Water done, Toll done , how about Electricity ??

[Iqlima]

Mr.Patriotic Francis Yeoh spoke http://www.jeffooi.com/For instance, tycoon and a key beneficiary of Malaysia's IPP (Independent Power Producer) regime, Francis Yeoh of YTL (right picture, above), was the exemplary among all, when he grabbed the mike to deliver what he had to deliver, inter-alia:I sponsor tonight's dinner for everyone so I think I deserve to speak. I am a Christian-Malaysian. Let me tell you, Mr Soros, in Malaysia we all stand in unity for the country. And thank God, our country has progressed very well as you can see for yourself... There's only relative truth. Relative truth is for us, absolute truth is for God. So, let's not waste tome to seek truth, because..."----------------------------------------------------------------------------------------http://www.jeffooi.com/2006/05/the_crooked_vision_of_the_ipps.phpThe crooked vision of the IPPs... ( 2 ) This big devil called the IPPs. There is a recently published research on The IPP Investment Experience in Malaysia by Jeff Rector, which was released on August 17, 2005. It is a working paper presented under The Program on Energy and Sustainable Development at Stanford University, an interdisciplinary research program that started in 2001 -- i.e. after the Asian Financial Crisis -- and it focused on the economic and environmental consequences of global energy consumption. The research paper is illuminating as it examines the development of global natural gas markets, reform ofelectric power markets, international climate policy, and how the availability of modern energy services,such as electricity, can affect the process of economic growth in the world’s poorest regions. I recognised that fact that the research carries substantial academic clout as the program is based at the Center for Environmental Science and Policy, at the Stanford Institute for International Studies. There are few key points that highlighted the perils Malaysia, and TNB in particular, faced off at the mercy of the IPPs.

• Firstly, the IPPs charge TNB on a "Take-or-Pay" tariff regime -- ranging from 14 to 16 sen depending on the PPA -- that far exceeds the cost if TNB were to generate its own electricity. Rector quoted sources as saying the IPPs derived between eighteen and twenty-five percent internal rate of return (IRR), while Little Birds told Screenshots the IRR could be as high as 40%.
• Secondly, TNB is currently having about 40% excess capacity. This is far worse that the non-revenue water situation where water can be stored in reservoirs when leakages are plugged. Excess electricity pumped into TNB's national grid from the IPPs becomes perishable -- meaning totally wasted -- as there is no battery on earth to store unutilised electricity. Under the PPAs, the IPPs charge TNB based on the capacity, no matter if the electricity is actually generated. Apart from that, the IPPs bill TNB on another category stated as 'energy charge' for actual electricity supplied. In totality, the IPPs bill TNB around the clock, but 40% of billable electricity becomes wasted excess, everyday. And this situation has no sign of being reversed anytime soon. The excess level will increase once Tanjung Bin and Jimah plants come on stream soon, despite a marginal growth in domestic consumption projected by TNB.
• Thirdly, all IPPs are shielded from financial risks, right from the time when Malaysia was sucked into the Asian Financial Crisis. The Government has indirect stakes in all of them, according to Rector's paper.

So, you have to find the Syed Mokhtars, the YTLs and the LimGohTongs, and the Anandas, to fit the jigsaw puzzles that we talked about. They are all live specimens till this day (Click here).

SOURCE: The IPP Investment Experience in Malaysia by Jeff Rector, Stanford University, Page 27 In order not to be blamed for distorting facts, I will give you the full PDF of Rector's paper (335K) to enable you digest the information and make your own conclusions. I must say I am in no position to claim what is right and what is wrong with the IPP system. You decide for yourself. Before that, I would like to excerpt two portions from Rector's research paper to demonstrate why we had asked for trouble, and why we are not out of the bush. Notably, TNB recognised and admitted that the new tariff won’t solve its cash-flow deficit any time soon. The reasons are out there with the Devils.Conclusion :When there is 40% surplus capacity what it really means is that for every RM140 you pay TNB, RM40 is as good as throwing money in the drain..gone ..wooosh.... just like how it sounds when you flush the toilet. Your real consumption is only RM100. The extra RM40 is towards what the IPPs charge which you or I or the industries in the country don't consume.Sooner or later .....

