Tenaga Nasional - Project 4A application to be submitted by March 15 BUY, 4 Mar 2015

According to various media reports today, some uncertainties have been cast over Tenaga Nasional Bhd’s participation in Project 4A following the delay in the submission of its project documents to the EC.

It was earlier reported that Tenaga had applied for a two-month extension to submit its application and that it was due to a disagreement over the shareholding structure. However, we now understand that it may also be delayed for due diligence in relation to its costs and the submission to the EC will be done by March 15.

To recap, Project 4A, which was awarded to the Tenaga-SIPP Energy-YTL Power consortium in May 2014 on a direct negotiation basis, involves the construction of a 1,000MW to 1,400MW gas-fired power plant in Johor. YTL Power had, however, withdrawn from the project.

In its award of the contract to the consortium, the EC had specified three conditions, namely:- (1) that the levelised tariff must be comparable to 1,071MW Prai plant; (2) engineering, procurement and construction provider must be selected through competitive bid for a proven gas turbine technology; and (3) technical and commercial proposals have to be approved by EC.

The new plant under Project 4A will reportedly cost RM8bil-RM13bil. In comparison, the gas-fired Prai power plant, which is set to commence operations in March 2016, is estimated to cost RM2.5bil. Its levelised tariff is set at 34.7sen/kWh.

Pending further developments, we maintain our BUY recommendation on Tenaga with an unchanged DCF-derived fair value of RM17.00/share.

We do not believe that Tenaga’s setback will lead to a delay in commercial operations as it only takes 32 months to power up a gas plant and the last day for financial close is in Oct. Operations at the Johor power plant are expected to commence in 2018

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