Bakun Dam saga enters next chapter

20 April 2011

Behind The News - Yap Leng Kuen

Should project be viewed as a business deal or part of state development?

THE protracted story of the Bakun Hydroelectric Dam project, instead of ending soon, may be just going into its next chapter.

The latest saga in the tariff pricing disagreement between Sarawak Hidro Sdn Bhd, owner and developer of the dam, and Sarawak Energy Bhd (SEB), the offtaker and state utility board, is entering its fourth scenario.

The first round of talks just after the completion of the dam looked at its possible sale or lease; subsequently, Sarawak expressed its intention to buy over the dam.

News surfaced recently that the sale of Bakun was off and that it would be operated on a joint-venture basis.

The latest is that SEB has proposed to buy a 30% stake in the project.

The power negotiations too have undergone three changes from earlier suggestions of flat to escalating tariffs. Currently, the offer is for a starting tariff of six sen per KwH.

In February this year, SEB had indicated it was willing to pay six sen per kwh but Sarawak Hidro said it needed a flat rate of 9.5 sen per kwh on a 30-year concession.

On an escalating basis, SEB had offered 5.4 sen per kwh at 1.5% per annum (inclusive of a one sen water tariff to the state); Sarawak Hidro had countered with 6.75 sen per kwh, also at 1.5% per annum.

The power purchase agreement (PPA) negotiations went on a rocky path last month with different instructions from the state and federal governments. Early last month, the PPA talks were ordered off by the state and later in the same month, the federal government expressed the desire for the PPA to be concluded as soon as possible.

The question here is whether the Bakun Dam project should be viewed as a purely business deal or part of the socio-economic development of Sarawak?

As a business deal, the Government should make every effort to recover its investments.

If it wants to play its developmental role, it may consider taking a hit and absorbing some losses while helping Sarawak to achieve its industrial goals.

Under the study conducted by PwC, it is believed that the Bakun project is valued at between RM8bil and RM10bil; however, Sarawak's latest tariff offer of six sen per kwh values it at only RM6bil.

In contrast, coal-fired tariffs cost 28 sen per kwh.

Some ask if giving a hefty discount is justified, as more expensive dams are coming up. They say it is not fair that power from Bakun has to be sold cheaply to subsidise the construction of these additional dams.

Others want to know why the cost of transmission via the new grid system is much higher, at over four sen per kwh compared with the cost of only one sen in the peninsula.

Sarawak has said it needs 6.000MW-7,000MW of power by 2020. Bakun has a capacity for 2,400MW and Murum is able to produce 944MW.

Others still pose questions on why polluting industries should take advantage of the cheap, clean power from Bakun.

These heavy industries located in the Sarawak Corridor of Renewable Energy (SCORE) have rebutted that they use advanced technology that do not pose a threat to the environment.

Scare tactics have been used which speculated on the possibility that the Bakun Dam project could end up being a white elephant if industries were not attracted to soak up the power at competitive rates.

Looking at the power requirements of Peninsular Malaysia beyond 2015, this power from Bakun may be transmitted back to the peninsula. Is it worth it to revive the idea of building the undersea transmission line especially in the wake of the nuclear scare and the limit on Malaysia's carbon footprint under the now expired Kyoto Protocol?

Already the pressure is on to conclude the tariff negotiations. Sarawak has signed non-binding agreements with four companies to supply power. Their plants are at the preliminary stages of planning and construction.

Source: The Star Online

URL: http://biz.thestar.com.my/news/story.asp?file=/2011/4/20/business/8516081&sec=business

SEB to buy 30% of Bakun Dam for RM1.3bil?

20 April 2011

By YAP LENG KUEN
lengkuen@thestar.com.my

PETALING JAYA: Sarawak Energy Bhd (SEB), the state utility company, is believed to have proposed to acquire a 30% stake in the Bakun Hydroelectric Power project for RM1.3bil cash, sources said. The payment would likely be in the form of equity of RM700mil and a shareholders' loan of RM650mil, the sources added.