 

[Iqlima]

1st Generation IPPs (Gas)

1. YTL -- Commissioned 01/10/94; PPA 21 years; 9 more years to expiry
2. Powertek -- Commissioned 14/01/95; PPA 21 years; 10 more yers to expiry
3. PD Power -- Commissioned 02/01/95; PPA 21 years; 10 more years to expiry
4. Genting Sanyen -- Commissioned 15/01/96; PPA 21 years; 11 more years to expiry
5. Segari/Malakoff -- Commissioned 01/07/96; PPA 21 years; 11 more years to expiry

There are also emerging IPPs using coal coming on-stream in the blood-sucking party soon, namely

1. Tanjung Bin -- To be commissioned September 2006 (?); PPA 25 years; 25 more years to expiry
2. Jimah -- To be commissioned in January 2009; PPA 25 years... The curse is still on

 

[jarance]

1. did anyone know some of the above power station mention once belong to TNB before it was sold off to IPP..

2. Presently 40% spare capacity.. Really.. What about the power station that is more than 25 years old? Can they still generate that kind of capacity? As far as I know, the life span of a power station is about 25 years. You need to rehab it after 15 years in service to get it to run at full capacity.

3. Some of the old TNB power station are still running on oil. With the prices of oil so high, it would make sense to put them on storage and use IPP to produce the power using LNG which is in turn supply by Petronas via gas pipeline from Paka.

4. FYI, all power station need to have an annual shutdown for overhaul ( after 12 to 18 months in service) in accordance to DOSH (Dept of Safety and Health) requirement. The overhaul ranges from 45 days to 60 days. During this time who is supplying the access capacity.

On paper the spare capcity look like 40% but the actual output is much less..

Honestly speaking, without the IPP, this country would face "brown out" like other developing country.

BTW, Bakun is on the other side of Malaysia. It should not be in the equation unless East Malaysia is considered as one the largest consumer of pwer.

 

[Iqlima]

1. did anyone know some of the above power station mention once belong to TNB before it was sold off to IPP..

2. Presently 40% spare capacity.. Really.. What about the power station that is more than 25 years old? Can they still generate that kind of capacity? As far as I know, the life span of a power station is about 25 years. You need to rehab it after 15 years in service to get it to run at full capacity.

3. Some of the old TNB power station are still running on oil. With the prices of oil so high, it would make sense to put them on storage and use IPP to produce the power using LNG which is in turn supply by Petronas via gas pipeline from Paka.

4. FYI, all power station need to have an annual shutdown for overhaul ( after 12 to 18 months in service) in accordance to DOSH (Dept of Safety and Health) requirement. The overhaul ranges from 45 days to 60 days. During this time who is supplying the access capacity.

On paper the spare capcity look like 40% but the actual output is much less..

Honestly speaking, without the IPP, this country would face "brown out" like other developing country.

BTW, Bakun is on the other side of Malaysia. It should not be in the equation unless East Malaysia is considered as one the largest consumer of pwer.

So, D.S. Dr.Lim talking bullshit you reckon Mr.Jarance about six month ago.There is no 40% excess exist ?

THE STAR


NEWS - NATION

Tuesday June 6, 2006


By SIM LEOI LEOI


PUTRAJAYA: Tenaga Nasional Bhd will have to give rebates to consumers who suffer losses due to power failure.
Energy, Water and Communications Minister Datuk Seri Dr Lim Keng Yaik said these rebates, which would be reflected in electricity bills, would be paid out only if the power outage was TNB’s fault.
“I have already given the directive to TNB to draw up a client’s charter, under which they will have to take responsibility for any negative effect on consumers if there is a power failure,” he told reporters after handing out excellent service awards to ministry staff here yesterday.
“TNB will be held responsible to pay compensation, which will come in terms of rebates, to be reflected in electricity bills for the next month. This is so that TNB will not have a free lunch after being allowed to raise tariffs by 12%.” .
Dr Lim said if the outage had however occurred because trees had fallen on power lines during a thunderstorm, it would not qualify as TNB’s failure.
In a press conference to announce the increase on May 24, Dr Lim had suggested a client’s charter, and that TNB compensate consumers in the form of rebates if it failed to provide good service.
Dr Lim said it was now up to TNB to decide on the details.
He said although the TNB distribution system of power supply was “robust”, there were still many complaints relating to breakdowns.
“This is due to the lack of funds and maintenance on TNB’s part,” he said.
He also said the Government planned to review its existing commitment with TNB and the independent power producers (IPPs) to construct new power plants as the country already had excess capacity in power supply.
Dr Lim said there was already excess capacity of power supply in the country, with reserves totalling some 17,000 megawatts or 40% of the total energy generated. The Government hoped to reduce this reserve to less than 20%.
“We will see whether we can cancel our commitment for the construction of new power plants,” he added.
“And even for those coming online to supply electricity to TNB, we will see if we can postpone their commencement of operations date.”

