Malaysia: Power plays

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Change is in the air for Malaysia’s power sector, with recent developments including bids on new facilities and change of ownership for old ones. Government oversight has also been evolving, throwing up questions about what the sector’s make up will be in the near term.

The recent changes were set in motion in December 2011, when the government announced plans to build power plants with a total generating capacity of 4500 MW by 2016. The new power generators will replace the capacity lost from retiring plants and add supply to meet increasing demand.

In fact, the second half of 2012 could signal the beginning of a period of strong growth for the power engineering business, Chris Eng, the head of research at OSK Investment Bank, told The Star on December 31.

This will go hand–in-hand with the replacement of first-generation power purchase agreements (PPAs) with new contracts. Eng expected this to be positive in the longer term for both the independent power producers (IPPs) and Tenaga Nasional (TNB), the national electricity utility company.

“As the first-generation PPAs expire from 2015 to 2017,” Eng said, “it is crucial to start the competitive bidding process now to ensure that the new plants are ready by 2016. Without these new plants, Malaysia’s reserve margin is likely to drop to 10% by August 2017.” The country’s reserve margin officially stands at above 35%, but many believe the actual number is significantly lower.

Adding to the mix, the government is allowing bidders for the tenders to include foreign power players partnering with local companies. Many of these bidders will be looking forward to mid-March, when the Energy Commission (EC) is scheduled to release a shortlist of bidders for a combined–cycle, gas turbine (CCGT) power project worth approximately $10bn.

The project, a 1400-MW plant next to Malakoff Corporation’s existing 350-MW CCGT Prai Power Plant, will comprise part of the post-2016 plans to add 4500 MW of capacity. According to the EC’s chairman, Ahmad Tajuddin Ali, the successful bidder should be announced by the third quarter of this year. The plant itself is targeted to come on-stream by mid-2016.

In an interview with The Edge, Tajuddin also said the EC plans to invite tenders for the remaining 3100 MW capacity in two parts. The first would be to replace the 2000 MW that will go offline when the first-generation PPAs expire, and each new plant’s capacity will be between 750 MW and 1000 MW. Both will likely be gas powered, he added.

Meanwhile, French firm Alstom announced on February 23 that it had secured a $1.1bn contract to build a “supercritical” coal-fired power plant in Tanjung Bin. The contract was awarded to Alstom as part of a consortium that includes Malaysian building materials firm Mudajaya and construction company Shin Eversendai. The total value of the consortium’s contract is more than $1.34bn, according to Alstom’s website.

Alstom made its announcement the day after Malaysian business magnate, T. Ananda Krishnan, announced he was selling his entire power portfolio in Malaysia, South Asia and the Middle East, with local media reporting that unnamed sources have claimed a Malaysian company is in talks to buy the entire portfolio in a deal that could be worth between $3.2bn and $3.6bn.

Through his Tanjong Energy Group, Ananda owns stakes in approximately 12 power plants with a net generating capacity of nearly 4000 MW. In Malaysia, Tanjong’s power plants include the 720-MW gas-fired, combined-cycle Telok Gong Power Station Two; the 440-MW, gas-fired, open-cycle Telok Gong Power Station One; and the 330-MW gas-fired, combined-cycle Tanjung Kling Power Station.

Another change – this one of governmental organisation rather than of ownership – is that the new power plants will come under the EC’s purview. This is particularly relevant because the government recently swapped jurisdiction over the regulation of piped gas from the Economic Planning Unit to the EC. If the new plants do end up being gas-powered, the EC’s authority will be increased, as it will have the power to set gas tariffs for the new plants.

With so many changes taking place in such a short time, 2012 is thus looking to be an interesting year for the country’s power producers and energy players, with many watching closely to see how the sector will look in the long term.


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