1MDB bought power plants for rakyat’s benefit, says chief

By Khairie Hisyam

Arul Kanda

Self-styled strategic development company 1Malaysia Development Bhd (1MDB) today explained that its controversial power plant acquisitions between 2012 and 2013 were a strategic initiative aimed at boosting the competitiveness in the power sector.

Speaking to assembled journalists today, 1MDB president and group executive director Arul Kanda said the acquisitions enabled 1MDB to consolidate several different independent power producers into one entity which ultimately contributed to lower tariffs.

“By combining three separate power companies, we were able to achieve synergies and economies of scale,” said Arul. “The sum of the parts is greater than the individual companies.”

Providing a specific example, Arul said that in a previous tender for power plants 1MDB was able to bid at a tariff rate that was 1 sen lower than the next competitor.

For a 2,000-megawatt power plant with a 20-year power purchase agreement, Arul said a 1 sen difference in the tariff rate would translate into RM2.9 billion in savings by Tenaga Nasional Bhd, sole off-taker and distributor of all power produced in the country.

To recap, 1MDB bought three power plants between 2012 and 2013, which form the bulk of its power assets today.

While it paid some RM12 billion in total for the three power plants, the company recognised RM1.2 billion of impairment on goodwill in its accounts for the financial year ended March 31, 2013 (FY13).

However, critics estimate that the company had overpaid by some RM3 billion for the power assets. As part of the acquisitions 1MDB also inherited some RM6 billion in existing debt from the companies.

While acknowledging that 1MDB did pay a premium for the power assets, Arul stated that the savings that ultimately resulted from the consolidation are far greater.

The explanation comes as 1MDB is undertaking a sale of its power assets, for which three fully funded, final and binding offers were submitted on Oct 16. Two of the three parties are foreign entities, Arul said, while the third is Tenaga Nasional.