Based on its latest offer of a starting tariff of six sen per kwh, SEB is said to be working on a valuation of RM6bil for the Bakun Dam project compared with the cost of construction of RM7.46bil.

It is learnt that Sarawak Hidro Sdn Bhd, the owner and developer of Bakun Dam, finds the offer too low and is looking closer to seven sen per kwh, which will value the project at about RM8bil.

Sarawak Hidro's valuation is in line with the findings of a recent study by PwC, believed to be commissioned by the Finance Ministry (MOF), which valued Bakun at between RM8bil and RM10bil, sources said.

The Bakun Dam early this year

“Therefore, at SEB's valuation of RM6bil, it is believed that the valuation of Bakun will go down below its debt of RM5.75bil,'' the sources added.

“The MOF, which owns Sarawak Hidro, is handling these negotiations,'' said a source. “They will probably be working closely with SEB to find a mutually acceptable solution.''

The offer of six sen per kwh took into account a one sen water tariff the dam owner is obliged to pay to the state, sources said, adding that while asking for concessions from the Federal Government, the state should consider giving some leeway in terms of land charges and water levies.

Sarawak Hidro's price tag of RM7.46bil includes a RM950mil compensation to Ekran Bhd, the previous developer that could not complete the job, and RM500mil in resettlement costs.

Late last year, SEB had offered RM6bil to buy over the entire dam project. The MOF is believed to have cautioned that a sale of the mammoth project at below cost would be subject to scrutiny from the Public Accounts Committee.

Subsequently, SEB increased its offer to RM7bil with the following conditions:

The debt of RM5.75bil must be guaranteed by the Federal Government;

The equity portion of RM1.25bil would be paid over two years; however, there were no other details on this;

SEB wanted immediate control of the dam; and

The Federal Government must indemnify any potential cost over-runs.

Earlier talks had centred around possibilities of paying tariffs at flat and escalating rates; however, the parties could not come to any agreement.

This tussle involving ownership and power tariffs at the Bakun Dam has received the attention of top government officials.

It is believed to be in the agenda chaired by the Prime Minister at the oil, gas and energy committee under the Performance Management and Delivery Unit (Pemandu).

Sources said the talks were likely to last a few more months. “Both parties need each other badly,'' said a source, adding that they just needed to hammer out an acceptable solution for all.

The 2,400MW Bakun Dam is ready to supply 300MW in about three months' time, while SEB has signed term sheets with four companies Press Metal Bhd, OM Materials, Asia Minerals Ltd and Tokuyama Corp for supply of 1,300MW for their upcoming plants.

Source: The Star Online
URL: http://biz.thestar.com.my/news/story.asp?file=/2011/4/20/business/8514165&sec=business

Tariff deal to materialise soon for S’wak Hidro, S’wak Energy

4 May 2011

KUCHING: Recent news flow on the power tariff negotiations between Sarawak Hidro Sdn Bhd (Sarawak Hidro) and Sarawak Energy Bhd (Sarawak Energy) has been positive – implying that a deal could be on the cards soon.

According to a report, a power purchase agreement (PPA) between both parties would likely be signed in two months.

Both federal and state governments were believed to have reached a pact on tariffs for power off-take from the Bakun damn earlier last week.

It was likely to be between Sarawak Energy’s starting rates of six sen per kilowatt hour (KwH) and seven sen per KwH as requested by Sarawak Hidro, the owner and developer of Bakun dam. By extension, this would place the valuation of the RM7.5 billion Bakun dam to be somewhere between RM6 billion and RM8 billion.

At seven sen per KwH, Sarawak Hidro’s valuation was in line with the findings of a recent study by PriceWaterhouseCoopers – which valued Bakun at between RM8 billion and RM10 billion.

