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If PPA Renegotiation Not Concluced By 2011, IPPs Will be the Ultimate Winner

The first batch PPA will end between year 2015 and 2016, and this gives effective 4 to 5 years to plant-up (build) new power plants if the need arises. However, the ART OF DELAYING renegotiation to after 2011 will only make the government, the people and the businesses immediate losers.
The Prime Minister has pledged to renegotiate the PPA to benefit the people and the country. However, delay in renegotiation only brings bad news and challenge the Federal Government over its commitment to protect the interest of people.
Let us refresh the 2400 MW Bakun Hydroelectric Project issue. When the Sarawak State Government did not allow the electricity to be supplied to Peninsular Malaysia as intended, we have to open up a “Compromised Open Bidding” for 2 coal power plant of 1000 MegaWatt (MW) each. The first round of the bid was won by TNB as it submitted the best bid. The second plant was given to the Malakoff without a fresh bid being called due to the rush to build the power plant. The bidding cost difference between the TNB’s Manjung plant and Malakoff’s Tanjung Bin plant was a staggering half a billion Ringgit higher (RM 500,000,000.00). This is basically because we are put into a situation of ‘lack of construction time’.
This is exactly what first batch of IPPs are trying to achieve in the ongoing renegotiation process. Therefore, the Federal Government should not allow this to take place or they have to shoulder the responsibility of the failure of renegotiation.
The winning point is, if the PPA is ended, these IPPs do not even get a single cent after the agreement period. However, this point is only useful until end of 2011. Therefore, any form of renegotiation must be completed by 30th November 2011.
AWER is suggesting government to reduce capacity payment of IPPs from year 2012 onwards. The new capacity payment must be based on audited operational cost, engineering report, and a regulated profit margin. This should be a transparent process. If IPPs agrees to this, the extension of operation can be given via a licensing regime only (NO MORE PPA).
If the IPPs disagree to the proposed renegotiation model, END the PPA when the time comes. However, the Federal Government MUST also do the following:
(i)  open for competitive bidding from 01 December 2011 as we will have sufficient time to plant up new capacities;
(ii)  the IPPs that rejected the capacity payment charges reduction should not be allowed (blacklist) to bid in any new generation projects after this;
(iii) the ban (blacklist) should be extended to shareholders and board of directors of the IPPs, their subsidiaries as well as the parent company. None of these shareholders or board of directors should be allowed to involve in any new generation projects through any other new set ups or other forms of entities.
The Federal Government must be FIRM in protecting the people’s interest and the country’s growth.
Association of Water and Energy Research Malaysia (AWER) has conducted several stakeholder engagements and research work to study our national electricity industry. We have compiled our findings, recommendations as well as solutions and published the report entitled ‘Survival: The Future of Our National Electricity Industry’. This report was submitted to Ministry of Energy, Green Technology and Water (KeTTHA), Energy Commission, Economic Planning Unit, and all Members of Parliament in June 2011. The softcopy of the report is also uploaded to our website (www.awer.org.my) for public viewing.
Association of Water and Energy Research Malaysia (AWER)

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