 

[sub8sec]

Dr Lim said there was already excess capacity of power supply in the country, with reserves totalling some 17,000 megawatts or 40% of the total energy generated. The Government hoped to reduce this reserve to less than 20%.
“We will see whether we can cancel our commitment for the construction of new power plants,” he added.
“And even for those coming online to supply electricity to TNB, we will see if we can postpone their commencement of operations date.”

1. The above shows another typical example of poor planning by our Govt. You don't sign on a contract without knowing whether you need the supply in the first place !

2. Many companies which uses Biomass or renewable energy sources, such as agricultural or food wastes have no motivation to supply electricity to TNB, due to low tariff rate TNB is buying because we already have so many conventional IPPs who uses coal or gas, and excess supply of 40% ! I forgot, we have to take care of Petronas...

 

[fabianyee]

There's always room for improvement especially within TNB. Services can always improve from the inefficiency they have been experiencing.

As for IPP, if there is excess, should it be the IPP's fault or TNB's fault in miscalculating the total of power required? IMHO, TNB should be the main cordinator (if they are not) in managing the power distributor. Of course, it's common assumption that there were something going on somewhere during the drafting of the service contract.

 

[Iqlima]

There's always room for improvement especially within TNB. Services can always improve from the inefficiency they have been experiencing.

As for IPP, if there is excess, should it be the IPP's fault or TNB's fault in miscalculating the total of power required? IMHO, TNB should be the main cordinator (if they are not) in managing the power distributor. Of course, it's common assumption that there were something going on somewhere during the drafting of the service contract.

Yes, the contract biased.TNB have to take regardless demand.

Quote " I hope one day, the good old Dr Ani Arope, the former chairman and chief executive of TNB who was said to have resisted signing up the IPPs but was unceremoniously removed after a major multi-states blackout in the early 1990s, will come out and sing. "

