Kota Marudu Member of Parliament

What is the dispute with YTL unit which TNB seeks to settle?

PETALING JAYA: Tenaga Nasional Bhd’s (TNB) unprecedented move to file a judicial review in relation to a power purchase agreement (PPA) with YTL Power Generation Sdn Bhd may finally resolve the longstanding issues between the two parties.

Industry players said that issues in relation to the land where YTL Power’s plants in Paka and Pasir Gudang are located have been a stumbling block to the proposed agreement to extend the PPA governing the plants.

“It is a longstanding issue brewing for several months now. The move to seek a judicial review on an order by the Energy Commission (EC) and the minister directing TNB to remove certain conditions that it (TNB) wanted fulfilled prior to the signing of the new PPA agreement with YTL Power will resolve the issue once and for all,” said an industry player.

According to previous reports, YTL Power, Malaysia’s first independent power producer (IPP) to sign a PPA in 1993, had built its power plant on land that was leased by TNB.


It is said that TNB wants back the portion of the land not utilised by YTL Power before signing the new PPA to extend the contract to supply power to the national grid.

YTL Power’s PPA signed back on March 31, 1993 had expired on Sept 30, 2015. Following the expiry, YTL Power no longer exported power to the grid effective Oct 1 last year.

TNB had stated then that the agreement between the national electricity supplier and YTL Power to lease the latter’s land in Paka in Terengganu and Pasir Gudang in Johor to build its power stations was also affected by the end of the PPA.

Also in October last year, the Government announced that YTL Power had been given an extension of two years and 10 months from March 2016 to December 2018, with a capacity of 585MW.

However, the PPA governing the extension has not been signed yet.

Although the EC had selected YTL Power for a short-term power supply extension last year, the power player has yet to sign the contract with TNB due to the conditions set by the utility giant in the new PPA.

Energy, Green Technology and Water Minister Datuk Seri Dr Maximus Ongkili said the Government had approved the extension, but that YTL Power “just needed to sort out the land issues with TNB”.It was when the EC issued a directive asking TNB to remove these conditions that TNB decided to file the judicial review.

According to officials familiar with the power supply situation then, YTL Power was the first IPP that was built when banks were not prepared to fund such infrastructure. Hence, the land where YTL Power built the power plants were leased from TNB to mitigate the risk factor to raise financing.

The YTL Power plants were built with funds raised in ringgit, which was not common then as financial institutions were not familiar with financing power plants.

Subsequent power plants were built on land that were owned by the IPPs themselves as the risk factor decreased.

“Hence, that is why YTL Power’s power plants are on leased land while the rest are owned by the IPPs themselves,” said an official.

The ministry, in a statement yesterday, clarified the situation on the short-term agreements.

It said the Government, via the EC, had conducted a competitive bidding exercise last year to procure additional power supply on a short-term basis by extending the PPA of the first-generation IPPs.

Port Dickson Power Bhd (PD Power), Kuala Langat Power Plant Sdn Bhd (Kuala Langat Power) and YTL Power were selected as they fulfilled the conditions set by the EC, the ministry said.

It added that PD Power and Kuala Langat Power have signed the extension contracts, while YTL Power is yet to ink the deal due to the conditions precedent set by TNB on its agreement.

“TNB is also challenging the directive issued by the EC to extend the PPA,” it said in the statement.

On Monday, TNB announced to the stock exchange that it had applied for leave to begin judicial review proceedings against the EC and the Energy, Green Technology and Water Minister.

TNB said that it was seeking for a judicial review on a direction issued by the EC to TNB, which compelled TNB, among others, “to remove the incorporation of conditions precedent required by TNB” in the proposed new PPA with YTL Power.

The direction, dated April 7, was made following the minister’s direction to the EC on April 1.

Affin Hwang Capital Research, in a note yesterday, said that YTL Power would be negatively impacted if TNB was successful in its judicial review proceedings.

As the PPA for the power station in Paka, Terengganu, has yet to be signed, YTL Power does not derive any earnings contribution from the Paka extension yet, it said.

“A possible scenario is that YTL Power would have to make payments for the land lease, while a worst-case scenario would possibly see YTL Power not successfully securing the PPA extension,” the research housed said.

The research house estimates that the extension to the Paka plant currently contributes about 12% to YTL Power’s target price of RM1.60 and about 10% to its financial year 2017 (FY17)-18E earnings per share.

It has maintained a “hold” on YTL Power, with an unchanged 12-month target price of RM1.60.


Source - The Star