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INFORMATION MEMORANDUM
Joint Principal Advisers, Joint Lead Arrangers and Joint Lead Managers
RESPONSIBILITY STATEMENT
This Information Memorandum has been approved by TNB Northern Energy Berhad (“TNB
NE” or the “Issuer”), TNB Prai Sdn Bhd (“TNB Prai” or the “Project Company”) and
Tenaga Nasional Berhad (“TNB” or the “Guarantor”) and TNB NE, TNB Prai and TNB
accept full responsibility for the accuracy of the information contained in this Information
Memorandum. To the best of the knowledge and belief of the Issuer, Project Company and
Guarantor (having taken all reasonable care to ensure that such is the case), the information
contained in this Information Memorandum is in accordance with the facts and does not omit
anything likely to affect the import of such information. The Issuer, Project Company and
Guarantor, having made all reasonable enquiries, confirm that this Information
Memorandum contains all information which is material in the context of the Islamic
securities based on the Shariah principles of Ijarah and Wakalah (“Sukuk TNB NE”) of up to
RM2.0 billion in nominal value, that the information contained in this Information
Memorandum is true and accurate in all material respects and is not misleading, that the
opinions and intentions expressed in this Information Memorandum are honestly held and
that there are no other facts the omission of which would make this Information
Memorandum or any of such information or the expression of any such opinions or
intentions misleading.
E-DISCLAIMER
This Information Memorandum may be sent to you in an electronic form. Distribution of the
Information Memorandum to any persons, other than the person receiving the electronic
transmission from the Issuer, the Joint Principal Advisers, the Joint Lead Arrangers, the Joint
Lead Managers and their respective agents and any person retained to advise the person
receiving the electronic transmission with respect thereto, is unauthorised. The person
receiving the electronic transmission from the Issuer, the Joint Principal Advisers, the Joint
Lead Arrangers, and the Joint Lead Managers or their respective agents is prohibited from
disclosing the Information Memorandum, altering the contents of the Information
Memorandum or forwarding a copy of the Information Memorandum or any portion thereof
by electronic mail or otherwise to any person. By opening and accepting this electronic
transmission of the Information Memorandum, the recipient agrees to the foregoing.
The electronic transmission of the Information Memorandum is intended only for use by the
addressee name in the email and may contain legally privileged and/or confidential
information. If you are not the intended recipient of the e-mail, you are hereby notified that
any dissemination, distribution or copying of the email, and any attachments thereto, is
strictly prohibited. If you have received the email in error, please immediately notify by reply
email and permanently delete all copies of the e-mail and destroy all printouts of it.
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TNB Northern Energy Berhad Information Memorandum
This Information Memorandum may not be, in whole or in part, reproduced or used for any
other purpose, or shown, given, copied to or filed with any other person including, without
limitation, any government or regulatory authority except with the prior written consent of the
Issuer or as required under Malaysian laws, regulations or guidelines.
The Joint Principal Advisers, the Joint Lead Arrangers and the Joint Lead Managers have
not separately verified the information or data contained herein. Accordingly, no
representation, warranty or undertaking, express or implied, is made and no responsibility or
liability is accepted by the Joint Principal Advisers, the Joint Lead Arrangers and the Joint
Lead Managers or their respective affiliates as to the authenticity, origin, validity, accuracy or
completeness of the information or data contained in this Information Memorandum or any
other information provided by the Issuer in connection with the Sukuk TNB NE or the
distribution of this Information Memorandum.
The Joint Principal Advisers, the Joint Lead Arrangers and the Joint Lead Managers do not
accept any responsibility for the contents of this Information Memorandum or for any other
statement, made or purported to be made by the Joint Principal Advisers, the Joint Lead
Arrangers and the Joint Lead Managers or on their behalf in connection with the Issuer, TNB
Prai and TNB or the issue and offering of the Sukuk TNB NE. The Joint Principal Advisers,
the Joint Lead Arrangers and the Joint Lead Managers accordingly disclaim all and any
liability whether arising in tort or contract or otherwise (save as referred to the above) which
they might otherwise have in respect of this Information Memorandum or any such
statement. No representation, warranty or undertaking, express or implied, is given or
assumed by the Joint Principal Advisers, the Joint Lead Arrangers and the Joint Lead
Managers as to the authenticity, origin, validity, accuracy or completeness of such
information and data or that the information or data remains unchanged in any respect after
the relevant date shown in this Information Memorandum.
This Information Memorandum has not been and will not be made to comply with the laws of
any jurisdiction outside Malaysia (“Foreign Jurisdiction”), and has not been and will not be
lodged, registered or approved pursuant to or under any legislation of (or with or by any
regulatory authorities or other relevant bodies of) any Foreign Jurisdiction and it does not
constitute an offer of, or an invitation to subscribe for or purchase the Sukuk TNB NE or any
other securities of any kind by any party in any Foreign Jurisdiction. This Information
Memorandum is not and is not intended to be a prospectus. Unless otherwise specified in
this Information Memorandum, the information contained in this Information Memorandum is
correct as at the date hereof.
By accepting delivery of this Information Memorandum, each recipient agrees to the terms
upon which this Information Memorandum is provided to such recipient as set out in this
Information Memorandum, and further agrees and confirms that: (a) it will keep confidential
all of such information and data, (b) it is lawful for the recipient to receive this Information
Memorandum and to subscribe for or purchase the Sukuk TNB NE under all jurisdictions to
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TNB Northern Energy Berhad Information Memorandum
which the recipient is subject, (c) the recipient will comply with all the applicable laws in
connection with such subscription or purchase of the Sukuk TNB NE, (d) the Issuer, the Joint
Principal Advisers, the Joint Lead Arrangers, the Joint Lead Managers and their respective
directors, officers, employees, agents and professional advisers are not and will not be in
breach of the laws of any jurisdiction to which the recipient is subject as a result of such
subscription or purchase of the Sukuk TNB NE and they shall not have any responsibility or
liability in the event that such subscription or purchase of the Sukuk TNB NE is or shall
become unlawful, unenforceable, voidable or void, (e) it is aware that the Sukuk TNB NE can
only be transferred or otherwise disposed of in accordance with the relevant selling
restrictions and all applicable laws, (f) it has sufficient knowledge and experience in financial
and business matters to be capable of evaluating the merits and risks of subscribing for or
purchasing the Sukuk TNB NE and is able and prepared to bear the economic and financial
risks of investing in or holding the Sukuk TNB NE, (g) it is a person to whom an issue, offer
or invitation to subscribe or purchase the Sukuk TNB NE would constitute an excluded offer
or excluded issue as specified in Schedule 6 or Section 229(1)(b), and Schedule 7 or
Section 230(1)(b) read together with Schedule 9 or Section 257(3) of the Capital Markets
and Services Act 2007 (“CMSA”) (as amended from time to time) at issuance, and Schedule
6 or Section 229(1)(b) read together with Schedule 9 or Section 257(3) of the CMSA
thereafter.
This Information Memorandum is not intended to provide the basis of any credit or other
evaluation and should not be considered as a recommendation by the Issuer, the Joint
Principal Advisers, the Joint Lead Arrangers and the Joint Lead Managers that any recipient
of this Information Memorandum should purchase any of the Sukuk TNB NE. Each investor
contemplating purchasing any of the Sukuk TNB NE should make its own independent
investigation of the financial condition and affairs, and its own appraisal of the
creditworthiness, of the Issuer and the terms of the offering of the Sukuk TNB NE, including
the merits and risks involved.
ACKNOWLEDGMENT
The Issuer hereby acknowledges and authorises HSBC Amanah Malaysia Berhad
(Company No. 807705-X) and KAF Investment Bank Berhad (Company No. 20657-W) as
Joint Principal Advisers (the “Joint Principal Advisers”), Joint Lead Arrangers (the “Joint
Lead Arrangers”) and Joint Lead Managers (the “Joint Lead Managers”) to distribute this
Information Memorandum on a confidential basis to potential investors for the sole purpose
of assisting such investors to decide whether to subscribe for or purchase any Sukuk TNB
NE. At the point of issuance of the Sukuk TNB NE, the Sukuk TNB NE may not be offered,
sold or delivered, directly or indirectly, nor may any document or other material in connection
therewith be distributed in Malaysia other than to persons falling within any one of the
categories of persons specified in Schedule 6 (or Section 229(1)(b)) or Schedule 7 (or
Section 230(1)(b)) read together with Schedule 9 (or Section 257(3)) of the CMSA.
The issue, offer or invitation in relation to the Sukuk TNB NE in this Information
Memorandum is subject to the fulfilment of various conditions precedent including without
limitation the approval from the Securities Commission and each recipient of this Information
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TNB Northern Energy Berhad Information Memorandum
Memorandum acknowledges and agrees that the approval of the Securities Commission
shall not be taken to indicate that the Securities Commission recommends the subscription
or purchase of the Sukuk TNB NE.
The Securities Commission shall not be liable for any non-disclosure on the part of the
Issuer and assumes no responsibility for the correctness of any statements made or
opinions or reports expressed in this Information Memorandum.
Certain statements in this Information Memorandum are based on historical data, which may
not be reflective of future results, and others are forward-looking in nature, which are subject
to uncertainties and contingencies. All forward-looking statements are based on estimates
and assumptions made by the Issuer, Project Company and Guarantor. Although the Board
of Directors of the Issuer and the Project Company believe that these forward-looking
statements are reasonable, the statements are nevertheless subject to known and unknown
risks, uncertainties and other factors which may cause the actual results, performance or
achievements to differ materially from the future results, performance or achievements
expressed or implied in such forward-looking statements. In light of these and other
uncertainties, the inclusion of forward-looking statements in this Information Memorandum
should not be regarded as a representation or warranty by the Issuer or the Project
Company or its advisers or the Joint Lead Arrangers/ Joint Lead Managers that the plans
and objectives of the Issuer will be achieved.
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TNB Northern Energy Berhad Information Memorandum
CONFIDENTIALITY
This Information Memorandum and its contents are strictly confidential and the information
herein contained is given to the recipient strictly on the basis that the recipient shall ensure
the same remains confidential. Accordingly, this Information Memorandum and its contents,
or any information, which is made available to the recipient in connection with any further
enquiries, must be held in complete confidence.
In the event that there is any contravention of this confidentiality undertaking or there is
reasonable likelihood that this confidentiality undertaking may be contravened, each of the
Issuer, the Joint Principal Advisers, the Joint Lead Arrangers and the Joint Lead Managers
may, at its discretion, apply for any remedy available to the Issuer or the Joint Principal
Advisers, the Joint Lead Arrangers and/or the Joint Lead Managers (as the case maybe)
whether at law or equity, including without limitation, injunctions. Each of the Issuer and the
Joint Principal Advisers, the Joint Lead Arrangers and the Joint Lead Managers is entitled to
fully recover from the contravening party all costs, expenses and losses incurred and/or
suffered, in this regard. For the avoidance of doubt, it is hereby deemed that this
confidentiality undertaking shall be imposed upon the recipient, the recipient’s professional
advisers, directors, employees and any other persons who may receive this Information
Memorandum (or any part of it) from the recipient.
