Too soon to celebrate TNB’s Bangladesh job

MIDF Research is positive on Tenaga Nasional Bhd’s (TNB) plans to develop a 1,320MW coal-fired power plant in Bangladesh but cautioned that the project could see further delay.

TNBIt noted that the project has been in the pipeline since 2012 when TNB was picked to partner Bangladesh Power Development Board (BPDB) to build the power plant in Cox’s Bazar, Bangladesh.

Back in 2012, TNB and BPDB proposed to build the plant on a 50:50 basis at a cost of US$2.5 billion (RM7.525 billion) but the project has not taken off since.

“On this note, we do not rule out the risk of further delay for this particular project,” MIDF Research analyst Izzat Esa said.

However, he said he was rather surprised with the latest involvement of Powertek, a wholly owned unit of 1Malaysia Development Bhd (1MDB), but positive of their participation as they have prior experience in Bangladesh.

Powertek, 1MDB’s biggest subsidiary, operates in Malaysia and in five other emerging markets, specifically Egypt, Bangladesh, UAE, Sri Lanka and Pakistan. In Bangladesh, Powertek is the largest independent power producer (IPP) with a 20% market share.

On Tuesday, TNB and Powertek signed a memorandum of understanding with BPDB for the development of the coal-fired power plant in Cox’s Bazar, Bangladesh.

Under the agreement, the parties will form a joint working team to conduct a feasibility study for the independent power project and eventually incorporate a joint venture company for the development, if deemed feasible.

The TNB-Powertek consortium will then sign a long-term power purchase agreement with BPDB for the sale and purchase of power from the project.

“We are positive on the news but we believe it is too premature to incorporate the project impact on TNB’s earnings.

“Furthermore, if the project materializes, its earnings contribution will only start to kick in after 2019,” he added.

AmResearch, meanwhile, was neutral on TNB investment in Bangladesh.

“We are cautious on Bangladesh’s uncertain sovereign risks, particularly given the group’s past unpleasant experience with the 235MW Liberty Power plant in Pakistan, which had previously made significant provisions for diminution in value, after encountering fuel supply and electricity offtake problems with the authorities,” its analyst Alex Goh said.

Liberty Power, a 72%-owned subsidiary of TNB in Pakistan owns and operates a 235MW gas-fired power plant in Sindh province. The plant had encountered fuel supply issues in the past which required significant impairments for its investment.

Goh pointed out that the cost of constructing the coal powered Cox Bazar plant was lower than TNB’s coal fired Project 3A plant in Manjung, Perak.

The Bangladesh plant costing an estimated RM6 billion translates to RM4.5 million per megawatt, which is 18% lower than Tenaga’s 1,000MW Project 3A’s cost of RM5.5 billion or RM5.5 million per megawatt.

He also noted that Bangladesh is amongst the lowest in the world in terms of energy consumption on per capita basis with an installed capacity of 10,289MW (47% of Malaysia’s 21,740MW) for a population of 156 million.

Goh also stated that there is no significant domestic coal production in Bangladesh, hence, the plant operator would need to import its fuel supply.

“While the equity stake for Tenaga in this power plant has not been ascertained yet, assuming a 40% stake, a 25-year power purchase agreement (PPA) and a project internal rate of return (IRR) of 12% translates to a net net present value accretion of RM1.4 billion or 2% of TNB’s current market capitalization,” he said.

He noted that any impact to earnings from this proposed plant, if it materialises, is beyond his forecast horizon as the plant is only scheduled to commence commercial operation in 2019.

HongLeong Investment Bank (HLIB) Research was also positive on TNB’s Bangladesh project as it marked another success of TNB to diversify into foreign countries for higher earnings growth potential.

“Depending on the technology used for the coal-fired power plant, we estimated the cost at about RM9 billion based on US$2 million per kilowatt. Based on IRR of about 12%, we expect the contribution from the new power plant to be RM540 million (RM9 bilionn/2 x 12%) or 10 sen/share to TNB valuation,” it said.

  • The Sun Daily.

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