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Sakmongkol ak 47

Tuesday 7 June 2011

Two opinions on IPP issue


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.



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.


Bongkar,  7 June 2011 at 22:10  


There might be some people who can really fill in the details of these two projects. Nobody could know anything before because of OSA.

We should spill them all off.

It's the rakyat's fundamental rights!

It's the time of the season!

They won't switch off the power. Hey, they got bizness to run, too! :))

Anonymous,  7 June 2011 at 23:17  

Datuk Sak AK47,

How about our current PM that simply give up KTM land in Singapore and the land was under new Singapore Land Act and supposed to pay around S$2b tax?

Is it PM has so much power at his disposal at the expense of our nation's interest?

"Banking" on the series of flip flops decisions, policies from never ending issues of corruptions, little napolean, IPPs, high crime rate, human trafficking, drug with so many names l hardly can remember, white elephant projects, bailouts, wrong decisions by government machineries, court with no soul-or-judges with unpredictable if based on books of law, minister ruining our country like their rich dad estates, TUDM land saga, how naza got government land near bukit tunku, pkfz, hiways, public project as government tool to get easy rich-rakyat can witness same project-many time retender because of concessioner can't tahan the price and they can bid for the same project after it technique or tactic to paralyse country coffer?

Please highlight the KTM land saga and l believe we can do something to save this prized asset rather than gave up to the kiasu SG.

George Choo 8 June 2011 at 00:05  

Dear Sak, Dr M is the main reason the good man Ani Arope resign.
Asas Serba proposal was being rejected because accepting Asas Serba proposal will mean a BIG CASH LOSS TO UMNO AND ITS CRONIES.

All this lop sided IPP agreement is made to benefit the ORANG TUA and his family.

A source of mine told me that even though the old man is longer the PM for so many years,his children is still collecting commissions from the IPP until today.
The objective of Umno today is to lay its hands into the CASH of all GLCs especially CASH COW like PLUS and PETRONAS.Hence giving the toll to HaliM Saad will be a loss to Nor Yakob and UMNO.
This is the reality in Malaysia today.

OneMalaysian,  8 June 2011 at 00:22  

Dear Sakmongkol

Today, Tuesday 7 June, Penjanabebas, the association of IPPs issued a statement (read on Malaysia Chronicle) denying that the IPPs have benefited from gas subsidies. Their statement is strictly correct. In fact it makes them look saintly, like an group of do-gooders helping out TNB and we poor Malaysians, as they produce electricity to brighten up our lives.

What I have written earlier about how they make money is valid. What I have neglected to do earlier is to explain the real secret of why these IPPs are insanely profitable. The terms of their PPAs (contracts to produce power) are such that there is no risk at all to them – TNB takes all the capacity; there is cost pass through; and the initial cost per KWh is much higher than what TNB can produce. This simply means a very high margin business at no risk. Anyone who has a rudimentary knowledge of business and investment knows that risk is related to returns – the higher the risk the higher the expected return. In this case of the IPPs, the high returns are not related to risk. There is no market risk, except operational risks, such as if the plant explodes, or their own management screws up.

Now if one has such a sweetheart deal that promises a very high return on capital (shareholders’ capital + borrowings), it is very easy to borrow via long term bonds (10 years) to finance the project. This is what they all did. They had very high borrowings via bonds. This high gearing amplifies the return on equity, i.e. the return to shareholders after paying off the bondholders. So if the return on capital is 12% and the bond interest is 7%, then each unit of equity earns 12% by itself. If the gearing is 300% (3 times equity) then each unit of borrowing contributes another 5% (12% - 7%) to equity. So 3 units of borrowing contributes 3x5%=15%. This 15% is then added to the 1 unit of equity of 12%, so the total return on each unit of equity (shareholder capital) is 27%. (I have ignored taxation for simplicity). This is what these sweetheart deals are all about – one-sided deals in favour of people who knew nothing about power generation but against the public interest.

Two or three years ago there was a big clamour, initiated by TNB, to review the PPAs but the IPPs squealed, and Nasir Razak defended them saying that the government cannot do this because this will cause foreign bondholders to lose confidence in the government. The sanctity of contracts, even lopsided and against the public interest, must be honoured. What else can be done? How about a super tax on the profits of the IPPs AFTER they have paid interest on the bonds? No, they all screamed. Unfair! So the poor people of Malaysia are still being screwed.

And where have all the IPP profits gone to? YTL has invested massively overseas in the UK and Singapore to diversify “political” risks. Ditto with Ananda Krishnan. Their political lord and benefactor is no more on the throne. Shrewd business people know how to protect their interests. Malakoff has all its assets here – it has Teflon-coated Bumi status.

