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Wednesday, June 22, 2011

Some IPPs get 'favourable' contracts, concedes gov't

The government has conceded that the first generation of independent power producers (IPPs) were offered "relatively favourable terms" at the inception of the IPP programme in the 1990s.

"But this was necessary to address the tremendous growth (in demand) for electricity in the early 1990s and to ensure sufficient and reliable supply of electricity," reads a question-and-answer (Q&A) paper published by the Ministry of Energy, Green Technology and Water.

azlanThe Q&A was distributed at apress conferencechaired by minister Peter Chin in Putrajaya today, to explain issues related to the gas subsidy provided to the power industry and IPPs.

Answering the question 'What is so special about the first generation IPPs?', the document states: 'Being the first batch of IPPs, the risks were relatively unknown for the country as we were still low on the learning curve.

'Thus, the developers had to secure the best possible terms in the power purchase agreement (PPAS) to provide sufficient comfort for all stakeholders especially the financial institutions.'

First generation IPPs refer to the first five companies engaged by the government in 1990s to produce electricity for national electricity company Tenaga Nasional Bhd (TNB).

They are YTL Power, Segari Evergy Ventures, Genting Sanyen Power, Powertek Bhd and Port Dickson Power.

The government is currently renegotiating the PPAs which will expire beginning 2015.

Pemandu rep admits 'gov't made a mistake'

Another representative from the Performance Management and Delivery Unit (Pemandu), who declined to be named when asked by reporters, admitted during the press conference that the government had made a mistake when signing the PPAs with first generation IPPs.

“It was a new game for the private sector, of course they wanted a higher profit margin. At that time, those terms were correct, but after that (only we found that) there was a mistake.

“But it is normal (to make a mistake) for the first time because we were not very sure of the situation,” she said.

“If the opposition was the government at that time, they would do the same thing.”

NONESince raising the multi-tiered electricity tariffs by an average of 7.2 percent on June 1, the government has come under fire for its refusal to reveal the contents of the many PPAs signed between the IPPs and TNB.

Critics of the agreements have argued that the PPAs are lopsided, that they guarantee the IPPs hefty profits, which are borne by consumers.

The government had formed a cabinet committee, comprising of three ministers, namely Minister in the Prime Minister's Department Nor Mohamed Yakcop, Second Finance Minister Ahmad Husni Hanadzlah and Chin, to look into the PPAs.

On the progress of the committee, Chin reiterated that it is not an easy task to review the PPAs which are legal agreements agreed to by both TNB and IPPs.

“To alter any terms is a commercial decision that needs to be agreed by both sides,” he said.

“We hope at least for the first generation of IPPs, we will be able to come out with a way to go forward before the expiry of the PPAs of these IPPs.”

Currently, the outcome of the renegotiation with IPPs is still not clear, said Chin. “I can't make a statement at this juncture.”

Asked why the agreements with toll concessionaires could not be reviewed to benefit the consumers, Chin replied, “My committee hasn't got the power to review.”

Although the government had announced as early as 2006 to renegotiate the PPAs, Chin was not aware why there was no result from the previous effort and what were the difficulties faced by his predecessor.

Nevertheless, the government had learnt its lesson from the first and second generation of IPPs and improvements have been done in the PPAs for third generation IPPs including risk-sharing and competitive bidding, said Chin.

According to TNB chief operating officer Azman Mohd, the issuance of IPP licences to the two latest power plants, namely Janamanjung and Tanjung Bin, was done through competitive bidding, which significantly reduced the tariff.

The PPAs for these two coal-powered plants will be signed within the next six months and they will start producing power in 2015 and 2016, Chin added. - Malaysiakini

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