Issues | JULY 7, 2014 9:00PM

How Malaysias first IPP was born

Behind the recent controversy surrounding power generation project Track 4A and
the Energy Commissions U-turn in awarding it directly after promising an open tender
process is a lingering bitter taste over how the first Malaysian independent power
producer was born two decades ago. KiniBiz talks to former Tenaga Nasional Bhd
executive chairman Ani Arope, during whose tenure IPPs came into being in Malaysia.
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Four and a half years of fighting cancer had taken a great toll on former Tenaga Nasional Bhd
(TNB) executive chairman Ani Arope. When met by KiniBiz at his home recently, he
appeared frail and in pain.
But his eyes burn bright still, especially when it comes to how independent power producers
(IPPs) came to be in Malaysia. And it started with the very first IPP YTL Power
Generation Sdn Bhd which was born after a nationwide blackout incident in 1992.
The rest came in using YTLs power purchase agreement (as a template), said Ani, who
headed TNB from 1990 to 1996, to KiniBiz in an interview.
A mysterious blackout
On Sept 29, 1992, a total power blackout engulfed the nation for several days. This landmark
incident sparked a privatisation of the power generation sector that broke the dawn for IPPs
in Malaysia.

In the process, however, TNBs monopoly of the power generation sector was dismantled by
then-prime minister Dr Mahathir Mohamad as YTL Power was awarded the nations first IPP
licence in 1993. But what caused the blackout?

Ani Arope
All these instances can be arranged, said Ani, adding that even among TNBs staff
members at the time there were some unhappy quarters that were against him. Im not
accusing them, but there were some disgruntled people.
When Ani became head of the national utility in 1990, there was opposition to his
appointment. In a previous media interview Ani reminisced how his effigies were beaten and
burnt, among other things that included poison pen letters being distributed to TNB
customers. The police even detailed personnel to protect him round the clock.
Amid great public outcry and even threats of legal action against the national utility following
the 1992 blackout incident, an inquiry subsequently cleared TNB of any negligence,
according to a 1996 report by Asiaweek.
But despite this 1996 inquiry finding, the damage to its reputation had been done. More
importantly, the ball kicked off by the 1992 blackout incident was by then rolling with
momentum for the award of the first power purchase agreement (PPA) to the first IPP.
On Aug 3, 1996, another widespread blackout occurred in most of Peninsular Malaysia, with
states including Kuala Lumpur, Selangor, Putrajaya, Johor, Malacca and Negeri Sembilan
losing power for several hours.
According to a news report by the Wall Street Journal on Aug 6, 1996, then-prime minister
Mahathir called the incident an embarrassment.

Lim Kit Siang

Across the political divide, opposition leader Lim Kit Siang also slammed TNB, quoted as
saying it is time that the government should stop mollycoddling Tenaga Nasional, which
must be made to accept liability and to pay compensation for losses suffered by its
customers.
By this point the nation had five IPPs including YTL Power and this group would later be
dubbed the first generation.
YTL Power declined to be interviewed for this article, though its previous statements have
indicated that it thought the PPA terms were fair given its pioneering of the IPP role in
Malaysia.
The Association of Independent Power Producers or Penjana Bebas also declined to be
interviewed after being sent a tentative list of questions by KiniBiz.
Harassed and humiliated
While IPPs were ostensibly brought into the picture to ensure Malaysia can meet its rising
power demand as well as restore a comfortable safety margin of capacity, the very first PPA
was grossly unfair, said Ani, who opposed the deal.
I was not negotiating with YTL, said Ani to KiniBiz on the first PPA. I was (in reality)
negotiating with the government (via the Economic Planning Unit or EPU).
And every time the national utility sat down with the EPU to hash out the PPA terms, its
officials were harassed and insulted, said Ani.
I forget the details but we were insulted (by saying) we dont have planning, etc (which led
to the 1992 blackout), said Ani. (But) we had 260 engineers (at the time), they cant be
stupid.
Calling the eventual PPA arrangement ridiculous, Ani refused to sign and subsequently
resigned.

There were many clauses detrimental to TNB (that I couldnt agree to), said Ani to KiniBiz.
If I (had) signed, people would have said that I also sapu (get a cut),

It was then-prime minister Mahathir that put

him out to pasture, said Ani, for his refusal to play ball. He (Mahathir) indicated that I
should resign within a week of not signing.
The exact terms are under wraps behind the Official Secrets Act 1972. But according to Ani,
there was no real negotiation taking place between TNB, the sole distributor of electricity,
with YTL Power, who would be an IPP.
According to Ani, the generous terms of the early PPAs surprised his peers around the world
when they were signed.
A lucrative deal
By all accounts YTL Power got a sweetheart deal through the first PPA. According to Ani, the
price was fixed by the EPU and not through negotiations between TNB and YTL Power.
At the time TNB were producing electricity at eight sen per kilowatt hour (kWh), said Ani.
Taking into account transmission and distribution costs which were about six sen and three
sen respectively at the time the power distributor can deliver electricity to consumers at
just 17 sen per kWh.
For IPPs to come in, the acceptable benchmark price for electricity production would have
been 12 sen per kWh, said Ani to KiniBiz, which TNB and the IPPs can negotiate around.
But the EPU decided on 16 sen per kWh, he said to KiniBiz adding that with a take-or-pay
clause, the costs jumped to 23 sen. I said this is ridiculous.
The take-or-pay clause, which stipulates that TNB would take a minimum of 80% of power
produced by YTL at a fixed price, was detrimental to TNB.
Even if we didnt use it, we would have had to take or we had to pay, said Ani to KiniBiz.
We had excess electricity at that time so we cannot make use of all that electricity.
In a 2006 interview, Ani said one IPP agreed to negotiate around the 12 sen per kWh mark
but claimed that the EPU stepped in, saying that the IPP would not get the contract unless the
price is raised. The IPP got the contract at 14 sen per kWh, Ani was quoted as saying.
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A guaranteed profit margin