It was also reported last month that Sarawak Energy had proposed to take up a 30 per cent stake in the Bakun project for RM1.3 billion, RM700 million of which would likely be via equity injection and the balance RM650 million coming from shareholders’ loan. By extension, this implied a valuation of RM6 billion based on a Sarawak Energy’s offer of six sen per KwH.

Furthermore, AmResearch Sdn Bhd (AmResearch) gathered the 2,400 megawatt (MW)-Bakun dam was ready to supply its first 300MW of power by July.

“Sarawak Energy has moved quickly to sign PPA term sheets with four companies – Press Metal Bhd (Press Metal), OM Materials, Asia Minerals Ltd and Tokuyama Corp. These first batches of companies are expected to consume a combined 1,300MW for their respective plants, to be located at Samalaju Industrial Park in Bintulu.

“This was quickly followed by an agreement between Gulf International Investment Group Holdings Sdn Bhd and Aluminium Corp of China to set up an US$1.5 billion aluminium smelter in Similajau. The smelter is expected to take up 600MW of power initially based on a production capacity of 370,000 tonnes,” stated AmResearch in its sectoral update report.

The research house’s ground checks indicated that Sarawak Aluminium Smelting Sdn Bhd – a joint-venture between Rio Tinto Alcan and the Cahya Mata Sarawak group – could be a third player to set up an aluminium smelter in Similajau.

“The smelter is expected to consume between 900MW and 1,200MW of power against an annual capacity of up to 720,000 tonnes,” said AmResearch.

The research house continued to favour Press Metal as an early beneficiary of crystallisation of long-term power supply with Sarawak Energy. To be sure, the group is currently the only direct play on the commissioning of Bakun dam.

AmResearch pointed out that Press Metal’s recent capital raising manoeuvres positioned the group to embark on Phase Two of its expansion programme that could potentially triple capacity to 360,000 tonnes by end-2012.

Source: Borneo Post Online

URL: http://www.theborneopost.com/?p=127687

State govt to meet PM to finalise Bakun purchase

3 December 2010

KUCHING: The state government will meet up with the Prime Minister to finalise the buying over of Bakun dam from the federal government, revealed Chief Minister Pehin Sri Abdul Taib Mahmud.

The Bakun Dam project is worth a staggering RM7.3 billion and is owned by the Ministry of Finance Incorporated.

Sarawak has shown keen interest to acquire the dam as it needed extra power to implement its’ projects under the Sarawak Corridor of Renewable Energy (SCORE).

“We are going to have a meeting with the prime minister (on the Bakun Dam). We are waiting for him to arrange his time,” Taib told the media after launching the Sarawak Foundry and Engineering Industry Association Building and Automotive and Wielding Institute of Sarawak at Demak Laut Industrial Estate Phase II, here yesterday.

Sarawak has placed RM7 billion to bid for Bakun Dam.

Meanwhile, Taib who is also the Minister of Planning and Resources Management said Sarawak was targeting to harness 7,000 megawatts of power, mainly from hydro-electricity by 2020 to attract investors into SCORE.

He said among the projects that would require high-intensive power supply are aluminium smelting plants, magnesium plants, pulp and paper plants, glass panel plants and shipbuilding.

Source: The Borneo Post Online

URL: http://www.theborneopost.com/?p=78343

'Autocratic' Sarawak govt slammed over Sesco

24 June 2010

By FMT Staff

KUCHING: A leader of PKR Sarawak, Dominique Ng, has slammed the state government for being autocratic in dealing with public properties.

Ng, who is Padungan state assemblyman, was commenting on the government's “flip-flop” over the privatisation of the Sarawak Electricity Supply Corporation (Sesco).

He said that the State Legislative Assembly had approved the privatisation of Sesco in 2004 but in just five years, the Barisan Nasional government had a change of mind.

It offered and has bought back all the privately owned shares of Sarawak Energy Bhd. Notice was given on the website and in national dailies on Nov 30 and Dec1, 2009.

