KUCHING: The cancellation of the Sandakan combined cycle gas turbine (CCGT) was not entirely a surprise, the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) opined in its power sector update recently.
The 300-megawatt (MW) combined gas engine power plant project by Sabah Development Energy (Sandakan) Sdn Bhd (Sabah Development Energy) and SM Hydro Energy Sdn Bhd (SM Hydro Energy) at the Palm Oil Industrial Cluster (POIC) in Sandakan was among the four Independent Power Producers (IPP) projects which were cancelled by the government last week.
MIDF Research recapped that in February 2017, Ranhill Holdings Bhd (Ranhill), via wholly-owned SM Hydro Energy, which has a 30 per cent stake in a consortium (another 70 per cent owned by Sabah Development Energy, a company ultimately owned by Sabah State Government) received a Conditional Letter of Award from the Energy Commission (EC) to develop a 300MW CCGT plant in Sandakan, East Sabah.
The research arm noted that the consortium was also instructed to commence negotiations with Petroliam Nasional Bhd (Petronas) and the company identified by the Government to develop the Trans-Sabah Gas Pipeline (now cancelled) to ascertain terms and conditions of gas supply for the project.
“Sandakan CCGT was originally intended to partly address the severe power under-capacity in East Sabah,” MIDF Research said.
“The change in Government brought uncertainty surrounding the project as the new Ministry of Energy, Science, Technology, Environment and Climate Change (MESTECC) Minister instead prefers to strengthen the West-to-East grid to enable a more efficient supply of power from West (oversupplied) to East Sabah (undersupplied) – current 275 kilovolt (KV) lines are only able to dispatch 216MW due to constraints of existing transmission tower ratings.
“The grid upgrade (targeted to complete end-2019 involving Segaliud-Dam Road-Kalumpang transmission) will enable an additional 200MW to be dispatched from West Sabah.
“On top of this a 275KV Southern link transmission (Sipitang-Upper Padas-Kalumpang-Tawau) will be constructed by 2024 which will enable an additional 600MW to be dispatched from West Sabah.”
It added that the extension of the IBR framework to include Sabah, as announced in the recent 11th Malaysia Plan (11MP) Mid-Term Review recently, should facilitate the development of the enhanced West-to-East Sabah grid. This has been estimated to cost over RM2 billion.
Given uncertainties surrounding the Sandakan CCGT project, MIDF Research had already conservatively excluded Sandakan CCGT from its forecasts and valuations for Ranhill.
The stock’s current target price was at RM1.15 per share, as of last Friday.
MIDF Research also highlighted that despite plans to upgrade the grid, the load centres in Sabah is heavily lopsided to the West and that East Sabah might still require baseload plants to stabilise the system as a whole.
“Additionally, the more expensive diesel and fuel oil plants are expected to be taken out of the system upon expiry, the last diesel independent power producer (IPP) being the 60MW Stratavest Libaran plant end-2019.
“Meanwhile, Sabah Electricity Sdn Bhd (SESB)-owned diesel plants will only be used as peaking plants going forward.”
The research arm further highlighted that there is a proposal to break up the initial plan for the Sandakan 300MW CCGT into three equal load centres (3x100MW) in Sandakan-Lahad Datu-Tawau to better distribute the load and enable better system management in the case of outages.
“The proposal is subject to final decision by MESTECC, Energy Commission (EC), SESB and the Sabah State Government. This is especially if the current planned 180MW Upper Padas hydro project faces stumbling blocks or cancellation.
“On top of this, Ranhill’s 27 per cent-owned 30MW geothermal development in East Sabah is targeted to come on-stream in financial year 2020 forecast (FY20F).”