Two opinions on IPP issue

I

Here are 2 comments which I selected to share with readers. The first comes from a person known as OneMalaysia. The second comment comes from a person, residing I presume in Borneo.

Those robber barons were single-handedly created and succored by Dr Mahathir. I remember arriving at the old Subang airport to discover unpleasantly that a large part of the country was plunged into darkness because of some massive explosion or tripping caused by overload. Lo and behold, within weeks the ex-PM announced that IPPs would henceforth supply electricity to TNB because TNB couldn't be trusted to do the job of generation alone.

 

The first off the block was YTL, who until then was just a mid-sized contractor. What distinguished them was Francis Yeoh's contact with the Apa-Nama PM. He was said to be like a godson. Well, that would be putting it rather kindly. Some people have rather unmentionable terms to describe him, which is beyond the dignity of this blog to publish. FY flouted his connection. That's the ironclad, tested way to tell one and all, especially little Napoleons, that he had real connections – don't play, play.

We then have Ananda Khrishnan – Uncle Ananda to the growing Mahathir kids – who came to great wealth through trading Petronas oil. Uncle Ananda of course also got into the KLCC deal and Maxis. But you wonder what experience he had in power generation when he got the sweet deal.

A former rice trader, who also had access to Dr M, also got in. He is now the biggest in terms of total power output, next only to TNB itself. Only days ago, TNB awarded a massive 1000MW coal fired plant to his group, Malakoff, at a juicy 23 sen per kilowatt. Compare this to what TNB can generate at about 13-14 sen.

 

Now, what make these blood-sucking IPPs so lucrative? First, these IPPs have contracts to supply on take-it-or-leave-it basis. In other words, they will generate at the rated capacity and supply to TNB whether or not TNB wants the electricity. TNB must then throttle back its own plants to give priority to the IPPs. Since TNB can generate at a lower cost than the IPPs, it is forced to buy all that expensive electricity - restricting its own cheaper supply - which is then passed on to us. Second, the IPPs are protected should gas prices go up. They have "pass through" cost clauses, meaning if gas price goes up this is immediately billed to TNB, that is, us. Third, at the time when the first few IPPs were created, they sold electricity at 15-16 sen per KW when at that time TNB could generate its own at 12 sen. The later IPPs got a lower rate but are still obscenely profitable. If one wants to understand what rent-seeking means these IPPs provide a perfect example.

 

Is there no role for IPPs? They have, but not on those terms. Firstly, as is done overseas, IPPs must buy gas or coal at market prices. Secondly, they must compete on price to supply to TNB, so TNB gets the cheapest deal. This means the inefficient IPPs will make less money or even losses – no guaranteed off-take at high fixed prices, and no pass-through cost clauses. In short, no sweetheart deals, and no ripping off the public. How can they tell all this to the public? We have Dr Mahathir to thank for this rip-off.

 

II

First of all, I have never commented any of your writings even though I find them interesting. Not that I agree to some of what has been written. But nonetheless they are interesting.

 

Ok now, my thoughts...

Remember Asas Serba's intention to take over the entire toll roads in the country?

Well, I can safely tell you the plan is workable if we only analyse the merits of the proposal. Nothing else... not even who is alleged to be behind the move!

Asas Serba's proposal:

1) No more toll hikes;

2) No extension of toll period beyond PLUS' concession agreement;

3) Immediate reduction of toll rates by 20%;

4) No more subsidies;

5) Assume the entire debts of toll roads; and

6) Remove all government guarantees.

 

If my memory has not failed me the above are the salient features of the proposal.

WELL...? If that is not good, I do not know what is?

Now let us fast forward to the present...

With a little tweaking, the same model works for IPPs...

I know who is behind Asas Sebar for a fact but I shall not dwell into that!

The same core group that was working on the toll road projects were also working on the IPPs... if only the government (read as UMNO/BN) were willing to discard their-know-it-all attitude, the government would not need to subsidize the IPPs...

Without even giving an opportunity to be heard, the government has denied Asas Serba an opportunity to reduce the burden on the rakyat.

Make no mistake! Asas Serba could and would still make money from the toll roads based on their proposal. The same holds true if similar proposal was implemented for IPPs!

When the government denied Asas Serba (largely, I was told because of personality clashes!), the government:

1) Strained its resources by subsidizing toll roads as well as IPPs;

2) Denies Sarawak and Sabah, the chance to have better infrastructure; and

3) A host of other stuff... (can't articulate them now... got to work!)

 

Whether my comments would see the light of day remains to be seen. That Sir is your prerogative that I would not question.

But I know what I am talking about because I have seen the proposal and the complete workings... Unfortunately I do not have a copy of them with me... I suppose I was being too straight when told that I could only read and return them (the proposal) after I finish reading.

Thank you Sir.

Dari Borneo ke Semenanjung Tanah Melayu.