Another detrimental clause in the PPA was the fixed price for fuel regardless of fluctuations
on the open market.
In essence, the PPAs stipulate that IPPs would be paid a fixed capacity payment regularly in
exchange for making an agreed electricity capacity available. Should TNB buy the electricity
generated, it would then pay energy charges which would also have been fixed in the
agreement.
TNB would also be obligated to cover the difference if the price of fuel used to generate
electricity rises beyond the agreed price in the PPA.
This effectively insulated the IPPs from market forces and guarantees a fixed margin of profit
at TNBs expense, the latter bearing disproportionate risk.
According to a 2005 paper titled The IPP Investment Experience in Malaysia by Stanford
University researcher Jeff Rector, this arrangement of TNB completely bearing the fuel cost
risk singles out YTL Powers PPA as being significantly different from the other four firstgeneration IPPs.

The first IPP (YTL Power) had a significantly

different PPA than the next four IPPs that participated in the first wave of investment, wrote
Rector. In later IPPs fuel cost risk was partially shifted to the IPPs.
Ani had said in his book that without a corresponding rise in electricity tariff, this would have
hurt TNBs financial standing.
In addition, when the first PPA was awarded to YTL, TNB was actually prepared to plant up
in Pasir Gudang, Johor and Paka, Terengganu but was not allowed to do so, said Ani to
KiniBiz.
We were going to build those power plants, said Ani in the interview with KiniBiz, but the
prime minister said he has his own plans.
Notably in his paper Rector said that TNB may have been able to finance additional capacity
given the deep bond market and their blue chip reputation.
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In the end, the plant sites were transferred to YTL, who started constructing the gas-powered
power plants in November 1993. The first generating units at both locations were
commissioned and synchronised with the national grid in September 1994 and YTL finished
the construction just 22 months after works started.
With a total capacity of 1,212 MW, YTL contributed approximately 15% of Malaysias power
then. A Malaysian Business report from 1996 said that YTL had an option to expand to 1,500
MW, making YTL one of the biggest IPP in the world at the time.
In any event, with the project completed ahead of schedule, one year after that YTL clocked
in a massive increase in earnings. In June 1996, the group saw turnover of RM1.6 billion
translating into RM356 million in pre-tax profits, a 54% jump from the previous year.
Who were YTL Powers Bumiputera partners?
Given the history of how YTL Power became Malaysias first IPP, the emerging question is
why the power sector liberalisation had to go forward through such murky circumstances and
on such questionable terms.
In a 2006 interview, Ani simply said the question of how the Malaysian model of IPPs was
created should be posed to then-prime minister Mahathir. To-date, Mahathir had not
addressed this subject publicly.
However, the key to discovering the answer may lie in a licensing requirement for IPPs,
based on KiniBizs interview with Ani Arope. To get an IPP licence, 30% of it must be
owned by a Bumiputera company, he said.

However it is unclear
who exactly the Bumiputera parties were in YTL Powers case and how that information fits
into the overall picture.
According to The Star in 1994, when awarded the first IPP licence YTL Power was 50%
owned by YTL Corporation while TNB held a 20% stake. The Employees Provident Fund
(EPF) held a 10% stake.
The remaining 20% equity was split between British-based construction outfit John Laing
Plc, Mayban Ventures Sdn Bhd and Bumiputera-owned company Bara Aktif Sdn Bhd.
TNBs stake is not unusual as the national utility had stakes in all but one of the first
generation IPPs, holding either a 20% or 10% equity. In turn Mayban Ventures is a private
equity management company owned by Malayan Banking Bhd and Aseambankers Malaysia
Bhd on a 70:30 basis.
According to its website, Mayban Ventures pool(s) capital from institutional and high
networth investors to fund and manage portfolios of privately held investments.
On the other hand, Bara Aktif, incorporated in April 1993, only has two shareholders Raja
Wahid Raja Kamaral Zaman and Mohamed Zainal Abidin Abdul Kadir and is an
investment holding company.
Both men are also directors in Bumiputera construction company Seri Yakin Sdn Bhd. Mohd
Zainal Abidin is also a 56% shareholder in investment holding company MZK Realty Sdn
Bhd, with the remaining 44% are apparently held by his children. Notably MZK Realtys
registered address is the same as Quarry Ventures Holdings Sdn Bhd formerly known as
Achieve Goals Sdn Bhd a YTL company.
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Interestingly Mohd Zainal Abidin is also among Quarry Ventures Holdings directors.
According to YTL Land & Development Bhds 2013 annual report, both Mohd Zainal Abidin
and Raja Wahid are substantial shareholders through both direct and indirect shareholdings.
Mohd Zainal Abidin holds 13.71% through direct shareholding and those of Bara Aktif and
MZK Realty while Raja Wahid holds 7.84% equity through direct ownership and that of Bara
Aktif.
When posed the question by KiniBiz, Ani declined to comment on the identity of YTLs 30%
Bumiputera partners.
Undue influence?
However, tracking back through time some other names emerge that complicates the
question.

