Awer: Cancel more directly negotiated IPP projects, save RM10b-RM18b more

PETALING JAYA: Association of Water and Energy Research Malaysia (Awer) president S. Piarapakaran welcomed the disclosure yesterday of the axing of four Independent Power Producers (IPP) projects, but said the government could save a further RM10 billion to RM18 billion in project costs if a few more directly negotiated deals are chopped.

Energy, Science, Technology, Environment and Climate Change Minister Yeo Bee Yin said in reply to a question from Ipoh Timur MP Wong Kah Who in Parliament yesterday that the four IPPs are: 700MW gas power plant in Kapar by Malakoff Corp Bhd and Tenaga Nasional Bhd (TNB); 1,400MW plant in Paka, Terengganu, by Aman Majestic Sdn Bhd and TNB; 300MW Combined Cycle Gas Power Plant by Sabah Development Energy (Sandakan) Sdn Bhd and SM Hydro Energy Sdn Bhd at the Palm Oil Industrial Cluster in Sandakan and the 400MW solar power quota to Edra Power Holdings Sdn Bhd.

These IPPs were awarded through direct negotiations and failed to adhere to stipulated conditions in the offer letter issued by the developer. The projects also would have led the government having to make capacity payments for supply beyond its 32% reserve margin, which Yeo said was the optimal level.

With this termination, she said, the government could recognise a saving of RM1.26 billion in electricity supply cost to consumers.

Piarapakaran told SunBiz projects awarded through direct negotiations are priced higher than competitive bidding, which is eventually factored into the electricity tariff.

“However, there are few more projects that were awarded via direct award, namely Track 4A (by TNB-SIPP), Track 4B (by Edra Power), Tadmax Resources Bhd’s Pulau Indah Combined Cycle Gas Turbine and there were also large-scale solar projects. We foresee bigger savings between RM 10 billion and RM 18 billion by cancelling them. This must be done quickly,” he said.

Referring to an announcement in July that awards for eight IPPs were being reviewed, Piarapakaran said there is still room for more cancellation.

Concurring on the optimisation of capacity payments, Piarapakaran said capacity payment has to be paid once IPPs are in the supply system and have begun commercial operations based on its utilisation rate. This will be eventually passed down in the form of tariffs.

However, he noted that the reserve margin of 32% is more than sufficient as the ideal margin is around 20%.

“As a deterrent, we urge the Auditor General to audit the processes and decisions of power plant projects awarded under the Energy Commission and Sustainable Energy Development Authority since 2011,” Piarapakaran said.

“We have given some points to the relevant minister on how to review and cancel some projects that may be hard to cancel. Above all, in the national interest, foreign equity ownership of a power plant must always be capped at 49%,” he said, referring referring to the Track 4B project by Edra Power which is owned by China-based CGN Group.