Deal likely by Federal Govt, Sarawak on tariffs

Posted on April 30, 2011. Filed under: Energy |

-The Star-

PETALING JAYA: The Federal and Sarawak Governments are believed to have struck an agreement on power tariffs for the Bakun Dam project early this week, sources said.

“The rate is likely between the state utility firm Sarawak Energy Bhd’s (SEB) offer for a starting tariff of six sen per kilowatt hour (KwH) and the request from Sarawak Hidro Sdn Bhd, the owner and developer of the Bakun Dam, for around seven sen per KwH,” said the source, declining to eleborate.

This places the valuation of the RM7.46bil Bakun Dam project at RM6bil to RM8bil.

“Things are progressing,” said the source, adding that the power purchase agreement (PPA) would likely be signed in about two months.

However, the talks are currently just centred on the PPA and not on SEB’s earlier proposal for a 30% stake in the 2,400-megawatt (MW) project.

“There is no mention of the proposed joint venture yet,” said the source. “Eventually, that will come through but at the moment, both parties cannot cloud the issues.

“The state government is asking for a low tariff which will result in a low valuation and, therefore, low entry point for their joint venture. That doesn’t seem fair,” said the source.

StarBiz had earlier reported that SEB was believed to have proposed to take up a 30% stake for RM1.3bil cash in the Bakun project and this will likely be in the form of equity of RM700mil and shareholders’ loan of RM650mil.

At seven sen per KwH, Sarawak Hidro’s valuation is in line with the findings of a recent study by PwC, believed to be commissioned by the Finance Ministry, which valued Bakun at RM8bil to RM10bil.

However, based on SEB’s offer of six sen per KwH, which will result in a valuation of RM6bil, it is believed that the valuation of Bakun will go down below its debt of RM5.75bil.

“We expect closure of the matter soon,” said Chris Eng, head of research at OSK Securities. “Salco is expected to sign the PPA before year end.”

“With all the smelters and other users coming up, there should be sufficient demand for power from Bakun,” he added.

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

On Thursday, an agreement was signed between Gulf International Investment Group Holdings Sdn Bhd and Aluminium Corp of China to develop a US$1.5bil aluminium smelting plant in Sarawak.

The plant, Smelter Asia, is targeted to take 600MW initially for production of 370,000 tonnes.

Another big smelting plant, Sarawak Aluminium Smelting Sdn Bhd to be set up by Cahya Mata Sarawak Sdn Bhd and Australia-based Rio Tinto Alcan, requires 900MW to 1,200MW for an annual capacity of up to 720,000 tonnes.

Press Metal, which owns and operates an aluminium smelter in Mukah, will invest RM5bil in a new smelter plant with an estimated production capacity of 240,000 tonnes in the Samalaju industrial estate. The group, which will have a total production capacity of 360,000 tonnes, sold a 20% stake in Press Metal Sarawak to Japan’s Sumitomo Corp last month.

“However, the question is whether we really want to proceed with this plan. Smelters, which are often automated, are heavy consumers of electricity and pose environmental concerns.

“It would appear that Malaysians will continue to subsidise such industries,” Eng opined.

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