Anonymous,  8 June 2011 at 08:55  

would it be possible to use Competition Act under abuse of dominant position to counter these IPPs, provided of course we can get pass the exclusions in the same Act

Anonymous,  8 June 2011 at 10:44  

Just to add to OneMalaysian's comments above that IPPs were given sweetheart deals at the expense of TNB (and the public) that rewarded them with obscene profits. Utilities businesses, because of its long term nature, stable cash flows and relatively low risks, typically earn returns of around 10%. Malaysian IPPs got double that--and Francis Yeoh had the audacity to claim in the press at that time that the IPPs were actually printing money for TNB! Cukuplah

Anonymous,  8 June 2011 at 11:18  

'Dari Borneo ke Semenanjung Tanah Melayu' sounds like someone who had worked with Leo Moggie !

Why there is much truth about AsabSerba's proposal.

The only catch is their funding. They claimed that their have the fund, ready & standby.

Then, only EFP/Khazanah came out with the stipulated deposit about the PLUS tendering.

Talk is cheap?

There is also the most proper fund raising exercise of using public bond. They r game to it, bcoz at the end of the day teh M'sian govt is going to bear the cost, with interest thrown in if they failed. & failed they would!

Remember about nazir's cry of the possible IPP's bond default? Similar issue was raised by the Syabas/PUSPEL/Puncak niaga's water bond.

So who's the final suckers - joe M'sians of course!

Anonymous,  8 June 2011 at 12:10  


Despite all the alleged mismanagement by the government, they still give out some 'gula-gula' to the people, which makes most malaysian content with life. So why the need for change? Most simple minded individuals are afraid of change.

Are you aware of the prices of new developed properties in Selangor? I believe because of the mismanagement by the previous state govt, the current in power is under pressure to show their worth to the people & make profit. Should a govt be managed like a business unit? ie. KPI based on profit.

In Sarawak, despite the alleged plundering by Taib n Co., they still won by a comfortable margin. So why would the Sarawakian vote for a change?

The basics of governing is easy. Use a portion of the rakyat's money for the rakyat and anything beyond that is a blind-sight. As long as they're doing this, I just don't see them being kicked out of Putrajaya.

So my dear Dato' what u r doing now is adding fuel to fire. Without ignition source, fuel is just a liquid. U must look for the spark!!

Anonymous,  8 June 2011 at 14:48  

salam dato'.

ini semua mamak kutty punya keleje.

Red Alfa 8 June 2011 at 18:27  

Salam Dato'

You missed out Anon's at 7/6/2011 17:41

"...Now. .back to reality.Lets stop the monster thats about to hatch.Its the Gamuda MRT windfall.After,direct nego dams,smart tunnels,double tracking (worth 20 bil?) their hunger still unabated.Now they want to rip us off further thru MRT PDP n swiss challenge tunnels.Thats potential lip smacking 8 billion in d pocket?
Of cos it wld be racism to stop this cos they r the marginalised n oppressed ppl too.Don't worry abt the bumi partners cos they r just riders in the sandstorm n googled to see pink when blood is order of the day."....

We are only now finding the lowdowns on the IPP issues? They are all but nasi sudah jadi bubuh. We feel greatly pained but still can only scream out profanities!

FRIM and Sungei Besi land deals, MRT and the 100-storey Menara will be VERY BAD. All that the rakyat cannot know yet because of the OSA/ISA/Anti-Sedition Act, dumb & mute MSMs, greedy UMNO warlords, misguided MACC, power drunk AG, etc

Please guys, turn your guns on this!.... And then this government will know the rakyat's anger when they lose their fear!

Profanities will be nothing!

Anonymous,  8 June 2011 at 18:34  

Two biased opinion against UMNO!! Why are you masquerading yourself as UMNO man? UMNO do not need your advice or opinions. Go to the opposition and in fact you are being most welcome by them from comments that you got. So wtf are you waiting teiunamakahai? No one wants you in UMNO. najib already discarded you and stop trying to be a frustrated exADUN. Now go to opposition and contest under PKR, PAS and DAP for all i care. Go ahead, see if you have the balls to do it!

FS 8 June 2011 at 19:37  

Raising a RM50 bln bond for the toll concessionaire sounds too risky :)

Anonymous,  9 June 2011 at 00:28  

to anon 8//6/11 18.34

Are you implying that in order to tell the truth you need to be in the opposition?
to dato Sak
Now i understand why u need to swim or sink with UMNO.If you have the anon 18.34 kinda people around then by all means please do stay and help them.Do they really hate the truth?

