Monday, May 18, 2015

TNB CEO Datuk Azman Mohd - "1MDB Are Not In a Position to Dictate Terms."

We wholly support Tenaga Nasional Berhad’s position not to pay 1Malaysia Development Bhd (1MDB) any premium in the event that TNB is to take over the 2000MW coal-fired power plant from the latter.

The Minister of Energy, Green Technology and Water, Datuk Dr Maximus Ongkili confirmed on 12 May 2015 that Tenaga Nasional Bhd (TNB) is in discussion with 1Malaysia Development Bhd (1MDB) over acquiring the biggest equity in the 2000MW coal-fired power plant, known as Project 3B.

Malaysians’ concern had been that TNB would be arm-twisted into paying a premium for the project which was controversially won by 1MDB despite the latter failing to fulfil the terms of the concession. In particular, 1MDB has failed to secure the necessary funding to finance the RM11 billion project which has resulted in at least 8 months delay.

If TNB were to pay a “premium” on the concession, it would not only constitute a bailout of 1MDB by TNB, but also the consequential increase in the electricity tariffs for Malaysians as a result of increased cost to TNB.

Therefore it came as a massive relief to Malaysians when TNB CEO Datuk Azman Mohd announced on the same day that TNB “will not pay a premium for the project. We will just pay them (1MDB) for costs incurred. If anything, we will ask for a discount. They (1MDB) are not in a position to dictate the terms.”

In the event that TNB is to acquire 1MDB’s interest in Project 3B, then we are in full support for the position taken by Datuk Azman Mohd to rightly seek a discount on the cost incurred by 1MDB, instead of paying a unjustifiable “premium” to bail out the latter.

However, we are also concerned that Datuk Azman Mohd will be seeking “a revision in the tariff” in the event TNB takes over, claiming that the project may not otherwise “be commercially viable”.

As the project was awarded via an open tender, the Energy Commission (EC) must not approve any transfer in the rights of the power plant concession if it will involve any changes in the tariff agreed. Such a revision will make a complete mockery of the “open tender” exercise to seek the lowest possible tariffs among qualified bidders.

In fact, 1MDB only managed to win the concession as the lowest bidder after another consortium led by YTL Power was disqualified last minute on controversial technical grounds despite submitting the lowest price.

Therefore, in the event that the sale of the 2,000MW power plant concession involves a potential change in tariffs or any “premium” payout, then the EC must reject the transfer, terminate the concession and re-open a new tender exercise for the power plant. In fact, the EC must also financially penalise 1MDB for failing to fulfil their obligations in the concession contract and jeopardising Malaysia’s energy cost and security.

In fact, the TNB CEO rightly pointed out that the EC “can take it back and do a rebidding. It is up to the government to decide.”

Hence, to protect the independence, integrity and good governance of the Government and the regulating authority, the EC must immediately prepare to call for a new open tender exercise for the Project 3B to ensure that the power producer with the lowest possible tariffs are given the right to carry out the project. Otherwise, ordinary Malaysians will be faced with the inevitable burden of having to pay for higher electricity costs.

Tony Pua

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