MARC’s AA+ID ratings on Kapar Energy Venture’s (KEV) RM3,402.0 million Bai’ Bithaman Ajil Islamic Debt Securities (BaIDS) remains on MARCWatch Negative pending completion of our on-going rating review. The BaIDS had been placed on MARCWatch Negative on July 22, 2008 due to concerns arising from the continued failure of Kapar Power Station (KPS) to maintain acceptable rolling average unplanned outage rate (UOR) levels as defined in its Power Purchase Agreement (PPA) at three of its four generating facilities at its 2,420 MW KPS. KEV needs to improve plant availability in order to address the decline in its revenue generation and debt protection measures.

KEV, a special purpose entity, owns KPS, the multi-fuel thermal power station strategically located in Kapar, Selangor, which serves the highest base load electricity consuming areas in the country, i.e. Klang Valley and Putrajaya. KEV’s offtaker, Tenaga Nasional Berhad, owns 60% of the former and is required to maintain a minimum 51% shareholding in KEV for the tenure of the BaIDS under the terms of the issuance. Since September 2007, KPS has encountered intermittent failures in its boiler and gas turbine operations which have negatively impacted KEV’s operating performance.

On a positive note, the withdrawal of the Windfall Profit Levy (Electricity) Order 2008 by the government, has eased the downward rating pressure on KEV’s debt. Previously, MARC had opined that the windfall tax would pose an additional challenge to KEV, in addition to its unresolved technical difficulties, had it remained in effect for an extended period.

The outcome of MARC's review and resolution of the MARCWatch Negative will depend on progress made towards addressing KEV's operational issues and/or near-term developments which could offset KEV's operational risk.

Contacts:
Ahmad Zaidi Basri 03-2090 2268 / zaidi@marc.com.my;
Rustam Apandi Jamaludin 03-2090 2250 / rustam@marc.com.my