Anonymous,  9 June 2011 at 01:24  

How latest, Petronas will ONLY give 30% of its NET PROFIT instead of fixed RM30 billion .

Now where is the money going? Be my guest to guess.

Anonymous,  9 June 2011 at 08:37  

Anon 9/6/2011 00:28,

Oohhh u mean truth according to oposition views? Please la, opposition party in Malaysia lead by PKR, PAS n DAP? U guys are also another political party who pratices cronyism, corruption and dirty poticis as well! So please la dont be like a pot calling the kettle black!

Anonymous,  9 June 2011 at 09:28  


Gas is subsidised i.e Petronas sells to IPPs at a fixed price.Coal is not subsidised by govt.Instead Tenaga takes the risk.For both gas n coal,IPPs do not take any price risk.
Bear that in mind.
Both gas n coal have gone up in price.Myb coal a bit less than gas.
For TNB. .if they run coal they lose money but govt loses less on gas subsidy.Thus if TNB shuts down all gas plant,govt gives zero subsidy gor gas.But of cos tenaga loses their pants on coal purchases n capacity charges.But overall balance country still win.
Its actually possible to meet demand by running hydro n coal with myb 15-20% gas on peaks.But u must hv tiptop tenaga owned plants n sufficient long term coal supply contracts.
On both counts Khalib fails.
And in terms of priority ,he wants to run gas i.e let the country rugi as long as Tenaga makes money.

The problem is u hv fools in tnb board n bigger fools in Kettha.And money artists of khazanah gets their knickers in a twist by crying to nazir who whispers to PM. . .we must respect n look after big biz n bondholders first. .fuck the rakyat.

There are many ways to solve this energy subsidy. .but no one is looking.

Utusan Mak Siat,  9 June 2011 at 10:40  

Keranamu Maha Thir, Rakyat Malaysia Sengsara!

Bertaubatlah Tun!!!

loveMyKris,  9 June 2011 at 10:42  

to anon 8/6/11 18.34
You get upset over "two biased opinion"?(sic). UMNO no not need advice or opinions? If you give advice or opinions, you can go to the opposition? So if Najib discard you, you are now just toilet paper? So wtf are we waiting for? Tell you what teiunamakahai, if you can't see the farking elephant in the room, nothing I can do. I am waitng for the day the current GOM gets a taste of sitting on the opposition side of parliament. And Sak can contest under PKR, PAS and DAP for all I care. Lets see whose balls are left to hang dry.

Anonymous,  9 June 2011 at 11:52  

to anon 9/6/11 8.37
If you cant understand the IPP issue then, too bad.I suggest you go see a shrink instead,
I am more convinced on why dato sak is up against a brickwall.There is no sense in talking to people living in denial.
Here you have every sensible human being in malaysia understannd the core of the IPP issue and we have people like you talking about pots and kettles.Its all about the the truth, regardless about who speaks about it.
Grow up and come out from that state of denial.
Peace be upon you.

Anonymous,  9 June 2011 at 12:43  

Ha ha ha..Ainon 8 June 2011 18:34

Do you know to read or just blindly put comment on it????

They never said it's UMNO fault..

The first Opinions talk about IPP and Mahathir...

The second Opinions only talk about Asas Serba....and goverment have no ball to reveil the contract..Ha ha ha..

Anonymous,  9 June 2011 at 13:10  

You want to reduce subsidies?You want industries to be competitive?You want to wean industries from handouts?

Don't just focus on IPPS...the country best brains concocted the was good for its time.Certain clauses needs to be there cos of the need to make it bankable.Banks don't like risk.In hindsight vision is 2020.

So,what can be done to mitigate?

1> Run more coal.Allow TNB minimum returns based on "coal heavy generation mix."Tie them down to some immediate cost cutting targets i.e Transmission/Admin/CEO salary for starters.They don't buck more tarif adjustments.The truth is TNB is not the brightest spark in the block & the CEO is not a "power icon" as he thinks he is.Get a power guy in to cut the bullshit.

2>Tarif restructuring..with lower or ZERO subsidies to Industries & Pavilion/commercials.Mamak shop & places where Marhaen congregate ok lah subsidy sikit2.

3> No gas subsidy to Industries..let them learn to survive.

4> Simplify the whole tarif need a PHD in Maths to understand the whole shebang.

5>Initiate Green Energy credits for conversion to LE lighting & Home Appliances.

6> Will help if Govt benchmark occupancy per m2 of their premises.Very often you see only a guy sitting in a fully lighted and airconditioned 100 m2 office.And Ministers with a whole floor to themselves.CAPEX is a done deal but O&M still cost lots of energy.

