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Sunday, 17 February 2019

Energy Commission of Malaysia

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The PFI Citation for outstanding government procurer is conferred to Energy Commission Suruhanjaya Tenaga of Malaysia in recognition of the successful consecutive IPP bidding exercises it has administered since 2010. By Minerva Lau.

To see the full digital edition of the PFI Asia Best Practice Report 2014, please click here.

To purchase printed copies or a PDF of this report, please email gloria.balbastro@thomsonreuters.com

The Energy Commission is a statutory body responsible for regulating the energy sector, particularly the electricity supply and piped gas supply industries in Peninsular Malaysia and Sabah. Its task is to ensure that the supply of electricity and piped gas to consumers is secure, reliable, safe and at reasonable prices.

As part of the government’s efforts to enhance the performance of the energy supply industry, the Energy Commission was set up on May 1 2001, under the Energy Commission Act 2001. It became fully operational on  January 1 2002 and assumed all the responsibilities of the Department of Electricity and Gas Supply, which was dissolved on the same date. Ahmad Fauzi Bin Hasan is the current CEO and has held this position since April 2010.

The energy sector in Malaysia has undergone significant changes since the 1990s. The concessions to the first generation of IPPs were awarded in 1993 to YTL Power Generation, Genting Sanyen , Segari Energy Ventures, Powertek and Port Dickson Power. They provided total generation capacity of 4,115MW.

As their concession agreements – first generation PPAs – would be expiring between 2015 and 2016, the Malaysian government has decided to allow a new build-up of capacity of up to 4,500MW to meet rising demand and replace the expiring concessions. In addition, the new generation plants have become more important as the government has decided to cancel the submarine cable project from the Bakun hydropower plant in Sarawak.

The idea to allow the first generation PPAs to lapse will also pave the way for an open-tender process and for more competitive pricing for Tenaga Nasional. In line with the move towards market liberalisation, the Malaysian government has taken the initiative to implement a competitive bidding process in the development of the new power plants. Indeed, worldwide, this was considered as best practice that will not only reduce the burden on the government budget for its investments in the power sector, but also allow a re-allocation of resources to other purposes.

In addition, the move was expected to improve the overall climate for foreign investments. With the power sector largely dominated by Tenaga Nasional, the national utility, and other local corporates, the open competitive bidding allows foreign developers to participate.

Thus the government decided to hold a second round of IPP bidding and the Energy Commission was mandated to implement this. The first IPP bidding was for a 2x1,000MW capacity that will have to be operational between 2015 and 2016.

The concession for the first 1,000MW coal-fired power plant was awarded in 2010 to Tenaga Nasional’s TNB Janamanjung and it is expected to be commissioned by March 2015. However, the development of the second 1,000 MW unit, scheduled to be in operation by March 2016, was awarded through a restricted competitive bidding process that the Energy Commission was mandated to implement.

Due to the urgency to meet the targeted commissioning date, the bidding process was restricted to owners of existing brownfield power plant sites, namely, Tanjung Bin Power (part of Malakoff Corp) and Jimah Energy Ventures. Malakoff was awarded the new capacity that will use supercritical coal-fired facility.

More biddings for additional capacity soon followed, and this time, more bidding groups participated. It also saw the participation of foreign developers. There were 47 bidders that indicated interest in the next bidding, which was for the 1,400MW gas-fired Prai IPP. The list included known names such as Marubeni, Mitsui & Co, Sojitz Corp and Itochu of Japan, Daewoo Corp, Korea Electric Power and Samsung Corp of South Korea, and European players such as Siemens and EDF. However, they have to partner with local players as bidding consortia have to be 51% owned by a Malaysian entity.

The Energy Commission soon launched the bidding for the 1,400MW gas-fired Prai IPP project on a build, own and operate basis, and declared Tenaga Nasional as the preferred bidder, whose offer was a levellised tariff of M$0.347/kwh. This was the second power plant that Tenaga has bagged in the latest round of IPP bidding, following the Manjung Energy plant in 2010.

The selection of Tenaga came as a surprise, as the Powertek (1MDB) and Mitsui team had offered the lowest bid (although it was just a M$0.001 difference). However, the tariff bid price is not the only criterion that the Commission looks at. The other part is the technical bid, and the Energy Commission also looks at the total cost of the plant to the government.

Then came Project 3A and Project 3B. Tenaga bagged again the bid for Project 3A, a 1,000MW ultra-supercritical (USC) coal-fired power plant that will be on existing land owned by TNB Janamanjung in Perak. The facility is referred to as Manjung Five, as it is Tenaga’s fifth plant in that area.

Project 3B was awarded to a consortium comprising 1Malaysia Development Bhd-Mitsui (1MDB-Mitsui).This is the first IPP that has a foreign partner. The consortium will build, own and operate the 2,000MW power plant in Jimah, Negeri Sembilan at a levellised tariff of 25.33 sen per kWh. Again, the consortium were not the lowest bidder, but its technical bid was considered more superior than the other proposal submitted by the YTL consortium. Due to questions in the market, the Energy Commission, in a rare move, released a statement presenting the reasons why the 1MDB-Mitsui bid was selected.

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