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Sabah's Power Woes
Posted by labisman
Tuesday, 15 April 2008

The recent decision by the Sabah State Government to scrap the proposed 300MW coal-fired power plant project in Silam, Lahad Datu has once again put the spotlight on the perennial power shortages which the people in this state have long suffered.

For many, these disruptions to daily economic and social activities can only be suffered in silence as it seems to be the norm.

The sole power utility in Sabah is the Sabah Electricity Sdn. Bhd. (SESB), 80% owned by national utility giant Tenaga Nasional Berhad (TNB), with the remaining 20% being owned by the Sabah State Government.

The manner in which the Silam IPP project was awarded last year leaves much to be desired in the way of transparency and fair evaluation on the part of the Federal Government, and corporate governance on the part of TNB. For the first time, the Federal Government decided to undertake a tender exercise with a supposed view to obtain the best possible technical and commercial proposals. When the tender closed, sometime in June 2006, a total of 13 bids were received, including one from a TNB subsidiary i.e. TNB REMACO.

The chronology of events subsequent to tender closing gives substance to my earlier comments regarding transparency and corporate governance, as shown below:

* The evaluation committee, though comprising independent technical and financial experts, was headed by TNB, even though a TNB subsidiary was one of the bidders;

* The evaluation committee then proceeded with a detailed evaluation of EACH of the 13 bids received, such bids being evaluated against their individual and specific merits and demerits;

* The bidders were bidding for only 60% of the project’s equity as the bid documents clearly stated that the remaining 40% had been reserved for “Sabah bumiputera” interests;

* When the Federal Government finally announced the award of the project almost a year after bids had closed, it awarded 80% of the equity of the project to a consortium comprising three of the original 13 bidders i.e. TNB REMACO, Eden- Nova Nusantara and Maser. How could evaluation of 13 unique, specific and individual bids lead to an award to a group of 3 of them? Was this group ever asked to submit a fresh proposal as a consortium? Why weren’t other bidders encouraged to team up as consortia and submit fresh proposals on the basis of consortia and not individual bidders? Why was the portion reserved for Sabah bumiputera interests inexplicably reduced from 40% to 20%?

Now that the Sabah State Government has scrapped the project on environmental grounds, what will happen to this consortium? Will the same consortium be asked to propose a more environmentally-friendly power project and site? Wasn’t there any coordination between Federal and State governments prior to the implementation of this project?

The sad saga of how the Federal Government continues to mismanage the award of power projects does not end here.

In the mid-1990’s, the Federal Government awarded a 120MW open-cycle gas-fired IPP project in Kota Kinabalu to a consortium comprising Time Engineering, EPE, Sabah Energy Corporation and Aras Setia (an unheard of, local Sabahan political crony outfit). The consortium called itself Powertron Resources Sdn. Bhd. A few years down the road, Ranhill Berhad bought over the equity holdings of Time and EPE, thereby becoming the major shareholder in Powertron, subsequently re-naming it Ranhill Powertron.

Towards the end of 2005, the Federal Government approved the conversion of Ranhill Powertron’s 120MW open-cycle plant to a 190MW combined-cycle plant to benefit from the efficiencies of such a conversion. The completion date stated in the revised PPA which Ranhill Powertron signed with SESB was March 2007. As of April 2008, this project is yet to be fully completed. Word has it that when Ranhill became slow in payments to the Japanese sub-contractor, they left site. Ranhill brought in a bunch of retired power engineers from India to complete the project, and whilst in the process of pre-commissioning tests, one of the new steam turbines suffered major damage. Even without such an event, Ranhill would not have been able to complete the project by the required date of March 2007.

In parallel with obtaining Federal Government approval to convert its Powertron plant to a combined-cycle plant, Ranhill submitted an unsolicited proposal to the Federal Government for a new 190MW combined cycle IPP plant, to be located adjacent to its Powertron plant. The supposed benefits of this project were that it would enjoy economies of scale with the Powertron project and as such Ranhill would be able to offer the lowest IPP tariffs in Sabah. Yet again, the Federal Government gave its approval to the new Ranhill Tuaran IPP project. The completion date stipulated in Ranhill Tuaran’s PPA with SESB is July 2008.

Ranhill Tuaran ran into problems right from the start, facing problems with the private owners of its proposed power plant site, eventually leading to these landowners filing court action. Why did the Government approve this project when Ranhill could not even show proof of ownership of the proposed project site? As of today, nothing much has been done physically at the proposed site, apart from some initial piling works.

The protracted delays in all of the above projects will lead SESB to facing acute generation adequacy shortfalls in the short term. Whilst the lobbyists and UMNO/BN cronies play out their own power games within the corridors of Putrajaya, the ordinary, tax-paying rakyat of Sabah will be left facing more dark nights and hot, sweaty days and incalculable economic loss.




By treeman