http://www.thestar.com.my/business/business-news/2015/06/22/higher-tariff-fortenaga-lightens-track-3b-fears/?

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Business News
Monday, 22 June 2015 | MYT 8:18 AM

Higher tariff for Tenaga lightens Track 3B fears

KUALA LUMPUR: CIMB Equities Research is positive on Tenaga Nasional after the power
giant received a letter of invitation from the Energy Commission (EC) to submit a proposal to
participate in Track 3B project, with a final tariff that is 1.34 sen/kwh higher than the initial
tariff.
It said on Monday the higher tariff is positive for Tenaga as it could translate into a present
value of RM2bil, which should be more than enough to offset the rise in construction cost
due to the weaker ringgit. This should also ease concern that Tenaga may be taking over the
project at a loss.
We make no changes to our earnings forecasts, Add recommendation, and target price (of
RM15.60), based on 12.7 times FY16 price-to-earnings (P/E), its one-year average P/E. This
news could spark a re-rating of Tenaga, it said on Monday.
To recap, EC accepted Tenagas participation as a lead developer in Track 3B, a 2,000MW
coal-fired power plant in Jimah. The final tariff will be 26.67 sen/kwh which is 1.34 sen
higher than the initial tariff of 25.33 sen/kwh.
However, it did not disclose the price for the 70% stake, the estimated cost of the plant or
whether the commercial operation date for the plant will be extended. We understand that
more announcements will be made should there be any material developments in relation to
the project, it pointed out.
CIMB Research estimates the 1.34 sen/kwh hike in tariff will translate into a present value of
almost RM2bil.
Previous news reports quoted a cost of around RM11bn for Track 3B. Given that RM has
depreciated against the US$ by around 15% since the project was awarded in Feb 2014, the
plant will now cost RM12bil-RM12.5bil to build.
The higher tariff should be more than enough to offset the increase in construction cost and
contribute positively to Tenagas earnings. However, we are keeping our FY15-17 EPS
forecasts as Track 3B will only start having an impact on Tenagas earnings in FY19, it said.
Tags / Keywords: Analyst Reports , Energy Commission

http://www.reuters.com/article/malaysia-1mdb-idUSL3N0Z523G20150619

Utilities | Fri Jun 19, 2015 2:00am EDT

Malaysia's Tenaga says 1MDB power

project stake buy is "not a bailout"
Malaysia's national utility firm Tenaga Nasional Bhd (TNB) defended a move to buy 1MDB's
entire stake in a planned 2,000 MW coal-fired power project, saying it was "not a bailout" of
the debt-laden state fund.
"Based on financial analysis, the project is expected to have a positive impact on the earnings
of TNB. It is not a bailout of 1MDB," TNB Chief Executive Officer Azman Mohd said in a
press statement.
Shares of TNB, which counts state investor Khazanah Nasional as a major shareholder, lost
as much as 6.5 percent on Thursday after a minister said the government had approved the
takeover. They were up 1.1 percent at the midday break on Friday.
Azman said TNB will not pay a premium for 1MDB's 70 percent stake in the project, called
3B, and its evaluation will consider the cost of the project's delay and higher foreign
exchange rates. He did not comment on the pricing of the stake purchase.
"The acquisition will bring positive value to TNB in the long-run," he said.
TNB said it had been offered a tariff rate not exceeding 26.67 sen ($0.0725) per kilowatt-hour
(kWh). 0.27 ringgit
Japan's Mitsui & Co will retain its 30 percent stake in the project, that has been estimated to
cost $3.6 billion to build.
1MDB, whose board of advisers is chaired by Malaysian Prime Minister Najib Razak, has
some 15 power and desalination plants in five countries. Its crown jewel is project 3B that it
and Mitsui won the rights to build in February 2014, though 1MDB's liquidity problems have
put its ability to build the plant in question. ($1 = 3.7220 ringgit) (Reporting By Al-Zaquan
Amer Hamzah; Editing by Muralikumar Anantharaman)

http://www.1mdb.com.my/news-coverage/media-release

Clarifications on the announcement of the result of competitive bidding exercise for

project 3B which involves the construction of a new 2x1000 MW coal-fired power plant
for commercial operation in 2018/2019
1. The Energy Commission would like to refer to various media reports following our
Media Release on 28 February 2014 regarding the announcement of the Preferred
Bidder for the Project 3B open tender exercise, and wish to provide further
clarifications on issues raised in those reports and articles.
2. The 1MDB-Mitsui Consortium was selected as the Preferred Bidder for the Project
3B open tender based on the following factors:
a) 1MDB-Mitsui has complied with all the Bid requirements including the use of
major equipments namely steam generator, turbine and generator technology that have
been adequately proven over time in commercial operation;
b) Their levellised tariff of 25.33 sen/kWh is very competitive where it is 1.34
sen/kWh lower than the next ranked bidder and, at only 0.21 sen/kWh higher than the
offer from YTL-SIPP Consortium; and
c) 1MDBMitsui proposed the lowest project cost per megawatt (MW) among the
four bidders at RM 5.406 million/ MW compared to YTL-SIPP's offer of RM 5.438
million/MW.
3. After a detailed study, the Energy Commission (EC) had concluded that the proposal
submitted by YTL-SIPP Consortium did not comply fully with Part 2 (Technical
Specifications) of the Request For Proposal (RFP) document for Project 3B. Part 2
stipulates that the power plant being offered shall be designed based on proven
technology that has been in commercial operation at similar steam conditions as the
one proposed in the Bid.
4. The relevant provisions in the RFP document are as follows:
a) Section 3.1 of Part 2 of RFP
" The Power Plant shall be based on proven technology having an operational
track record ";
b) Section 3.2 of Part 2 of REP
" The Power Plant shall be based on proven supercritical or ultra-supercritical
technology, having operated commercially at other plants of a similar type, scale,
nature and complexity to the Bidder's proposed Power Plant ";
c) Section 3.7 of Part 2 of RFP
"The Power Plant shall be based on proven technology, having operated
commercially at other plants of a similar type, scale and steam conditions as for
3

Bidder's proposed Power Plant".

