Published December 25, 2008

TNB seeks to buy back Kapar stake: sources

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(KUALA LUMPUR) Tenaga Nasional Bhd is in talks to buy back 40 per cent of the country's biggest coal plant in Kapar, Selangor, from independent power producer (IPP) Malakoff Bhd, says a report in Malaysia's Business Times, citing sources.

The plant has a capacity of 2,420 megawatts (MW) and was initially fully owned by TNB. In 2004, TNB completed the sale of its 40 per cent stake in Kapar to Malakoff for some RM1.68 billion (S$701 million).

'The discussions are preliminary,' a source told the daily.

Malakoff had written to the Ministry of Finance about its plans to sell the stake back to TNB and the ministry had asked TNB to consider it, the source added.

Other sources said that the talks started when Malakoff approached TNB and made a bid to buy the rest of the plant as it sought to expand its business.

However, TNB countered and offered to buy Malakoff's stake in the plant. Malakoff felt that such a deal would make sense since it did not have management control over the plant.

As for TNB, having Kapar as a wholly-owned unit would help it save on paying for electricity from the plant.



Since the sale to Malakoff, Kapar has been treated like a normal IPP with its own power purchase agreement (PPA), sources said. If TNB takes full control of the plant, it could revise the PPA and this would mean lower power prices for the national utility.

However, the price is likely to be the sticky point again. This was among the main issues which was a drag on the deal that was initiated in 2000.

A new coal plant would cost about RM3 million per MW to build now, an executive working for a power plant builder said.

This means that TNB could pay up to RM2.9 billion for the 40 per cent stake based on this assumption. However, the Kapar plant is not new and Malakoff had paid a much lower price four years ago.

The sale of the Kapar plant to Malakoff, which started in 2000, took about four years to be concluded as the parties wrangled about the price and the terms of the deal.

At the time, TNB went on a drive to reduce its debt and, apart from the Kapar plant, it also sold its minor stakes in other power plants.

Eventually, the price of its stake in Kapar was also cut by a third to RM1.68 billion from RM2.5 billion before, in return for TNB paying a lower price for power from the plant.

It was reported that TNB cut the price it would pay for electricity from the Kapar plant to 10.62 sen per kilowatt-hour (kWh) from 11.9 sen per kWh.