YTL Power pulls out of Project 4A

by **Cals** Fri 20 Jun 2014, 01:44

Business & Markets 2014

Written by Shalini Kumar of theedgemalaysia.com

Thursday, 19 June 2014 09:09

KUALA LUMPUR: YTL Power International Bhd, helmed by Tan Sri Dr Francis Yeoh, has withdrawn from participating in the controversial RM3 billion power plant, known as Project 4A, in Pasir Gudang, Johor, confirming a report by The Edge Financial Daily yesterday.

The company said this was in view of the misconception over the project.

“YTL Power has decided not to participate in the project under the present arrangement to dispel any misgivings over the government’s commitment to transparency and good governance,” it said in a statement yesterday.

YTL Corp Bhd, which owns YTL Power, submitted a letter to the government on Tuesday declining the invitation to participate in the project.

“YTL Power welcomes any opportunity to participate in the project

or other new capacity requirements on a competitive basis and is prepared to do so on an accelerated timeline. We are confident that we will be able to offer competitive rates as demonstrated in recently concluded tender exercises,” it said, adding that it is thankful to the government for its confidence in YTL Power to deliver the project on a fast track basis.

In a separate statement yesterday, the Energy Commission (EC) said in view of the current situation, having conferred with all parties concerned and in the interest of the project, it has accepted YTL’s decision to decline the invitation.

The EC had on May 27 issued a conditional letter of award, addressed to SIPP Energy Sdn Bhd, on the government’s decision to develop the 1000MW to 1400MW combined cycle power plant on a fast track basis, on the condition that the technical and commercial proposals are acceptable to the commission.

“The letter provided for the participation of YTL Power and Tenaga Nasional Bhd (TNB) as consortium members. Subsequent to the direct award, there has been much public debate over the offer, composition of the consortium and specified terms,” said the commission.

YTL Power’s decision not to participate in the project came after mounting criticism on the way the contract was awarded by the EC to a consortium, in which YTL Power was a member, through direct negotiation instead of competitive bidding.

On Monday, a news report quoted TNB chief executive officer Datuk Seri Azman Mohd as saying that it was still evaluating the conditional award for Project 4A even as its unions sent out a memorandum to voice their opposition to TNB collaborating with YTL Power.

RHB Research Institute Sdn Bhd analyst Kong Heng Siong said YTL Power’s decision not to participate in the proposed Project 4A is good for the power sector.

“This, in our view, will help soothe public outcry over the award of this project under a direct negotiation basis. More importantly, this ought to help ensure that TNB’s long term interests are taken care of,” he said in a note to clients yesterday.

“This should encourage a competitive operating environment, which can ensure efficiency in power generation costs among the existing independent power producers,” he added.

Kong believes the likely outcome at this juncture is that the EC would rescind the conditional award and subsequently call for a competitive bidding exercise, in which YTL Power would most likely participate.

Nevertheless, he is expecting a negative knee-jerk reaction to YTL Power’s share price over its decision to pull out, and has lowered his fair value to RM1.54 from RM1.71 previously but maintains a “neutral” call.

Yesterday, YTL Power’s stock ended down 0.01 sen or 0.68% at RM1.47, bringing its market capitalisaion to RM9.98 billion. Meanwhile, TNB closed 16 sen or 1.37% higher at RM11.88 with a market cap of RM67.05 billion.

This article first appeared in The Edge Financial Daily, on June 19, 2014.