The recipient must return this Information Memorandum and all reproductions thereof
whether in whole or in part and any other information in connection therewith to the Joint
Principal Advisers, the Joint Lead Arrangers and the Joint Lead Managers promptly upon the
Joint Principal Advisers’, the Joint Lead Arrangers’, the Joint Lead Managers’ request,
unless that recipient provides proof of a written undertaking satisfactory to the Joint Principal
Advisers, the Joint Lead Arrangers and the Joint Lead Managers with respect to destroying
these documents as soon as reasonably practicable after the said request from the Joint
Principal Advisers, the Joint Lead Arrangers and the Joint Lead Managers.
INVESTORS SHOULD RELY ON THEIR OWN EVALUATION TO ASSESS THE MERITS AND
RISKS OF THE INVESTMENT. EACH SERIES OF THE SUKUK TNB NE WILL CARRY
DIFFERENT RISKS AND ALL POTENTIAL INVESTORS ARE STRONGLY ENCOURAGED TO
EVALUATE EACH SUKUK TNB NE SERIES ON ITS OWN MERIT.
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TABLE OF CONTENTS
CLAUSE PAGE NO.
The following definitions (in addition to the definitions contained in the body herein) shall
apply throughout this Information Memorandum except where the context otherwise
requires:
1 EXECUTIVE SUMMARY
1.1 Introduction
1.2 Issuer
TNB Prai was incorporated in Malaysia on 8 December 1999 under the Companies
Act, 1965. It was incorporated as a private company limited by shares with a
registered address at The Company Secretary’s Office, Level 2, Tenaga Nasional
Berhad Headquarters, No. 129, Jalan Bangsar, 59200 Kuala Lumpur.
1.4 Guarantor
TNB was incorporated in Malaysia on 12 July 1990 under the Companies Act, 1965.
It is a public company limited by shares with a registered address at The Company
Secretary’s Office, Level 2, Tenaga Nasional Berhad Headquarters, No. 129, Jalan
Bangsar, 59200 Kuala Lumpur.
In October 2012, TNB won a competitive bid to undertake the Project in response to
a RFP by the EC. TNB has assigned its wholly-owned subsidiary TNB Prai to
undertake the above development as the IPP. The generated electrical power will
then be purchased by the Off-Taker, pursuant to a PPA. Gas will be supplied under a
long-term GSA with Petronas.
The project site is a brown field site located in the area of Prai, Butterworth, Penang,
Malaysia which previously housed a 3 x 120 MW conventional oil-fired thermal power
plant which has been decommissioned and demolished in 2002.
(a) TNB NE is to act as financee and undertake the construction of the Project;
and
The sale of the Plant’s entire dependable capacity and net electrical output to the Off-
Taker is contracted under a 21-year Power Purchase Agreement. The Project
Company will undertake the role of the IPP.
The Issuer has engaged Samsung Engineering and Construction (M) Sdn Bhd,
backed by a parent company guarantee from Samsung C & T as the EPC Contractor
which will enter into a fixed-price, date-certain, turnkey EPC Contract with the Issuer.
The Project will be operated by TNB Remaco, a 100% subsidiary of TNB, under a
long-term OMA. The long-term maintenance services will be undertaken by the OEM
and Siemens pursuant to a LTMP.
The Project will be implemented utilising the Turnkey Structure which is set out in
further detail in section 5.4 below.
The Proposal
The Sukuk TNB NE will be secured. The Sukuk TNB NE will not be listed on Bursa
Malaysia Securities Berhad under its Exempt Regime, if the Issuer so decides.
The PTC for the Sukuk TNB NE are set out in section 6 of this Information
Memorandum.
Pursuant to the LLA entered into between TNB Prai and TNB as Land Lessor, the
Ijarah Project Lands (as defined in paragraph (2)(d) of the PTC) are leased to TNB
Prai for a duration of 24 years.
TNB Prai (in its capacity as grantor (“Grantor”)) shall enter into a grant of right
agreement (the “Grant of Right Agreement”) with TNB NE (in its capacity as
grantee (“Grantee”)) acting on behalf of subscribers of the Sukuk TNB NE
(“Sukukholders”), which term shall include any holders of the Sukuk TNB NE from
time to time, to grant the right over the use of the Ijarah Project Lands and to derive
the benefits of the usufruct rights over the use of the Ijarah Project Lands (the
“Asset”) for a duration of 24 years or such period as corresponding to the lease term
in the LLA with an option to be extendable for another 24 years subject to the PPA
term being extended as set out in the LLA (“Grant of Right”). The Grantee will make
a single upfront rental payment (“One-off Rental”) to the Grantor, which amount shall
be equivalent to the aggregate proceeds to be raised from the issuance of the Sukuk
TNB NE.
Pursuant to a Declaration of Trust, the Issuer (in its capacity as trustee) shall declare
a trust over the Asset including the rights, title, interest and benefit, present and
future, in and to under the Grant of Right Agreement, the Ijarah Lease Agreement (as
defined below), the Service Agency Agreement and the Purchase Undertaking (the
“Trust Asset”) for the benefit of the Sukukholders. The Issuer shall issue Sukuk
TNB NE to the Sukukholders which shall represent the Sukukholders’ undivided
proportionate beneficial ownership interest, rights and entitlements under the Trust
Asset. The Sukuk TNB NE proceeds shall be utilised to pay the Grantor the One-off
Rental under the Grant of Right Agreement.
Ijarah Lease
With the Asset held by the Issuer (in its capacity as Grantee), acting on behalf of the
Sukukholders, the Issuer (in its capacity as Lessor) shall enter into an Ijarah Lease
Agreement (the “Ijarah Lease Agreement”) with TNB Prai (as Lessee), to lease the
Asset to the Lessee, for a tenor corresponding to the maturity of the final series
(“Series”) of the Sukuk TNB NE, i.e. more than 4 years and not exceeding 23 years
(the “Lease Period”), in consideration for pre-determined Ijarah rental payments (the
“Lease Rentals”) which shall be the sum equivalent to the aggregate of all Periodic
Distribution Amounts (as defined below) to be channeled by the Issuer to the
Sukukholders as periodic distributions (“Periodic Distribution Amounts”) in
proportion to their sukukholdings on each periodic distribution date.
Under the Ijarah Lease Agreement, the Lessor shall be responsible for procuring
takaful/insurance in respect of the Asset, and the Lessee has acknowledged that the
Lessor may procure the Servicing Agent or its representative, in accordance with the
terms and conditions set out in the Service Agency Agreement, to perform or to
procure the payment of takaful/ insurance of the Asset under a Total Loss Event (as
defined below).
To the extent that the Servicing Agent incurs any cost and expenses in relation to the
procurement of takaful/insurance (the “Service Charge Amount”), the Lease
Rentals under the Ijarah Lease Agreement will provide for supplementary rental
(forming part of the rental payments), which will be an amount equal to the Service
Charge Amount incurred in the previous period (the “Supplementary Lease
Rentals”).
The Supplementary Lease Rentals due from the Lessee will be set off against the
obligation of the Issuer to pay the Service Charge Amount to the Servicing Agent.
Wakalah Arrangement
Pursuant to a Wakalah Agreement, TNB Prai shall appoint the Issuer as its agent
(“Wakeel”) for the provision of certain services for a wakalah fee of RM100.00, for a
period corresponding to the period for the construction and delivery of the Plant to
TNB Prai under the Turnkey Contract (referred to below). The Wakeel shall be
responsible to:
(a) Safe-keep the One-off Rental paid to TNB Prai as Grantor on a Wadiah
basis; and
(b) To make payments including (a) payment on behalf of TNB Prai (as lessee) of
the Lease Rentals to the Lessor; (b) any payments as set out paragraph
(2)(m) of the PTC (Details on Utilisation of Proceeds) items (1) to (3); and (c)
any other payments or cost in relation to and associated with the Project (as
defined below) comprising those set out in the said paragraph (2)(m) items (4)
to (6) of the PTC.
The Wakalah Agreement will cease upon the completed Plant being delivered to TNB
Prai under the Turnkey Contract. Thereafter, TNB Prai as Lessee will pay the Lease
Rentals directly to the Lessor, who in turn will channel to Sukukholders as Periodic
Distribution Amounts.
Pursuant to a Service Agency Agreement, the Issuer (in its capacity as Lessor),
acting on behalf of the Sukukholders, shall appoint TNB Prai as the “Servicing
Agent” for a servicing agent fee of RM100.00, throughout the Lease Period to carry
out certain of its obligations. The Servicing Agent shall be responsible to procure
takaful/insurance in respect of the Asset that provides sufficient proceeds for the
redemption of the Sukuk TNB NE under a Total Loss Event (as defined below). If the
takaful/insurance proceeds are insufficient to cover the redemption amount due
under the Sukuk TNB NE under a Total Loss Event (the “Redemption Amount”),
the Servicing Agent shall be liable to make good the difference. Any excess from the
takaful/insurance proceeds over the Redemption Amount, if any, shall be paid to the
Servicing Agent as an incentive fee.
“Total Loss Event” is the total loss or destruction of, or damage to the whole (and
not part only) of the Asset under the Grant of Right Agreement and Ijarah Lease
Agreement or any event or occurrence that renders the whole (and not part only) of
the Asset permanently unfit for any economic use and the repair or remedial work in
respect thereof is wholly uneconomical.
For the avoidance of doubt, “Redemption Amount” shall be equal to the nominal
value of all outstanding Sukuk TNB NE plus an amount equal to any Service Charge
Amount payable in respect of the Asset and provided that an amount equal to such
Service Charge Amount has not already been paid by way of Supplementary Lease
Rentals plus all accrued but unpaid Lease Rentals up to the date of the declaration of
the Total Loss Event.
Purchase Undertaking
TNB Prai (as the “Purchaser”) will grant a purchase undertaking (the “Purchase
Undertaking”) to the Issuer, whereby the Purchaser irrevocably undertakes to
purchase the proportionate undivided ownership in the remaining period of the Grant
of Right from the Sukukholders of the relevant series of the Sukuk TNB NE, upon
declaration of a Dissolution Event (save for a Dissolution Event due to a Total Loss
Event) or upon the Maturity Date whichever is earlier, at the relevant Exercise Price
(defined below). The proceeds therefrom shall be utilised by the Issuer for the
redemption of such relevant Sukuk TNB NE held by the Sukukholders which shall
then be cancelled.
