Are we heading towards an energy crisis in 2018 with the delay of Project 4A?

Media Statement by Dr. Ong Kian Ming, MP for Serdang, on the 22nd of June, 2015

Are we heading towards an energy crisis in 2018 with the delay of Project 4A?

It was reported in last weekend’s The Edge Weekly that SIPP Energy was seeking a new partner for Project 4A, after the Energy Commission rejected the proposed tariff submission by the SIPP Energy-TNB consortium which had been awarded this contract via direct negotiation. Without any obvious willing partners for SIPP Energy and with the likely delay of the Project 3B power plants due to 1MDB’s inability to raise the necessary finances to build these plants, it is possible that our country will face a serious energy shortage by 2018.

Recall that on May 31, 2014, the Energy Commission awarded Project 4A, via direct negotiation, to a consortium led by SIPP Energy (51%) with YTL Power and TNB to build a new 1000MW-1400MW combined cycle gas turbine (CCGT) power plant in Johor which is supposed to be operational in June 2018. According to the EC as well as the Ministry for Energy, Green Technology and Water, the fast tracking of this project without a competitive tender was justified because of the impending energy shortage which the country will face by 2018 as reserve margins continue to fall.[1] This project was criticized from the beginning not just because of the lack of an open tender but also the fact that SIPP Energy has no prior track record in the building of power plants. YTL pulled out of this deal on the 19th of June, 2015 leaving SIPP Energy and TNB as the two remaining partners.

It was reported that the SIPP-Energy and TNB consortium submitted a bid of RM39 sen / kWH for the proposed CCGT power plant, which is 12% higher than the RM34 sen / kWH for the 1071MW TNB CCGT power plant in Prai, Penang that recently began operations.[2] Recall that the 1071MW TNB CCGT power plant contract was awarded via open tender which is an important reason for the lower tariff is offered by TNB.

With the latest failed tariff bid by SIPP Energy and TNB, the Edge Weekly reports that SIPP Energy may sell of its 51% stake in Project 4A for as much as RM300 million. This cost, presumably, will be factored into the new proposed tariff rate for Project 4A likely making the proposed tariff higher than if Project 4A was awarded via open tender.

The manner in which the Energy Commission and the Ministry of Energy, Green Technology and Water have handled Project 4A is disgraceful. What was supposed to have been a fast-track project to build a CCGT power plant that would be up and running by the 1st of June, 2018 (before 1MDB’s Project 3B which is due in Nov 2018 for the first 1000MW and Nov 2019 for the second 1000MW) will now almost certainly be delayed since it would take some time before SIPP finds another partner or sells its stake to another party which would then have to put in a new revised tariff to the Energy Commission.

With our actual operating reserve touching a mere 9% at the peak demand period in June 2014, it is a distinct possibility that we would be facing an electricity crisis by 2018.[3] The original decision to award Project 4A via direct negotiation is now coming back to haunt the Energy Commission and the Ministry of Energy, Green Technology and Water. The EC should have opened up the bidding for Project 4A for a competitive tender so that the most experienced party with the lowest price would have received this contract. Instead, what we are left with is yet another delay in the construction of a much needed power plant that may push our country towards an electricity crisis in 3 years’ time or less. The EC and the Ministry must to be held to account for its actions.

Dr. Ong Kian Ming
Member of Parliament for Serdang