Wednesday, June 07, 2006

Tenaga should seek redress

In New Zealand, (I cant give any other example, Britain, USA or Europe, I am not familiar with their commercial law) if the contract is made under DURESS (as I understand this case is) the aggrieved party can seek redress, even at a later date.
What say you legal eagles in this group?
If Datuk Ani Arope read this, is there possibility for him to appear as main witness?
Someone could, even without Tenaga, because we rakyat have shareholding in Tenaga, seek redress and take this matter to court.
Imagine the repecussion to IPP’s share price, the overpayment in IPP power payment etc. It could make YTL and Genting a bit poorer.

Mahathir blamed for giving one-sided contracts to IPPs
It's all fixed up, Tenaga was forced to accept the deals: ex-Tenaga chief

Business Times

THE former chief of Tenaga Nasional has blamed former Malaysian prime minister Mahathir Mohamad for the one-sided contracts awarded to the country's independent power producers (IPPs), with the national power company being arm-twisted to accept onerous terms.

It was alleged that Tenaga did not negotiate with the IPPs but was made to deal with the country's Economic Planning Unit (EPU), which comes under the PM's Department.

'It was all fixed up. They said this is the price, this is the capacity charge and this is the number of years. They said you just take it,' Ani Arope said in an interview with The Star newspaper.

Asked how the Malaysian model of IPPs was created, Mr Ani, who headed Tenaga from 1990 to 1996 when the first agreements with the IPPs were negotiated, replied tersely: 'Ask our previous prime minister.'

Fed up with frequent outages and the nationwide blackout in 1992 which brought the nation to a standstill, Dr Mahathir essentially ended Tenaga's monopoly as the sole power generator in the country and his administration forced Tenaga to buy power from the IPPs to help avoid another crippling blackout.

But Tenaga was also forced to buy from the IPPs excess power it did not need.

It was thought the IPPs would provide a greater balance to the power sector but it is unclear why they were given such generous terms even though initial set-up expenses would have been costly as borrowing costs then were around 10 per cent.

Having amortised its assets, Mr Ani said Tenaga could have produced electricity at far lower costs than the IPPs. But although it had the plans and credit standing in the early 1990s to build additional power plants, the EPU wanted to privatise the power plants and to license the IPPs.

Hence, Tenaga was told to surrender its land by the EPU, which oversees the nation's development, economic strategies, and the redistribution of wealth policy.

According to Mr Ani, an IPP had agreed to accept 2 sen (S$0.008) less per unit for power generated, but EPU threatened to take the contract away unless the IPP increased its price.

He claimed Tenaga officials were 'harassed, humiliated and talked down' during the negotiations and that when he refused to sign the contracts, he was later 'put out to pasture'.

It is unclear why Mr Ani chose to speak up only now.

As promised him, Dr Mahathir steered clear of politics after stepping down as prime minister in 2003. But he has been increasingly vocal and critical of his own hand-picked successor, Abdullah Ahmad Badawi, after the latter did not show the same commitment to a few of his pet projects.

The feisty former strongman is unlikely to remain silent on Mr Ani's claims, which cast him in a bad light.

Malaysia has not raised electricity tariffs in nine years, and Tenaga only received government approval for an average 12 per cent hike from June 1.

The debt-laden power company had long complained that its revenue was insufficient to meet its annual 'capacity charges' of over RM3 billion to the IPPs as well as maintenance and infrastructure costs.

Indeed, Tenaga's cash flow would remain in negative position, its profits notwithstanding.

IPPs were mostly awarded 21-year concessions; first-generation IPPs got the best deals, their internal rate of return exceeding 20 per cent.

Although less lucrative, second-generation IPPs still managed returns of 13-15 per cent.

Malaysia's excess capacity is currently a hefty 40 per cent.

Energy, Water and Communications Minister Lim Keng Yaik said recently there would be no new IPPs for West Malaysia.

Bursa Malaysia-listed Malakoff is building two third-generation plants.

Mr Ani maintained the way the IPP contracts were awarded was 'morally wrong and not fair'.

'This job is an amanah (trust). I do not want somebody to come and urinate on my grave. In the Malay culture, that is about the worst insult they can do to a man,' he said.

Ani: TNB got a raw deal
The Star

WHEN the Government decided to approve the request from Tenaga Nasional Bhd (TNB) to raise electricity tariffs, the plight of the national utility took centre-stage. Naturally, the knee-jerk reaction among consumers was not favourable. The 12% rise in tariffs appears to have re-ignited the debate on how good the going is for independent power producers (IPPs) at the cost of the national utility’s cashflow. The imbalance between the generation side of the business and that of transmission and distribution has put a strain on TNB. To understand the privatisation of the power generation sector, one needs to take a look back in history to understand that the country's IPPs came about as a result of the Government's effort to address the issue of stable power supply after the landmark 1992 blackout. Lending a historical perspective to the issue of IPPs is former TNB executive chairman Tan Sri Ani Arope, who headed the national utility from 1990 to 1996. It was during his tenure that the first generation IPPs were created. StarBiz deputy news editor JAGDEV SINGH SIDHU has the story.

STARBIZ: What happened after the first major blackout in 1992?