17 August 1998
The Edge
My Say -
[SIZE=+1]A case for renegotiation[/SIZE]
By Azam Aris.
On Aug 3, 1996, Peninsular Malaysia suffered a total power blackout for almost 14 hours. Tenaga Nasional Bhd, the public utility responsible for power generation, transmission and distribution, bore the brunt of the blame for the outage.
Tenaga got tremendous bashing from the government, the public and the business community. Tenaga, or TNB, was called "Total National Blackout" by many angry customers.
While the bashing continued, Tenaga's then executive chairman Tan Sri Ani Arope, in an interview Bernama, warned of an even bigger crisis - that this technical blackout could well turn into a financial blackout.
"I hope that the powers that be and all those involved in the healthy development of the power industry would look into the finances of Tenaga and see to it that the company does not become bankrupt," he said.
How can a company like Tenaga go bankrupt? In 1996, operating profit was RM2.3 billion and in 1997 it was RM3.1 billion. But, for a big utility like Tenaga, profit alone does not count. Ani Arope was concerned with the rising capital expenditure needed to improve the country's energy and power infrastructure and more so the power purchase agreements (PPAs) with the IPPs - both of which will, in the longer term, eat into Tenaga's profit and cashflow position.
Under the PPA, IPPs were given guaranteed earnings for over 20 years for their entire power production irrespective of demand. In short, whatever the IPPs generate, Tenaga has to buy regardless of whether it requires the electricity.
"If Tenaga were to go under financially, I think it is going to create a national financial blackout. The IPPs could only survive if we are healthy. If Tenaga defaulted on one payment, it would create a financial domino effect that would be real bad," Ani had said.
Two years on, Monday, Aug 11, current TNB executive chairman Datuk Ahmad Tajuddin Ali reminded newspaper editors, at a briefing, of the same scenario. The only difference is that, due to the economic upheaval and currency turmoil, the financial blackout for Tenaga could come sooner rather than later.
At the operating level, Tenaga will always show profit but its pre-tax profit of RM1.1 billion in 1996 had dwindled to RM144 million in 1997 after taking into account a book foreign exchange translation loss of RM1.3 billion against its foreign loans of which the bulk is in US dollars. The ringgit was at RM2.90.
Based on an exchange rate of RM4.10 to US$1, forex loss is estimated at RM4.1 billion, putting Tenaga's expected pre-tax loss at RM3.2 billion this year. At the same time, Tenaga had to pay RM3.4 billion to the IPPs based on their current power production capacity.
Even looking at this bleak figure, Tajuddin assured users that as a national company which places strong emphasis on national interest, it would not seek higher tariff at least until the end of 1999. During this recession, Tenaga will continue to provide power at competitive rates for the various sectors of the economy to help them overcome some of their difficulties. Tenaga is also committed to providing and expanding power distribution to the rural areas.
But what about the IPPs? Should they continue to protect their guaranteed income stream - even though some of their production capacity are not needed as demand had fallen with the slumping economy? Shouldn't the IPPs also be patriotic and contribute to the course of economic recovery? And why must Tenaga bear the burden alone?
Penjanabebas, the association representing the five IPPs, says it is willing to consider Tenaga's plight and discuss a mutually beneficial solution but it also reminded Tenaga that this would have to be done without renegotiating the terms of the existing PPAs. But are changes possible without the PPAs being renegotiated?
The government has given an assurance that contracts will be honoured in this country and past PPAs are not open for renegotiation, but this does not prevent the IPPs from voluntarily entering into a renegotiation with Tenaga.
The IPPs must understand that these are difficult times. No one had expected the impact of the regional economic turmoil to be so extensive and that the economy is unlikely to recover fast. Tenaga is in a negative cash position while all the IPPS are in a net cash position.
Tenaga is not asking for a radical change in the PPAs but for the IPPs to show some understanding in the name of national interest. Tajuddin had asked for flexibility in the payment period and perhaps some price discounts.
Few people know that Tenaga has to pay the IPPs weekly or fortnightly. Interest will be charged on late payments. A longer payment period will ease Tenaga's cashflow problem as it bills its customers on a monthly basis. In fact, Tenaga also faces late payment problems as customers have up to 60 days to pay before electricity supply is actually cut.
The IPPs, too, will have their own sets of problems and loans to pay, but certainly it will be wise for them to exercise flexibility in their discussions with Tenaga. It is not enough to say they are willing to listen but at the same time stress the point that the PPAs are not open for renegotiation.
All across Southeast Asia, governments, international institutions, banks and companies are trying to find amicable ways to solve their financial problems. Many banks, for example, are willing to settle for lesser repayment for every dollar they had lent to ensure that both the financier and borrower survive the crisis.
The IPPs must do their part. Listening alone is not enough. They must show flexibility if there is to be a win-win situation for all players in the power industry.
Azam Aris is associate editor of The Edge.

 

[jarance]

With all due respect to the person who make comment about what ppl does behind a rubber tree when they ask for minimum wages, I shall reserved my comment any further.

Let me see whether if I can remember correctly.. When the country was facing constant black out due to insufficient capacity, what was the solution being taken by the gomen.

TNB was in the progress of buying about 7 or 9 gas turbines each with a capacity of producing 120 MW with the option of being converted to combined cycle later.
Bearing in mind that the delivery time of a gas turbine is averaging about 24 months. So with this option, are you saying that the consumer is going to live with constant blackout until the gas turbine is delivered and commissioned. Hell NO!!

As such, the idea of awarding this contract to private contractor was mooted. Hence the IPP idea comes about. Of course, the idea is not accepted by TNB cos it means that the monopoly that is held by LLN/TNB would be broken.

But do you think a private contractor would invest about RM200 Million for a Gas Turbine if there is no assurance of return for their investment. Similarly, would you think that foreign investor would come to this country if there is constant blackout.

Anyway, to cut the long story short, the gomen decide to award the licence to produce electricity to IPP coz they have a shorter delivery time and the rest is history.