5. The Doosan Heavy Industries& Construction ("Doosan") steam generator that was
proposed by YTL-SIPP Consortium had to be rejected by EC for not complying fully
with the above RFP requirements. The EC has concluded that the specifications that
were proposed by YTL-SIPP for the Doosan steam generator superheater/reheater
outlet steam conditions of 259.5 bar and 603/613C are higher than the outlet steam
conditions of any of the submitted reference plants alreadyin commercial operation,
which EC had determined to be only at 569/596C maximum. The operating track
record for Doosan steam generators is only proven for steam conditions up to
569/596C and not 603/613 C.
6. The EC's decision to reject the Advisory Panel's view regarding compliance of proven
technology criteria was made pursuant to the Technical Committee's findings that the
proposed Doosan steam generator technology that delivers a much higher steam
temperature of 603/613 C is not yet proven. Doosan's approach towards achieving a
superheater/reheater outlet temperature of 600C and above would require a
significant improvement in material specifications over their existing technology.
7. It would be a non-issue had the YTL-SIPP Consortium selected Doosan steam
generator with steam conditions of 569/596C (maximum), which are similar to the
specifications of the Doosan steam generators already in operation in Korea and also
offered to customers in China and India in order to satisfy the requirement of " The
Power Plant shall be based on proven technology, having operated commercially at
other plants of a similar type, scale and steam conditions as for Bidder's proposed
Power Plant" as stipulated in Part 2 of the RFP.
8. The 1MDB-Mitsui Consortium has, therefore, won the recently concluded Project 3B
bidding exercise in a fair and square manner with a well-proven technology that
would enhance security of supply expected of a 2000MW coal-fired power plant
operating in a grid system of our size.
Energy Commission
7 March 2014

http://www.thesundaily.my/news/1466866

TNB receives letter of invitation from

Energy Commission
4

Posted on 22 June 2015 - 05:37am

sunbiz@thesundaily.com
PETALING JAYA: Tenaga Nasional Bhd (TNB) has received a letter of invitation from the
Energy Commission (EC) to submit its proposal pertaining to the takeover of 1Malaysia
Development Bhd's (1MDB) 70% stake in the RM11 billion Jimah East (Project 3B) coal
power plant.
"EC in consultation with the government has accepted TNB's participation as the lead
developer in the project for the development of 2x1000MW coal fired power plant in Jimah
in consortium with Mitsui Co. Ltd (Mitsui)," TNB said in a filing with Bursa Malaysia last
Friday.
1MDB owns 70% while Mitsui controls 30% of the project. The project is scheduled for
commissioning in stages from Oct 1, 2018.
TNB said the take over will be subject to terms and conditions, namely the premise that TNBMitsui Consortium would undertake all obligations of Jimah East Power Sdn Bhd (JEP) as a
developer and in particular with respect to the selection and appointment of engineering,
procurement and construction contractor which also incorporates the principal equipment
suppliers.
"The firm and final levelised tariff shall not exceed 26.67 sen/kWh. No further adjustments to
the levelised tariff will be allowed for any reason whatsoever," it added.
It also said that the occurrence of financial closing date shall not be beyond Oct 15, 2015.
TNB president and CEO Datuk Seri Azman Mohd said in a statement that TNB has
conducted due diligence and commenced negotiations with 1MDB. He also stressed that no
premium will be paid for the acquisition of the 70% stake in the project.
"We expect to submit a proposal in relation to the takeover of 1MDB's 70% ownership in the
project soon, taking into consideration among others the cost of delay in the project, higher
forex exchange based on current situation and TNB's expected return," he said.
Azman expressed confidence that the acquisition will enhance its shareholder's value and
bring positive value in the long term, and as a power utility, TNB is keen to participate as the
developer to ensure reliability and security of supply for the nation while maximising
shareholder value.
Azman also stressed that the takaover of project 3B is not a bailout of 1MDB.
"It is a greenfield power plant with good prospect and with the increased generation capacity
of 2,000 MW upon completion of the project, the acquisition will bring about positive value
to TNB in the long run.
"Based on financial analysis, the project is expected to have a positive impact on the earnings
of TNB. It is not a bailout of 1MDB," he said.
5

Affin Hwang Capital said TNB may need to take into account its higher WACC of 8%
compared with 1MDB's lower WACC, which is around mid-single digits.
"As it stands, Track 3B has an existing levelised tariff of 25.33 sen/kWh. Time is running
short as the original commercial operation dates (split into two phases) are Nov-18 and May19, which suggests that TNB would likely receive a higher tariff to prevent a power
generation capacity shortfall. Track 3B was initially reported to cost RM11 billion," it said in
its research note last Friday.
According to Affin Hwang, the imbalance cost pass-through (ICPT) mechanism would be
used to address the potential higher tariff for Track 3B, which means that the additional costs
associated with Track 3B may be passed on to consumers under the generation-specific cost
adjustment portion of the ICPT.
"However, this may not necessarily translate into higher electricity tariffs going forward, as
these costs may be offset by TNB's over-recovery of fuel costs due to minimal use of
expensive imported liquid natural gas and soft coal prices," it added.
It maintained its "buy" rating on TNB with an unchanged target price of RM17.50 and
remains positive on the stock based on decent electricity-sales growth, benign coal prices and
indirect ICPT implementation.