Saturday June 4, 2011
Power and profit from Bakun
By LEONG HUNG YEE
THE controversy-plagued Bakun hydroelectric dam is finally coming on stream producing its first 300MW of power in August after numerous delays. These hitches have caused the cost to build the hyroelectric dam to escalate to RM7.3bil from the initial estimate of RM3bil to RM4bil.
On Wednesday, Syarikat Sesco Sdn Bhd signed a power purchase agreement (PPA) with Sarawak Hidro Sdn Bhd to purchase Bakun dam's power at a rate of 6.25 sen per kWh with an annual hike of 1.5%. In addition, the Sarawak government will impose a water levy of one sen/kWh on Sarawak Hidro or about RM150mil per annum.
“Stripping out the water levy of one sen that Sarawak Hidro has to pay the Sarawak government, the effective cost to SEB would come down to 5.25 sen/kWh,” AmResearch says, adding that it believes the deal is for 30 years.
Sarawak Hidro is projected to earn a minimum revenue of RM36mil in 2011 and RM112mil the following year, while payments to the state are expected to exceed RM7mil and RM21mil in 2011 and 2012 respectively.
Some parties believe SEB would be making a “tidy profit margin” from selling electricity generated by Bakun to energy-intensive customers within the Sarawak Corridor of Renewable Energy (SCORE). Some observers opine that the low price under the PPA is practically a handout from the Federal Government.
“Well, I wouldn't call it a handout. Rather, the Federal Government is using the inexpensive and plentiful electricity from Bakun to spur local development in Sarawak,” OSK Research head Chris Eng said.
It is not clear if the tariff for each SEB customers will be the same across the board or will differ from one customer to another. Some suggest that SEB will be selling its energy to industries at 9 sen/kWh or more, making a small profit margin. They say it will be a volume game as SEB customers within SCORE will be energy-intensive users.
In short, Sarawak Hidro will be the least advantaged because it is selling the power at an unusually low price. On top of that, Sarawak Hidro will also continue to be the dam manager, possibility forking out capital expenditure for future maintenance works.
One analyst explains that hydropower plants are generally very expensive to construct, but once they have been built, they are quite cheap to run. “It depends on where it is produced, but generally hydroelectricity is one of the cheapest to be generated. The initial investment is high to build the dam, reservoir and its power plant,” the analyst say.
OSK's Eng said Tenaga Nasional Bhd's independent power purchaser cost has risen from 15.6 sen per kWh in FY04 to 25 sen per kWh now.
At Press time, SEB has yet to revert to questions from StarBiz. However, its chairman, Datuk Abdul Hamed Sepawi, said the Bakun dam was built at a very competitive cost compared with future hydropower projects.
“At the moment the cost is US$1mil per MW, but future projects will cost US$2mil to US$3mil per MW,” he added.
Earlier, StarBiz reported that SEB chief executive officer Torstein Dale Sjotveit said SEB planned to build another coal-fired power plant with a 600MW installed capacity in Balingian, Mukah Division. The project is expected to come onstream by 2015 to beef up the supply of electricity to industries in SCORE.
SEB now owns and operates a 270MW coal-fired plant in Balingian and another 210MW coal-fired plant in Sejingkat, Kuching.
SEB's Abdul Hamed said the four customers it had secured would utilise some 50% of capacity of the 2,400MW to be produced by the Bakun dam.
“We are still discussing with 15 to 16 more potential SCORE customers. We may need all the energy but it is not just Bakun. The Murum dam will be coming onstream in 2013 as well as a coal-fired power plant,” he said.
Last month, SEB sealed separate PPA term sheets with four major investors Press Metal Bhd, OM Materials, Asia Minerals Ltd and Tokuyama Corp. The four companies, which plan to invest some RM9.5bil in total, will require a combined 1,300MW to power their upcoming plants in the Samalaju Industrial Park.
SEB has also signed an MoU with Smelter Asia Sdn Bhd, which needs more than 600MW to power its proposed US$1.6bil (RM4.8bil) aluminium smelter in Samalaju. Smelter Asia is a joint venture between Gulf International Investment Group Holdings Sdn Bhd and Aluminium Corp of China.
Says Eng of OSK: “Plentiful electricity at low prices should attract heavy industries with high demand for electricity, such as smelters, which unfortunately may impact the environment.”
Analysts say the latest development in Sarawak will pave the way for energy-intensive industries to kick-start their projects. This, in turn, would create demand for infrastructure works, which will lead to a pick-up in construction activities.
The beneficiaries will likely be homegrown Sarawak companies, including infrastructure company Naim Holdings Bhd, construction firm Hock Seng Lee Bhd, and construction and steel fabrication unit KKB Engineering Bhd. Cahya Mata Sarawak Bhd is also seen as likely to gain.
The impoundment of Bakun reservoir had started on Oct 13, 2010 and the minimum operation level of 195m was reached on April 28. Currently the reservoir elevated level is at 202.2m, covering an area of 501 sq km and storage of 27.7 billion cu m, making it the largest reservoir in Malaysia.