The access spining reserve of 40% is correct on paper. However, there must consideration for the shutdown of power plant. Gas turbine are designed to operate at 100% capacity and hence have no spinning reserve. Conventional power station firing on Coal and Oil are designed to operate at various capacity. i.e. 50 %, 75% or 100% load. The output is determined by NLDC or National Load Despatch Centre. If you need to know the NLDC is located somewhere in Bansar. Normally, the NLDC will assess the Load demand against the supply. If there is an access, then the NLDC will tell the power station to operate at a lower capacity. This is similar to your car.. You have 120 BHP in your car. Depend on your requirement, you will either use the full capacity when need it or reduce power when you don't need it. Similarly, as in town driving, you are using low capacity but higher fuel consumption.

Similarly, in a power station, to be cost effective, you would want to operate the plant like when you are driving on the highway.

Another thing you have to consider is the peak load demand. malaysia have a peak load demand during office hour.

 

[fabianyee]

The excess spining reserve of 40% is correct on paper. However, there must consideration for the shutdown of power plant. Gas turbine are designed to operate at 100% capacity and hence have no spinning reserve. Conventional power station firing on Coal and Oil are designed to operate at various capacity. i.e. 50 %, 75% or 100% load. The output is determined by NLDC or National Load Despatch Centre. If you need to know the NLDC is located somewhere in Bansar. Normally, the NLDC will assess the Load demand against the supply. If there is an excess, then the NLDC will tell the power station to operate at a lower capacity. This is similar to your car.. You have 120 BHP in your car. Depend on your requirement, you will either use the full capacity when need it or reduce power when you don't need it. Similarly, as in town driving, you are using low capacity but higher fuel consumption.

Similarly, in a power station, to be cost effective, you would want to operate the plant like when you are driving on the highway.

Another thing you have to consider is the peak load demand. malaysia have a peak load demand during office hour.

I guess by not being in the industry, there is a lot of operating factors which we are not aware of. However, there should be other solutions to it. But then again, it's not a straight forward answer to it. There's always a projection of increasing power demand which have to be taken into consideration during the planning stage.

1 thing for sure, I don't see our gov undertaking any significant initiatives to harvest energy using alternative sources other than using fossil fuel (and hydrodam). Being in the equatorial region, we have sun and wind which we are not harvesting. Perhaps the ROI does not justify the investment but we should start planning for such alternative energy sources. It would be ideal to convert landfills to harvest bio-gas to run powerplants or 'green' incinerator to fuel powerplants. However, these initiative would normally be government initiatives as the return would be slow but it'll be good for the long run.

 

[535i]

but but .. now - oil price drop a bit liao ...

 

[ALBundy]

Yes, there is definitely a need for good uninterrupted power supply in order to attract FDIs and what not. The question here is why the excessive rate charged by the IPPs???

 

[jarance]

I guess by not being in the industry, there is a lot of operating factors which we are not aware of. However, there should be other solutions to it. But then again, it's not a straight forward answer to it. There's always a projection of increasing power demand which have to be taken into consideration during the planning stage.

1 thing for sure, I don't see our gov undertaking any significant initiatives to harvest energy using alternative sources other than using fossil fuel (and hydrodam). Being in the equatorial region, we have sun and wind which we are not harvesting. Perhaps the ROI does not justify the investment but we should start planning for such alternative energy sources. It would be ideal to convert landfills to harvest bio-gas to run powerplants or 'green' incinerator to fuel powerplants. However, these initiative would normally be government initiatives as the return would be slow but it'll be good for the long run.

Green fuel have been considered not only by Malaysia but every country in the world. It nothing new.

Wind power. A wind generator can output about 30 KW. Hence, if you need about 300 MW output, you would most probably need about 10,000 wind generator in order to produce 300 MW.. can you imagine how many land is require to "plant all this wind turbine".. (see Mission Impossible III to have an idea).

Solar Cell.. Free sun. Sound Good isn't it.. The output of a solar cell is 1.5 V and drive a load of 15 Milliamp. The efficiency of the solar cell is less than 5% (maybe more). You would need a land about of the size of KL to produce 300 MW. That I think is pollution because the land cannot be use if the solar cell is install there. And when night fall, plant goes to sleep..

Padi husk or oil palm waste. So far no sucessfull due to seasonal condition. Cannot gather all the material in one place or continuous supply of raw material to keep the furnace/boiler running..

Hydro - Abdundant water in E Malaysia. There where Bakun Project come into the picture but too far away. Cable cost and power loss due to long distance make it not practical to go ahead with the project. When drought comes, plant cannot work. Loss of land usage coz need to built dam to contain all the water.

