The Energy Regulation and Markets Review - Stikeman Elliott

Malaysia
All power purchase agreements entered into by TNB with other independent
power producers are based on a gas pass-through model; as a result TNB bears the cost
of any fuel increase. It should also be borne in mind that TNB is not able to increase the
electricity tariff without the government’s approval. Thus, there was a mismatch resulting
in a loss for TNB in 2011. The government, the Energy Commission, Petronas and TNB
had to resolve this and agreed that TNB will only bear certain parts of the increased
cost of fuel. However, at the time of writing, it is unclear whether this arrangement is a
permanent one, and will apply in future.
VII
CONCLUSIONS and OUTLOOK
The precedent of open bidding for power projects by the Energy Commission is set
to continue in the near future. The current tender for the Prai power project is an
apt illustration. The Prai power project is a 1,000–1,400MW gas-fired plant project
located in Penang to replace an existing expiring gas-fired generating facility. The Energy
Commission invited between 33 and 38 companies to bid, and 18 companies and
consortium submitted their bids. Currently the Energy Commission has prequalified
the bids to nine parties including five consortia of local and foreign companies and
four solely local companies who have existing power plants. It would be an interesting
development if the award were to be given to a consortium including a foreign company
as the prevalent practice is to award to local companies. If such is the case, it would be a
further step in liberalising the ownership requirement in generating facilities in Malaysia.
The Prai power project also reflects the increasing trend of activities in the energy
market in Malaysia. Malaysia would need around 4,500MW of newly installed capacity
by 2016 and 2017. This is to replace 4,105MW of first-generation capacity supplied by
independent power producers of the first generation since the 1980s such as YTL Power
International Bhd and Genting Sanyen, which will expire between 2015 and 2017.
Out of 4,500MW, about 3,500MW will be needed to replace retiring capacity,
while the remaining 1,000MW is additional capacity for future use. From the 3,500MW
of power being offered for tenders, 1,400MW are for gas-fired plants while the remaining
2,100MW can be for new combined-cycle or coal-fired power plants. The above
essentially sums up the outlook of the Malaysian energy industry.
178