(a) upon declaration of a Dissolution Event (save for a Dissolution Event due to a
Total Loss Event), the Exercise Price shall be equal to the nominal value of all
outstanding Sukuk TNB NE plus an amount equal to any Service Charge
Amount payable in respect of the Asset and provided that an amount equal to
such Service Charge Amount has not already been paid by way of
Supplementary Lease plus all accrued but unpaid Lease Rentals up to the
date of the declaration of the Dissolution Event; or
(b) upon maturity of the relevant series of the Sukuk TNB NE, the Exercise Price
shall be equal to the nominal value of such series of the Sukuk TNB NE plus
an amount equal to any Service Charge Amount payable in respect of the
Asset and provided that an amount equal to such Service Charge Amount
has not already been paid by way of Supplementary Lease Rentals plus all
accrued but unpaid Lease Rentals up to the date of maturity.
1.8.1 Rating
MARC has assigned preliminary rating of AAAIS to the Sukuk TNB NE.
The Sukuk TNB NE may only be offered, sold, transferred or otherwise disposed
directly or indirectly to a person to whom an offer or invitation to subscribe the Sukuk
TNB NE may be made and to whom the Sukuk TNB NE are issued would fall within
Schedule 6 or Section 229(1)(b) and Schedule 7 or Section 230(1)(b) read together
with Schedule 9 or Section 257(3) of the CMSA.
The Sukuk TNB NE may only be offered, sold, transferred or otherwise disposed
directly or indirectly to a person to whom an offer or invitation to purchase the Sukuk
TNB NE would fall within Schedule 6 or Section 229(1)(b) read together with
Schedule 9 or Section 257 of the CMSA.
2.1 Incorporation
The Issuer, TNB Prai and TNB are undertaking the financing, design, engineering,
procurement, construction, installation, testing, commissioning, ownership, operation
and maintenance of a 1071.43 MW combined cycle power plant in Prai, Pulau
Pinang, Malaysia.
The Issuer is a wholly owned subsidiary of the Project Company, who in turn, is
wholly owned by TNB.
The Issuer was set up to provide engineering services concerning electricity and
promote cooperation with any institutions or utilities inside or outside Malaysia in
connection with the generation, transmission, distribution, supply accumulation and
employment of electricity and is a contractor for power related projects. The Issuer is
also a special purpose vehicle incorporated principally to act as the funding vehicle to
part finance the Project as well as to procure the construction of the Project. Upon
completion, the Project is to be transferred to the Project Company who will
undertake the operation of the Project post completion. The Project Company has
signed a PPA with TNB who also acts as the sponsor.
As at 31 March 2013, the authorised share capital and the issued and fully paid-up
share capital of the Issuer are as follows:
No. (%)
The board of directors of the Issuer and their respective profiles as at 31 March 2013
are as follows:
3.1 Incorporation
TNB Prai was incorporated in Malaysia on 8 December 1999 under the Companies
Act, 1965. It was incorporated as a private company limited shares with a registered
address at The Company Secretary’s Office, Level 2, Tenaga Nasional Berhad
Headquarters, No. 129, Jalan Bangsar, 59200 Kuala Lumpur.
As at 31 March 2013, the authorised share capital and the issued and fully paid-up
share capital of the Project Company are as follows:
No. (%)
The board of directors of the Project Company and their respective profiles as at 31
March 2013 are as follows:
4.1 Incorporation
TNB is the largest electricity utility in Malaysia and a leading utility company in Asia.
Listed on the Main Board of Bursa Malaysia with almost RM87 billion in assets,
TNB’s more than 33,500 employees serve an estimated 8.3 million customers in
Peninsular Malaysia, Sabah and Labuan. TNB has been Keeping the Lights On in
Malaysia ever since it was set up as the Central Electricity Board in 1949, powering
national development by providing electricity.
In East Malaysia, TNB has 83% equity in SESB, which manages the Sabah grid.
Other than its core business, TNB has diversified into the manufacture of
transformers, high voltage switchgears and cables; the provision of professional
consultancy services; and architectural, civil, electrical engineering works and
services, repair and maintenance. TNB also engages in research and development,
property development and management services. Tapping into opportunities
available overseas, TNB is making inroads into emerging markets, focusing on the
Asia-Pacific, Middle East and North Africa regions.
As at 31 March 2013, the authorised share capital and the issued and fully paid-up
share capital of TNB are as follows:
The Board of directors of the Guarantor and their respective profiles as at 31 March
2013 are as follows:
The management team of the Guarantor and their respective profiles as at 31 March
2013 are as follows:
TNB’s core business lies in the generation, transmission and distribution of electricity.
Driven by its central role to ‘Keep the Lights On’, TNB has become a leading utilities
provider in the region.
The Generation Division is responsible for generating electricity at TNB’s six thermal
power stations and three hydroelectric power generating schemes in Peninsular
Malaysia. Together with two IPPs that it supports, namely the wholly-owned Sultan
Azlan Shah Power Station and the majority-owned Sultan Salahuddin Abdul Aziz
Shah Power Station, these plants make up 36.6% of the generation market share in
the peninsula. The Generation Division also owns TNB Liberty Power Limited of
Pakistan.
The Distribution Division is responsible for reliable and robust network delivery. It
plans, designs, constructs, operates and maintains the nation’s electricity supply
system to provide sufficient electricity to all segments of customers, as efficiently as
possible. The division also presents TNB’s frontline service, handling the Customer
Service Centres, collecting revenue, and operating the Call Management Centres
(TNB Careline 15454 and One Stop Engagement Centre 1-300-88-5454).
The proposed plant is a CCGT power plant with a capacity of 1071.43 MW. The
project site is a brown field site located in the area of Prai, Butterworth, Penang,
Malaysia (Figure 5.1) which previously housed an oil-fired power plant which has
been decommissioned and demolished. The nearest airport is the Bayan Lepas
International Airport, on Penang Island approximately 25 km away. The nearest
seaport and railway terminal is approximately 5km away. It is accessible by roads,
expressways and railway. There is an adjacent power generation facility, i.e. Prai
Power Plant, owned by Prai Power Sdn Bhd.
Project Site
The Project site is located within the western section of Prai Industrial Estate with its
west boundary bordering the sea (Figure 5.2). The Project site falls under the
jurisdiction of District of Seberang Perai Tengah, Majlis Perbandaran Seberang
Perai.
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The Project site is located on a brownfield site which used to house a 3x120 MW
conventional oil-fired thermal power plant. The latter has been decommissioned and
demolished with only some small structures and administration building remaining.
The power station is to be built on the Plant Land. A new land plot, Plot A1, is
currently being acquired from the State Government and a part of the circulating
water system will occupy Plot A1 as shown in the diagrams below.
The Plant will be a natural gas fired 1,071.43 MW CCGT power plant capable of
operation on distillate backup fuel as well. The plant will consist of two Generating
Blocks, each consisting of a single-shaft configuration including the Siemens H-class
gas turbine (SGT5-8000H), a hydrogen cooled generator (SGen5-3000W), a Heat
Recovery Steam Generators (HRSG) and a Siemens tandem-compound steam
turbine (SST5-5000) coupled to the same generator via a self-shifting synchronous
clutch.
The steam turbine will be a reheat condensing turbine comprising a combined high
pressure (HP)/intermediate pressure (IP) turbine module and a double-flow low
pressure (LP) turbine. Exhaust steam will be condensed in the once-through
seawater cooled condenser. A 100% steam turbine bypass system will be provided
for start-up and in case of a steam turbine trip.
A fuel gas treatment system will be provided to measure, filter, heat and regulate the
pressure of the gas according to the gas turbine requirements.
Connection to the TNB National Grid at the high voltage (HV) terminals of the
Gas Insulated Switchgear (GIS).
Distillate Fuel, as the backup fuel, to be purchased by TNB from four (4)
major oil suppliers with fuel depots in Prai/Butterworth
(Shell/Esso/Petronas/Chevron) and delivered by road tankers (distillate tanks
will be provided for on-site storage).
The Power Facility and the Interconnection Facilities will be constructed pursuant to a
fixed-price, date-certain, lump sum turnkey EPC Contract. Scheduled COD is defined
as 1 January 2016 under the PPA and the Parties shall co-operate to procure that
the Initial Operation Date of each Generating Block shall occur on 1 July 2015, six (6)
months before Scheduled COD.
A Limited Notice to Proceed was executed 30 November 2012 and the construction
schedule pursuant to the EPC Contract is expected to be thirty two (32) months from
Notice to Proceed for both Generating Blocks. The ICE has opined that for the
schedules in the PPA and EPC Contract to coincide, NTP needs to be issued by 2
May 2013.
Under the ESA, a person who intends to operate a power plant is required to hold an
electricity generation licence. Licences may be granted by the Commission with the
approval of the Minister upon payment of such fees and upon such conditions as
appear to be requisite or expedient having regard to the function and duties of the
Energy Commission, established under the Energy Commission Act 2001.
Accordingly, no later than nine (9) months after issuance of the Sukuk TNB NE, the
Project Company is to provide a certified true copy of the generation license issued
to them by the EC to the Issuer.
The ESA further provides that a term of a generation license shall not without the
express approval of the Minister (for the time being charged with the responsibility for
matters relating to the supply of electricity) be for a period exceeding twenty-one (21)
years.
As at the date of this Information Memorandum, TNB Prai does not hold an electricity
generation licence.
The Base Case Cashflow Projections and certain statements herein are forward-
looking statements and illustrative only. The calculations are based on certain
assumptions which may not be realized. In addition, the forward-looking statements
involve a number of risks and uncertainties. Each recipient should carefully conduct
an independent evaluation of the financial projections of the Plant and associated
due diligence to determine the viability of the under-mentioned assumptions.
As the Project is still under development, these parameters are expected to change
or be revised from time to time in the future.
The sources and uses of funds presented in this section are derived from
assumptions as to when payments under the EPC Contract and other Project
expenditures are expected to occur. Shareholders’ funds are provided pari passu
with issuances of the Sukuk TNB NE according to the assumed finance to equity
ratio. Sponsor’s Equity Contribution will be provided on a pro-rata basis with the
disbursement of proceeds from the issuance of the Sukuk TNB NE according to the
assumed finance to equity ratio.
A summary of the sources and uses of funds of the Project is attached as Appendix 3
(B) of this Information Memorandum.
The Project will be implemented utilising a Turnkey Structure based on the key
contractual relationships between the parties involved in the Project which is shown
below:
CONTRACTUAL STRUCTURE
Tenaga Nasional
Tenaga Nasional Berhad
Berhad Sponsor
Offtaker PPA
100%
Equity
Petroliam Nasional
Berhad
GSA
Fuel Supplier
LTMP Siemens AG / Siemens
TNB Prai Sdn Bhd
Malaysia Sdn Bhd
Project Company
OEM
TNB Repair and
Maintenance Sdn OMA
Turnkey 100%
Bhd
Contract Equity
O&M Contractor
Sukukholders
The Project Company is a SPV formed for the purpose of implementing the Project.