Thats for starters...If you need more engaged UPM to do a global energy review.Don't go running to PWC & McKinsey cos they love big biz too much to do anything substantial.Lets hv a kampung boy's view for a change.

Anonymous,  9 June 2011 at 15:06  

"...Remember about nazir's cry of the possible IPP's bond default?..." - anon 8 June 2011 11:18

Why must it be "nazir's cry"???

nazir would be the least person to believe in Malaysia.

On those bare details, people just need to know more. Any group who wants to do that must be "stuck" right here in Malaysia. But managed properly with average gains in the sector universally, why couldn't it be done, seeing that other than the hedge funds, who could make the rip off returns like kutty and the boys?

Anonymous,  9 June 2011 at 19:48  

Lovkris or teunamakahai,

When can u vote BN out? Go ahead make my day!!! If u cannot just shut the f...up

Anonymous,  9 June 2011 at 19:50  

Till that day comes u teunamakahai lovefkris, u just be in opposition cesspoll and wade amongst the frustrated people who likes to bark but no balls!

zat,  9 June 2011 at 20:59  

Anon 8/6/11 18.34

U can go ahead and support UMNO..i dont care..even I can accept Dato Sak is an UMNO man...that is not the issue here...we are discussing things that are affecting our everyday live...
maybe the discussion here is too high level for u...if u r not mature and intelligent enough please duduk diam2...

George Choo 9 June 2011 at 22:12  

Dear Sak,I would like to make an observation in that your blog is a respected blog with a large followings.
In my opinion,a respected blog like SAKMONGKOL AK47 with a webmaster who is a master degree holder SHOULD NOT USE THE CANTONESE VULGAR WORD LIKE TIUNAMAKAHAI.
Because you use this word,2 of the commenters who uses this word have to be respected.
Therefore,I hope in future no more vulgar word from you, and any comments with vulgar words should not be given any airtime in this blog. Thank you.

Anonymous,  10 June 2011 at 04:48  

Anon 9june 11.52

I agree EPU consists of some of the smartest brains in the country.
We have to agree that the smartest
brain in EPU is from the top two downwards.The top is a Malay crony,
usually one of the stupidest in EPU.In the seventies to the late eighties or early nineties,EPU's number two was a Chinese by the name of S.G.Khoo.If he was a Malay
he would be number one.

The top guy was a political crony.
The head of EPU takes his orders from his political masters.That is why the IPP who wants to sell his
product cheaper was asked by EPU
to charge higher or goand fly kite.Never in the business world
has any buyer asked the seller to
"Please,please charge me higher,
higher and higher.Why asked the seller to sell as high as possible.
Because his political master wants
to be a billionaire as fast as

Anonymous,  10 June 2011 at 09:26  

Anon June 10,4.48 should actually referred to Anon June 9,at 13.10.

It should read ,We have to agree that the smartest brain from EPU is from the number two domnwards and (not from the top two downwards).

Anonymous,  10 June 2011 at 09:33  

Oooppps Zat, so only opposition minded moron like you can make stupid comments? Let UMNO moron like me also make stupid comments la. Thats only fair what!! After all your Idol Blogger Sak with a Masters from Manchester also uses colourful language what!! Imagine if he has a masters and Phd from oxford, wahhhh then he can be PM material mehhhh just like his master KJ? So i can use it also la. Relaks la bro! Jangan marah, UMNO still in power, ha ha!

Anonymous,  13 June 2011 at 20:29  

I am sick of seeing the "investments" on the EPPs.

Govt is supposed to invest only 8% or about RM 122 billion.The rest is from "private sector".Yet most of the really big investments seems to be by Petronas,Sime Darby,PNB etc..are these considered private?

Secondly the numbers are just too "imaginative",For instance one investment in an educational facility with capex of RM 850 mil will yield GNI of 1.5 bil & 2000 jobs in 2020.
What does this mean?

GNI is defined as EBITDA+ HR Cost.Assumimg the 2000 employees earns RM 10 k/month (inflated to show how ridiculous the projections are)..thus annually the HR cost is about RM 240 mil..thus EBITDA is RM 1.3 billion.

Conclusion is;

1.Profits is ridiculously high
2.CE is ridiculously low.

Unless they are deals that secures such high returns..its not exactly reasonable to anticipate such returns.

Btw..most of the investments are pretty nineties (anchored on sunset biz & property)..definitely not innovative & breaking new boundaries.

Is it all hot air..albeit expensive consultant fueled hot air.

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