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Sale Of Edra Not Sign Of Opening Up Power Generation To Foreigners

in Latest/Slider

PETALING JAYA: The proposed sale of Edra Global Energy Bhd’s entire equity stake in its power generation plants to a China state owned entity will not translate into the liberalisation of the highly-regulated industry.

The RM9.83bil transaction announced yesterday was seen as a landmark deal because it marked for the first time power plants located in Malaysia being sold to a foreign company – which is China General Nuclear Power Corp (CGN Group).

This had raised excitement in the sector because it was seen as a precedent for other Independent Power Producers (IPPs) to divest partially or wholly their interest to foreign investors.

However, Energy, Green Technology and Water Minister Datuk Seri Maximus Ongkili said that the deal was not a precedent for other foreign companies to purchase power generation assets in Malaysia and that all future transctions would be vetted by the Energy Commission (EC).

He was replying to a question from Datuk Mahfuz Omar (PAS-Pokok Sena) in Parliament, who asked whether the purchase was a precedent for other foreign companies to purchase the country’s strategic asset.

“That is not true. We take note of the concern but the ministry will not make it a precedent. We will control it through licences or other mechanism so it will not affect national security,” he said.

EC executives had yet to revert to StarBiz on the sale to CGN Group and its impact on the power generation industry.

Under the existing rules, foreign shareholding in power plants is capped at 49%. This is based on tender documents prepared by the EC for bidding of new power plants which explicitly states that.

But an industry official with a non-governmental organisation that looks into power and energy issues said that the approval to Edra was a one-off.

Association of Water and Energy Research president S. Piarapakaran said the EC gave a one-off foreign equity cap waiver.

He, however, said the EC had no jurisdiction on the matter and that other relevant ministries/agencies must be consulted.

“Electricity generation has been liberalised since the independent IPPs were present. Unfortunately, the prices never came down,” Piarapakaran said.

On Monday, 1MDB announced that it had agreed to sell its entire energy assets to state-owned CGN Group for RM9.83bil cash.

The buyer will assume all the relevant gross debt and cash of the Edra operating companies, based on a valuation date as March 31, 2015. The deal is expected to be completed in February 2016.

Previously, foreigners were not keen on taking up minority stakes of up to 49% in power plants. This explains why very few power plants have foreign interest.

One of them is Jimah East Power that is 30% owned by Japan’s Mitsui & Co while Tenaga Nasional Bhd (TNB) owns the balance 70%.

The project was awarded during Track 3B bidding process with a 49% foreign equity cap.

Ongkili dismissed fears that the proposed sale of the power generation assets to CGN Group would jeopardise national security.

He said that Edra’s power assets only contributed a total of 14% of the country’s total electricity generation capacity.

“Edra only contributed to 14% of the total domestic generation capacity while 50% is still held by TNB and Malakoff Corp Bhd holds 24%,” he said.

“In our view, foreigners own about 80% of Singapore’s energy sector, so it should not be a problem,” he said in his wrap-up speech for the Ministry’s 2016 Budget at the policy stage yesterday.

Analysts, meanwhile, were not concerned with foreign entities owning stakes in a strategic sector and viewed the sale to CGN Group as lifting the immediate concerns over TNB.

“The transaction has put an end to speculation and concerns on Malaysia-listed power utility companies, especially TNB (underperformance of share prices since early 2015), in taking over Edra at high valuation, a move seen as bailing out the controversial power assets,” Hong Leong Investment Bank analyst Daniel Wong said.

CIMB Research said that TNB would no longer be seen as bailing out the state fund.

“This could even boost investors’ confidence in the overall stock market as it epitomises the strong corporate governance standards of the listed companies in Malaysia,” CIMB Research said in a report yesterday.

Shares in TNB soared to its highest level since May following the sale of Edra to CGN Group. TNB closed 1.2% to RM13.58 yesterday.

TNB was traded as low as RM10.36 on Aug 24 from its peak of RM15.10 on Jan 23.

Kenanga Research said that while the RM9.83bil is “a good exit price” for 1Malaysia Development Bhd, it had estimated that Edra should be valued not more than RM9bil.

The research house said that the price tag for Edra was derived from the relisting of Malakoff Corp with effective installed capacity of 6,036MW assets at RM9bil in May this year, which have a similar life span as Edra’s effective installed capacity of 5,594MW.

Kenanga has upgraded its call on TNB to “outperform” with higher target price of RM15.42 a share from RM12.90.

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