Incinerator - Singapore have managed to built a plant to burn all the rubbish and waste. In the process, they have manage to produce about 100 MW from the plant. In addition, metal is recovered and recycle.. Good Investment but don't know whether ppl around KL would like to see a plant of this sort next to their home. It do NOT make sense to collect rubbish from KL and sent to the plant located 100 KM away. The cost of transportation is way too high.

Bio-gas.. Please tell me whether any country have successfully done this type of power generation.

Nuclear.. Too dangerous.. Now you don't want ppl to accuse you a buiding a nuclear bomb...

 

[jarance]

Yes, there is definitely a need for good uninterrupted power supply in order to attract FDIs and what not. The question here is why the excessive rate charged by the IPPs???

Not all IPP enjoy the same rates. The late comer do not have the same good deal.

The 1 st 4 IPP have deal that is "premium rate" but only limited to certain plant and output. Please take note they accuired some of the TNB plant later but at a different rate.

 

[sub8sec]

Green fuel have been considered not only by Malaysia but every country in the world. It nothing new.

Padi husk or oil palm waste. So far no sucessfull due to seasonal condition. Cannot gather all the material in one place or continuous supply of raw material to keep the furnace/boiler running..

Bio-gas.. Please tell me whether any country have successfully done this type of power generation.

padi husk or palm oil waste are among the biowaste that are part of the ingredients for generating reneweable energy, germany and holland are among the few EU countries that are eagerly sourcing them from M'sia and other Asian countries, for their energy consumption, to replace dependency on fossil fuel & rape seeds(which are currently their main source of renewable energy).
Biogas are sometimes generated from these waste, as a source for burning and generating Power & Heat - called CHP(combined power & heat) generators. There are many successful industrial examples in Thailand.

So, in terms of technology it is not new. The main reason it is not feasible in Msia, is due to the low tariff TNB is paying for these industries. Therefore, most palm oil mills recycle them for own use - which also saves them electricity bill, and sells the rest as fertilizers, rather than for power generation.
It worked well in Thailand because the govt pay very good rates for these small power generators, and the ROI is usually

 

[naharnms]

wah guys.. this topic is indeed a good reading man.. well done for all the thread contributors (err.. both for proponent/opponent of IPPs..)

 

[Iqlima]

Not all IPP enjoy the same rates. The late comer do not have the same good deal.

The 1 st 4 IPP have deal that is "premium rate" but only limited to certain plant and output. Please take note they accuired some of the TNB plant later but at a different rate.

Yes, the "premium rate" IRR (Internal rate of return) between 18% to 25%.We learn abit but my kids will surfer obviously without control of this IPP's

G. From Shortage to Glut (Page 14)

Malaysia moved forward with its IPP program with impressive speed. While the existing capacity was roughly 6,000 Megawatts, Malaysia commissioned five projects totaling 4,157 MWof new capacity in the span of eight months from April to December 1993. The IPPs were given incentives to finish their projects quickly, to which they responded. The IPPs came online quickly and Malaysia was soon out of its power shortage. Unfortunately, the new capacity grossly overshot demand growth. By January of 1997, several months before the Asian financial crisis struck Malaysia, peninsular Malaysia had almost fifty percent surplus capacity. Much of the electricity had no real market, which prompted Prime Minister Mahathir to urge consumersto use more electricity. At this time IPPs accounted for roughly thirty-five percent of all installed generation assets, but supplied more than this percentage because Tenaga-owned facilities were turned off in order to utilize IPP power given that Tenaga was obliged to purchase. [...]
Once it became clear that the IPP contracts were causing serious strain on Tenaga’s profitability, Tenaga began attempts to renegotiate the long-term supply contracts with the IPPs. Political pressure on the IPPs to lower the contracted rates to Tenaga began as early as 1996. “We do not want to kill Tenaga by giving lots of profits to the IPPs,” said Prime Minister Mahathir. “It must be balanced.”
Efforts to reduce Tenaga payments to the IPPs were not limited to obligations of the PPAs. The minister for energy, telecommunications and posts, indicated that Malaysia's five independent power producers might be asked to “take up the slack in rural electrification programs.”
At the time, Tenaga bore half the cost of providing unprofitable services to rural areas; the rest was borne by the federal government. The IPPs eventually agreed to contribute one percent of their revenues to the rural electrification program. This is where things stood between Tenaga and the IPPs until the summer of 1997, when the Asian financial crisis swept the region.
​

