The decision by the government to acquire certain Independent Power Producers (IPPs) at high prices via 1MDB raises many questions. 1MDB has acquired Tanjong Energy Holdings Sdn Bhd from Tan Sri Ananda Krishnan in March and Mastika Lagenda Sdn Bhd from Genting Bhd in August. Mastika Lagenda in turn owns 75 percent of Genting Sanyen.
The cost for the Tanjong deal was RM8.5 billion while the Genting deal was RM2.55 billion.
Tanjong PLC was taken private by Ananda in September 2010, when he paid RM8.8 billion for the entire group at RM21.80 per share. Tanjong’s power business contributed about 75 percent of the group’s revenue and profits. One thus could say that it made up RM6.6 billion of the takeover price by Ananda. Now, by flipping the shares to 1MDB, Ananda has made a profit of RM1.9 billion.
Genting announced that it will make a net gain of about RM1.9 billion from selling their shares to 1MDB. This is highly generous, especially considering the profits made by Genting since the power plant became operational in 1995.
Mastika has a shareholders fund of RM422 million, meaning the RM2.5 billion paid by 1MDB results in a price-book ratio of about 6 times. This is above the average price-book ratios of power stocks in the region. In fact, it would actually be cheaper to build a brand new plant of the same size than to buy Genting’s 17-year old one.
The Selangor State Government also owns 25 per cent of Genting Sanyen through PKNS. Why did 1MDB only purchase Genting’s stake but not benefit the Selangor public by purchasing PKNS’ share as well?
Furthermore, the first generation concessions for the IPPs are ending in 2016 and 2017. The Energy Commission has announced that any new deals will be more competitive for the IPPs. In addition, Genting has less than three years in its gas purchase agreement with Petronas. Thus any generous valuation for the IPPs does not make sense unless, contrary to the Energy Commission’s statement, there is to be a repeat of the lopsided IPP agreements of the past, at the expense of Petronas, TNB and the taxpayers.
1MDB describes itself as a strategic development company owned by the government. It must therefore answer the questions raised as to whether 1MDB pursued the IPP deals with the rakyat in mind or to benefit a small segment of their cronies.