Keppel in talks to invest in Johor, Pengerang power plant

Deal with Petronas on gas-fired plant could provide electricity for Singapore
Anita Gabriel Straits Times 3 Oct 12;

KEPPEL Corp is in talks with Malaysian oil giant Petronas to invest in a new gas-fired power plant in Johor that could supply electricity to Singapore.

The deal would be the first investment involving a Singapore firm in Malaysia's domestically dominated power sector.

The Straits Times understands that Keppel could acquire a 30 per cent stake in the 1,200MW plant, part of a much larger petroleum and petrochemical project earmarked for Pengerang at the tip of Johor state.

"Keppel is constantly evaluating opportunities where it is able to grow its businesses," said a company spokesman yesterday.

Malaysia's power sector is dominated by state-owned utility Tenaga Nasional and domestic private sector firms. Tenaga Nasional generates nearly half of the country's power with independent power producers supplying the rest.

The new plant will primarily be used to supply the electricity needs of the mammoth RM60 billion (S$24 billion) Refinery and Petrochemicals Development (Rapid) project being built by Petronas in Pengerang but it can also supply power to Malaysia and Singapore.

The Pengerang plant could be a test case for Malaysia's energy sector where gas, which fuels 60 per cent of its power, is grudgingly subsidised by Petronas.

Petronas has demanded that gas subsidies, which amount to RM19 billion a year, be scrapped but that would push up electricity prices, something the government is not willing to commit to, particularly in an election period.

"The key question is at what price would the electricity from the Pengerang plant be sold to the national grid (in Malaysia)," said a Malaysian-based power analyst.

Selling electricity to Singapore may be relatively less of an issue as the terms would be based on prevailing market rates but there are still questions. "Commercially speaking, how do you sell electricity from one plant at different rates (to Malaysia and Singapore)?" asked the analyst.

The Rapid project is part of an ambitious RM120 billion plan to turn the sleepy fishing village of Pengerang into a global petroleum and petrochemical hub.

Work on the Petronas-led project is expected to start by the middle of next year with completion in 2016.

At first glance, the development looms as a rival to Singapore's huge petroleum and petrochemical sector but the participation of Keppel suggests otherwise.

"Singapore can view Penger-ang as a threat or an opportunity. There are bigger opportunities if it chooses to embrace it," said an observer.

The Pengerang project faces serious socioeconomic hurdles, given the dislocation of thousands of villagers who are not appeased by the compensation offered by the Malaysian government.

Mounting protests led by opposition political parties could pose a stumbling block, particularly as the general election looms and Johor is viewed as a key battleground for the ruling Barisan Nasional.

"It's always hard to please everyone. It's up to the government to have the determination to push this project through and settle these local issues to attract investments," said a market watcher.