A day after the announcement of the country's first billion ringgit power project via open tender, The Edge sits down with Energy Commission (EC) chairman Tan Sri Ahmad Tajuddin Ali, CEO Datuk Ahmad Fauzi Hasan and MyPower Corp CEO Datuk Abdul Razak Majid, who all played a part in the process. The three men, who represent the chief regulators of the power sector, discuss in a candid interview the future of the power sector, the lessons learnt from the open bidding and how 0.1 sen between bids can make a difference.
The Edge: The Prai CCGT represents the first power project awarded through open tender. However, it was reported that there was only a slim difference of 0.1 sen between the two lowest bidders, which brought about issues of transparency.
Tan Sri Ahmad Tajuddin Ali: As far as I am concerned, the number can be spot on.The reason is that everyone is zooming in on just the bare costs. What matters is what the number means. In this case, when we looked at the details, there were certain omissions from one of the bids, which necessitated us to make adjustment to the pricing. This was also done in a transparent way.
In earlier reports, Pendekar Power Sdn Bhd was reported to be the lowest bidder.
Tajuddin: The lowest bidder in terms of the raw number. But when we looked at the details, there were things that necessitated their price to be adjusted.
Was it because it was Tenaga's land that they got the project?
Tajuddin: No. It is the same land open to everybody. Basically, the land was handed over to us to lease out to whoever was the winner. So the land issue does not matter, but what you intend to do with the land.
So once the adjustment was done, was Tenaga still the lowest bidder?
Tajuddin: Of course, otherwise it wouldn't have gone to them.
With the competitive bidding, will this mean that we will see lower tariffs?
Tajuddin: No, the tariff is more subject to the cost of fuel. Just to clarify, the price for both awards, ranging between 35 and 36 sen per kWh, is based on the market rate of gas of RM44.26 per mmbtu. Our average tariff now is 33.5 sen, and that includes transmission, distribution and retail costs. However, you must remember that is averaged over many different types of fuel and includes subsidised gas.
What was the EC's acceptable project internal rate of return 1RR for Prai?
Tajuddin: That is for the bidders to decide. For the foreign companies coming here, they may decide that 12% is acceptable. For the locals, in the case of Tenaga, I am told, they are happy to be in the high single digits.
Datuk Abdul Razak Majid: It depends on how hungry they are.
About the process being transparent, although the prices were known to the bidders, why wasn't it known to the public?
Tajuddin: There were concerns that we might restrict our flexibility in making the adjustments. Because we do not want to give the impression and fix in people's mind that the lowest bid will win. The lowest is still the raw number and we have to look at the details. Let's see whether that will change. But for me, we made a very big step doing it this way.There were lessons learnt, maybe this is one of them.
For the first generation extension, two IPPs got the extension but the rates are different. Can you explain? What were the criteria?
Tajuddin: Basically, the least cost to the system. Each of the candidates has a different pricing structure. YTL for example, is a take or-pay. We told them no more, if you want to come in, it has to be on the basis of capacity plus energy.
Yet in terms of the dispatch of the order of merit, Segari (Energy Ventures) is actually low on the list, so why were they awarded?
Datuk Ahmad Fauzi Hasan: We have reduced the fixed operating rate and variable operating rate in their power purchase agreement (PPA), and they revised their numbers and offered a very attractive rate.
What were the terms in the first generation PPA for Genting that was scaled down?
Tajuddin:The capacity payment, simple as that.
How much of a cut?
Razak: It was very significant.
Fauzi: We also included in our request for proposal, a standardised PPA. However, it is not just a framework and is rather detailed. The fuel risk is also on the IPP. If they fail to dispatch using the agreed fuel, gas instead of distillate, for example, due to their operations side, they will have to bear the difference.
Tajuddin: The good thing is that it is not imposed on Tenaga, they are also part of the discussion. It is not something we are imposing on them as perceived before. Now it's consultative, between everybody.
There is also a quest ion about the fate of the remaining IPPs that didn't get the extension. Can YTL, for example, export power to Singapore?
Razak: At the moment, no.
Tajuddin: If they can arrange it and they have a willing buyer, and if Tenaga agrees, they will have to come to EC to get approval.
What is the current state of the gas subsidy rationalisation scheme, and are you involved in the stabilisation fund that was recently reported?
Tajuddin: Everybody has accepted that these subsidies can't go on, but the government realises that if it goes up, tariff will go up, and at the moment that is something that is not palatable. As for the fund, everybody concerned is in discussions about it, including Petronas. It is a concept to deal with the increasing cost of fuel, basically in order for it not to be passed on to the consumer.
Reproduced by permission of The Edge Communications Sdn. Bhd., Copyright © (2012) The Edge Communications Sdn. Bhd.. All Rights Reserved Worldwide.
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Energy Commission,