The Project Company has entered into the following Project Documents:
The Issuer is a SPV, formed for the purpose of carrying out the development,
construction and financing of the Project and is a wholly-owned subsidiary of the
Project Company. The Issuer will not be involved in the operation and/or
maintenance of the Power Facility. The Issuer has entered into the following
project documents:
In respect of defined terms in this section 5.5 only, where the same is not defined
elsewhere in this preliminary IM, the defined terms have the meaning ascribed to
them in the relevant Project Document.
The following section incorporates the key terms and conditions that are
contained in the PPA entered into between TNB Prai and TNB on 30 November
2012.
5.5.1.1 Overview
The PPA sets out the terms and conditions governing the sale and delivery of
electricity and generating capacity from the Plant (defined in the PPA as the
“Facility”) by TNB Prai to TNB and the purchase and receipt by TNB of such
electricity and generating capacity from TNB Prai.
TNB Prai shall design, construct, own, operate and maintain the Facility in
accordance with the terms and conditions of the PPA.
(a) two generating blocks with each consisting of one (1) gas turbine, one (1)
generator and one (1) steam turbine including one (1) heat recovery
steam generator, operating in combined-cycle mode otherwise known as
the “Generating Blocks”;
(b) fuel facilities enabling the Facility to receive and utilise Fuel supplied
under the Fuel Supply Contracts in quantities sufficient to permit the
Facility to operate continuously at full load Despatch on natural gas or for
three and a half days (3.5) days on the standby Distillate Fuel Oil
otherwise known as the “Fuel Facilities”; and
The Initial Operation Date of each Generating Block and the right of TNB Prai to
commence generation of electrical energy at the Facility and to supply, deliver
and sell electricity shall only occur upon satisfaction or waiver of the following
conditions, namely that:
(a) each of the Project Documents (i.e. the EPC Contract, the OMA, the GSA,
the LLA and such other agreements designated by mutual agreement) is
in full force and effect and all conditions precedent to their effectiveness
(except for conditions relating to the PPA) are satisfied or waived;
(b) the initial financing documents which have been entered into by TNB Prai
are in full force and effect and all conditions precedent to their
effectiveness have been satisfied or waived;
(c) TNB Prai has submitted to TNB, with a copy to the Commission, the
conceptual design of the Facility accompanied by a certificate from the
independent engineer;
(d) TNB Prai has submitted to TNB, with a copy to the Commission, one (1)
certified copy of each of the initial financing documents and the Project
Documents (other than the PPA);
(e) TNB Prai has submitted to TNB a certified copy of the Generation
Licence;
(g) the performance security as set out in the PPA has been delivered to
TNB and is in full force and effect;
(h) TNB Prai has submitted to TNB, with a copy to the Commission, a
certified copy of the ElA Approval;
(i) the commissioning, start-up and testing programs set out in the PPA have
been submitted by TNB Prai to TNB, with a copy to the Commission and
approved by TNB which approval shall not be unreasonably withheld or
delayed.
The COD for each Generating Block and the right of TNB Prai to supply and
deliver net electrical output and daily available capacity and the obligation of TNB
to accept and to purchase net electrical output and daily available capacity from
that Generating Block or to make energy payments and available capacity
payments to TNB Prai in respect of that Generating Block shall not occur until the
satisfaction of the following:
(a) TNB Prai has submitted to TNB a copy of the "Commissioning Test
Certificate" or similar document to the like effect issued by the
Commission as contemplated by the Generation Licence in respect of that
Generating Block being operational in combined cycle mode;
(b) TNB Prai has submitted to TNB, with a copy to the Commission, the final
design of the Facility and a certificate from the Independent Engineer
stating that the relevant Generating Block and the Interconnection
(c) TNB Prai has established and declared the contractual available capacity
for such Generating Block in accordance with the terms of the PPA and
the test results show that TNB Prai can meet the declared contractual
available capacity for that Generating Block;
(d) no default by TNB Prai of (i) any material provision of the PPA or (ii) any
provision of the Financing Documents, the breach of which could
reasonably be expected to have a material adverse effect on TNB Prai’s
ability to perform its obligations or availability of the rights of TNB under
the PPA shall have occurred and be continuing;
(e) the representations and warranties by TNB Prai in the PPA are true and
correct in all material respects as if made on the COD of that Generating
Block; and
(f) all the documentation, data, information and certified test results set out in
the PPA have been submitted by TNB Prai to TNB, with a copy to the
Commission, and verified by TNB as being in conformance with the
requirements of the PPA.
From the Initial Operation Date of each Generating Block and continuing
throughout the Term, TNB shall accept all Test Energy and pay TNB Prai for
such Test Energy in accordance with the PPA.
From the COD of each Generating Block and continuing throughout the Term:
(a) TNB Prai shall deliver and sell to TNB, and TNB shall accept and
purchase the net electrical output and daily available capacity from and of
that Generating Block; and
(b) TNB shall pay TNB Prai for such net electrical output and daily available
capacity of that Generating Block in accordance with the PPA.
TNB is not obligated to accept net electrical output from a Generating Block that
does not conform to the electrical characteristics set forth in the PPA.
TNB agrees to pay to TNB Prai the following charges from and after the initial
operations date:
(a) Test Energy – for each kWh of test energy generated from the Facility and
metered by TNB owned metering equipment at the interconnection points;
(c) Energy Payment – starting from the Commercial Operating Date of the
First Generating Block;
(d) Start-up Payment – starting from the Commercial Operating Date of the
First Generating Block;
5.5.1.6 Billing and Payment
TNB shall within thirty (30) days of receipt of the Billing Statement pay in full to
TNB Prai Available Capacity Payments, Energy Payments and Start-up
Payments invoiced in such Billing Statement. A Billing Statement is to be issued
monthly starting from the Initial Operation Date of the First Generating Block.
Except in the event of any delay or default by TNB or the occurrence of a Force
Majeure Event, TNB Prai agrees to pay TNB by way of pre-ascertained and
agreed liquidated damages the following:
(a) if, due to the default of TNB Prai or its contractors or agents under the
PPA, the COD of the First Generating Block does not occur on or before
the Scheduled COD of the First Generating Block, TNB Prai shall pay to
TNB liquidated damages in an amount equal to RM321,429.00 per day
for each day following the Scheduled COD of the First Generating Block
until the earlier of (i) the COD of the First Generating Block; (ii) the date
on which the PPA is terminated by TNB in accordance with the
provisions of the PPA; and (iii) one hundred and eighty (180) days after
the Scheduled COD of the First Generating Block;
(b) if, due to the default of TNB Prai or its contractors or agents under the
PPA, the COD of the Second Generating Block does not occur on or
before the Scheduled COD of the Second Generating Block, lPP shall
pay to TNB liquidated damages in an amount equal to RM321,429.00
per day for each day following the Scheduled COD of the Second
Generating Block until the earlier of (i) the COD of the Second
Generating Block; (ii) the date on which the PPA is terminated by TNB
in accordance with the provisions of the PPA; and (iii) one hundred and
eighty (180) days after the Scheduled COD of the Second Generating
Block;
(c) if TNB Prai abandons the Project after the PPA becomes unconditional
TNB Prai shall forthwith pay to TNB liquidated damages in an amount
equal to RM 57,857,220.00;
(e) if TNB Prai fails to comply with or operate in conformity with any of the
standards or characteristics set out in the PPA, TNB Prai shall pay TNB
liquidated damages amounting to RM100,000 for each such failure.
As security for the performance of TNB Prai’s obligations under the PPA, and no
later than the earlier of:
(a) seven (7) days from the Financial Closing Date; and
(b) two hundred and ten (210) days after the Effective Date,
The bank guarantee is to remain valid until expiration of six (6) months after the
Scheduled COD of the Second Generating Block.
If TNB Prai fails to provide the bank guarantee within this time frame (or such
other date as may be agreed between the parties), TNB may terminate the PPA
by giving notice to TNB Prai.
Construction work at the Site shall commence no later than 4 May 2013 and TNB
Prai shall provide TNB with written confirmation that the Commencement Date
has occurred within five (5) days after it occurs.
TNB Prai represents and warrants to TNB that as at the date of the PPA:
(a) TNB Prai is a private limited liability company duly organised and validly
existing under the laws of Malaysia and TNB Prai has all requisite power
and authority to conduct its business, to own its properties and to execute,
deliver and perform its obligations under the PPA;
(b) the execution, delivery and performance by TNB Prai of the PPA has
been duly authorized by all necessary action, including applicable
corporate authorizations, and does not and will not (i) require any consent
or approval of TNB Prai’s board of Directors or shareholders, other than
those that have been obtained; (ii) result in a breach of or constitute a
default under, any provisions of TNB Prai’s constitution or incorporation
documents, any indenture, contract or agreement to which it is a party or
by which it or its assets may be bound, or violate any law, order, writ,
judgement, injunction, decree, determination or award presently in effect
which is applicable to TNB Prai;
(c) the PPA constitutes a legal, valid and binding obligation of TNB Prai;
(d) there is no pending action or proceeding affecting TNB Prai before any
court, government entity or arbitrator that is likely to affect materially and
adversely the financial condition or operations of TNB Prai and the ability
of TNB Prai to perform its obligations under the PPA, or that purports to
affect the legality, validity or enforceability of the PPA.
5.5.1.11 Insurance
(a) from Commencement Date until the COD of each Generating Block,
"Erection All Risks" insurance against damage to the Facility and the
Interconnection Facilities in amounts not less than the total construction
and erection cost of such facilities and on a replacement cost basis
subject to deductibles of no more than RM7,750,000.00) for each and
every loss;
(b) throughout the Term, "Industrial All Risk" insurance covering all fixed
assets all risk of physical loss or damage where the sum insured shall be
on a full replacement value basis subject to deductibles of not more than
RM3,500,000.00 for each and every loss;
(d) throughout the Term, "Public Liability" insurance with combined single
limits for bodily injury and property damage of at least RM25,000,000.00
per occurrence, including coverage for pollution due to sudden and
accidental causes; and
(e) throughout the Term, any other insurances as required under the laws of
Malaysia including but not limited to "Comprehensive Automobile
Liability", "Motor Vehicle Liability", “Workmen's Compensation" and/or
"Employer's Liability" insurance.
Either party may terminate the PPA if a Force Majeure Event (“FM Event”)
prevents either party from substantially performing any material obligation under
the PPA for a period which exceeds one hundred and eighty (180) days. Note
however that if a FM Event cannot be cured within one hundred and eighty (180)
days with the use of reasonable diligence, then the period shall be extended for
another one hundred and eighty (180) days.