“From public to private-owned in 2004, then back to government-owned in 2009: a major state asset has been tossed about twice without prior public hearing or consultation," said Ng.

“The rakyat have been kept in the dark. The government’s arrogance in denying the public any say in governance and in major public policy matters shows that it is non-transparent.

“Without explanation to the public, the government has bought back all the privately-owned shares of Sarawak Energy in 2009,” he said.

Cash-rich asset

Ng pointed out that Sesco was a cash-rich asset of the Sarawak government.

“What is the state of Sesco/Sarawak Energy now, following the privatisation in 2004 and de-privatisation in 2009?” he asked.

“This has become a pattern of the autocratic behaviour of the BN government. Sell at its whim, buy back on a fancy, motivated by greed -- whether it is Sesco, native customary rights land or Kuching government land,” he added.

"The BN government owes an explanation to the people of Sarawak: it must make available all annual financial reports of Sesco/Sarawak Energy from 2004 to 2009 to the public for scrutiny."

He said that while consumers suffered, Sarawak Energy made substantial profit. In 2005, the pre-tax profit was RM95 million compared with RM75 million in 2004.

“The government handed Sesco to Sarawak Energy without the latter having to pay, but the government had to pay a high sum on the buy-back offer,” he said.

Source: http://www.freemalaysiatoday.com/fmt-english/politics/sabah-and-sarawak/7224-autocratic-sarawak-govt-slammed-over-sesco-

Power transmission to cater for smelter project

5 February 2010

By JACK WONG

jackwong@thestar.com.my

KUCHING: The RM209mil Bakun-Similajau overhead transmission system project is for the import of additional electricity into the Sarawak state power grid system but primarily, to meet the power requirements of the proposed aluminium smelter project in Samalaju Industrial Park in Bintulu Division.

The project was awarded by Sarawak Energy Bhd (SEB) to Sinohydro-Naim joint venture last month. Sinohydro and Naim Holdings Bhd have a 60:40 share respectively in the joint venture.

“Sinohydro will provide the technological know-how and expertise in the implementation of the project,” said Naim corporate service and human resource senior director Ricky Kho.

He said the project would involve the construction of two transmission lines, one of which is a 112-km double-circuit quad bundle 275-kV line from the proposed Similajau power substation to the Bakun hydroelectric dam substation in the upper Rejang River Basin.

The second line would involve the construction of a 26-km double-circuit quad bundle 275-kV line from the proposed Similajau substation to the proposed aluminium smelter substation, Kho said.

“The project will develop the second phase of transmission interconnection between Bakun and Similajau 275-kV substation.

“It serves to reinforce power import of more than 1,000MW additional power from Bakun dam into the state power grid system, and between 900MW and 1,200MW from Bakun dam into the proposed aluminium smelter in the Samalaju Industrial Park,” he told StarBiz yesterday.

Kho said preliminary works of the Bakun-Similajau transmission line project started a month ago.

The project’s completion date under the two-year contract is Jan 3, 2012.

In 2007, Rio Tinto Alcan, the world’s third largest mining group, and Cahya Mata Sarawak Bhd (CMSB), announced the setting up of a 60:40 joint venture to invest in a proposed RM7bil aluminium smelter in Samalaju Industrial Park. The proposed smelter is expected to start with an initial production of 550,000 tonnes a year, which will eventually be raised to 1.5mil tonnes annually.

Under a memorandum of undstanding (MoU) signed between SEB, CMSB and Rio Tinto in 2008, SEB would supply power of between 900MW and 1,200MW to the proposed Rio Tinto-CMSB JV aluminium smelter. Bakun dam, which could generate up to 2,400MW, is expected to start producing 300MW in the fourth quarter of this year.
— By JACK WONG

Source: The Star
Link: http://biz.thestar.com.my/news/story.asp?file=/2010/2/5/business/5615539&sec=business