V. THE ASIAN FINANCIAL CRISIS

The Asian Financial Crisis hit Malaysia in July of 1997. Triggered by the collapse of the Thai baht, pressure on the fixed-exchange-rate ringgit became insurmountable. On July 14, the government decided to float the currency, resulting in a huge devaluation, which then triggered a major correction on the stock exchange. After the crisis hit, electricity demand growth slowed, and reserve generation capacity expanded from fifty percent to fifty-five percent.​

VI. ANALYSIS OF THE MALAYSIAN IPP EXPERIENCE (Page 21)

A. Was the IPP Program a Success or a Failure? Given what we know about the Malaysian IPP experience, we must assess that the experience from the investors’ perspective was very positive.97 We don’t know exactly how much money the sponsors made,98 but all accounts indicate that the first wave of investment was very profitable.
One analyst said, “The first batch of IPPs, namely YTL Power, Malakoff, Genting Sanyen, Powertek and PD Power Bhd derived between eighteen and twenty-five percent internal rate of return (IRR).” Other observers said that the first five IPPs had been “‘laughing all the way to the bank’ as they had been enjoying favourable terms ‘not found anywhere else in the world.’” Additionally, all of the original players are still in the business and willingly entering new contracts at rates lower than agreed in the first round of investment.
As to the second wave of investment, an analyst said that “the market expectation is that any new PPAs signed with [Tenaga] will give an IRR of only about twelve per cent.” That Tenaga was willing to threaten unilateral revision of the contracts and withhold payment for two months may have hung a cloud over the sector, but during the crisis period, IPPs were perceived by at least one analyst to be one of the best sectors in which to invest.105 Publicly listed IPPs have provided a better return than both the Kuala Lumpur Stock Exchange index and Tenaga during the relevant period. (See Appendix A)
Separately, it seems that bondholders and lenders to the project companies were paid according to originally contracted schedules without difficulty. Malaysia’s IPP experience, in consideration of the policy and developmental goals of the government of Malaysia, should be considered as a qualified success. The government’s highest priority, installation and management of adequate generation capacity to facilitate high economic growth, was achieved. Moreover, the privatization of Tenaga and the local financing of the IPPs contributed to the development of local financial markets. This success is blemished by the fact that the contracts were probably too rich for the IPP sponsors.
Consequently, a higher than necessary cost of power resulted in financial losses to the government controlled utility, higher prices to consumers, and arguably an inefficient allocation of society’s resources. But this defect should not be overemphasized: timely expensive power is a far superior outcome than blackouts that discourage FDI and domestic investment, and stunt economic growth. Additionally, if someone is going to reap exorbitant profits, it is probably better from a political standpoint that they be domestic investors, as they were in Malaysia, rather than foreigners.
Finally, Tenaga made a number of commercial improvements to the PPA used in the second round of investment: tariffs were lowered and there was a more balanced allocation of risks.
B. Why did the Contracts Hold?
It is notable that the PPAs were not altered during the economic crisis—a period when there must have been tremendous pressure on Tenaga to unilaterally change the terms of its expensive obligations to the IPPs. The national off-taker was forced to manage a debt crisis while it was hemorrhaging due to the expensive IPP contracts coupled with low power demand. Nor were they altered in 2001 as some reports have indicated. This conclusion would be hardly a surprise to those close to the deals but others have somehow been given a different impression.
In 1998, IPPs constituted about thirty-five percent of Tenaga’s capacity (and even more of production) and were more expensive than Tenaga’s own generating capacity. Power demand was low and Tenaga was contractually bound to purchase power that it could not sell. The drop in electricity demand brought on by the Asian financial crisis exacerbated these problems, but the fact that fuel for the IPPs was produced domestically and the projects were financed exclusively in local currency significantly mitigated the stress of the crisis.
Further research should investigate whether trading value data for project bonds are available. See supra note 94. In researching for this working paper we have encountered reports that assert the PPAs were renegotiated. But we have looked for and discovered no direct cause to believe that any PPAs were renegotiated either in 1998 or
2001, while we have encountered sufficient basis to conclude that they were not. In private interviews with the author, both a Tenaga official and an attorney involved in the deals confirmed that the PPAs were never altered. In 2001 and 2002 reports to investors, Tenaga highlights progress that they made in reducing foreign debt exposure, but there is no mention of changed PPAs. In a 2004 report to investors, Tenaga reported that the average cost of purchased IPP power was about 15 sen per KWh, which is the level they were set in 1993/1994. YTL Power annual reports and Malakoff Bhd. annual reports in 2001 and 2002 make no mention of changed PPAs, yet Malakoff highlights the completion of a new PPA for a new project that happened to be signed on the very day others reported that “re-negotiations” were completed.
In light of the breaches of contract and forcible renegotiations seen in the IPP sectors of India, Pakistan, and Indonesia, we might not have been surprised if in a country like Malaysia, with a weak rule of law, the state-controlled power company under serious duress decided to change the rules on investors after the investment was in place and the balance of leverage shifted. But this did not happen. How was it that the IPPs could withstand Tenaga’s pressure to renegotiate in a time of national crisis? Was it because of the strength of their legal protections, or was it something else?
​