On June 20, 1998, then-prime minister

Mahathir released a list of Bumiputera recipients who benefited from privatised projects. The
revelation, made during an United Malays National Organisation (Umno) general assembly,
was made following criticism that Bumiputeras had not benefited from Mahathirs policies.
Interestingly YTL Powers IPP award was also featured in the list, which named Aripin
Mokhtar, Haron Mohd Taib and Dr Yahya Ismail as among the beneficiaries.
Among others, Aripin was previously on the boards of PJI Holdings Bhd (now known as
YFG Bhd), Ho Hup Construction Bhd and YTL Corporation Bhd. Aripin was also once an
executive deputy chairman position at L&M Corporation Bhd before a reverse take-over
(RTO) saw the company renamed Prinsiptek Corporation Bhd in 2003.
Aripin was also a non-executive member of Gula Perak Bhds board, which was led by
executive chairman Rahim Baba, former senator and Special Assistant to the late former
Deputy Prime Minister Ghafar Baba. Aripin resigned his position in May 2011 before Gula
Perak was delisted later that same month.
As for Haron Mohd Taib, prior to his death on Aug 17, 2011 he was a director at YTL
Corporation and YTL Power International. Notably Haron has had a long career in public
service, which included various high-ranking positions at the Ministry of Defence in the
1970s and 1980s.
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Also on both YTL Power and YTL Corporations boards is Dr Yahya Ismail, whose corporate
journey had seen him sit on the boards of Killinghall (Malaysia) Bhd, Shell Refining Co
(FOM) Bhd, Metroplex Bhd and United Engineers Malaysia (UEM) Bhd.
While it is difficult to confirm who exactly were YTLs 30% Bumiputera partners and what
political entity the link leads back to, it is interesting to note that not only were the
negotiations for the first PPAs involving heavy political interference but the identity of the
parties getting the IPP licences raised concern too.
What has raised concern among banks is the companies getting the licences, reported
Rectors paper quoting a Singapore-based international banker. They are run by wellconnected individuals who are after lucrative contracts.

As for Ani, after his departure from TNB, no company

would touch him for quite a while, he said to KiniBiz. And anti-corruption officials even
came to his house to inspect his belongings, coincidentally when he was having lunch.
I cannot offer you lunch in case you construe it as bribery, recalled Ani, adding that he told
the officers he would give them an itemised list of every room.
But even 20 years on after the episode, Ani is still firm on his stand back then. I stood by the
truth, said Ani to KiniBiz. I dont want people to come and urinate on my grave later.
Here is an excerpt of the interview with Ani Arope:
Ani: Of course I was accused that Ani thought this is his fathers property. But you know,
this is a trust, an amanah. If it is my fathers property, of course its so easy to handle: I just
dish it out to my relatives.
But for a trust that you were given to look after this big corporate I mean let us have due
diligence, let us sit down and negotiate.
But I was not negotiating with YTL. I was negotiating with the government the EPU. And
I recall in this instance every time we went we were harassed, we were insulted, macammacam.
KiniBiz: How were you insulted during the meetings?
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Ani: I forget the details but we were insulted. That we didnt have planning, that we dont
have this and that. But we had 260 engineers. They cant be stupid.
KiniBiz: What was the cause of the 1992 blackout?
Ani: All these instances can be arranged. Of course amongst the 260 engineers there are some
disgruntled ones who were against me. You would remember the burning of my effigies when
I first came in. Im not accusing them but there were some disgruntled people.
These disgruntled engineers could also play cahoots, do something, switch off something
thinking it would only last an hour. But it went on for three days.
KiniBiz: So youre saying the blackout could have been arranged.
Ani: Yes, to prove that TNB is inefficient and therefore the IPPs must come in. I told the
prime minister then that our cost is about eight sen. I calculate if I had to come in now, itd be
about 12 sen.
So I told them, lets negotiate on that, maybe 12.5-13 sen, we can proceed. But they have
already decided 16 sen.

KiniBiz: The prime minister decided?

Ani: The EPU. At 16 sen, with take-or-pay, it jumped up to about 23 sen. I said this is
ridiculous.
KiniBiz: 23 sen?
Ani: With take-or-pay. We had to sign a (take-or-pay) contract whereby we had to take a
minimum of 80% (of electricity generated). Even if we didnt use it, we either have to take or
we have to pay.
Yet we had excess of electricity at that time. So we cannot make use of all of that (electricity)
but we still had to pay 80% (as per) what is written down on the contract. If you calculate the
costs, it comes to about 23 sen.

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So I told the prime minister, Youre talking about zero inflation that was his favourite
phrase but with this you cannot get zero inflation. Now the real costs of power is 23 sen.
There is (also) a transmission cost. There is a distribution cost.
KiniBiz: How much were the transmission and distribution costs?
Ani: About six plus three sen.
KiniBiz: So six sen for transmission and three sen for distribution.
Ani: All these things have to be passed onto the consumers. So I said, sir your EPU is not an
Economic Planning Unit. It is an Economic Plundering Unit.
I said sorry, Im not signing. Within a week I was put out to pasture.
Were not anti-Chinese, no. Its nothing to do with race yet they accused me racialising (the
issue). I think Im the last person to (do that).
KiniBiz: So the take or pay was for all the early PPAs?
Ani: Yeah. So everybody now just copies that. They take that as the standard for everybody.
KiniBiz: So thats what they called the capacity charge isnt it.
Ani: I think (it is better if we) sit down and negotiate. If theres a take-or-pay, (discuss) how
much we can take. Because we have excess capacity. And then over and above that, we
negotiate on the price.
KiniBiz: Or you can maybe if you want to take, you ask the power producers to put in their
bids and then take the lowest bid.
Ani: Yes. In Australia thats what they do. Every day they call and ask. Then they take the
lowest bid.
KiniBiz: Maybe it could have been structured such that you have a base load, say you take
50% or 60% from everyone or 70% from everyone, then for anything above that you bid. So
that is one way it could have been done.
Ani: There are many ways to skin a cat. (If) you want to make money (its) okay, but we have
to look around. This is a national (interest). Otherwise, your electricity bill from RM100 goes
up to (higher) for nothing.
KiniBiz: Do you think there could have been some mechanism whereby, say, TNB could
have been kept as the sole generator? Would that be desirable or should it have been opened
up?
Ani: Well, the PM decided (on) IPP. Now the IPPs control about how many percent? 60%?
(Editors note: IPPs account for 47% of Peninsular Malaysias capacity as of last year.) Yet
all the costs are borne by TNB, who also does the transmission.

