Kapar Energy Ventures Sdn Bhd - 2007

MARC has reaffirmed Kapar Energy Ventures Sdn Bhd’s (KEV) RM3,402 million Bai’ Bithaman Ajil Islamic Debt Securities (BaIDS) rating at AA+_ID.  The rating carries a stable outlook.  The rating principally reflects the creditworthiness of Tenaga Nasional Bhd (TNB), its off-taker under a 25-year power purchase agreement (PPA), and as majority shareholder.  Under the PPA, KEV receives monthly capacity payments (CP) that are designed to cover fixed operating costs, debt service and provides a return to shareholders.  Notwithstanding challenges faced in the operation and maintenance of the generating facility of KEV which resulted in reduction of CP in FY2006 and for the 10 months ended June 2007, MARC takes comfort that KEV is a subsidiary of TNB and that TNB has pledged to maintain at least 51% shareholding in KEV throughout the tenure of the BaIDS.  TNB carries an issuer rating of AA+ from MARC, underpinned by its near-monopolistic position in electricity transmission and distribution, majority government ownership, and implicit government support. 

KEV is a special purpose entity established to acquire the Stesen Janaelektrik Sultan Salahuddin Abdul Aziz Shah or Kapar Power Station (KPS).  At present, KEV’s shareholders comprise TNB (60%) and Malakoff Corporation Bhd (40%).

KPS is currently the country’s largest multi-fuel thermal power station with 2,420 MW nominal capacity, operating on three primary fuels, namely coal, natural gas and oil. Standby fuel, distillate, is also used for gas turbines for back-up purposes.  Fuel supply risk is mitigated by long term supply agreements entered with TNB and its wholly-owned subsidiary, TNB Fuel Services Sdn Bhd (TFS).  Fuel, the single largest cost component in generating electricity, is a pass-through cost to TNB. 

In FY2006, revenue increased by 6.5% to RM1.82 billion.  However, operating profit was lower at RM495.9 million due to higher operating and maintenance costs incurred during the period.  CP constituted 37.2% of the of the total revenue in FY2006 amounted to RM556.1 million, or 10% lower than CP in the previous corresponding period as a result of lower availability of one of its generating units.  The reduction in CP was due to the outages of Units 5 and 6 under Generating Facility 3 which resulted in the rolling average unplanned outage rate (UOR) target of 6% for the period July to December FY2006 not being achieved (Actual : 34.2%).  Energy payment (EP) which constituted 62.8% of the total revenue in FY2006, increased by 30.1% to RM1.15 billion on account of higher fuel cost.

Based on the unaudited 10 months interim financial results ended 30 June 2007, EP contributed 57.3% of the total revenue, a reduction from 62.8% due to lower demand from TNB.  CP decreased by 2.07% arising from lower availability.  Some comfort is derived from the evaluation of the independent consultant that the failure was due to design error and will not recur subsequent to repairs.  The cost of repair was borne by the original equipment manufacturer, Ishikawajima-Harima Heavy Industries Co. Ltd.  Notwithstanding the operating challenges, KEV complied with its minimum FSCR and Debt-to-Equity ratio covenants of 1.3 times and 80:20 cap, respectively for the last calculation date on 7^th of July, 2007.