(a) if an FM Event cannot be remedied within one hundred and eighty (180)
days with the use of reasonable diligence then the one hundred and
(b) if the party affected is unable to remedy the FM Event by the further
period, then the Parties shall consult as to what steps shall be taken with
a view to mitigating or remedying the consequences of a FM Event;
This includes the affected Party demonstrating to the satisfaction of the other
Party that (i) the affected Party is diligently applying reasonable efforts to execute
a plan to overcome the FM Event and resume performance of the Agreement; (ii)
that the FM Event can be overcome within a reasonable time after the expiration
of the further period:
(a) if the Parties agree to extend the further period then the above
provisions apply with regards to the remedy and mitigation of the FM
Event.
(b) if the Parties are unable to agree to extend the further period, then
either party may terminate the Agreement by thirty (30) days written
notice of termination.
Each of the following events shall constitute an Event of Default by TNB Prai,
unless excused under another provision of the PPA:
(a) TNB Prai fails to make a payment of any amount of substantial nature
which is due and payable under the PPA within sixty (60) days after
receipt of notice of non-payment from TNB;
(b) TNB Prai fails to comply with or operate in conformity with any obligation
of the PPA (other than a payment obligation) and such failure, if capable
of remedy, continues uncured for a period of ninety (90) days, after
receipt of notice of such failure from TNB;
(c) TNB Prai is dissolved or liquidated, other than for the purpose of a
voluntary dissolution or liquidation as part of a reorganisation or
reincorporation;
(e) TNB Prai admits in writing its inability to pay its debts as they fall due;
(g) TNB Prai commences a voluntary case or files a petition seeking to take
advantage of any law relating to bankruptcy, insolvency, reorganisation of
its debts, winding-up or composition or readjustment of its debts;
(h) TNB Prai fails to dispute in a timely manner, or acquiesces in writing to,
any petition filed against it in an involuntary case under any bankruptcy or
similar law;
(i) TNB Prai takes any action for the purpose of effecting any of the events
described in paragraphs (c) through (g) above;
(j) the COD of a Generating Block fails to occur within six (6) months of the
Scheduled COD of such Generating Block (unless otherwise excused or
extended under the PPA;
(k) TNB Prai abandons the Project after the Effective Date and fails to
resume activities within a period of time agreeable to TNB;
(m) any of the following events occur prior to the fifth (5th) anniversary of the
COD of the First Generating Block, without the prior written approval of
the Federal Government of Malaysia:
Subject to the rights of the financing parties under the financing documents, TNB
shall have a step-in right by written notice to assume operational responsibility for
the Facility in the place of TNB Prai in order to complete construction or continue
operation of the Facility or to complete any necessary repairs so as to assure
uninterrupted availability of electrical energy from the Facility and TNB Prai shall
use its best reasonable efforts to cause the financing parties specifically to
acknowledge such right of TNB in the financing documents.
If an Event of Default occurs (other than an Event of Default falling within sub-
paragraph (b) above that cannot be cured with the exercise of reasonable
diligence within the period of ninety (90) days therein), the non-defaulting Party
may terminate the PPA by giving fourteen (14) days' written notice to the other
Party.
If an Event of Default which falls within sub-paragraph (b) above cannot be cured
with the exercise of reasonable diligence within the period of ninety (90) days
specified therein, then that period shall be extended for a further period of one
hundred and eighty (180) days. If the Event of Default continues uncured at the
end of such further period, then the non-defaulting Party may terminate the PPA
immediately by written notice to the defaulting Party.
If TNB terminates the PPA as a result of an Event of Default by TNB Prai, TNB
shall have the option but not the obligation, exercisable by notice in writing within
sixty (60) days of the termination of the PPA, to purchase the Project in the
manner and for the purchase price determined in accordance with the provisions
of the PPA.
If TNB Prai terminates the PPA as a result of an Event of Default by TNB, TNB
Prai shall have the option but not the obligation, (exercisable by prior notice
writing within sixty (60) days of the termination of the PPA), to sell the Project to
TNB, in the manner and for the purchase price determined in accordance with the
provisions of the PPA. In the event this option is exercised by TNB Prai, TNB
shall be required to purchase the Project from TNB Prai.
TNB
TNB shall have the right, but under no circumstances the obligation to assume
partial or complete (as TNB may decide) operational responsibility for the Facility
(in the capacity of an operator only) in the place and instead of TNB Prai in order
to continue operation of the Facility or complete any necessary repairs so as to
assure uninterrupted availability of electrical energy from the Facility.
Such step-in rights shall arise upon the occurrence and continuance of an Event
of Default with respect to the Project which could reasonably be expected to
materially adversely affect TNB Prai’s ability to operate and maintain the Facility
in accordance with the PPA.
TNB shall not exercise such step in rights until any applicable cure period
specified has expired, unless at any earlier time the Financing Parties request
TNB to step in under any right that has arisen under the Financing Documents.
For so long as the Financing Documents remain in effect, TNB shall not exercise
step-in rights hereunder if the operation of the Facility has been assumed by any
Financing Party or any approved assignee or designee within the applicable cure
period.
TNB shall have the right at any time, but not exceeding six (6) months from the
time TNB exercises its step-in rights, to return the operational responsibility for
the Facility to TNB Prai, provided that TNB shall return the Facility to TNB Prai in
a condition no worse than that immediately prior to the assumption of the
operational responsibility for the Facility by TNB, ordinary wear and tear
excepted.
The Commission
So long as consistent with the terms of the financing documents or the rights of
the Financing Parties thereunder, if the Commission exercises its statutory right
to operate the Facility, TNB shall continue to make Energy Payments for net
electrical output despatched by the grid system operator and available capacity
payments to TNB Prai in accordance with the PPA to the extent that a Generating
Block is Available and to the extent such payments to TNB Prai are permitted by
Law.
One of the critical milestones in the PPA is that the Commencement Date is to
occur by 4 May 2013. Other critical milestones in the PPA are that:
(a) the Financial Closing Date must occur by 2 May 2013. The “Financial
Closing Date” is defined as - the date on which the Financing Documents
relating to the financing or refinancing for the total construction costs of
the Project have been entered into by the IPP and the Financing Parties,
and all of the conditions precedent for the initial drawdown by IPP under
such Financing Documents satisfied by IPP or waived by the Financing
Parties thereunder.
(b) the Project Documents must be fully effective and unconditional by 2 May
2013.
(c) the Initial Operation Date of each Generating Block shall occur on 1 July
2015.
Notwithstanding the above, the failure to meet any of the critical milestones does
not in itself amount to an Event of Default by TNB Prai under the PPA.
TNB Prai shall defend, indemnify and hold TNB, and its officers, directors,
agents, employees. contractors and subcontractors, harmless from and against
any and all claims, judgments, liabilities, losses, costs, expenses (including
reasonable lawyers' fees) and damages under every applicable environmental
law or regulation arising out of the condition of the Site, TNB Prai's construction,
ownership or operation of the Facility or TNB Prai’s construction of the
Interconnection Facilities, except to the extent such damages are attributable to
the negligence or misconduct of, or breach of the PPA by TNB, its officers,
directors, agents, employees, contractors or subcontractors.
In the event of any dispute arising out of or relating to the PPA, either party may
deliver to the other party a written notice identifying the dispute. The parties
agree to attempt to resolve amicably all disputes promptly, equitably and in good
faith manner. In the event that such a dispute is not settled amicably, the dispute
shall be referred to arbitration.
Except as required by the financing parties under the financing documents, TNB
Prai shall not sell, convey, transfer or otherwise dispose of the Project or any
material part or any interest in it to any other Person without the prior written
consent of TNB and the Commission, which consent shall not be unreasonably
withheld or delayed.
The PPA is be governed by, and shall be construed in accordance with the laws
of Malaysia. Subject to the arbitration provisions in the PPA, the Parties hereby
submit to the exclusive jurisdiction of courts located in Kuala Lumpur, Wilayah
Persekutuan.
5.5.2.1 Overview
The GSA was executed between Petronas and TNB Prai on 21 December 2012.
Under the GSA, Petronas agreed to sell and deliver and TNB Prai agreed to
purchase, receive and pay for natural gas for the purpose of electricity
generation.
The term of the GSA shall be twenty one (21) calendar years and one (1) day
from the First Contractual Delivery Date falling on 31 December 2015 unless the
GSA is terminated earlier in accordance with its terms.
For each day in each Contract Year, Petronas shall deliver Gas for each Contract
Year up to a Daily Quantity (“DQ”) at the first flange located immediately
downstream of the metering station of Petronas (the “Delivery Point”). Any
amount to be delivered by the Seller over and above the DQ shall be on a
reasonable endeavour basis and subject to supply availability.
During the first ten (10) years of the term of the GSA (“Initial Term”), TNB Prai is
bound by the GSA to purchase and take delivery of a minimum quantity of natural
gas equivalent to 80% of the net Annual Contract Quantity (“ACQ”). After expiry
of the Initial Term, TNB Prai shall be bound thereafter by the GSA to purchase
and take delivery of natural gas equivalent to 85% of the net ACQ.
In each Contract Year TNB Prai shall be obligated to take and pay for or to pay
for if not taken, a quantity of Gas at least equal to the TOP Quantity. For the
purpose of calculating the TOP Quantity, the Net ACQ is the ACQ for the
Contract Year (i.e. the DQ multiplied by the number of days in the relevant
Contract Year ) reduced by the Excused Quantities.
(a) any quantity of Gas properly nominated on any day which the Seller has
for reasons of Force Majeure Event, Emergency Situation, Maintenance
Shutdown. Operational Shutdown or an Operational Flow Order not
delivered or been prevented from delivering;
(b) any quantity of Gas properly notified for delivery on any day which TNB
Prai has for reasons of a Force Majeure Event, Emergency Situation,
Maintenance Shutdown or Operational Shutdown not accepted or been
prevented from accepting;
(c) any quantity of Gas rejected by TNB Prai by reason of it being Off--Spec
Gas;
(d) any quantity of Gas properly nominated on any day which the Seller is
unable to deliver for any other reason. except where the inability to deliver
was due the fault and/or negligence of TNB Prai, save that where the
5.5.2.5 Liability
Petronas shall be liable for and indemnify and hold TNB Prai free and harmless
from and against all claims, losses, damages, costs (including legal costs on a
solicitor-client basis), expenses and liabilities:
(a) in respect of all injuries to, including death of any of the officers,
servants agents or contractors of Petronas howsoever or by
whomsoever caused and wherever arising whether or not such claims,
losses, damages, costs (including legal costs on a solicitor-client basis)
expenses and liabilities arose or were incurred as a result of any act,
omission, negligence or breach of duty by TNB Prai, its officers,
servants, agents or contractors;
TNB Prai shall be liable for and indemnify and hold Petronas free and harmless
from and against all claims, losses, damages, costs (including legal costs on a
solicitor-client basis), expenses and liabilities:
(a) in respect of all injuries to, including death of any of TNB Prai’s officers.
servants, agents or contractors howsoever or by whomsoever caused
and wherever arising whether or not such claims, losses, damages,
costs (including legal costs on a solicitor-client basis), expenses and
liabilities arose or were incurred as a result of any act, omission,
negligence or breach of duty by Petronas, its officers, servants, agents
or contractors;
Petronas shall use its best endeavours to ensure that the Gas is delivered to TNB
Prai at the Delivery Point at a delivery pressure of 2,500 kPag to 4,000 kPag.