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KiniBiz: When you said there are many ways to skin a cat, were there any need for IPPs to
be brought in at that particular time, objectively?

Ani: The rest came in using YTLs PPA (as template). But to get an IPP licence, 30% of it
must be owned by a Bumiputera company.
So all these people, who got the 30%? To whom did YTLs 30% go?
KiniBiz: Did you try to talk to the PM at that time about this?
Ani: No, after that he kicked me out. Gave me the red card.
KiniBiz: He kicked you out of TNB?
Ani: Within a week of not signing, I was given the red card. Out lah.
KiniBiz: At the time it was said you resigned.
Ani: Yes, he asked me to resign. His people indicated (that I should). Thats a small matter.
But I stood by the truth.
Look, I was entrusted with the job. If I wanted to make money in Tenaga, every contract runs
into the millions. Nothing less than half a billion ringgit, RM500 million. If I just pakat (cut
a deal that) okay, Ill give it to you, all you have to do is put in 1% and here is my bank
account. 1% of RM100 million is RM1 million.
If you want to get rich like that, its easy. But as I said (in his memoirs) I do not want people
to come and urinate on my grave later on.
Even after I resigned, he sent in anti-corruption people to come to my house to look at things.
KiniBiz: After you resigned?
Ani: Yes. It was lunch time. So I told them, Im not inviting you all to lunch in case you
construe this as bribery. I said no need to look at all the fixtures, I give you the itemised one
because every room has an itemised (list). So you can keep that, I said.
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KiniBiz: Why did Mahathir let YTL have such a generous deal?
Ani: The crux of the whole thing was who got the 30%. The first PPA with YTL, theres a
30% shares for the Bumiputera. That explains the whole thing.
KiniBiz: There are people who are saying that TNB can do Track 4A on its own.
Ani: Sure. All this while, who had been doing it? During my time, to raise money for TNB
was so easy because people know TNB. Within a week, I raised enough money to build both
the Paka and Pasir Gudang plants. The Pasir Gudang and Paka sites were our property
already. So I told then-prime minister (Mahathir) that we were going to build. But he said
No, we have our plans. So those were taken away from us.
Now Pasir Gudang and Paka are supposed to be handed over. That will be a problem also. So
what TNB will be inheriting? A plant or scrap iron?
KiniBiz: Cant TNB operate the plant (after inheriting it)? The agreement specifies that the
plants are handed over in good condition.
Ani: Yes, TNB can operate. But what is a good condition? Subjective. But before that, (they
can) cannibalise the thing. In the end (TNB may) inherit scrap. Thats one problem.
The second problem is there are people there who have been working for 20 years. For
political pressure TNB may be asked to absorb them at no less than what theyve been
enjoying before. Now of course under YTL maybe they get a bit higher salary.
But when TNB takes over, there cannot be two scales of salary. So these people will be
brought down to TNBs scale and then youll have a disgruntled lot of people working for
you.
KiniBiz: So what is the solution then?
Ani: TNB needs to sit down and start thinking now, not wait till 2015. Oh they might say, this
is a simple thing. Not so.
Just leave it to TNB. For any new plants coming, just give it to TNB to do. This is a national
interest (matter) and if it (power generation) can be for less than what the commercial players
can do
KiniBiz: So TNB should have a natural monopoly in this case? For public interest?
Ani: Yeah. They keep the price down. Now look at the inflation.
KiniBiz: The allegation that has been made was that TNB is inefficient and therefore we
needed the IPPs.
Ani: If they are inefficient, how could they have sold to the consumers at 16 to 17 sen per
kWh for a long time? If they were inefficient, then the price would have gone up.
KiniBiz: That was because of earlier plant-ups, isnt it? That brings TNBs costs down?
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Ani: If you talk about efficiency, it is about costs. Cost per unit measures the efficiency. If we
can sell at 17 sen and still make money, and he needs to sell at 23 sen to make money, who is
more efficient?
When YTL came in, there was one breakdown. And there was an investigation by an
international party. And then the report was not released, kept under the Official Secrets Act
(1972). Why?
So far the Tun (Mahathir) had not answered on anything.
KiniBiz: Maybe TNB can do it alone but the fact is that IPPs are here now, maybe for good.
So how do we go from here? Can we make this work in a way that doesnt benefit just the
elite?
Ani: TNB should be sitting down to negotiate directly instead of with the EPU. (In the PPAs)
there were so many clauses detrimental to TNB (that I couldnt agree to).
On the excess capacity issue, we can negotiate on that. Like the take-or-pay and all these
things, we should negotiate. But there was no chance (for TNB) to negotiate (with IPPs), we
had to negotiate with the EPU.
Tomorrow: The other first-generation IPPs

The shadowy terms given to the early IPPs, as well as the lack of an open tender
process, meant transparency was sorely lacking. This and other issues surrounding the
early IPPs were addressed to some extent through changes in power purchase
agreements with later IPPs as well as proposed reforms, but are they sufficient?
____________________________________________________________________
The emergence of the first five independent power producers (IPPs), dubbed the first
generation, was fast. With a combined capacity of 4,157 megawatt (MW) against thenexisting capacity of roughly 6,000 MW, Malaysia went from potential power shortage to
power glut rapidly.

