Published September 12, 2008

KL won't tax IPPs' profits

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(KUALA LUMPUR) Malaysia's government has scrapped plans to levy windfall taxes on independent power producers' profits, a move that had been criticised by power companies which said it would hurt their credit ratings.

Independent power producers (IPPs) will instead make a one-off payment to the government, equivalent to a year's windfall levy payment, the government said in a statement yesterday. It has also suspended talks over power purchase agreements.

'It's definitely positive for market sentiment . . . I would think a one-off payment would not have a ratings impact,' said a bond trader, who said the windfall levy had weighed on prices.

In June, the government announced that a windfall profit levy of 30 per cent would be charged on return on assets for producers of electricity with return on assets in excess of 9 per cent for each financial year. The tax has hit the price of bonds issued by IPPs. Most IPPs, such as YTL Power, Sime Darby, Tanjong Plc and MRCB, strongly objected to the tax plan.

According to RAM Ratings, one third of the RM30 billion (S$12.5 billion) IPP-related bonds it rated were likely to be affected by a new windfall profit tax. -- Reuters