5.5.2.7 Price
The Contract Price of Gas bought by TNB Prai is calculated in accordance with
the formula set out below:
Lx/52 S x Ex
Pn = (1-D) x + + R + T
1.05506 1.05506
P = The Contract Price of Gas for Gas delivered in month 'n’ on a Gross Heating
Value basis expressed in RM/GJ.
In any given year, Lx for Gas delivered in the following delivery periods shall
use the following reference periods:
S = A + B + C
T = The transportation tariff of dry gas using the PGU to the Buyer's
Delivery Point, as published by the Transporter from time to time or
as determined by a Regulator, expressed in RM/GJ.
Petronas will invoice TNB Prai on a weekly basis, for quantities of natural gas
delivered. Petronas will also issue quarterly and annual statements to TNB Prai.
The weekly invoices are to be settled by TNB Prai within thirty (30) days from the
date of receipt by TNB Prai of the said invoices. TNB Prai is required to furnish
Petronas with a bank guarantee (valid for an initial term of twelve (12) months
and subject to annual review thereafter) to be issued thirty (30) days prior to the
First Contractual Delivery Date.
The amount to be secured by the Bank Guarantee shall be calculated using the
following formula:
S = P₃ x DQ x 30
Where:
P₃ is the equivalent to the average Contract Price of Gas of the three (3) months
preceding the issuance date of the Security.
5.5.2.9 Measurement
Petronas shall measure, test and analyse the Gas delivered, at its own cost, and
done using its own measuring and testing appliances and equipment (“Metering
Equipment”). While TNB Prai may install and operate (at its own cost) its own
Metering Equipment, measurements taken by TNB Prai’s Metering Equipment
will not be used in any way or prevail over the measurements taken by the
Metering Equipment of Petronas. However, TNB Prai has the right from time to
time, upon giving reasonable notice to the Seller, to inspect the Seller's Metering
Equipment and the charts and other measurements and test data of the Seller.
The GSA provides that in the event that either party is rendered unable by reason
of a force majeure event to perform wholly or in part any of its obligations in the
GSA, then such party shall be relieved of such obligations and shall not be
deemed to be in breach of such obligations and shall not be liable to the other
party in respect of such breach to the extent only that the force majeure event
continues and for the period of such force majeure event. Force majeure events
mean any event, condition or circumstances which is not reasonably foreseeable
or, if reasonably foreseeable is beyond the reasonable control and without the
fault or negligence of the party claiming force majeure which, despite all of such
party’s reasonable efforts to prevent, avoid or mitigate, causes a delay,
interference or disruption in the performance of its obligations under the GSA.
Force majeure events include, without limitations, acts of God, acts of war,
natural disasters, governmental expropriation or compulsory acquisition of the
TNB Prai power station or any part of the facilities of Petronas, explosion or
accident to Petronas’ plant or equipment or other facilities which are caused by a
force majeure event, and failure of Petronas’ contractors to supply and deliver
natural gas where such failure is caused by a force majeure event.
5.5.2.11 Termination
Either Party may immediately upon giving written notice to the other Party,
terminate the GSA if:
(a) the other Party commits a material breach of the GSA and if capable of
remedy, fails to remedy that breach within thirty (30) days from the date of
the notice from the non-defaulting Party specifying such a breach had
occurred or such longer period as may be reasonable in the
circumstance;
(b) the other Party becomes insolvent or suspends payment of its debts
generally or is unable to pay its debts as and when they fall due;
(d) a Party secures or compounds with or enters into an arrangement with its
creditors;
(e) the Generation License is revoked at any time during the existence of the
GSA; or
(f) the Power Purchase Agreement is terminated at any time at any time
during the existence of the GSA.
Petronas may by giving fourteen (14) days written notice to TNB Prai terminate
the GSA in the following circumstances:
(a) TNB Prai uses or attempts to use Gas illegally or not in accordance with
the purposes specified in the GSA:
(b) TNB Prai causes damage to the Petronas’ Facilities and such facilities
have not been restored to its original condition within thirty (30) days or on
such later date as Petronas may specify;
(c) TNB Prai violates any material laws or Regulation in the performance of
its obligations under the GSA;
(d) TNB Prai fails to take Gas after a lapse of ninety (90) days continuously
from the last day of offtake by the Buyer at any time due to any reason
other than a Force Majeure Event or any other failure by Petronas to
make delivery of the Gas at the Delivery Point;
(e) TNB Prai unable to take or receive Gas continuously for a period of two
(2) months at any time during the Supply Period (after the First
Contractual Delivery Date) due to any reason other than a Force Majeure
Event. Maintenance Shutdown, Operational Shutdown or any other failure
by Petronas to make delivery of the Gas at the Delivery Point; or
Petronas may terminate the GSA forthwith, amongst others, (a) if TNB Prai fails
to obtain or renew the bank guarantee for payment of the Gas supply; and (b) if
Generation Licence is not issued to TNB Prai by the First Contractual Delivery
Date.
5.5.2.12 Assignment
TNB Prai shall not assign any of its rights or obligations arising under the GSA
without the prior written consent of Petronas, and Petronas shall not be entitled to
assign, novate or otherwise transfer any of its obligations under the GSA without
the prior written consent of TNB Prai. Petronas shall be entitled to assign the
benefits under the GSA provided prior written notice has been given to the Buyer.
Notwithstanding the above, nothing shall prevent any Party from entering into any
agreement to pledge, mortgage or charge its rights hereunder as security for any
indebtedness incurred or to be incurred by such Party.
To establish the Facility together with associated facilities for the production of
electrical power at Seberang Perai Tengah, in the district of Seberang Perai,
Pulau Pinang Malaysia with associated interconnection facilities.
TNB NE has entered into the EPC Contract with the EPC Contractor to provide
for the complete design, engineering, manufacture, procurement, delivery,
installation, construction, testing and commissioning thereof on the Facility a fixed
price lump sum turnkey basis.
The EPC Contractor shall commence the EPC Works following issuance of the
Notice To Proceed (“NTP”) following the satisfaction or waiver of the NTP
Conditions. The Employer shall provide the Contractor with no less than fourteen
(14) days' prior written notice of the issuance of the NTP Notice. NTP shall occur
upon receipt by the Contractor of the NTP Notice, but shall not occur any earlier
than 2 May 2013.
Upon the occurrence of NTP, the Contractor shall diligently perform EPC Works
to completion so that each Generating Block, and the Interconnection Facilities,
shall be ready for taking -over on or before its scheduled or planned taking-over
date.
The contract price in respect of the EPC Works comprises fixed lump sums
denominated in USD and EUR for the foreign/offshore portion of the EPC Works
and a fixed lump sum denominated in RM for the local onshore portion of the
EPC Works (the “Accepted Contract Amount”).
The contract price includes the costs for design, execution and completion of the
EPC works and remedying of any defects and any adjustments permitted under
the EPC Contract.
The Contractor shall schedule and perform the Works so as to cause the
Generating Blocks, the Interconnection Facilities and the Common Facilities to be
ready for taking-over no later than its scheduled or planned Take-Over Date. The
Employer shall schedule and perform the Works and each Section within the
Time for Completion for the Works or Section including:
(b) completing all work which is stated in the Contract for purposes of taking
over;
The Contractor guarantees that each of the Sections shall be ready for Taking
Over as follows:
(a) for the Common Facilities, the date falling nine hundred and seventy four
(974) days after the day the NTP Notice is issued (excluding such day);
(b) for Generating Block 1 and associated parts of the Common Facilities, the
date falling nine hundred and seventy four (974) days after the day the
NTP Notice is issued (excluding such day);
(c) for Generating Block 2 and associated parts of the Common Facilities, the
date falling nine hundred and seventy four (974) days after the day the
NTP Notice is issued (excluding such day); and
(d) for the Interconnection Facilities and associated parts of the Common
Facilities, the date falling no later than twenty (20) days prior to the first
day on which electricity is generated from Generating Block 1.
The EPC Contractor shall within seven (7) days prior to the NTP, obtain (at his
cost) a Performance Security (irrevocable and payable unconditionally
immediately upon demand) for proper performance in the amount and currencies
stated in the Contract Information.
The EPC Contractor shall deliver to TNB NE the Performance Security effective
from the NTP and duly executed by a bank reasonably satisfactory to TNB NE
and the Lenders with a minimum credit rating of A-, as security for the due
performance by the EPC Contractor of its obligations under this Contract.
TNB NE shall not make a claim under the Performance Security, except for
amounts to which TNB NE is entitled under the Contract which shall be limited to
the following events:
(a) failure by the EPC Contractor to extend the validity of the Performance
Security;
(c) failure by the EPC Contractor to remedy a default within forty two (42) days
after receiving TNB NE's notice requiring the default to be remedied;
(d) circumstances which entitle TNB NE to termination under the EPC Contract,
irrespective of whether notice of termination has been given.
TNB NE shall indemnify and hold the EPC Contractor harmless against and from
all damages, losses and expenses (including legal fees and expenses) resulting
from a wrongful claim under the Performance Security.
Upon the Taking-Over Date of Generating Block 2, the EPC Contractor shall issue
a new performance security in favour of TNB NE ("DNP Performance Security")
which shall be irrevocable and payable unconditionally immediately upon
demand. The DNP Performance Security shall be for an amount equivalent to the
total sum of 5% of the Accepted Contract Amount which includes the cost of
necessary rectification and/or replacement identified at or during the Tests on
Completion.
The DNP Performance Security shall take effect from the Taking-Over Date of the
Generating Block 2.
The DNP Performance Security shall be adjusted on the expiry of the DNP of
Generating Block 2, such that the DNP Performance Security represents an
amount equivalent to 5% of the value of the interconnection Facilities and shall
remain valid until the expiry of the DNP in respect of the Interconnection
Facilities.
In the event a major component is replaced or repaired during the DNP, TNB NE
and EPC Contractor shall discuss the necessity for any extension in the validity of
the DNP Performance Security which may be extended accordingly.