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Click to enlarge
By January 1997, Peninsular Malaysia reportedly had nearly 50% in surplus capacity.
At the heart of the problem was poor planning on the Economic Planning Unit (EPU)s part,
which was responsible for issuing IPP licences.
In 1996 the Far Eastern Economic Review reported that government officials have privately
admitted too many IPP licences were handed out too quickly. Additionally national utility
Tenaga Nasional Bhd (TNB) also continued adding to its own capacity, reportedly concerned
that some IPPs would be late in plugging into the grid.
Compounding these problems on the government side was the fact that the favourable terms
in the contracts offered by Tenaga drove strong investor interest, while limiting the incentives
to conduct due diligence regarding the actual supply-demand situation in the country,
commented a 2005 Stanford University paper titled The IPP Investment Experience in
Malaysia by researcher Jeff Rector.
Lacking transparency
With the number of IPP licences issued directly, the biggest issue was transparency.
As the power purchase agreements (PPAs) are classified under the Official Secrets Act 1972,
it is nearly impossible to discern whether the deals were fair from the consumer perspective
without an open tender process that would have at least added some pressure for efficiency
and lowest-possible cost.
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Based on former TNB executive chairman Ani Aropes disclosures about the first-generation
IPPs, it is likely that most, if not all, were not.
According to the Association of Water and Energy Research Malaysia (AWER), information
provided by TNB shows that IPPs, up to the third generation, averaged double-digit in
internal rate of return (IRR), though the figure is declining from the first generation.

In any event, it was only in 2005 that things changed in terms of licence issuance. In that year
the government announced the 10-year transformation programme for government-linked
companies (GLCs), which among others declared that all IPP licences would be awarded
through open tender to ensure the best price for electricity generation.
However by this time IPPs were well into the third generation and, in 2004, TNB reportedly
had 40% in surplus capacity the cost of which was ultimately borne by consumers through
capacity charges paid by TNB.

Other issues on the early PPAs

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Transparency aside, the primary reasoning for introducing IPPs into the nation was to meet
surging demand for electricity brought about by Malaysias rapid economic growth in the
1980s.
The idea was to bring private-sector efficiency into a state-monopolised sector. However the
long PPA tenures, which in the first generation effectively guaranteed a certain margin of
earning come rain or shine, insulated IPPs from constantly changing market conditions.
This effectively removed private-sector efficiency out of the equation as its driver, marketdriven competition, was not a factor, given how the IPP licences were awarded directly.
Essentially, the early IPPs were protected from risk at TNBs expense, a factor which is
normally part and parcel of any business. On the other hand TNB, obliged to cover for any
increase in fuel costs, would not be able to pass on higher costs caused by shifting market
conditions to consumers without an electricity tariff hike.

A case in point was in August 1998,

when TNB posted its largest annual loss at that point of RM3.09 billion. Then-TNB chairman
Ahmad Tajuddin Ali was reported as saying that the national utility faced problems in paying
IPPs, seeking deferments and discounts from them.
While Tajuddin asked IPPs to consider national interest and hinted that IPPs would sink along
should their sole buyer TNB go under, no renegotiation took place as explored in the previous
part of this series.
In terms of speed, IPPs were no faster than TNB in planting up as the construction process
remained the same. Notably TNB, as a sovereign-backed entity, enjoys lower cost of funding
compared to IPPs, which reduces overall electricity generation costs compared to IPPs.
In addition, a high threshold of take-or-pay capacity spelt out in the early PPAs meant
consumers had to bear the cost of excess capacity that they did not need, evident from the
surplus capacity hitting 50% just before the Asian Financial Crisis struck in 1997.
In short, with higher cost of funding IPPs cannot match TNBs end-price should the national
utility had produced all power itself, especially with the unneeded excess capacity brought
about by too many IPPs coming in that consumers nonetheless had to pay for.

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Therefore in terms of public interest as electricity users, the way IPPs were initially brought
into Malaysia raised numerous questions.
Changes through each generation
However, it must be noted that there had been a trend of changes from the first generation of
IPPs onwards.
When the second generation of IPPs came into the picture between 1998 and 2001, the most
notable change was that their PPAs reportedly allowed for renegotiation in the event of an
industry restructuring as opposed to the binding nature of the previous PPAs.

Should no agreement be reached within six months TNB was empowered to terminate the
PPA and acquire the project at a pre-determined amount, according to news reports.
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This provides room to TNB to either continue with a PPA or terminate it depending on the
situation at hand while managing stranded costs issues. Stranded costs refer to existing
investments for TNB that would be redundant in a competitive environment.
Another shift was relatively more stringent requirements for the second generation. While the
previous generation of IPPs was allowed a combined limit for both scheduled and
unscheduled outages, the second generation IPPs were given separate limits for both types of
outages and were penalised if unscheduled outages exceeded the limit.
This contrasted with bonus payments that first generation IPPs were eligible for should
availability go beyond a specified level.
The second generation PPAs also allowed TNB some leeway in paying capacity charges in
the event of an unavoidable incident or force majeure, something that was not provisioned for
in the first PPAs.

In short, the second generation PPAs transferred more

risk to IPPs and their financial backers while TNB gained some breathing room in terms of
force majeure risks.
The third generation of PPAs incorporated a demand risk-sharing mechanism between the
national utility and the IPPs as seen in the first of these signed between TNB and SKS Power
Sdn Bhd.
Under the agreement SKS Power would share the cost of excess capacity. Under the demand
risk sharing concept, only the portion of capacity payments related to debt service will be
guaranteed while the other portion which in essence is the return attributable to shareholders,
will be paid upon dispatch, said a Malaysian Rating Corporation Bhd (MARC) report in
2006.
Under this mechanism, a portion of the capacity payment would be paid to IPPs based on
availability and performance while the remainder would only be paid upon despatch by the
system operator.
Driving reforms
Against the backdrop of issues concerning the IPP licence issuance process and criticism of
an uncompetitive power sector that resulted, MyPower Corporation, a reform unit under the
Ministry of Energy, Green Technology and Water (Kettha), was set-up in 2010.
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This followed the 2005 commitment, through the governments 10-year GLC transformation
programme, to award all new IPP licences through open tender.
The primary objective of this unit is to review and recommend reform initiatives for the
power sector in seeking to ensure that the electricity supply industry is reliable, transparent,
efficient and sustainable.
In October 2012, TNB won the first competitive bidding process for the Track One power
project, which entails the construction and operation of a 1,071 MW combined cycle power
plant in Prai.
Other reform initiatives include the incentive-based regulation (IBR) which improves the
transparency of the tariff structure by facilitating regular tariff adjustments that allows TNB
to recover cost fluctuations beyond its control such as fuel.
But are these reforms sufficient to put Malaysia on a sustainable long-term energy path?

