in Kedah and supply electrical power
to TNB over.

Unlike the first award where at the very least, the pretence of an open tender is carried out,
the latest award is a blatant outright award to 1MDB without any bidding exercise carried.
The Prime Minister must provide the answer as to why 1MDB was awarded without any tender
carried out, open or otherwise, despite the painstaking effort by the Energy Commission over
the past few years to convince the power sector that the days where Independent Power
Producers (IPPs) can win sweetheart contracts from the Government via direct negotiations are
a thing of the past?

Worse, this award completely by-passed the Sustainable Energy Development Authority of
Malaysia (SEDA Malaysia), the statutory body formed under the Renewable Energy Act 2011 to
manage the entire renewable energy sector. SEDA has been conducting bidding exercises by
awarding strictly limited quotas not exceeding 30MW to companies and individuals interested in
the provision of renewable energy.

Hence while all other companies need to compete for the limited quotas to supply solar energy,
1MDB gets a bumper direct award of 50MW.

It is undeniable 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 particularly 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 The Edge Malaysia in February, 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 multibillion
ringgit loans.

Hence, as a result of mismanagement and reckless policies by the Najib administration and
1MDB, all the basis of good governance is set aside, despite the Prime Minister’s promise of
transparency and accountability in the Government Transformation Programme. Therefore, the
man-on-the-street will have to brace for higher electricity prices in order to assist 1MDB achieve
profitability and pay-off its multi-billion ringgit debt.

No comments: