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1MDB’s RM2.3b acquisition of Genting Sanyen – Questions

By Sentinel

Several months ago, 1MDB had won the bid to acquire Tanjong Energy from Ananda Krishnan for a consideration in excess of RM 8 billion. One weekend in August, rumours swirled regarding a new major acquisition by 1MDB in the power sector.

The “rumours” became reality when an announcement by Bursa said that 1MDB had agreed to acquire a unit of Genting Energy for RM 2.3 billion. That unit of Genting Energy was Genting Sanyen, one of the first generation IPPs with a capacity of 720MW and which came into operation in 1995. The power purchase agreement (PPA) with TNB will expire in 2016. Separately, Genting made a parallel announcement regarding the divestment, adding that it will book a extraordinary gain of RM 1.9 billion from the sale.

Any person with some commercial sense will realise that the book value of the Genting asset in question is only RM 400 million. The PPA has 4 more years to run, after which the asset will be worth nothing more than scrap metal. Even if TNB decides to extend the term of the PPA, it will be on TNB’s terms, and not on Genting’s terms because the alternative to Genting is scrap value of the plant. So why would 1MDB pay RM 2.3 billion for the asset ? Can it recover the RM 2.3 billion in the 4 years remaining of the PPA?

Now let’s make some rough calculations. The plant has an installed capacity of 720MW. It was built in 1995, so let’s assume now that the plant’s capacity is around 700MW given the lapse of time. Let’s also assume that TNB has dispatched the plant 85 pct of the time, so the annual output of the plant should be around [700,000 kW X 24 hrs X 365 days X 85 pct] or 5.2 million kWh (units of electricity). The tariff in the PPA is around 13 sen per kWh, which means annual revenues from TNB will be around RM 677 million. Roughly half of this goes to payment to Petronas for gas, and for operational costs, which means that net revenues before tax will be around RM 300 – 350 million per annum.

Hence there is no chance that 1MDB can even remotely recover its investment of RM 2.3 billion over the remaining 4 years of the PPA with TNB. Either there is gross incompetence at 1MDB or there is a hidden agenda somewhere that no one is telling. 1MDB is an MoF vehicle, whose funding is guaranteed by the Federal Government. We are entitled to an explanation of how funds are spent at 1MDB, and we require accountability.

1MDB acquired Tanjong Energy for over RM 8 billion. Tanjong Energy’s assets are in Egypt, Bangladesh, Pakistan, Oman, Sri Lanka and Malaysia. For this deal, 1MDB had to raise a US Dollar bond at an inflated yield with the guarantee of the sovereign government of Abu Dhabi. Questions were asked as to why 1MDB, the so-called wealth fund created from the oil revenues of Trengganu, made such an investment and the rationale for the huge price paid. There were no answers. The latest deal with Genting raises similar issues, and this time we must demand answers with full accountability. Those trustees of public funds cannot have a “spend, spend, spend” mentality given the state of the global economy.

16 Replies to “1MDB’s RM2.3b acquisition of Genting Sanyen – Questions”

  4. 1MDB is to spend up to RM 26 billion on the Sg Besi redevelopment (dubbed TRX) and they were supposed to announce a cornerstone investor for this real estate deal. Up to today, nothing has been announced, so does that mean that the RM 26 billion will come from taxpayers ?

  7. First, projects were given to benefit cronies.
    Second, when circumstances are becoming unfavourable to them, the government buys the projects back at very favourable terms to these cronies.
    So, cronies gain both ways!
    Am I right?
    BTW, TNB is supposed to have an over capacity of around forty percent of electricity production.
    And this excess capacity cannot be stored.
    So, if they still have to buy all that the IPPs supply, what happened to all these excess supply?

  9. All Pakatan members must be strictly instructed to focus on cleaning the corruption mess, the bias EC; police; judiciary etc. But DON’T waste a single minute on useless affairs like making STUPID new flag for the country. We need a change of clean & fair government, no amount of changing new flags can bring about that!!!!!!!!!!!!!!!!!!!!!

  10. Stepping on Prime Minister Najib’s poster and taking pants off to Rosmah’s photo is utterly & unbelivably STUPID!!!!!! Those involved should be reprimanded strongly and they should come out and apologise publicly!!!!!!!!!!!!!!!!!!!
    By the way, are these people really Pakatan’s members or they are “agents of BN or Perkasa”???

  11. Najib’s promises are nothing but keep trying to buy voter’s confidences…here ..there….everywhere…with money.
    We have seen this done on and on.
    It seems he is telling Malaysians to forgive rouges and thieves and murderers….and support the devils they know and do not take risk supporting the angels… they don’t know…taking the cue from Mahathir.
    That is the game plan to win 13th GE….he has hinted to be November.
    Putting off again….wait for his game plan…how o have Emergency Rule..to stay in power.
    Don’t forget…he loves War Games.

  15. What is interesting is that there are other IPPs available for 1MDB such as Sime Power or Jimah Power, but they chose to “negotiate” only with Tanjong and Genting, companies with huge offshore operations. Wonder if “offshore sources of funds” makes it much easier to “negotiate”.

  16. Isn’t it a fact that among all the IPPs, Senyan ‘was’ paid the lowest rate by their contract with TNB. If this is the case, why buy this plant, they should buy those with the highest rate payable by TNB. say those owned by Syed Mohktar and YTL. It certainly appear that all these ‘negotiated contracts’ serve only one purpose: How to share the inflated payment among those representing the Gomen and the sellers. We certainly learned the Art of Piratization mighty fast under the Mamak, and is still doing it prior to their eviction from Putrajaya!

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