Azmi Arshad
19hb Ogos 2015 Shah Alam, Selangor
POOP SPACulator
This post is a bit long because it is a necessary response to Wan Ahmad Fayhsal's smear
campaign against a public listed company in which I have an interest. It's also to school him
while enlightening others.
Some people try very hard to look for dirt on a person or organisation, even if the
organisation couldnt be cleaner or more transparent than a SPAC. In the case of one half of
Dumb & Dumber, the latter likes to throw in names of lots of people, companies and events
as ingredients to cook up grand theories after connecting the dots based upon which he
can then open the floor to speculation that even my gardener has a vested interest in 1MDB.
A lot of people can see that WAF likes to create and speculate s**t hence the title of this post.
(POOP = Pentaksub Other Opposition Party, SPAC = Special Purpose Acquisition Company).
Perdana Menteri berharap generasi muda tidak sewenang-wenangnya menjadi pembawa
berita kononnya negara sedang menuju jalan songsang sama ada dari perspektif ekonomi
mahupun politik. Najib juga kesal kerana terdapat generasi muda seakan-akan lebih percaya
kepada propaganda dan label buruk yang mungkin sahaja disuntik oleh musuh Islam
terutamanya menerusi media sosial. Katanya sebagai pemimpin, beliau sentiasa bersedia
mendengar serta menyantuni generasi muda malah tidak pernah menutup sebarang ruang
untuk dikritik dan disanggah. Oleh itu, beliau berharap generasi berkenaan bersikap adil
dalam membuat setiap nilaian dan sanggahan. Berita Harian 19/8/2015
The other day I had to school Dumb (a lawyer) in the application of the law after he tagged
me to his post.
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https://www.facebook.com/azmi929/posts/839874249466713?pnref=story
Now, out of the blue, the other half of D&D tries to drag a SPAC into his economic and
political wet dream. It is of course no coincidence that I have equity interest in the SPAC
thats why he tagged me. I might be a little bit concerned if WAF was a market mover like
Tun Daim or George Soros but nothing to worry about since he has already declared to
everyone that he is merely a 28-year old novice, which means I merely need to school
him yes, again.
I dont know why D&D like to do this to themselves. If you recall, Dumb had come up with a
Facebook status to refer to themselves as lions while I am a wounded gazelle. But as one
FB friend said: "I heran kenapa lion tu gaduh dgn gazelle n the gazelle steady jer? Lion takde
gigi ke apa ni. If i am the lioness, i will devour the gazelle. Why play with food n getting
wounded ?"
:-)
Some people get annoyed with my name calling so Ill minimise that from hereon in this
post. No promises though...
I dont want to mention the name of the SPAC so as to not risk being being hauled up by the
Securities Commission and Bursa Malaysia so lets just call it AntiPoop Energy Berhad. This
is actually not a laughing matter because WAF is now trying to scare government pensioners
just as he tried to scare Tabung Haji depositors when TH bought the TRX property (though
now more than 90% are of the view that TH should keep the property based on a candid
survey initiated by Capt John F Seademon). So Ill try to keep it serious. no jokes.
WAF dramatically titled his post "RM 2 BILLION MARKET CAPITALIZATION GONE
and quoted an extract from the article he shared: "Local listed oil and gas (O&G) firms saw
their market capitalisation plummeted by almost RM2 billion yesterday, driven by the weaker
Petroliam Nasional Bhds (Petronas) results and admission that its cash from operations
would not cover its capital expenditure (capex) this year.
https://www.facebook.com/rausyanfikir/posts/10205861240982954?pnref=story
To be honest, I regarded that post as just another of his M&M post (meroyan & merapu) not
worth rebutting but then he tagged me on the false optimism that finally this time he could
checkmate me by running down AntiPoop Energy. Sighhh. he never seems to learn.
As usual WAF then tries to assign blame to the PM and the government (or that they dont
care) for the current economic condition but never mind that. Reflecting the condition of his
heart (yang berpenyakit), he seemed to take pleasure in seeing Malaysian oil & gas
companies being adversely affected by the oil price and the cut in capex by Petronas. WAF
then also pretends to show concern for institutional investors who subscribed for the IPO
shares of AntiPoop Energy Berhad, an oil & gas SPAC he implies that the rakyats money
is lost as a result of owning shares of AntiPoop Energy but dares not say it directly (because
perhaps he thought he would then be exposing himself to a lawsuit). He must have thought
AntiPoop Energy was in the same boat as the other oil & gas companies. Such ignorance is
not a surprise from someone who has no experience in corporate finance or fund
management.
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---------------------------------------------------------------WAF: "How's your SPAC doing Mr Azmi Arshad?"

(Oh good, he still has me in his thoughts Lets see where hes heading with this)
AA: "No operations to talk about till after QA. Why do you ask Wan Ahmad Fayhsal?"
(No response for quite a while)
AA: "Is there a point to your question or are you merely trying to make small talk with me
Wan Ahmad Fayhsal?"
(Still no response for quite a while)
WAF: "I'm genuinely asking you Mr Azmi Arshad. You know very well we are all concern
about institutional investors who put Malaysian people money into ANTIPOOP. [I have
substituted the name of the company].
(Genuinely asking and concerned? Aww hes so sweet he makes my tooth ache)
AA: "Do you know how the institutional investors are protected? Perhaps you have not read
the IPO prospectus."
(Lets see how much he knows about SPACs).
WAF: "Ah great. Please share with us how would they be protected"
(Hmmm, he doesnt know. What a lazy research fellow this fellow is. I dont see why I
need to do all the typing to educate him if hes not going to do any prior reading. I prefer to
help those who help themselves. Lets make him work a bit. This should be fun).
AA: "I shall explain to you later if you don't understand it after reading the prospectus. First I
want to know if you have done your homework. You claim to know all about SPACs,
especially AntiPoop. Did you read AntiPoop's IPO prospectus before coming up with your
insinuations -- yes or no?"
WAF: "Insinuation? Nah, just concern. I've read few reports on REACH: syariah compliant,
touted to be the safest SPAC, RM 20 million management shares etc."
(That means No, he hasnt read the IPO prospectus, the most important document IPO
investors should read, what more institutional investors . Arent fellows' or researchers'
supposed to read up on a subject before they talk about it? Oh I forgot, he is a 28-year old
novice who is merely concerned').
WAF: "Please enlighten us."
(He hasnt done his homework and he wants free tuition. He needs to earn it).
AA: "Nope, the RM20mil is not the key protection -- that merely shows our skin in the game.
I am not going to enlighten you yet. First I want you to do your homework like institutional
22

investors have done. You are obviously not a sophisticated investor if you have not read the
prospectus. Read it, share the relevant extract here and I will then explain it to you if you
don't understand. Otherwise you again show how ignorant you are in corporate finance,
investment appraisal and risk management, Wan Ahmad Fayhsal. If you choose to not read
the prospectus first then I think I shall write a post about this and tag you to the post. I will
enlighten everyone in that post :-) "
---------------------------------------------------------------There has been no response from WAF since then. Its been more than 28 hours. Either he
still has not read AntiPoop Energys IPO prospectus or he has read it and discovered that he
has made a fool of himself yes, again. True to form, its another case of baling batu
sembunyi tangan by WAF. Ive lost count how many times hes done that. Hence this
elaborate post.
WAFS VALUABLE IGNORANCE AND INEXPERIENCE
Of course we all know WAF'S genuine' intention is to try to discredit anyone who discredits
him (exposes his lies and spins) he doesnt want attention to be focused on facts that
expose his mistakes and ignorance. Now he wants to fool people into thinking that local
institutions are going to lose a lot of the rakyats money by having invested in AntiPoop
Energy Berhad he then hopes that would make him look competent in finance while I am
just a naive CFO who surely has to agree with him at least this time. Bear in mind that WAF
gives his judgement without even reading or understanding the contents of the IPO
prospectus. If he had read the prospectus he would have realised that AntiPoop Energy is no
ordinary public listed company (PLC) susceptible to "huge market capitalisation being gone.
But whats this... WAF even tries to justify that being ignorant does not mean that one cannot
understand finance this was part of his Facebook status (which seems to reflect
exasperation and desperation):
"Untuk memahami kebobrokan 1MDB:
Anda tak perlu tauliah ICAEW,
anda tak perlu jadi CFO,
Anda tak perlu 30 tahun pengalaman dalam Kewangan Korporat,"
In other words, WAF is saying you dont have to be ahem me (and I of course agree).
Such people are, according to WAF, dingbats, goons, prepaid cytros, Najibstas, spinmasters,
bullshitters and cyberwhores (and more). Before this he also put up a Facebook status to tell
people Mulai hari ini saya syorkan tuan-tuan bakul sampahkan sahaja spin dan ulasan
Cyber Troopers Najib Tun Razak seperti Azmi Arshad. So he wants you, the intelligent
reader, to discard anything I say because my CV is worthless and to have blind faith in
whatever he says even if he has no relevant academic qualification or experience and even if
he has been getting it wrong in the past because his ignorance is more valuable and
reliable :-)
Basically he is telling us, Look, I may be clueless about finance and have always been
proven wrong but you have to believe I know what Im talking about. Thats what we call
Jahil Murakkab. Many silent readers don't buy poop stories anymore, such as:

