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Saturday, 27 June 2015

Your bill for extreme meroyan: RM8.6 BILLION (not including 6% GST)

About a week ago, Tenaga announced that the Electricity Commission (EC) has accepted Tenaga to take over from 1MDB as the lead developer in Track 3B, a 2,000MW coal-fired power plant in Jimah.

The final tariff for this 25 years concession will be 26.67 sen/kwh which is 1.34 sen higher than the initial tariff of 25.33 sen/kwh given to 1MDB.

Gosh! Scandal! Crony! Bail-out!

Higher Power Purchase Rates for Tenaga because it had to "bail out" 1MDB who is unable to raise financing for the Track 3B plant!

Wait... hang on...

When 1MDB bid 25.33 sen/kwh and won this project in early 2014, the 26.67 sen/kwh price was EXACTLY the price of the nearest qualified bidder,

Shortly after winning the Track 3B tender, 1MDB issued this press release on 7th March 2014:
"Their levellised tariff of 25.33 sen/kWh is very competitive where it is 1.34 sen/kWh lower than the next ranked bidder - or 26.67 sen/kwn

In essence, the Electric Commission (EC) is basically just awarding the project to the next lowest bidder, since 1MDB failed to deliver this project in time.

Tenaga did not get a higher PPA tariff by taking over the project from 1MDB than what the next lowest bidder offered in 2014!

That would still mean that this deal is profitable to Tenaga who now takes over the project and Tenaga will still make (a lot of) money from this project.

So, what if the tariff given to Tenaga is now higher than to 1MDB?
According to Affin Hwang, the imbalance cost pass-through (ICPT) mechanism would be used to address the potential higher tariff for Track 3B, which means that the additional costs associated with Track 3B may be passed on to consumers under the generation-specific cost adjustment portion of the ICPT.
Okay, so it means we might have to pay higher electricity rates in future.

But it's only 1.34 sen/kWh extra mah. Satu perpuluhan tiga empat sen saja. Kacang putih.

But wait again....
CIMB Research estimates the 1.34 sen/kwh hike in tariff will translate into a present value of almost RM2bil.
Okay.. Net present value of RM2b. So, what does a Net PRESENT value translates to over the entire 25 years concession period?

Let's use a discount rate of 6% and expand that over 25 years.

That would mean...  RM8.6 billion.

Yes, potentially Malaysian consumers can expect to pay an additional RM8.6 billion extra for their electricity bills over the next 25 years.

Rakyat pay and not govt pay to TNB and correspondingly, the IPPs.
RM8.6 beluyon... Sap Sap Water.

RM8.6b extra because of the political power and extreme negative publicity that caused 1MDB to no longer be able to access government guarantees or borrow any more money from the capital markets to deliver this Track 3B power plant.

Why was 1MDB able to bid lower prices initially before all the bad publicity and political pressures hit it?
Affin Hwang Capital said TNB may need to take into account its higher Weighted Average Cost of Capital (WACC) of 8% compared with 1MDB's lower WACC, which is around mid-single digits.
Yes, because initially 1MDB was able to borrow cheaply - IF it had no political pressure and was still able to draw on government guarantees and/or there was no extreme negative publicity that caused the banks and capital markets to avoid it.

It is a fact that at the time when 1MDB was building up its IPP business, every single electricity generation bid - whether new or renewal - the price that 1MDB offered was the lowest among all the qualified bidders including the Prai plant which they lost out to TNB.

High profits at 1MDB's power unit must come from elsewhere - and eventually the cost is passed to the people.. So what if 1MDB's power business makes less profits by always being the lowest bidder when the winners would be the rakyat?

I find it really funny that 1MDB has been continually whacked for its IPP business because they are not profitable enough or people claim they overpaid for their IPP assets - especially since the write-downs of the IPP asset was self-inflicted because the govt asked its own 100% subsidiary to lower their IPP rates or did not extend the concession for one of their less-efficient power-plants.

Higher 1MDB IPP profits = less money for Rakyat.
Lower 1MDB IPP profits = more money for Rakyat.

The above is a simple formula, no?

Now, 1MDB is constrained and can no longer do this anymore.

And because Malaysians shot ourselves in the foot again, we may end-up paying an additional RM8.6 billion extra over the next 25 years just from this Track 3B deal alone to pay for our melatah and meroyan and our gullibility to be cheated by politicians and the biased media.

1 comment:

  1. This is quite a detailed analysis and it is quite clear that you are well informed about this whole issue. Sometimes politicians can be cunning and we require people like you who are able to reveal to us what their plan is all about. Feel free to click on this link: Procurrement Thesis Proposal Help