The Energy Commission has completed the renegotiations for the first-generation Independent Power Producers (IPP), comprising five PPAs. The outcomes are:
1) Tenaga has been offered to build, own and operate a new power plant in Prai;
2) two IPPs (Genting Sanyen Power, Segari Energy Ventures) will be granted a 10-year PPA extension;
3) three IPPs (YTL Power, Powertek Berhad, Port Dickson Power) will be discontinued upon expiry of their PPAs; and
4) Tenaga’s Pasir Gudang plant will extend its services for another five years. At first glance, the terms and revised tariffs appear reasonable.
Sweetheart deals are over. The key takeaway of this development is that the renewed deals were done on a commercial basis at competitive rates. We estimate project IRRs to be in mid-single digits, a vast improvement from the mid-teen IRRs enjoyed by the first-generation IPPs. Furthermore, PPAs of obsolete non-viable power plants were not renewed and will be allowed to lapse upon maturity.