Ananda Krishnan’s sale of his power generation assets at this
time raises a number of questions and concerns – more so as the assets
are being sold to 1MDB, whose debt is guaranteed by the federal
government.
1MDB is a “strategic development company” owned by the Malaysian government. The firm started life as the Terengganu Investment Authority (TIA), which was set up to manage Terengganu’s RM1bn annual revenue from oil royalties under what would be the country’s second sovereign wealth fund. It has issued bonds (on the strength of its oil royalty income i.e. our oil money) and these have been guaranteed by the federal government (i.e. the public bears the burden of the guarantee).
The RM8.5bn deal between Ananda Krishnan’s Tanjung Energy Holdings Sdn Bhd and 1MDB should be viewed against the following backdrop:
Tenaga has been incurring huge losses in recent quarters. Apart from the shortage of natural gas, TNB is groaning from the heavy burden of capacity payments to IPPs. In FY2010, the capacity payments amounted to RM15.9bn; in FY2011, the these payments soared to RM19.2bn. IPPs, especially the first generation, have profited from such favourable terms – at TNB’s expense (and by extension, the Malaysian public’s expense – as TNB is a government-linked firm).
The Energy Commission has reportedly announced that these first generation IPPs would be required to take a cut in capacity payments (based on installed capacity) before their contracts can be extended. The Edge (5 March 2012) reported that when the first round of power purchase agreements (PPAs) start expiring in 2016, IPPs may have to mothball their plants if the PPA renegotiations remain deadlocked (which means they will not be allowed to sell their power to TNB).
Because of the shortage of natural gas (for whatever reason), Petronas is moving towards importing more natural gas. At present, gas subsidies are gradually being removed. Soon, the cost of gas that Tenaga buys will move up closer to market price, and the IPPs may be asked to absorb a share of the higher cost of fuel.
Also, Pakatan has indicated that if it comes to power in Putrajaya, it will renegotiate the lop-sided PPAs, which were entered into under the Mahathir administration – for which Tenaga has suffered immensely. The IPPs are bound to be concerned about what could happen if Pakatan comes to power. The gravy train could come to a screeching halt.
This article in the Malaysian Insider raises concerns about the deal itself.
1MDB is a “strategic development company” owned by the Malaysian government. The firm started life as the Terengganu Investment Authority (TIA), which was set up to manage Terengganu’s RM1bn annual revenue from oil royalties under what would be the country’s second sovereign wealth fund. It has issued bonds (on the strength of its oil royalty income i.e. our oil money) and these have been guaranteed by the federal government (i.e. the public bears the burden of the guarantee).
The RM8.5bn deal between Ananda Krishnan’s Tanjung Energy Holdings Sdn Bhd and 1MDB should be viewed against the following backdrop:
Tenaga has been incurring huge losses in recent quarters. Apart from the shortage of natural gas, TNB is groaning from the heavy burden of capacity payments to IPPs. In FY2010, the capacity payments amounted to RM15.9bn; in FY2011, the these payments soared to RM19.2bn. IPPs, especially the first generation, have profited from such favourable terms – at TNB’s expense (and by extension, the Malaysian public’s expense – as TNB is a government-linked firm).
The Energy Commission has reportedly announced that these first generation IPPs would be required to take a cut in capacity payments (based on installed capacity) before their contracts can be extended. The Edge (5 March 2012) reported that when the first round of power purchase agreements (PPAs) start expiring in 2016, IPPs may have to mothball their plants if the PPA renegotiations remain deadlocked (which means they will not be allowed to sell their power to TNB).
Because of the shortage of natural gas (for whatever reason), Petronas is moving towards importing more natural gas. At present, gas subsidies are gradually being removed. Soon, the cost of gas that Tenaga buys will move up closer to market price, and the IPPs may be asked to absorb a share of the higher cost of fuel.
Also, Pakatan has indicated that if it comes to power in Putrajaya, it will renegotiate the lop-sided PPAs, which were entered into under the Mahathir administration – for which Tenaga has suffered immensely. The IPPs are bound to be concerned about what could happen if Pakatan comes to power. The gravy train could come to a screeching halt.
This article in the Malaysian Insider raises concerns about the deal itself.
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