There could be light at the end of the tunnel for 1Malaysia Development Berhad (1MDB) should a long-mooted overhaul of Malaysia's electricity market take place, boosting the value and longevity of the debt-laden state investor's power assets.
The current system of power purchase agreements (PPAs) imposes a limit on revenue for power plants unless deals are renewed.
But an open market system with an "electricity exchange" being envisaged would allow independent power producers (IPPs) - 1MDB is Malaysia's second-largest - to sell energy for as long as their assets are operational, raising the potential value of power stations with contracts that are expiring soon.
1MDB, which has struggled to meet financing obligations after racking up RM42 billion (S$15.6 billion) in debt in just five years, has five PPAs, four of which expire in the next decade.
These include one in Malacca that the Energy Commission (EC), regulators for the power industry, has refused to renew. One has been renewed while the others are not up for renewal yet.
By comparison, newly listed energy producer Malakoff has a weighted average PPA lifespan of 19 years against the 11 years of 1MDB's PPAs.
"The value of 1MDB's assets would be lower without a pooling market, as their PPAs are expiring," said UOB Kay Hian analyst Chong Lee Len.
The EC has been working since 2010 on an open energy market, where producers would bid competitively to sell electricity to national power company Tenaga Nasional Berhad (TNB), which would then pool it and average out the cost to consumers.
Sources said the system, which the EC had planned to roll out in stages up to 2020, had not been a key priority as the government had struggled to make unpopular power subsidy cuts prior to liberalising the market.
But Malaysia-based regional news magazine The Edge Review reported yesterday that the revamp was being fast-tracked to enable 1MDB to cash in on plants that are seeing the end of their PPAs.
1MDB purchased its power assets for RM12.1 billion by raising debt reportedly worth over RM20 billion, but has had to write off RM1.2 billion in their value as the PPAs wind down.
Reports have swirled concerning potential buyers for 1MDB's energy division despite the company insisting that a public listing is still on the cards.
The Edge Review - part of The Edge Media Group, which has been aggressively criticising the controversial state firm - has reported that TNB is a front runner to take over 1MDB's power plants.
It cited sources as saying that 1MDB was asking for RM17 billion for its energy assets while TNB valued them at RM13 billion. But analysts believe that even RM13 billion is expensive under the PPA regime, as building new plants with the same production capacity would be cheaper.
However, industry experts told The Straits Times that, in an open electricity market, it would make sense to control more capacity to influence pricing.
1MDB has been at the centre of controversial allegations that it was a front for individuals close to Prime Minister Najib Razak to siphon off public funds. Its recent land sales to statutory funds have been criticised even by leaders of the Umno ruling party - including former premier Mahathir Mohamad, who has called for Datuk Seri Najib to resign.
The fund is currently being probed by the Auditor-General and Parliament's bipartisan Public Accounts Committee.
This article was first published on May 23, 2015.
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