Electricity glut in Sarawak

By YAP LENG KUEN
lengkuen@thestar.com.my

Tuesday August 3, 2010

PETALING JAYA: There is likely to be a major power glut in Sarawak with the coming on stream of two major hydro power projects by the end of 2013 and the lack of firm commitments from investors to take the power up, industry players said.

There will be 2,400MW of capacity from the RM7.3bil Bakun Dam by the end of 2012 while a further 944MW will be added from the RM3.5bil Murum Dam by the end of 2013.

About 300MW of hydropower from the first turbine at the RM7.3bil Bakun Dam is expected to be generated by the middle of next year and 600-900MW by end of next year; by 2012, all eight turbines are expected to be in place.

Murum Dam is currently 27% completed with the RM3.5bil job awarded to China’s Three Gorges Project Corp and sub-contracted to Sinohydro Corp Ltd.

Total installed capacity from these two dams is 3,344MW but firm power that is available for use at anytime will be about 2,420MW (1,770MW from Bakun and 650MW from Murum).

Sarawak’s current capacity of 1,300MW already considerably exceeds peak demand of 900MW (excluding power to Press Metal’s aluminium smelter, which will initially take up 90MW).

Apart from organic demand, industries from the Sarawak Corridor of Renewable Energy (SCORE) are projected to start taking about 500MW in 2012 and close to 2,000MW by 2014, according to projections by Sarawak Energy Bhd, the state electricity utility.

Sarawak Energy owns Murum Dam while Bakun Dam is owned by Sarawak Hidro Sdn Bhd which is in turn wholly-owned by the Government’s Minister of Finance Inc.

“By 2015, Sarawak expects a commitment of 2,590MW which exceeds the combined firm capacity of Bakun and Murum (2,420MW),” an industry source said.

However, industry players are not convinced that commitments will materialise to increase the power demand by 2,600 MW a year, nearly three times Sarawak’s current demand.

Sarawak Hidro still does not have an agreement to sell its electricity although the dam is going to be flooded soon. Sarawak Energy can’t make a firm decision to buy from Sarawak Hidro because it in turn does not have firm commitments by anyone to purchase the power. There is no agreement on tariffs as yet.

There are said to be 25 negotiations going on with 12 potential purchasers at an advanced stage of working out the details on the term sheet, sources indicated.

“It is a Catch 22 situation,” said an industry source. “Investors want to know how Sarawak Energy is strategising its position in relation to the Bakun Dam project. Sarawak Energy needs to get the financial commitment from Sarawak Hidro in terms of their financial models (upon which the tariffs will be calculated).”

In the interim, Sarawak Energy is likely to be take power from Bakun to maintain its gas turbines and coal fired plants. “Sarawak Energy needs to do maintenance,” said the industry source. “It will probably shut down these plants and draw down the power from Bakun.”

There has been talk that Sarawak Energy is eyeing the purchase of the mammoth Bakun project at an indicative price of RM6bil (minus compensation costs for a previously botched job as well as resettlement costs) compared with the asking price of RM8bil.

The issue of tariffs is also another thorny matter with Sarawak Energy looking at just below 8 sen per KwH while their heavy offtakers – the aluminium smelters – are only talking of slightly less than four US cents (13.6 sen on an exchange rate of RM3.40 to the dollar) per KwH.

At Sarawak Hidro, various costs are imputed, making the tariff range acceptable at 10 to 15 sen per KwH.

Current talks with two potential aluminium smelters are focused on the commercial terms in the initial power purchase agreements.

These are:

·The smelter project by Cahya Mata Sarawak Bhd (CMS) and Australia-based Rio Tinto Alcan, which requires between 900MW and 1,200MW for an initial annual capacity of up to 720,000 tonnes; and

·Smelter Asia with an initial annual capacity of 330,000 tonnes requiring 600MW. Smelter Asia is jointly owned by Tan Sri Syed Mokhtar Al-Bukhary’s vehicle GIIG Holdings Sdn Bhd and China’s Aluminium Corp.

At the same time, there are ongoing talks with smaller users of 150-200MW such those in poly silicon, manganese and ferro silicon industries. They do not use as much power as smelters and cost of power is not a significant part of their overall costs.

The power glut does not stop at Bakun and Murum. Plans to build another five smaller dams are likely to commence later.

A 245MW dam can be built in Limbang if Sarawak Energy succeeds in pushing the Sarawak grid from Miri to Limbang, something which will involve passing through Brunei.

“Sarawak Energy hopes to get strong commitment from Brunei before the end of this month for up to 400MW by 2015; the first phase of offtake is for 100MW in 2012,” said the industry source.

The 100MW dam at Lawas may be built in one or two years as Sarawak Energy is expected to engage with Sabah Electricity Sdn Bhd and Tenaga Nasional Bhd on supply of power to the state, pending their decision to proceed with the 300MW Liwagu hydro dam in Sabah.

Source: The Star
URL: http://biz.thestar.com.my/news/story.asp?file=%2F2010%2F8%2F3%2Fbusiness%2F6782656&sec=business