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https://www.facebook.com/photo.php?
fbid=840997616021043&set=a.192938724160272.41932.100003324388264&type=1&theate
r
Actually, his qualification was never the first thing that anyone looked at when he gave his
comical views and hurled unsubstantiated allegations that could only be due to ignorance in
corporate finance and M&A. It was because he was talking unintelligibly that people
(especially with finance background) wondered about the source or reason for his confusion,
errors and premature ejaculations. Only when WAF confessed to being a 28 year old novice
(after being proven wrong on one point after another in finance) that people realised that he
had no finance background whatsoever. And now WAF is insisting that qualification and
experience are not necessary he might actually have a point if he had not run away from
one-on-one factual discussions on the audited financial statements, auditing methods, the
difference between discount and commission on bonds and not to mention if he had not been
schooled on the irrelevance of share capital in debt funding:
https://www.facebook.com/azmi929/posts/839177039536434?pnref=story
Instead time and time again we only hear his insistence that he has the evidence, he will
prove it, he is right, we should read between the lines, he has proof, he will explain later, he
will write more later on his blog, he will expose more later, we are wrong, we are dingbats,
we are prepaid cytros" etc etc etc again and again and again. Lepas tu bila dah buntu
mereka berdua (D&D) buat doa laknat atas saya pula (dan saya hanya tunggu masa doa
laknat itu makan diri):
https://www.facebook.com/photo.php?
fbid=837139466406858&set=a.192938724160272.41932.100003324388264&type=1&theate
r
SCHOOLING THE WAFFLER AGAIN
Ok, let's get even more serious. Let me point out WAFs ignorance and mistakes in
suggesting that AntiPoop Energy Berhad has turned out to be a bad investment for
institutional investors looking after the money of pensioners and Pak Haji & Mak Haji, by
likening it to other public listed oil & gas companies:
1. AntiPoop Energy is not and oil & gas services contractor: The business activities of the
PLCs that WAF was referring to are primarily oil & gas services. They are dependent upon
oil majors for work/revenue. My dear WAF, please be informed that AntiPoop does not do oil
& gas services and is not at all affected by the shelving or postponement of projects by
Petronas or any other oil major companies for that matter. Antipoop does not depend on
Petronas for anything. Instead, this may even be a greater opportunity for AntiPoop Energy
because oil majors may dispose of marginal fields not economically worthwhile for them as
they have a much higher cost base.
2. AntiPoop Energy is not a short term investment: Institutional investors have always known
since they (unlike WAF) have read the IPO prospectus that AntiPoop Energy had 3
years to secure a Qualifying Acquisition (QA) and logically that there would not be any
dividend until at least 2 years after the QA. The current market does not undermine the safety
of the investment in AntiPoop Energy because of the investment protection. (See point 5
below). WAF doesnt realise that AntiPoop's institutional investors are not speculators but are
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in it for the long term especially given the investment safety i.e. there is no business volatility
before the QA. Any share price fluctuation is not going to affect the end game.
3. AntiPoop Energy is not subject to profit revision: The share price of other PLCs drop
primarily due to lower expectations of the underlying value i.e. the oil & gas companies will
have less work from Petronas resulting in lower revenue and profit and therefore lower
business valuations based on discounted cashflow projections. AntiPoop Energys present
underlying value (or base value) has nothing to do with projects from Petronas or any other
oil major. Indeed there are no cashflow projections to be reassessed unlike what we usually
see in equity analysis reports. (Perhaps WAF doesnt even know what a SPAC is i.e. there are
no operations until after the QA). If WAF doesnt believe me, he can try asking every
research analyst in town whether any projections have been published for AntiPoop Energy
whereas you will find numbers (projections) being revised for other listed oil & gas
companies.
4. AntiPoop Energy's valuation is not based on oil price: The drop in the oil price presently
does not affect the base value of AntiPoop Energy Berhad because the company is still sitting
on a pile of unutilised cash. No doubt that the value of ringgit has fallen but there is there is
no impairment of assets or business value whatsoever. It would have been different had
AntiPoop Energy already acquired an oil field when the oil price was, say, USD80 per barrel.
Instead, AntiPoop will be looking to buy assets at an even cheaper price in USD but of course
offset by the lower Ringgit. The one that may lose money is the seller of the oil field and not
AntiPoop Energy. AntiPoop will simply make sure the IRR is at least 15% for the QA. Indeed
we hope more opportunities will open up as a result of the low oil price as marginal or
smaller fields become less economically feasible for the bigger oil companies with a higher
cost base. Whether AntiPoop Energy buys the asset when the oil price is USD80/barrel or
USD40/barrel it does not matter as long as the QA meets the hurdle rate (IRR of at least
15%). So, due to his ignorance, WAF doesnt seem to be aware that what matters is the IRR
of the QA and not the oil price that will affect valuation.
5. Investment safety: AntiPoop Energys IPO was no ordinary IPO. Not only is AntiPoop
subject to strict conditions under the SCs Equity Guidelines but AntiPoop exceeded the
requirements for investment safety. Under the Equity Guidelines, SPACs are to place 90% of
IPO proceeds into a trust account. AntiPoop however has placed 94.75% of IPO proceeds into
an Islamic trust account earning returns. In other words, if in another couple of years
AntiPoop still has not bought an oil field then those institutional investors get back 94.75% of
their money plus returns. In theory they would get more than their principal but suffice to say
there is limited downside. I would like WAF to name me ONE oil & gas public listed
company that has a better investment safety than AntiPoop Energy Berhad. Come on WAF,
you only need to name ONE such company to prove that AntiPoop Energy was a bad
investment for institutional investors. One. Satu sahaja.
The above five points are enough to show that WAF was clueless when he alleged that
AntiPoop Energy would cause the rakyat' to lose money due to local institutions investing in
AntiPoop. We cannot control the oil price or the stock market but even if the share price of
AntiPoop plunges to one sen (which is impossible) because of sentiment, any educated
investor will know that the base value is not affected because of hard cash in the Islamic
trust account. The more optimistic investor will know that the low oil price means
greater opportunity for AntiPoop as a result of lower acquisition cost of target assets
and potentially more marginal/small fields coming into the market from oil majors.
25

Dont take my word for it if you think I am just a dingbat or cyberwhore. Lets see what
HLIB Research said:
We maintain our investment thesis that the gross trust value for SPACs should serve as
the base value as investors can choose to vote against QAs (qualifying acquisitions) and get
back the cash value from the trust account plus net interest earned.
In a worst case scenario, investors holding to maturity would receive a return between
10% and 27%, after accounting of interest earned of 3.2% per annum, 25% tax on interest
and other expenses.
If AntiPoop Energy manages to secure QA in the near future, we expect the share price to
trade at least to its gross trust per share at IPO which should provide immediate return of
19%.
I think HLIB is more qualified to talk about the valuation of SPACs than WAF unless of
course WAF wants us to also 'bakul sampahkan HLIBs view :-)
CONCLUSION: Local institutions that invested in the IPO shares of AntiPoop Energy
Berhad have not suffered as a result of the current oil price. Depositors of Tabung Haji and
other local institutions should not be conned by a 28-year old novice giving his view on the
economy and equities.
I have asked WAF this question so many times and until now he has not given an answer. Ill
ask again: WAF, how many years of experience do you have in corporate finance, financial
management and/or M&A (or equities)? Once and for all just please give us a number. At
least let us know if the number is a single or a double digit. (I think zero is also a digit).
"Real knowledge is to know the extent of one's ignorance" (Confucius)
"The doorstep to the temple of wisdom is knowledge of our own ignorance." (Benjamin
Franklin)
"It takes considerable knowledge just to realize the extent of your own ignorance." (Thomas
Sowell)
"The most violent element in society is ignorance." (Emma Goldman)
- AA Chief Clerk, Anti-Fitnah Dept
AntiPoop Energy Berhad

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