After four postponements, the tabling of the 12MP on 27 September 2021 did not disappoint when it came to the exceptionally high RM400 billion headline development expenditure allocation. I would like to highlight some of the key points from the 12MP could potentially benefiting Ranhill.

Water Sector

Following the 12MP that was being announced in September-2021, special mention was made regarding the need for a comprehensive transformation of the water sector to ensure security and sustainability through the accelerated adoption of Integrated Water Resources Management (IWRM) under Theme 3: Advancing Sustainability GC9.

• Within the water utility sector, the Water Sector Transformation 2040 has been introduced to address longstanding issues such as uncoordinated and weak collaboration between the Federal Government, state governments and local authorities.
• Adoption of IWRM to improve water supply coverage and services as well as management of the natural resource.
• Phase 1 (2021-2025) of Water Sector Transformation 2040 focuses on accelerating the adoption of IWRM, which lays the foundation to become the hub of the regional water industry by 2040. While I think this is positive for the sector over the long term, the crafting of a well-balanced tariff setting mechanism remains key in ensuring that the sector is financially self-sustained.
• Among key measures and targets are MYR25.8b water infrastructure projects under 12MP and 25% non-revenue water level in 2025 (2020: 36.4%)
• Establish an integrated centre for water data and research, development, commercialisation, and innovation (R&D&C&I) to improve the governance of water.
• Ranhill Water Services Sdn Bhd (“RWS”) is one of the largest NRW Management specialists and Water Service Provider in the region could offer its expertise and benefit from the budget allocated for water infrastructure projects
• Ranhill has also expressed its interest to participate in the provision of water services in other states ever since the implementation of the Water Services Industry Act 2006 and 2009.
• They previously expressed interest in various states; however, the decision-making still belongs to the state government. Besides, they continue to be in touch with various states and hope any of the states will consider the interest.

Energy Sector

The target of 31% RE capacity mix by 2025

• The 31% RE capacity mix target by 2025 is a continuation of the current policy which requires the build-up of 8531MW of RE capacity.
• 1905MW of this is already operational and another 3295MW committed through past LSS and FiT (Feed-in-Tariff) program awards. Existing large hydros meanwhile, contributes 2153MW to the target. This leaves another 1178MW required to hit the 2025 RE target, of which 1098MW (93%) is expected to come from solar installations, with the remaining to come from non-solar sources.
• I think the majority of the remaining 1098MW target of new solar capacity to be offered in subsequent LSS and NEM (Net Energy Metering) cycles which Ranhill might be one of the key beneficiaries since Ranhill has exposure or plans to increase exposure to RE generation and also recently shortlisted for a 50MW package of the LSS4 at Batang Padang, Perak.

Construction of a new power plant for East Coast of Sabah

• 12MP entails a plan to construct a new power plant to address the power under-capacity in the East Coast of Sabah, which is predominantly powered by expensive diesel and fuel oil-based power plants
• Ranhill, being one of the key players in the Sabah power generation sector via its existing two CCGT plants, stands a good chance to participate in it.

Plant-up of 3441MW CCGT capacity by 2025

• New gas-fired power plants with a total capacity of 3,441MW will be commissioned in Peninsular Malaysia to replace power plants that will be decommissioned
• Ranhill will be one of the potential contenders given its strong past track record in developing and operating large-scale CCGT plants.

Carbon Pricing Plans

• Malaysia is going to introduce a form of ‘penalty’ for carbon emission, thereby creating demand for carbon offsets
• There are essentially two main types of carbon pricing currently: (1) Carbon tax, (2) Emissions trading scheme (ETS)
• In an ETS system, an annual allowance of carbon emission is either allocated free or auctioned out by the Government to industry players. Those that underutilize the carbon emission allowances are free to sell these as carbon credits to players that exceed their annual allowance
• RE asset owners such as Ranhill could potentially benefit from additional income stream via the sale of carbon credits.

Engineering Sector

Construction

• The Government will continue to operate with limited fiscal space to launch new high-impact mega development projects in 2022 but expects a turnaround in 2023.
• A new funding model for mega infrastructure projects "Public Private Partnership 3.0" has been introduced and projects to be implemented under this model shall be revealed in mid-2022.
• In 2022, it will focus on the progress of ongoing contracts that have been disrupted by the Covid-19 pandemic, such as the Klang Valley Double Tracking (Phase 1), Gemas–Johor Bahru Double Tracking, East Coast Rail Link (ECRL), Central Spine Road, Johor Bahru–Singapore Rapid Transit System, Pan Borneo Highway and Sarawak–Sabah Link Road
• Implementation of East Coast Rail Link (ECRL) project to be resumed, expected to be completed in 2026.
• Ranhill Bersekutu was one of the independent checking engineer for project ECRL earlier, and potentially Ranhill Bersekutu can continue to be appointed as independent checking engineer to tap into more infrastructure development under 12MP.

My personal opinion

• Looking at the 12MP initiatives for Water, Energy and Engineering Sector, it offered good growth opportunities for Ranhill to capitalize in the long term. Ranhill with the proven track record and experienced management, will definitely stand a higher chance of winning some of the abovementioned projects.
• Notwithstanding the earnings catalysts that I have previously mentioned in my earlier post, these initiatives from 12MP will definitely enhance the prospects of Ranhill and bringing Ranhill to a greater height.
• Let’s stay tuned and hope we could hear some good news from the management if any of the current earnings catalysts materialise and allow Ranhill to further tap into the initiatives of 12MP.