Business Commentary

TNB to seek redress over Paka plant land ownership

The Paka power plant -- source of the dispute between YTL Power and TNB.

The Paka power plant -- source of the dispute between YTL Power and TNB.

Syndicated News
Written by Syndicated News

KUALA LUMPUR — July 14, 2016: Bringing the independent power producers (IPPs) into the energy landscape in the 1990s was a crisis-management decision which utility giant Tenaga Nasional (TNB) had to comply with.

Following the introduction of the policy, TNB had to temporarily hand over its land in Paka to YTL Power Generation Sdn Bhd. The national power company had earlier acquired the land to enhance its generation capacity.

YTL Power then proceeded to build its power plant there, signing a 21-year power purchase agreement (PPA) with TNB.

The interest of the Paka landowner, namely TNB, was intact as the land would be returned to it after the PPA expires.

Back then, the arrangement was acceptable because it did not cause more harm than good to the nation.

This was the backdrop to the ongoing YTL Power-TNB dispute that made it to the headlines of the business pages and trumpeted by certain bloggers.

To the uninitiated, the news is about YTL Power being unable to resume operations of the plant as the PPA is tied to a land lease agreement (LLA) for the land.

The matter has somewhat been twisted and spinned, thus clouding the fact that this is a routine business transaction between two parties.

“It is plainly logical and acceptable for TNB to formulate a plan, long before the PPA expired on last September 30, to use the Paka land.

In the first place, the land was acquired to keep up with the national electric utility’s aggressive plan to modernise and expand its electricity generation capacity, said an industry observer.

When the decision came to extend the PPA for three years, TNB again had to comply.

“Naturally, TNB was anxious over the status of the land and had since introduced a Condition Precedents (CPs) clause for the land to be returned to it at the end of the three-year extension on February 28, 2018 … plain and simple.”

Noting that TNB has for years agonised over the lopsided details of the LLA, the observer went further, describing it as “draconian”.

One may wonder if there was feet-dragging by TNB in its shocking disclosure of an intervention by the Energy Commission (EC) instructing it to execute the new PPA minus the CP Clause?

To recap, the government, via the EC, conducted a competitive bidding exercise in 2015 to procure additional power supply on a short-term basis by extending the PPA of the first-generation IPPs.

Three IPPs, namely Port Dickson Power Berhad, Kuala Langat Power Plant Sdn. Bhd. and YTL Power Generation Sdn. Bhd., fulfilled the conditions set by the EC and were selected. PD Power and Kuala Langat Power have signed the PPAs but not YTL Power.

The delaying tactic has indeed stalled the new PPA.

According to people familiar with the dispute, the EC surprisingly ordered TNB to remove the CP clause.

“Is the supervising authority taking sides with YTL Power’s stand that the land need not be returned to TNB in 2018?

“This is a surprise because signing the PPA with the CP clause has zero financial implications on YTL Power,” said a source.

“It appears that TNB, as the aggrieved party, wants to seek arbitration on the EC’s directive. Has the EC exceeded its powers under the Electricity Supply Act?”

The move to seek a judicial review is understandably a sensible option.

With the directive, TNB has been pushed into a corner under potential threat of imprisonment should it not comply.

There have also been allegations that the non-operation of the 780-megawatt Paka plant could potentially disrupt national electricity supply.

An “orange alert” issued to industry players on June 1 seems to reinforce this assumption.

The alert is a precautionary warning used by electric utility, given the risk of a load shedding when power supply has to be strategically shut off to prevent a system failure.

“The alert came after unusual level of unplanned power outages taking place some 24 hours earlier. The disruptions lasted two hours and 20 minutes.

“In the end, the alert which was meant to get everyone to be on full alert, came to pass without any incident,” said a source.

He added that there was sufficient reserve margin in the system as the 1,000MW coal-fired Tanjung Bin plant was commissioned last March despite earlier concern it could be delayed to November.

The commissioning of another large coal-powered plant, the 1,000MW Manjung Unit 4, last year has further strengthened stability of supply.

Reassuringly, two combined cycle gas plants, Connaught Bridge (375MW) and Prai (1,071MW), have also commenced operations this year.

In the final analysis, YTL Power could have easily signed the PPA incorporated with the CP clause which spells out that it must hand over the land to TNB after February 18, 2018.

As the landowner, it is unfortunate that TNB has not been able to fully leverage on the land. — Bernama

 

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