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Malaysia

We paid above market price for plants to keep power tariffs low for rakyat, 1MDB chief says

1MDB President and Group Executive Director, Arul Kanda Kandasamy speaks during at a public forum on 1MDB at the PWTC in Kuala Lumpur, November 14, 2015. — Picture by Yusof Mat IsaKUALA LUMPUR, Nov 14 — 1 Malaysia Development Bhd’s (1MDB) energy assets were bought at prices above market value to keep tariffs low and “help the rakyat”, the state investment company’s president Arul Kanda Kandasamy told a public forum here today.

The purchase, which also included new power purchasing agreements instead of merely those nearing its expiry dates as claimed by critics, could help the government save up to RM12 billion in the long run as 1MDB had managed to cut the tariffs by 1 sen per kw, he added.

Slideshow presented by 1MDB President and Group Executive Director, Arul Kanda Kandasamy at the public forum on 1MDB at the PWTC in Kuala Lumpur, November 14, 2015. — Picture by Yusof Mat Isa“When we entered the bidding there were other companies. We entered it wanting to keep tariffs low. When we bid the tariffs low, others have to bid it low too.

“1MDB had bid at 34 sen per kw when others had at 35 sen per kw. To cut the tarrifs by 1 sen for a 2,400 mw producing plant for 20 years you save about RM 2.9 billion and that is just for one plant. So if there are four plants? That is about RM12 billion ladies and gentlemen,” Arul Kanda said in an open door dialogue session at the Putra World Trade Centre here.

The forum is organised by Umno.

“We did it so help the rakyat,” the 1MDB chief went on to say.

Arul Kanda also revealed that the purchases of the IPPs included a "goodwill" payment, which he explained inflated the prices for the plants.

1MDB had paid RM18 billion to buy for plants, of which RM8.5 billion was for Powertek, RM2.3 billion for the Kuala Langat power plant, RM1.2 billion for the Jimah power plant as well as RM6 billion in inherited debt.

The Kuala Langat plant, formerly owned by Genting Sanyen and Powertek’s PPAs are scheduled to expire in the next two years.

Critics, including former prime minister Tun Dr Mahathir Mohamad, have questioned the hefty price tag, claiming it was aimed at enriching cronies close to the government as they were paid close to 30 per cent above market price.

But Arul Kanda insisted the acquired power assets, now combined and known as Edra Energy, had been valued fairly by independent valuers.

“The values paid for the acquired assets were based on independent advice from financial, legal, accounting, tax and technical advisors. In addition, 1MDB took a long term view and considered the social and economic impact on the country in arriving at a final valuation,” the company said in a previous statement.

Today the 1MDB president said even as its energy subsidiary Edra was preparing for a takeover as part of the fund’s rationalisation programme to reduce its RM42 billion debt, it considered the purchase of the IPPs as a success as it had managed to provide lower power tariffs to the public.

“Even if Edra is sold, the tariff would be fixed. They can’t change the tariff,” he said.

The sale of Edra Energy is expected to return RM16 to RM18 billion for 1MDB.
Abu Dhabi oil and gas firm IPIC is said to be interested in purchasing the assets and are currently in talks with the state investment arm over the deal.