By YAP LENG KUEN lengkuen@thestar.com.my
SOME may hail Bakun Dam as an engineering feat, but more people associate the project with its troubled past and the question marks about its future impact on the Sarawak economy.
As it is, the 2,400MW hydroelectric dam may turn out to be a nightmare for those who have struggled to bring it to completion. And there is the very real possibility of the state suffering the expensive problem of a power glut when the 944MW Murum Dam comes onstream by 2013.
At current estimates, the combined cost of the two dams is RM10.8bil. Their total installed capacity will come to 3,344MW, while firm power (that is power that will be available for use at any time) will be about 2,420MW. Even without both dams, Sarawak’s capacity to generate electricity (1,300MW) already exceeds the peak demand of 1,100MW.
The proponents of the dam projects say there will be no surplus capacity problem when the plans for the Sarawak Corridor for Renewable Energy (Score) become reality, and these include energy-guzzling enterprises such as aluminium smelting and solar panel manufacturing (see also page 28).
However, considering that none of these major proposed Score initatives appears ready to take off soon, it is hard to share such optimism. A lot has to happen before we can see a power offtake level in Sarawak that will justify the huge amount of funds that has been and will be poured into the two dam projects.
These giant steel gates are 21m high and weigh 300 tonnes each. They will keep the flooded water in the Bakun Dam reservoir that will be 210m deep and big as the island of Singapore. — Pic by STEPHEN THEN How to
Meanwhile, an immediate challenge is to sort out the commercial arrangements for the power from Bakun. As the project cost and tariff rates are being finalised, the two negotiating parties – Sarawak Hidro Sdn Bhd (the developer, owner and operator of the project) and Sarawak Energy Bhd (the sole buyer of the power produced) – appear to be at loggerheads over what constitutes the appropriate price levels.
Counting the costs
At the heart of the standoff is the need for the federal government to make a crucial decision. It finds itself in this position after taking over the construction of the RM7.3bil project in 1998 following major financial woes faced by the original developer, Ekran Bhd, which is controlled by Sarawak tycoon Tan Sri Ting Pek Khiing.
With the Sarawak government pressing for a lower bill, the federal government has to make a tough call on how much to cut. At the moment, the instruction is to bill in full.
“The power has to be sold to Sarawak Energy,’’ Sarawak Hidro chairman Tan Sri Izzuddin Dali tells StarBizWeek. “The sooner we do that, the faster we can recoup some of our costs and interest payments.’’
Sarawak Hidro, a wholly-owned subsidiary of the Minister of Finance Inc, has its own bills to pay. Salaries and consultancy fees come up to RM1.3mil every month. After impoundment of the dam and commissioning of the turbines, operation and maintenance costs will amount to about RM13mil per year.
Development costs for the six to seven packages of the Bakun Dam have hit RM4.4bil and interest payments during the construction period is estimated to be RM1.1bil. In addition, when the federal government took the project off Ekran’s hands, it paid the company RM950mil, while resettlement costs have exceeded RM500mil.
Starting next year, a delay in impoundment and supply of power – the first turbine can be operated seven months after flooding – will result in revenue foregone of RM10mil per month.
Tan Sri Izzuddin Dali ... ‘The sooner we sell the power, the faster we can recoup some of our costs and interest payments.’
There must be a lot of hand wringing going on at Sarawak Hidro. The dam met the technical requirements for flooding in April, but the State government has yet to give the nod for the impoundment.
Sarawak Hidro is not about to play a losing game even though it is keen to sell off the power as soon as possible. “We should negotiate. Why should we sell at a loss?’’ asks Izzuddin.
“The state needs Bakun to average down its cost of generation. Based on estimates obtained from industry sources and Sarawak Energy’s annual report for 2008, the average cost of generation is about 17 sen per kWh. With Bakun, the cost can be reduced substantially.”
He adds: “At the same time, Sarawak Hidro needs to pay back its debt (of RM5.75bil to the Employees Provident Fund and the Pensions Fund) plus provide a reasonable rate of return (about 8.5%) to the Government. We think there are sufficient incentives at both ends to do the deal.’’
Datuk Seri Peter Chin ... ‘Both parties have to be pragmatic.’
Although his ministry has no jurisdiction over Sarawak, Energy, Green Technology and Water Minister Datuk Seri Peter Chin offers an assessment of the situation: “Both parties have to be pragmatic. They have gone through thick and thin to develop the dam. This will help Sarawak industrialise faster, while some form of tariff should be worked out to equalise the investments put in.’’
At the negotiation table
The haggling over Bakun is a test of stamina, will and skill. Each side keeps an eye on how much the other will make over the 30-year concession period. Sarawak Energy has laid its first card on the table by asking the federal government to exclude compensation and resettlement costs from the total bill.
Sarawak Hidro has asked the state to drop the water levy of one sen per kWh (which comes to about RM150mil per year) of electricity generated. Spread over three decades, the loss in water levy to Sarawak can be substantial. However, the matter is still being discussed, with Sarawak Hidro relying on the argument that dams like Pergau and Kenyir pay only about half sen per kWh.
