MARC has affirmed the rating of Kapar Energy Ventures Sdn Bhd’s (KEV) RM3,402 million Bai Bithaman Ajil Islamic Debt Securities (BaIDS) at AA+ID. The rating reflects the project’s stable and predictable cash flow supported by the contracted capacity payments as well as the credit strength of the off-taker cum majority shareholder, Tenaga Nasional Bhd (TNB). TNB carries an issuer rating of AA+ from MARC reflecting the utility’s near-monopolistic position in the transmission and distribution of electricity and majority government ownership.

KEV is a special purpose entity established to acquire the Stesen Janaelektrik Sultan Salahuddin Abdul Aziz Shah or Kapar Power Station (KPS). KEV’s shareholders are TNB with a 60% stake whilst Malakoff Berhad (Malakoff) holds the remaining shares. As at 30 June 2005, the issued and paid-up capital of KEV is RM2.0 million.

KPS is a multi-fuel thermal power station with 2,420 MW nominal capacities (four Generating Facilities), operating on three primary fuels, namely coal, natural gas and oil and a standby fuel, distillate, for the gas turbines. The IPP Licence granted to KEV came into force on 1 July 2004 and shall expire 25 years thereafter.

KEV’s revenue is derived from the capacity and energy payments received from TNB. On average, capacity payment (CP) constitutes 48.6% of the total revenue, forming a stable stream of cashflow, since under the Power Purchase Agreement (PPA) CP is guaranteed if all the Generating Facilities (GF) maintain the average availability required. CPs are sufficient to cover KEV’s fixed operating costs, principal and interest payments. Meanwhile, energy payment (EP) is dependent on the sale of electrical energy which hinges on the demand from TNB to dispatch from this plant. EPs are designed to cover fuel costs and variable costs associated with energy production.

Fuel supply risk is mitigated by the long term supply agreements entered with TNB and its subsidiary, TNB Fuel Services Sdn Bhd (TFS). Fuel is the single largest cost component and represents a pass-through cost to TNB. That aside, MARC takes comfort that KEV is a subsidiary of TNB and TNB has pledged to maintain at least 51% shareholding in KEV throughout the tenure of the BaIDS. Profitability and future cashflows are projected to be steady during the tenure of the BaIDS driven by the contracted CP and stable operating costs.

The cash trap mechanism present in the payment waterfall and restriction on distribution serve to minimize cashflow leakages. The requirement to maintain a minimum amount equivalent to the next six months principal and profit payments (either in the Finance Payment Account or Finance Service Reserve Account) at all times also provides a buffer to cover any shortfall in operating cashflows to meet the debt obligations.

During the first year of stabilisation period, despite the technical problems common to all newly rehabilitated plants, the plant’s performance is better than expectations as reflected in the lower unplanned outage rate (UOR), better heat rate and higher net available capacity which resulted in the favourable financial performance.