It was reported last week that the Energy Commission had requested for proposals from two power plant operators for an additional 1,000MW coal-fired plant.
According to the Energy Commission's chairman Tan Sri Ahmad Tajuddin Mohd Ali, the requests were made to two independent power producers (IPPs). One was made to Tanjung Bin Power Plant, run by Malakoff Bhd, which is under MMC Corp Bhd while the other to Jimah Power, which is owned by Jimah Energy Ventures Sdn Bhd.
Ahmad Tajuddin was quoted as saying that the Energy Commission would then evaluate both proposals and make its recommendation to the government as to who should be awarded the project. No timeline, however, was given as to when the commission would make its decision.
The commission had awarded the first 1,000MW coal-fired power plant to Tenaga Nasional Bhd earlier in the year. Tenaga will expand its Janamanjung coal-fired plant by 1,000MW.
The cost of the second coal-fired power plant was not disclosed. According to reports, Tenaga's expansion of the Janamanjung coal-fired plant could come with a price tag of RM4.5 billion. Earlier reports had placed the total cost for the 2,000MW expansion at between RM6 billion and RM7 billion.
Regardless, the project would prove a boon to either IPP, as well as construction players who specialise in the construction of power plants.
If Malakoff were awarded the job, besides benefiting parent MMC, it could also help in the turnaround of Zelan Bhd. The latter, in which MMC has a 39.25% interest, was formerly a high-flyer until a shareholders tussle coloured sentiment.
MMC has already teamed up with Zelan to bid for the civil works package for the LRT expansion. It should also be noted that Zelan has had experience in civil works for power plants, and had once aspired to become an IPP as well.
In its latest third-quarter results, MMC saw its net profit jump, driven by its energy and utilities division. In addition, given the ongoing curtailment of gas by national oil company Petroliam Nasional Bhd, coal is set to be an increasingly important fuel source going forward.
As for privately-held Jimah, the newest IPP to come on stream, the expansion of its facilities could help ease its highly leveraged balance sheet (depending on the financing that is secured).
Analysts are expecting the announcement of the second phase of the power expansion programme to be another catalyst for local construction players as well as those who supply building materials.
"Mudajaya Group Bhd could very well secure at least part of the civil works if Jimah were awarded the contract, as MMC would most likely turn to Zelan for that portion. Given that Mudajaya has had issues with its IPP in India, a project back home would help to protect its earnings," said an analyst.
Mudajaya was involved in the construction of the Jimah power plant in Port Dickson.
In the broader picture, international players such as Alstom and Siemens would also welcome the influx of new power projects.
According to Ahmad Tajuddin, the second coal-fired plant will commence operations in 1Q2016. Tenaga's new 1,000MW for Janamanjung is due to come on stream on March 1, 2015.
However, sceptics are already asking whether it is too soon to start evaluating proposals for the second 1,000MW coal-fired plant given that Tenaga has not even started construction of its Janamanjung expansion.
"The current worry by the government is that the country will see a power crunch without power from Bakun coming in. However, it should be kept in mind that as at September, the reserve margin stood at 42%. Ultimately, it could result in a repeat of the current scenario where Tenaga ends up paying for power it does not need, not to mention that keeping such a high reserve margin is inefficient," said an industry observer.
The usual accepted buffer is around 20%.
Sceptics also pointed out that while Tenaga, MMC and Jimah were contenders for the first 1,000MW, the proposal was made straight to the IPPs this time around.
"Although there has been criticism that Tenaga has no experience and track record in the building of power plants, given the high reserve margin, there is no hurry for the second phase to start so soon.
"And since Tenaga is the ultimate off taker, it should have also been given a chance to participate in the second 1,000MW after more progress has been made on the first phase. It would not only allow Tenaga a chance to prove its capabilities, but on the flipside, if unsuccessful, the burden will come down on the national power provider rather than the IPPs," said the industry observer.
This article appears in the Nov 29 edition of The Edge Financial Daily.
TOP PICKS BY EDGEPROP
Rumah Berkembar 2 Tingkat di Kuala Kedah
Kuala Kedah, Kedah
CORNER LOT Teres Dua Tingkat Kajang Tanah Luas
Peaceful Area ,Good For Ownstay & Investment
Segambut, Kuala Lumpur
Petaling Jaya 3 storey semi factory for rent
Petaling Jaya, Selangor
0 booking fee FOR condo Beside UNIVERSITY
Bukit Jalil, Kuala Lumpur
NEW 1 Sty SEMI D Seksyen U14 Booking RM500 Only
Shah Alam, Selangor
Ready Tenant, Confirm Rental Get Up To Rm3000
[ STAY & INVEST ] BESIDE XIAMEN ,DOOR STEP TO MALL
Welcome Investor, Confirm Rental Beside Famous Uni
Luxury Duplex Concept Condo Beside MRT
Cheras, Kuala Lumpur
Nearby Airport , Best Choice For Cabin Crew& Pilot
LUXURY CONDO WITH INFINITY POOL,1st HOME BUYER
The Grand Subang SS13 Fully Furnished
Bandar Sunway, Selangor
[270K HOT SELLING INVESTMENT PASSIVE INCOME 2R+2B]
Twin Key Project Surround by University & Malls
KL Sentral, Kuala Lumpur
[RENTAL GET RM 3000 READY TENANT 2020 NEW PROJECT]
0 Booking , 30K Cash Back , Freehold Condo
Nilai, Negeri Sembilan