Tan Sri Dr George Chan ... ‘There are two very interested smelters.’
The Bakun Dam is capable of producing 15.5 gigawatt hours of firm power per year.
During initial talks, Sarawak Hidro offered to sell its electricity at slightly below 10 sen per kWh, a rate that Sarawak Energy had balked at. Based on a tariff of 9 sen per kWh, Sarawak Hidro is expected to receive RM1.4bil per year, after taking into account the water levy payable to the state. This works out to a revenue of RM42bil over 30 years.
Not that Sarawak Energy is at the losing end if it pays 9 sen per kWh. Assuming that it can sell all the power at 15 sen per kWh to industries and consumers, it gets RM2.3bil per year, which amounts to RM70bil over 30 years. Different rates are charged for different users, but Sarawak is targeting energy-intensive industries to take up the bulk of the power.
Sarawak Energy is said to have verbally indicated that it wants to buy power at 5 sen per kWh, which Sarawak Hidro deems as ridiculously low. Apparently, the reasoning behind this is that the Federal Government should facilitate the development in the state and therefore, the tariff should be subsidised.
“They want 5 sen? They have to show us how they derive that figure,’’ counters Izzuddin.
There have been news reports that say Sarawak Energy is willing to pay 8 sen per kWh, while the aluminium smelters are only willing to pay 4 US cents per kWh (13.6 sen based on an exchange rate of RM3.40 to the US dollar).
The smelters have yet to make a commitment to set up shop in Sarawak, although Sarawak Deputy Chief Minister Tan Sri Dr George Chan, who is also the state’s Industrial Development Minister, is confident they will do so if they are given attractive power rates.
“There are two very interested smelters – Rio Tinto and Smelter Asia. Two more are likely to come on board. They are knocking at our doors and I am very confident they will commit,’’ he tells StarBizWeek by phone.
The dam awaits
Smelters insist on better rates as they operate on a take-or-pay basis, which means they have to pay a certain fixed percentage for the constant supply of power.
Industries using smaller amounts of power, as in the poly silicon, ferro silicon and solar panel industries, are also said to be coming up under the Score project. Most of the large, energy-intensive industries may materialise only in three to five years’ time. In fact, power demand from Score is initially projected at 500MW in 2012, rising to about 2,600MW by 2015.
What is Sarawak Hidro to do in the interim, apart from commissioning its eight turbines on a staggered basis and hoping for the projections to become reality?
Some power from Bakun will come in handy when some of the existing power plants in Sarawak are shut down for maintenance. Obviously, that cannot be a long-term solution.
These gigantic spillways are built on top of the Bakun Dam in central Sarawak to allow excess water from the 210m deep reservoir to escape during floods. These gates are 60m tall.
The concern is that initially, the state may only be able to use an additional 200MW per year, with 50MW representing organic growth in demand.
Of course, Sarawak Hidro may choose not to operate some of the turbines if there is insufficient demand. However, it will be uneconomical as the same amount of water is required to run one or all of the turbines. So, this too is not the best solution.
Considering the vast amount of money, time and effort sunk into it, the Bakun Dam deserves higher operating levels. “The state should facilitate the construction of two submarine cables to transmit 1,600MW to the peninsula, where the power can be sold at higher rates,’’ says an industry observer.
He asks: “Why should all the power be sold cheaply as a carrot for smelters? In certain parts of the world, pollution is still an issue with the smelting industry. Or why should we be planning for nuclear energy when we have hydropower as a cheaper source?’’
Others point out that firm commitments to take up electricity from Bakun are vital, and that other avenues, for example, the relocation of certain industries from Peninsular Malaysia, should be looked into.
With all the political pressure, it will not be a surprise if the federal government accedes to the state’s “demand’’ for cheap power. Now that the plan for the submarine cable from Bakun to the peninsula has been scrapped, Sarawak has the upper edge as the sole buyer of the dam’s electricity.
Other possibilities to resolve the impasse include the sale of the dam itself. Sarawak Energy is among the interested parties.
While some people, including Sarawak Hidro’s Izzuddin, maintain that the proper way to move forward is to secure the best price via negotiations, others feel that it is better not to wait. Instead, the federal government should cut losses if a reasonable offer is made.
Sarawak Energy has indicated that it wants to buy over the project at RM6bil. It is estimated that by the time the delays in impoundment and power supply to the state are ironed out, the project cost may swell to RM8bil.
Some view this talk of a disposal of the dam with skepticism, as the previous bid by the people behind Smelter Asia to buy the dam failed to materialise and only served to disrupt the then ongoing power purchase agreement talks.
If pushed into a corner without a power purchase agreement, will Sarawak Hidro opt not to operate the turbines and allow the water to flow back into the river? That will be the worst-case scenario and the most drastic way to cut costs. If that happens, it will be a very poor solution as the asset remains unutilised and the sheer waste will tarnish the country’s image as well as that of Sarawak.