5.5.3.1.7 Taking-Over
(ii) all of the Tests on Completion except for the Performance Tests to
demonstrate that such Generating Block meets the Guaranteed
Net Power Output or Guaranteed Net Heat Rate but has attained
the Minimum Acceptance Criteria and the Contractor has paid
Liquidated Damages to TNB NE in respect of its failure to attain
the Guaranteed Performance; and
(b) such Generating Block (and its associated Common Facilities) complies
with the Contract and applicable laws; and
(c) the Contractor has submitted the documents that are necessary to enable
the Employer to obtain a commissioning test certificate, or a document to
similar effect, to be issued by the Commission in accordance with the
requirements of the Generation Licence;
(e) the EPC Contractor has made training available to the Employer’s
Personnel (or other nominees of TNB NE); and
(f) the EPC Contractor has submitted to TNB NE the as-built drawings and
the operation and maintenance manuals and the handbook as reasonably
required by TNB NE for the safe and reliable operation of the Generating
Block and its associated Common Facilities; and
(g) the Contractor has submitted to the Employer written confirmation that title
to the relevant Generating Block and its associated Common Facilities
and all equipment and materials supplied in connection with the relevant
Generating Block, whether by the EPC Contractor or any Subcontractor,
has invested in TNB NE free from any liens and encumbrances; and
(h) any other liquidated damages payable by the EPC Contractor to TNB NE
have been paid and/or satisfied; and
(i) the EPC Contractor has obtained all applicable permits and approvals
required to be obtained in its name in accordance with the EPC Contract;
and
(j) the Contractor has issued all Contractor’s Documents including certified
test results required to be issued to attain taking-over for the relevant
Generating Block (and its associated Common Facilities) pursuant to the
EPC Contract, and
(l) the EPC Contractor has returned all the equipment and materials
belonging to TNB NE and removed all of its equipment, construction
materials, temporary facilities, wreckage waste material and rubbish from
such part of the Site and IF Site relevant to such Generating Block (and
its associated Common Facilities), except for such equipment,
construction materials and facilities required for the Works, if any, to be
performed by the EPC Contractor following taking-over of the relevant
Generating Block;
(m) the EPC Contractor has left such part of the Site and IF Site relevant to
such Generating Block free and clear from obstructions and impediments
placed and Hazardous Substances introduced thereon by the EPC
Contractor and is otherwise in the same condition (disrepair by
reasonable ordinary wear and tear excepted) as on the NTP; and
(n) the Contractor and the Employer have agreed the punch list items and
except for such punch list items, all Works required pursuant to the EPC
"Site" means the place where the Facility is to be constructed, and any other
places as may be specified in the Contract as forming part of the Site.
"Interconnection Facilities Site" or "IF Site" means all those parcels of land owned
or leased, or to be owned or leased by the Employer, or over which the Employer
has easement rights, and at, on, under, over, in or through which the
Interconnection Facilities will be constructed or located and/or the Works in
relation to the Interconnection Facilities is to be performed, carried out or
conducted, all as shown in the Employer's Requirements.
The Taking-Over Requirements of the Facility shall be met when the Generating
Block 2 (and the balance of the Common Facilities) have satisfied the Taking
Over Requirements above.
(a) the Interconnection Facilities have passed all of the Tests on Completion
to the satisfaction of the Employer and in accordance with the EPC
Contract ; and
(c) the EPC Contractor has submitted to TNB NE the as-built drawings and
the operation and maintenance manuals as required under the EPC
Contract and as reasonably required by the TNB NE for the safe and
reliable operation of the Interconnection Facilities and the Facility;
(d) the EPC Contractor has submitted to TNB NE written confirmation that
title to the Interconnection Facilities and all equipment and materials
supplied in connection with the Interconnection Facilities, whether by the
EPC Contractor or any Subcontractor, has vested in TNB NE free from
any liens or encumbrances; and
Without prejudice to the above, the EPC Contractor shall have the right to make a
request to the Engineer appointed under the EPC Contract or TNB NE for a
waiver of the timely fulfilment of any of the Taking-Over Requirements provided
always that the Facility can be operated safely and reliably.
5.5.3.1.8 Insurance
The EPC Contract requires for the maintenance of the following Insurances:
The EPC Contractor shall insure the Plant, Materials and EPC Contractor’s
Documents for not less than the full reinstatement cost including the costs of
demolition, removal of debris and professional fees and profit. This insurance shall
be effective until the date of issue of the Taking-Over Certificate for the Works.
Motor Vehicle Liability insurance with combined single limit for third party property
damage of at least RM3,000,000.00 per occurrence and in aggregate, where
applicable, covering vehicles owned, hired and non-owned and unlimited liability
for bodily injury.
The EPC Contractor shall maintain at its own cost and expense during the
performance of the Works, all insurances prescribed by law
Insurance for EPC Contractor’s local Personnel
The EPC Contractor shall effect and maintain insurance against liability for claims,
damages, losses and expenses (including legal fees and expenses) arising from
injury, sickness, disease or death of any person employed by the EPC Contractor
or any other of the EPC Contractor’s Personnel.
TNB NE and the Engineer appointed under the EPC Contract shall also be
indemnified under the policy of insurance, except that this insurance may exclude
losses and claims to the extent that they arise from any act or neglect of TNB NE
or of TNB NE's Personnel.
The insurance shall be maintained in full force and effect during the whole time
that these personnel are assisting in the execution of the Works.
TNB NE will, subscribe and maintain in full force and effect from the date of issue
of the Notice to Proceed up to the Taking-Over Certificate, the insurance cover set
out below:
(c) Employer's Motor Vehicle Insurance for liabilities resulting from the use
and possession of motor vehicles, whether owned, hired, leased or
otherwise used by Employer or its employees.
(d) Marine Cargo subscribed and maintained before the first shipment, which
shall be primary to any other insurance cover taken out, underwritten or
maintained by or on behalf of the EPC Contractor.
(a) which is beyond the reasonable control and occurs without fault or
negligence on the part of the Party claiming it as a Force Majeure;
(b) which such Party could not reasonably have provided against before
entering into the Contract;
(c) which, having arisen, such Party could not reasonably have avoided or
overcome; and
Force Majeure may include, but is not limited to, exceptional events or
circumstances of the kind including war, hostilities, rebellion, terrorism, riot,
commotion, disorder, war, natural catastrophes, so long as conditions (a) to (d)
above are satisfied.
Any delay in, or total or partial failure of, performance of a Party caused by Force
Majeure shall not constitute a default under the EPC Contract provided, however,
that:
(a) the affected Party shall use all reasonable commercial efforts to eliminate
any Force Majeure and mitigate or limit the effect of any such delay or
inability to perform and damages to the other Party;
(b) the affected Party gives the other Party notice of such Force Majeure;
(d) no liability of either Party which arose before the occurrence of the Force
Majeure causing the suspension of performance shall be excused as a
result of such occurrence
(f) when the affected Party is able to resume performance of its obligations
under the EPC Contract, that Party shall give the other party written notice
to that effect and shall promptly resume performance hereunder.
In the event and to the extent that any event of Force Majeure that the EPC
Contractor can demonstrate will or could affect the EPC Contractor's ability to meet
any of its obligations under the EPC Contract including the Taking-Over Date or
the Milestones under the EPC Contract, then the EPC Contractor shall, subject to
sub-paragraph (a) below, be entitled to an adjustment under the provisions for
variation and adjustment in one or more of such dates and in the Milestone
Payment Schedule and the Project Schedule. Except as otherwise expressly set
forth in the Force Majeure provisions, there shall be no adjustment to either the
Performance Guarantees, and/ or the EPC Contract Price as a result of a Force
Majeure event.
If the EPC Contractor is delayed in the performance of the Works by a Force
Majeure, then:
(a) to the extent that the delay (s) are, in the aggregate, one hundred and
forty (140) days or less, the EPC Contractor shall absorb all of its costs
and expenses resulting from said delay(s); and
(b) to the extent that the delay(s) are, in the aggregate, more than one
hundred and forty (140) days, the EPC Contractor shall be reimbursed by
TNB NE for those incremental costs and expenses directly resulting from
the said delay(s) which are reasonably incurred by the EPC Contractor after
the said one hundred and forty (140)-day period.
In the event that the Works or any part of the Works is damaged or destroyed
due to Force Majeure, then the EPC Contractor shall only be obliged to reinstate
or replace the Works or part thereof which has been damaged or destroyed if
requested by TNB NE, in which case it shall be entitled to an adjustment.
5.5.3.1.10 Termination
Termination by TNB NE
The occurrence of any of the following events, unless excused by Force Majeure
or TNB NE’s failure to fulfil its obligations under the EPC Contract, shall
(a) the EPC Contractor fails to comply with provisions with regards to the
Performance Security or with a notice to correct;
(b) the EPC Contractor fails substantially to perform any of its material
obligations under the EPC Contract in any material respect, abandons the
Works or otherwise plainly demonstrates the intention not to continue
performance of his material obligations under the Contract;
(i) to proceed with the Works in accordance with the provisions of the
EPC Contract; or
(d) the EPC Contractor sub-contracts the whole of the Works or assigns or
transfers the Contract without the express written consent of TNB NE;
(f) the EPC Contractor gives or offers to give (directly or indirectly) to any
person any bribe, gift, gratuity, commission or other thing of value, as an
inducement or reward for showing or forbearing to show favour or
disfavour to any person in relation to the EPC Contract.
(g) the EPC Contractor repudiates the EPC Contract, or provides a written
notice to that effect to TNB NE, Engineer or other third party, or abandons
the construction of any Generating Block for more than twenty eight (28)
consecutive days without the written consent of TNB NE or reasonable
excuse as determined by the Engineer appointed under the EPC
Contract;
(h) any material representation made by the EPC Contractor in the EPC
Contract shall be proved to have been false or misleading in any material
respect when made unless a remedy is provided for in the EPC Contract;
(i) failure to achieve the Taking Over of any Generating Block within one
hundred and eighty (180) days after the Taking-Over Date for the relevant
Generating Block;
(j) the Net Power Output of a Generating Block fails to meet the Minimum
Acceptance Criteria set out in the Contract Information within one hundred
and eighty (180) days after the Taking-Over Date for the relevant
Generating Block;
(k) the measured heat rate of a Generating Block fails to meet the Minimum
Acceptance Criteria set out in the Contract Information within one hundred
and eighty (180) days after the Taking-Over Date for the relevant
Generating Block;
(l) Subject to (i) above, the liquidated damages payable under the EPC
Contract has reached the maximum liquidated damages allowable;
(m) the EPC Contractor or any of its Sub-Contractors fails to comply with any
provision of any applicable Law or applicable Permit, and such failure is
not remedied within
(i) fourteen (14) days after the EPC Contractor receives actual
knowledge thereof, or
(ii) such longer period as may be necessary for the EPC Contractor to
cure such failure, not to exceed eighty four (84) days, provided that
the EPC Contractor diligently pursues the cure of such failure and
such cure is effected in such a manner and within such time that
such failure to comply could not reasonably be expected to have a
material adverse effect on TNB NE, the Works or the EPC
Contractor's ability to perform its obligations under the EPC Contract
in accordance with the terms hereof; or
(ii) otherwise fails to maintain and, within two (2) business days of
receiving actual knowledge of such failure, fails to correct its failure
to maintain any such required insurance policy;
The occurrence of any of the following events, unless excused by Force Majeure,
or the EPC Contractor's failure to fulfil its obligations, shall constitute an Event of
Default by TNB NE, and the EPC Contractor shall be entitled to terminate the
Contract if:
(a) TNB NE defaults in payment as and when due of any moneys payable
(but unpaid) under the EPC Contract and such default shall continue for a
period of fifty six (56) days except for progress payment applications
disputed in good faith by TNB NE; or
(b) TNB NE substantially fails to perform his material obligations under the
Contract or a material aspect of its obligations which renders the EPC
Contractor unable to achieve the Taking-Over of Generating Block,
In any of these events or circumstances, the EPC Contractor may, upon giving
fourteen (14) days’ notice to TNB NE, terminate the Contract. However, in the case
of sub-paragraph (d), the EPC Contractor may by notice terminate the Contract
immediately.
