The award of “Project 3B”, a 2,000MW coal-fired power plant to 1MDB despite its higher bid is nothing less than a backdoor bailout for the financially stricken company

 

Media statement by Tony Pua, Member of Parliament for Petaling Jaya Utara and DAP National Publicity Secretary on Friday, 21 February 2014 in Kuala Lumpur

 

 

The Edge Financial Daily reported on its front page yesterday that “1MDB gets 3B power project”.  The paper confirmed that “the Energy, Green Technology and Water Ministry (KeTTHA) has notified the Cabinet that the 2,000MW coal-fired power plant known as Project 3B is to be awarded to 1Malaysia Development Bhd (1MDB), according to sources”.

If the sources are credible, then 1MDB has won the contract despite the fact that its bid at 25.65 sen per kWh is higher than that submitted by another tenderer, YTL Power at 25.23 sen per kWh.  The difference of 0.42 sen per kWh is estimated to constitute a difference of RM2 billion over the 25 year concession period.

What is more disturbing is the fact that based on documents sighted by The Edge, “the EC’s technical evaluation committee had recommended YTL Power as the preferred bidder for the tender in December last year”.

The clear cut desperate attempt to award 1MDB the concession despite its higher prices which will result in higher electricity prices is clearly to prop up 1MDB, which is labouring under a mountain of debt estimated in excess of RM40 billion.

1MDB has since 2012 pursued a reckless acquisition strategy to takeover independent power producers with expiring contracts at very high premiums, financed almost entirely with loans.  1MDB acquired Tanjong Energy Sdn Bhd for RM8.5 billion, Genting Sanyen for RM2.35 billion and Jimah power plant for RM1.2 billion, costing a total of RM12.05 billion.

However, as reported by the latest issue of The Edge Malaysia weekly, the cashflow generated by these acquisitions barely covers the annual RM650 million interest expense to finance the loans it took.  It does not take a financial genius to wonder how 1MDB will be able to repay the principal of these multi-billion ringgit loans.

1MDB’s energy misadventures compounded the company’s US$2.32 billion (RM7.63b) “investment” scandal in a mysterious and anonymous Cayman Island “seggregated portfolio fund”, which resulted from an aborted joint-venture investment with PetroSaudi International Limited.  It appears that the financial shenanigans have resulted in KPMG, 1MDB’s external auditors preferring to resign than to sign off accounts which it is unable to satisfactorily verify.

Therefore it seems to be the strategy for the Najib administration to award a new IPP concession to 1MDB, even if it means higher electricity costs for the man-on-the-street, in order to bailout the debt stricken company and cover up to some extent, the massive deficits in the company.

KeTTHA issued a statement late yesterday to refute my suggestion that the Energy Commission has decided to award the Project 3B to 1MDB, despite The Edge clearly having information to the contrary.  I am not only ready to be proven wrong, I also hope that will am wrong in thinking that the Prime Minister, Dato’ Seri Najib Razak will prioritize bailing out 1MDB over lower cost of  electricity to ordinary Malaysians.

I hope that right-thinking Ministers who are genuinely concerned about the burden ordinary Malaysians face as a result of the higher cost of living will speak up and object to the bid which will cost more, and pick the concessionaire who will charge less.  Only then can the Barisan Nasional government live up to it’s discredited motto “People first, performance now”.

The Cabinet can be assured that if the higher bid is selected, the DAP and Pakatan Rakyat will ensure that all Malaysians discover that the Prime Minister Dato’ Seri Najib Razak and his cabinet are completely insincere in wanting lower costs for the rakyat, and is only keen to prioritize the profits, and bailing out those connected to the administration.

 

Tony Pua