CONTROVERSY erupted in May when the Energy Commission awarded the Track 4A power plant contract to a consortium comprising SIPP Energy Sdn Bhd, YTL Power International Bhd and Tenaga Nasional Bhd via direct negotiations, as opposed to open tender.
While YTL Power has since pulled out of the deal, commission chairman Datuk Abdul Razak Abdul Majid subsequently also clarified that it has the discretion to award power contracts either by direct negotiations or open tender.
If that is the case, why don’t the commission award power tenders to government-linked companies (GLCs)?
“Since the tariffs are all known to the public, and in order not to be seen as favouring one businessman over another, I believe it will be better for the government to give the contracts to GLCs, if indeed it wants to pursue the direct negotiation route,” said CIMB Investment Bank analyst Faisal Syed Ahmad.
He said with direct negotiations, it can save
a year in development time from the point of
the proposal, while the competitive bidding
process takes time.
Analysts agree that in order to curtail potential backlash on direct negotiations, in the interim, the 100 per cent government-owned 1Malaysia Development Bhd (1MDB), should be given the task of building new power plants.
“You cannot be seen to be favouring anyone... if you give it to yourself, and provided the rates are competitive, I believe Malaysians will be supportive as the alternative is power outages, which will result in higher electricity bills,” said Mercury Securities head of research Edmund Tham.
He said state-owned 1MDB is no greenhorn in the power business, as the company is currently the country’s second-largest independent power producer.
The company, on its website, states that it can generate up to 3,080 megawatt (MW) of power in Malaysia and that its overseas capacity stands at 2,490MW.
The Energy Commission has to act fast as Malaysia’s electricity demand is expected to grow by three to four per cent per annum, almost mirroring the country’s annualised gross domestic product growth from 2000 to 2013, which stood at about 4.4 per cent.
The annualised growth rate implies that the Malaysian economic engine has been growing faster than the supply of power and analysts had said recently there is an urgent need for Malaysia to replace its ageing power plants as the energy reserve margins could fall to 10 per cent from the safe level of 30 per cent.
The World Bank states that from 1961 to 2013, the Malaysian economy has been growing at an annualised rate of 6.38 per cent.
“The devil is in the detail. We need to move fast, as time apparently is not on our side. It seems that we are merely playing catch-up at each level,” said Tham, adding that a number of power plants are effectively at the end of their useful lives and no longer competitive.
The existing ageing and inefficient power plants reduce the capacity of electricity generators to supply sufficient power effectively.
According to Tham, with the first-generation capacity expiring between 2015 and 2017, at least 4,105MW of capacity needs replacing immediately.