FRIDAY, March 29, 2024
nationthailand

KL may open power sector to foreigners in bid to sell loss-making unit

KL may open power sector to foreigners in bid to sell loss-making unit

KUALA LUMPUR - Malaysia will likely lift the |limit on foreign ownership in the electricity generation sector to |facilitate the sale of debt-laden 1Malaysia Development Berhad's (1MDB) power unit, Edra Global Energy, a move which would |spark a political

Recent reports and industry sources say that national electricity provider Tenaga Nasional Berhad (TNB) is the only local bidder that has been shortlisted to buy Edra G's 13 power plants – five of which are in Malaysia – valued by 1MDB at more than 18 billion ringgit (Bt149 billion). 1MDB is Malaysia’s second-largest independent power producer and the largest in Bangladesh and Egypt.

Three other potential buyers said to be on the shortlist – only China-backed CGN Meiya Power Holdings from Hong Kong has so far confirmed interest – will have to overcome an existing 49 per cent foreign-ownership ceiling.

Qatar’s Nebras Power QSC and Saudi Arabia’s Acwa Power International are the others re-|ported to be in the running, al-though the latter has said it has |yet to be invited to make a final proposal.

Prime Minister Najib Razak has promised to sort out the finances of 1MDB, which is struggling with 42 billion ringgit in debts accumulated in five years up to March 2014, by the end of the year.

The alleged mismanagement at the state investment company, whose advisory board Najib chairs, has become a lightning rod for calls for his resignation. Bloomberg reported that the equity value of Edra could be as high as 8 billion ringgit, while Second Finance Minister Ahmad Husni Hanadzlah had said debt associated with |the unit was around 11 billion ringgit.

Sources say TNB is not interested in making a competitive bid for Edra, which analysts widely consider to be expensive compared with other local generators, largely because 1MDB overpaid for the power assets.

Under current regulations, the three foreign companies would have to seek a controlling local partner or seek a waiver on the foreign ownership cap, which was raised from 30 per cent in 2011.

Husni told The Straits Times that 1MDB may retain a 30-per-cent stake in Edra, which could result in a joint ownership structure that opens the option of raising the foreign holding cap to 70 per cent – instead of dumping the foreign-ownership limit completely.

In the centre of this process is the Energy Commission (EC), the regulator of the power industry, which has the power to propose changes to the Cabinet for approval.

The Straits Times understands that the current EC leadership is supportive of market liberalisation, as it would increase competition and efficiency.

But consumer group Association of Water and Energy Research warns that this may not pan out in |reality.

"The increase from 30 to 49 per cent foreign ownership saw no cost impact to tariffs. We are not seeing a reduction in generating cost, which is on average 60 per cent of the final tariff," said its president, S Piarapakaran.

He said if cost efficiency is the main rationale for lifting the foreign-ownership limit, then it should begin at the next tender process for a new plant, where pricing can be negotiated lower.

1MDB’s troubles have forced the government to step in with short-term measures to ensure smooth electricity supply.

Edra had delayed the start of work on a new power plant, which was scheduled to be completed in 2018, due to difficulties in raising funds, resulting in TNB taking over the project.

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