 

[fabianyee]

Incinerator - Singapore have managed to built a plant to burn all the rubbish and waste. In the process, they have manage to produce about 100 MW from the plant. In addition, metal is recovered and recycle.. Good Investment but don't know whether ppl around KL would like to see a plant of this sort next to their home. It do NOT make sense to collect rubbish from KL and sent to the plant located 100 KM away. The cost of transportation is way too high.

Bio-gas.. Please tell me whether any country have successfully done this type of power generation.

Actually with the current situation of inadequate landfills in the Klang Valley, an incinerator cum power station does sound like a good idea. It'll kill 2 birds with 1 stone. The only concern is the exhaust fumes. If toxic gases can be contained and managed properly, it does present a good alternative to fossil fuel and takes care of the landfill problem.

As for bio-gas, I do recall watching on Discovery Channel (or NatGeo) on 1 documentary on how Brazil handles waste management and recycling. One part of the show was on how bio-gas was collected from landfills and used as fuel for powerplants. That does sound good on the surface of it but whether it's a feasible alternative here in malaysia would be the job for the government to explore and evaluate.

There's also an initiative from Netherlands for houses to be fitted with solar panels, the power generated to be used by the household and excess power would be channeled back to the power grid. Again, it looks good on the surface but requires strong support from the government to get it started and moving.

 

[jarance]

I think the report is a bit flawed. The founding member of IPP does not included Malakoff.. Please refer to this site for more info on IPP in Malaysia.

http://www.penjanabebas.com.my/www/generator/index.php/publish/page/start

AND what will happen IF we did not have the 1997 crisis?

I don't about you guys, but most public list company usually make their company look good based on future earnings in order for people to buy their shares..

 

[jarance]

but but .. now - oil price drop a bit liao ...

yes but most of the power station in Malaysia are operating on coal firing or LNG. Most of the oil firing power station are put in cold storage.

 

[jarance]

Actually with the current situation of inadequate landfills in the Klang Valley, an incinerator cum power station does sound like a good idea. It'll kill 2 birds with 1 stone. The only concern is the exhaust fumes. If toxic gases can be contained and managed properly, it does present a good alternative to fossil fuel and takes care of the landfill problem.

As for bio-gas, I do recall watching on Discovery Channel (or NatGeo) on 1 documentary on how Brazil handles waste management and recycling. One part of the show was on how bio-gas was collected from landfills and used as fuel for powerplants. That does sound good on the surface of it but whether it's a feasible alternative here in malaysia would be the job for the government to explore and evaluate.

There's also an initiative from Netherlands for houses to be fitted with solar panels, the power generated to be used by the household and excess power would be channeled back to the power grid. Again, it looks good on the surface but requires strong support from the government to get it started and moving.

Like I say earlier, who want a rubbish bin near their home?? The technology available nowadays surpass the ISO14001 requirement. Emission of dust/ash can be reduced to 0.01% with ESP (Electrostatic Precipitator) having an efficiency of 99.99%. Fuel gas of carbon Monoxide and Sulphuric dioxide emitted thru the chimney can be reduce to minimum level with system like FGD Plant (Flue Gas Desulphurization) plant.

Ash can be recovered for use for the production of cement.

But like I say, who want a GIAGANTIC rubbish bin situated near their home.