TNB faces RM332 million suit

Posted by SM Maulana


The NUR dispute – Still waiting for that light at the end of a long, dark tunnel.
When Abdullah Ahmad Badawi became Prime Minister in 2003, the Northern Utility Resources dispute was already a tired issue that should have been resolved earlier. In September 2004, the PM wrote to TNB saying that the government agreed with the valuation done by an accounting firm.

The shareholders of NUR regarded the letter as a “directive” to TNB.

But TNB never signed the sale-and-purchase agreement.

Did someone at TNB or Khazanah defy the PM’s “directive”?

The NUR-TNB dispute, already a decade old today, continues to add new players as the company is placed under receivership and the shareholders fight to stay in the game.

Now it has started to draw some adverse publicity offshore. Read the article (Tenaga faces RM332 million suit from 2 firms.

Tenaga faces RM332m suit from two firms

Companies allege the utility failed to abide by the terms of a 2004 arbitration

MALAYSIA’S national power utility Tenaga Nasional is facing a RM332 million (S$140 million) suit from two shareholders of an independent power producer for allegedly failing to abide by the terms of arbitration brokered by the government in 2004.

The pending litigation was disclosed in the 2004 accounts of Northern Utility Resources (NUR) which was only released on March 13 last year. NUR is an independent power producer – now under receivership – licensed in 1997 to supply and distribute electricity to plants in the Kulim Hi-Tech Park in northern Kedah state.

The accounts state that the suit was filed against Tenaga in July 2005 by Manfield Development and Jalinan Muhibbah, two private companies that collectively own 60 per cent of NUR.

Tenaga’s latest annual report, however, makes no specific mention of the suit although it was probably subsumed under a total of RM1.4 billion listed in the utility’s accounts as ‘contingent liabilities’.

No breakdown of the amount is provided, however. Even so, analysts close to Tenaga said that the utility viewed the suit as ‘a claim’ and nothing more.

The episode illustrates how the best-laid plans can come unstuck in the face of the Asian financial crisis. It could also spark questions about the sanctity of state-brokered arbitrations.

Indeed, according to the NUR accounts, this particular arbitration was first mooted by former premier Mahathir Mohamad and later endorsed by his successor Abdullah Ahmad Badawi.

Tenaga is a government-linked company that is owned by investment agency Khazanah Nasional which reports directly to the premier.

NUR is 40 per cent owned by Manfield and 20 per cent each by Jalinan, Tenaga and Khazanah. In 1997, it was given a licence to supply and distribute uninterrupted power to clients in the Kulim Hi-Tech Park, a decision, apparently, made by Dr Mahathir against the wishes of Tenaga, according to executives familiar with the matter.

The Asian crisis struck, causing at least four potential investors in Kulim to pull out. NUR scaled down its plant to 225 megawatts from 450 originally but, by 2000, it was facing excess supply amid a total debt of RM1.1 billion.

Meanwhile, both private companies also owed Khazanah RM130 million which was used to finance their equity portion of the project.

It had become clear that something had to be done by 2002 and prodded by the government, Tenaga first agreed to enter into a power purchase agreement with NUR. That failed and in February 2003, the government asked Tenaga to consider buying the two companies out.

According to the executives, Tenaga’s management offered both companies less than RM30 million for 60 per cent in NUR. The two firms baulked, because another valuation report by Babcock & Brown had pegged the shares at over RM550 million.

In July, Dr Mahathir proposed that the government arbitrate the matter and that an independent valuation be sought. A government panel comprising representatives from various agencies then picked accounting firm Anwarul, Azizan and Chew to do the valuation, the executives said. According to the accounts, all the parties including Tenaga agreed. The accounting firm finally valued the 60 per cent in NUR at RM332 million, according to the executives.

In September 2004, Mr Abdullah wrote to Tenaga saying that the government agreed with the valuation done by the accounting firm, according to the accounts. But Tenaga never signed the sale-and-purchase agreement, the executives said.

It isn’t clear why, but some quarters maintain that Khazanah, Tenaga’s controlling shareholder, objected to having the utility pay a premium to buy out the two companies.

Three months later, the banks pulled the plug on NUR and placed the company under receivership with Ernst & Young. In July, both the private companies sued Tenaga for the RM332 million insisting on ‘specific performance’. At the same time, Khazanah has also sued the two companies for its RM130 million.

Even so, there are still businessmen who think the business is viable despite a total debt close to RM1.6 billion. Two weeks ago, businessman Tengku Zafrul Tengku Aziz proposed to the receivers that he be allowed to buy NUR’s operating assets for either RM800 million in cash or RM1.5 billion over 20-odd years.


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