MALAYSIAKINI: MPs query 'extreme profits' for IPPs

UPDATE (July 20, 2008): There is an excellent study on the M'sian IPP experience done in 2005 by Jeff Rector at Stanford University.The study is very complete and it is nuanced by including the Great Blackout of 1992 that created the impetus for the privatisation of electricity supply and, some political subtext to the IPP saga. Read The IPP Investment Experience in Malaysia.

The unfair Power Purchase Agreement (PPA) between the Independent Power Producers (IPP) and Tenaga is finally getting Parliamentary scrutiny.

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In the report MALAYSIAKINI: MPs query 'extreme profits' for IPPs MPs have started to call for a review of the PPAs. I had blogged about this in An economic agenda to consider.

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The Mkini report by Fauwaz Abdul Aziz states, "I want to ask now whether we will review the extreme revenues going to IPPs or whether, if there are other reasons for this, the government would take over the IPPs that are operating presently," said Ahmad Hamzah (BN-Jasin).

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In his reply to Lim Guan Eng (DAP-Bagan), Deputy Minister in the Prime Minister’s Department SK Devamany revealed that for the financial year 2006/2007, IPPs Segari Energy Ventures Sdn Bhd and YTL Power Generation Sdn Bhd pulled in pre-tax profits of RM614.883 billion and RM252.033 billion respectively.

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TNB Janamanjung Sdn Bhd and Tanjung Bin Power Sdn Bhd, meanwhile, earned pre-tax profits of RM860.498 billion and RM332.892 billion, respectively. Among the other big earning IPPs, Powertek Bhd and Genting Sanyen Power Sdn Bhd earned RM372.6 billion and RM312.275, respectively.

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Devamany also disclosed that 10 IPPs, from May 1997 to March 2008, received RM35.695 billion in gas subsidies from national petroleum firm Petronas. "

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In my earlier blog entry I had taken a harder stand. I extract below my earlier blog entry:

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Tenaga to acquire all IPPs
IPPs are protected by the unfair Power Purchase Agreements ("PPA") which forces Tenaga Nasional to purchase all power generated by the IPPs. We are told that Petronas is also subsidising the fuel consumed by these IPPs. Consumers are being forced to absorb the increased costs via higher electricity tariffs. This is classic rent-seeking behaviour.
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The government must do a work-out for Tenaga to acquire the IPPs. Tenaga can do a massive bond-raising exercise to acquire the IPPs with the government to stand as a sovereign guarantor. The consolidated cashflow from the IPPs and Tenaga's own operations combined with the sovereign guarantee should make these bonds attractive and be given a triple-A rating.
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I know there are brickbats thrown at Tenaga. But it is still a better vehicle that can be audited as opposed to the opaque structure that currently exists. Furthermore, the PPAs are under the Official Secrets Act, apparently. That is a sham!