Ani: TNB had plans in place to pump out more energy by building plants in Pasir Gudang and Paka. Financing was no problem and our credit standing was very high. We had the land acquired and were ready to move in and plant up.

But we were told by the Economic Planning Unit (EPU) that it had its own plans. We cautioned EPU that if those plants, which would take two years to complete, were not built, Malaysia would get another major blackout. When you have a place with 250 engineers, it does not make sense to say (the blackout) is because of poor planning. But the EPU said it had its own plans and we were told to surrender the land.

Then it surfaced that it wanted to privatise the power plants. I am not anti-IPPs per se. It is good to have other players but it has to be done fairly. It has to be fair to the consumers, not just TNB, which is a conduit. TNB, because of the electricity hike, has been treated as the whipping boy. The focus should be on the consumers.

When the generous terms were given to the IPPs, all my other peers around the world asked what was happening. They said they would like to have a share in the IPPs. They said (the contracts to IPPs) were “too darn generous.'' (The terms) were grossly one sided.

How was the Malaysian model of IPPs created?

Ask our previous Prime Minister.

How was the process of negotiations with IPPs conducted?

There was no negotiation. Absolutely none. Instead of talking directly with the IPPs, TNB was sitting down with the EPU. And we were harassed, humiliated and talked down every time we went there. After that, my team was disappointed. The EPU just gave us the terms and asked us to agree. I said no way I would.

What about the pricing and terms of the contracts?

It was all fixed up. (They said) this is the price, this is the capacity charge and this is the number of years. They said you just take it and I refused to sign the contracts. And then, I was put out to pasture.

Why did you disagree with the terms?

It was grossly unfair. At 16 sen per unit (kWh) and with the take or pay situation, actually it was 23 sen per unit. With 23 sen, plus transmission and distribution costs, TNB would have had to charge the consumer no less than 30 sen per unit. If mixed with TNB’s cost, the cost would come down but that was at our expense because we were producing electricity at 8 sen a unit. We can deliver electricity at 17 sen per unit.

And then there is a capacity charge. Nobody produces excess electricity like Malaysia and it goes to waste because there are no batteries to store that power. TNB only needs a reserve of 15% to 20%.

TNB was producing electricity at 8 sen a unit. What should have been the right price for IPPs to sell to TNB?

Twelve sen. They could not beat our price as we had already amortised our assets. But for the new guys or even ourselves to come in then and (having) to meet interest charges and to make a small profit, it would cost 12 sen a unit.

This was what we told one IPP. The IPP agreed to it but the EPU said that unless the IPP raised its price, the contract would not be given to the IPP. So he got it for 14 sen per unit.

And then, there is the cost pass-through. If the price of fuel went up, the extra cost is passed through to us. And in other words, it is passed on to the consumer.

Under what terms would you have agreed to the IPPs being set up?

Have an independent buyer for the electricity and in one way, let TNB come in and bid for the plants. Get other people to come in. Get a commission to see (to) our needs and TNB can be one of the producers.

It is argued that the IPPs' contracts are too lucrative but there are IPPs in other countries in Africa or Asia that have better terms.

There are IPPs charging 50 to 60 US cents per unit but they use diesel. Take our own situation and compare oranges with oranges. Then it is fair. Do whatever is fair.

How were you affected by the process of awarding the IPP contracts?

I felt sick. It was morally wrong and not fair. If it is legal and not fair, I will not do it. If it is fair and illegal, I still won’t do it. It has to be legal and fair.

We work for the consumers, workers and shareholders. TNB is morally obligated to these three, but the consumers come first, otherwise we won’t be around. It is then the workers and the shareholders.

When I said that, they said ‘Dia ingat bapak dia-punya’ (He thinks this is his father’s company). This job is an amanah (trust). You are entrusted with this responsibility and you carry it out to the best of your ability. I do not want somebody to come and urinate on my grave. In the Malay culture, that is about the worst insult they can do to a man.

Do you think you did the right thing by not signing the agreements?


How should a contract with the IPPs work?

In Australia, they call the IPPs and ask “what is your price''. They will pay the IPP that offers the best price. What they could have done is to throw the net wider and ask everybody (if they) are good, it would be awarded to them. But in our case, the contracts were ready-made and we were asked to sign.

What is your view on the impending renegotiation with the IPPs?

It has to be legal and fair. If we were to negotiate unfairly and illegally, the whole world will be looking at us and they will say “don’t sign anything with Malaysia because if things go against the country, the Government will void the agreement”.

We have to look at this very carefully.

But what we can do now is to say, can we bring down the capacity charge. Anything above the 15% reserve margin, we will call for bids.

The second thing is that the IPPs would have by now paid up their whole capital investments in their plants and it is all gravy (or profit) from now. Could we not bring this down a bit? Instead of paying a small amount to (a special fund), why not increase the (payment) for future planting up? In that manner, we can control the price of electricity. Otherwise, it's going to escalate.

Who in your opinion should get involved in the negotiations?

The consumers should be there. For me, you should get a very independent body. Then, you can bring in TNB, the IPPs, the consumers and Energy Commission. But these bodies and consumers should not make a judgment.

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