• Sime Darby yesterday announced that its 75%-owned subsidiary Port Dickson Power Bhd (PDP) had on the same day begun arbitration proceedings against national utility company Tenaga Nasional Bhd at the Kuala Lumpur Regional Centre for Arbitration Rules.

• Sime Darby said the arbitration proceedings are in relation to the recovery of outstanding capacity and energy payments due to the adjustment of the Fixed Operating Rate (FOR) and Variable Operating Rate (VOR) for the period from February 1999 to November 2011, together with interests. It did not disclose the amounts.

• PDP is the owner of an electricity generating facility in Port Dickson, Negeri Sembilan, which comprises two blocks, each consisting of two 110-MW gas-fired (General Electric gas turbines) generating units. Malakoff Corp subsidiary Hypergentic Sdn Bhd holds the balance 25% stake in PDP. Prior to 2004, Tenaga had owned 20% of PDP.

• As part of the government’s private electricity generation programme, PDP had signed a 21-year PPA with Tenaga in December 1993, under which the latter would purchase not only the electricity generated but also the generating capacity.

• PDP supplies power to Tenaga for peaking and emergency requirements. The plant is incorporated with an Automatic Governor Control (AGC) which allows the TNB National Load Dispatch Centre in Kuala Lumpur to directly control the output of the power plant according to varying load demands.

• The PPA will last until January 2016, after which it would be allowed to lapse. This in line with agreements between the government and first-generation IPPs that were reached last year. PDP is among three IPPs whose PPAs will be allowed to lapse upon expiry, with no recourse to any extension.

• We are neutral on this latest development, and maintain a BUY on Sime Darby, with a target price of RM11.20/share, based on a sum-of parts valuation and an implied PE of 16x for FY13F.

Source: AmeSecurities