- StarBiz reported today that the government has awarded a short-term extension to a few independent power producers (IPPs) through a competitive bidding process.

- The winners of the extensions are YTL Power International Bhd (YTLP) and Malakoff Bhd. The contracts have been renewed for about three years.

- According to Energy Commission CEO Datuk Ahmad Fauzi Hasan, YTLP was given an extension of two years and 10 months from March 2016 to Dec 2018, with a capacity of 585MW.

- This is not surprising as YTLP had disclosed in its last quarterly notes that terms and conditions for the new power purchase agreement (PPA) are currently being discussed. This is for the Paka plant which has a total capacity of 780MW.

- Recall that Tenaga Nasional Bhd (TNB) had said the PPAs for the Paka and Pasir Gudang plants (390MW) had expired on Sept 30. Hence, the two plants are no longer exporting power to the grid effective Oct 1.

- Based on reports, YTLP are currently finalising land issues with TNB as well as a gas supply agreement in order to effect the extension.

- The other IPPs that were extended include 1MDB’s Powertek Bhd (three years from March 2016 to Dec 2019), and Malakoff’s Port Dickson Power Sdn Bhd (three years from Jan 2016 to Jan 2019), said Ahmad Fauzi. Recall that these IPPs did not get their PPAs extended in the previous round of negotiations.

- Extensions awarded in the previous round were for Kuala Langat Power Plant, Segari Energy Ventures, TNB Pasir Gudang and Connaught Bridge power station.

- We maintain our numbers for Malakoff and YTLP pending clarity. Note that the capacity for YTLP’s extension is half of Paka and Pasir Gudang’s previous total capacity of 1170MW. Factoring this, the extension only contributes to 2% of YTL’s total SOP. We have a HOLD call for YTLP with a fair value of RM1.52/share (under review). Our BUY call on Malakoff (fair value: RM2.10/share) remains.

Source: AmeSecurities Research - 8 Oct 2015