The EPC Contractor shall pay Liquidated Damages properly due to TNB NE in
accordance with the provisions herein. Parties agree that these damages shall
not relieve the EPC Contractor from his obligation to complete the Works, or from
any other duties, obligations or responsibilities which he may have under the
EPC Contract.
The EPC Contractor shall pay to TNB NE by way of liquidated damages the
amount stated in the EPC Contract Information, for each day of delay in
achieving the Taking Over of Generating Block 1 and Generating Block 2 beyond
the respective Taking-Over Date that is not the result of Force Majeure or TNB
NE's failure to materially fulfil its obligations under this EPC Contract.
In the event that Generating Block 1 or Generating Block 2 is ready for taking-
over but the relevant Generating Block's Net Power Output established in the
Performance Test is less than the Guaranteed Net Power Output,
(A) the EPC Contractor will pay to TNB NE as Liquidated Damages the
amount stated in the EPC Contract Information for each kilowatt (or pro-
rata) of shortfall in the Guaranteed Net Power Output per Generating
Block after adjusting to the guaranteed conditions and allowing a
(B) If the EPC Contractor exercises the option to cure any deficiency in the
Guarantee Net Power Output or Guaranteed Net Heat, the EPC
Contractor shall pay to TNB NE as Liquidated Damages the amount to be
calculated in accordance with the provisions of the EPC Contract and
provide TNB NE with Curing Period Performance Security.
In the event that Generating Block 1 or 2 is ready for taking-over but the
heat rate established for such Generating Block in the Performance Test
exceeds the Guaranteed Net Heat Rate for the relevant Generating Block:
(A) the EPC Contractor will pay to TNB NE as liquidated damage the amount
stated in the EPC Contract Information for each kJ/kWh (or pro-rata) in
excess of the Guaranteed Net Heat Rate for each Generating Block so
affected after adjusting to the guaranteed conditions and allowing a
tolerance for instrument error in accordance with codes and standards, all
as identified in TNB NE's Requirements; or
(B) If the EPC Contractor exercises the option to cure any deficiency in the
Guarantee Net Power Output or Guaranteed Net Heat, the EPC
Contractor shall pay to TNB NE as Liquidated Damages, the amount to be
calculated in accordance with the provisions of the EPC Contract and
provide TNB NE with the Curing Period Performance Security.
TNB NE shall have the right to set off the liquidated damages, if any, against
remaining payments of the EPC Contract Price due to the EPC Contractor
hereunder. In the event that the remaining payments are insufficient, the EPC
Contractor shall pay such liquidated damages within twenty eight (28) days upon
demand in writing by TNB NE and if after such twenty eight (28) days the
liquidated damages are still unpaid, TNB NE shall be entitled to commence
recovery proceedings and charge interest on such unpaid amounts.
The total liability of the EPC Contractor to TNB NE, under or in connection with
the EPC Contract other than under sub-clauses for Electricity, Water, Gas and
Distillate Fuel Oil, Employer’s Equipment and Free-Issue Material, Indemnities and
Intellectual and Industrial Property Rights, shall not exceed the Accepted EPC
Contract Amount and shall exclude insurance proceeds.
(a) Liquidated Damages for delay in Taking Over shall not exceed 15% of the
Accepted EPC Contract Amount; and
The total liability of the EPC Contractor to TNB NE shall not exceed in aggregate
a Ringgit Malaysia amount equal to the value of 20% of the Accepted EPC
Contract Amount.
No limitation of liability shall apply in any case of fraud, deliberate default or reckless
misconduct by the defaulting Party.
TNB Prai Sdn Bhd (Company No. 500784-D) (the “Lessee”) has been awarded
the Project to build, own and operate a combined cycle power station to be
located on the Plant Land (as hereinafter defined) and the Lessee is also
desirous of utilizing a portion of the Jetty as a pumphouse (hereinafter referred to
as the "IPP Pumphouse").
For the purposes of this particular section, “Lease” means the valid and
registrable lease for the Plant Land and the IPP Pumphouse for the Lease Term
to be granted by the Lessor to the Lessee in respect of the Plant Land and the
IPP Pumphouse in accordance with the provisions of the National Land Code
1965 (Form 15A).
The Plant Land comprises of a portion of the land held under H.S.(D) 50349, PT
10, in Mukim Bandar Prai, District of Seberang Perai Tengah, Pulau Pinang
measuring approximately 77,610 square meters (“Plant Land”).
The jetty is held under H.S.(D) 55959, PT 13, Mukim Bandar Prai, District of
Seberang Perai Tengah, Pulau Pinang measuring approximately 12,360 square
meters (“Jetty”).
The Lease Term commences from the Effective Date and ends on the day before
the 21st anniversary of the COD (the COD is ascribed in the Power Purchase
Agreement) of the First Generating Block and can be extended or earlier
terminated.
“Effective Date” means the date on which all conditions precedent listed in the
clause below have been satisfied or waived.
Where the term of the Power Purchase Agreement is extended, the Lessee may
extend the Lease Tenure by notifying the Lessor (“New Lease”). The tenure of
the New Lease shall correspond with the extension of the Power Purchase
Agreement and be based on the prevailing market condition.
(a) the Lessor obtaining the state consent for the grant of the Lease (“Letter
of Consent”); and
(b) for the Power Purchase Agreement is in full force and effect and all
conditions precedent to its effectiveness are satisfied or waived.
If any of the above conditions are not satisfied on or before six (6) months from
the Execution Date (“Stop Date”), the Lessor and Lessee shall extend the Stop
Date to such date as may be mutually agreed in writing.
The annual rental in respect of the Lease for the Plant Land and the IPP
Pumphouse to be paid by the Lessee to the Lessor, shall amount to
RM970,000.00 only per annum and the first annual rental payment shall fall ten
(10) Business Days after the Effective Date of the LA and thereafter the Rental
for each subsequent year, for the duration of the Lease Term, shall be due to be
paid on the anniversary of the first Due Date;
Possession of the Plant Land and IPP Pumphouse to the Lessee shall be
delivered on the Effective Date. However, the Lessee may request for early
delivery of possession of the Plant Land and IPP Pumphouse to commence site
preparation work or preliminary construction works by way of a written request to
the Lessor and the Lessor shall deliver the same within thirty (30) days of the
Lessee’s written request.
The Lessee shall pay the Lessor the maintenance costs reasonably incurred by
the Lessor (to a maximum of RM250,000.00 per annum). If the maintenance cost
for a year is below the maximum RM250,000.00 limit, such difference shall be
carried forward to the next year to increase that year’s annual maintenance limit
would be increased.
5.5.4.8 Termination
The Lessor is entitled to terminate the LA if the project is aborted prior to the
Financial Closing Date or if the Lessee fails to satisfy a Walk Away Event by the
relevant Walk Away Date In the event of such a termination, the Lessor shall
return to the Lessee the portion of the Rental after deducting amounts for the
proportion of Rental incurred and the cost of removal of the Lessee’s Facilities
and cost of clearing up the Plant Land.
In the event the LA is terminated by virtue of termination of the PPA and (as a
consequence thereof) the Lessor purchases the Project, the LA shall terminate
upon completion of the Lessor’s purchase of the Project and the Lessee shall
deliver possession of the lands to the Lessor on that same date.
In the event the LA is terminated by termination of the PPA and the Lessor does
not purchase the Project, the Lessee shall (within three hundred and sixty five
(365) days from date of PPA’s termination) remove all its facilities and clear up
the lands for delivery of possession to the Lessor.
The Lessor is not entitled to terminate or forfeit this LA so long as the PPA
remains in force.
For the purposes of this section, the following definitions would apply:
“Walk Away Date” means the date listed against each Walk Away Event in the
table below as the date by which the Walk Away Event must be achieved.
“Walk Away Events” means those events marking the completion of certain
critical steps in achieving the COD of a Generation Block on or before the
Scheduled COD of such Generating Block, in accordance with the terms of the
LLA, as identified in the table below.
5.5.4.9 Ownership
During the Lease Term, the Lessee shall be deemed the legal and beneficial
owner of the Lessee’s Facilities and the Lessor shall be deemed the legal and
beneficial owner of the Lessor’s Facilities.
The Lessee shall bear all costs and expenses in obtaining the Letter of Consent
and the registration of the Lease (Form 15A). Each party shall bear its own
solicitors’ fees and costs in connection with the obtaining the Letter of Consent
and the registration of the Lease (Form 15A).
Subject to the Lessee punctually paying the Rental and observing and performing
all its covenants stipulated in this LA, the Lessor covenants that the Lessee shall
peaceably and quietly hold and enjoy the Plant Land and the IPP Pumphouse.
5.5.4.12 Assignment
The Lessee shall not assign, transfer, sub-lease or grant any tenancy in respect
of the Plant Land and the IPP Pumphouse, nor create any charge, lien, pledge or
trust in respect of, or in any other manner or from whatsoever dispose of, the
whole and/or any part of the Plant Land and the IPP Pumphouse or any part of
any right or interest of the Lessee in the Plant Land and the IPP Pumphouse
without the consent in writing of the Lessor. Notwithstanding the above, in the
event that the Financing Documents (as defined in the PPA) require the Lessee
to create an-assignment of the rights, benefits and obligations of the Lessee
under the LLA in favour of the Lenders (as defined in the PPA) the Lessor shall
provide its consent to the Lessee for the sole purpose of the same. In the event
that the LLA or the PP A is terminated, the Lessee shall discharge the
assignment, charge, lien or pledge (if any) created over the registered lease.
TNB Northern Energy entered into the EPC Contract on 21 January 2013 for the
design, engineering, procurement, and installation of the Facility.
Consequently, TNB Prai entered into the the following agreements: (i) the LTMP
Contract for the maintenance of 2 gas turbines that are to be installed in the
Facility; (ii) the Turnkey Contract on 21 January 2013 for the procurement and
sourcing of the skill, expertise and resources required to design, engineer,
procure and install the Facility; and (iii) the OMA with TNB Remaco (the
“Operator”) on 21 January 2013 for the operation and maintenance of the
Facility.
TNB Prai shall pay the Operator operation and maintenance costs, comprising:
(b) The Procurement, operation and maintenance cost for the Works during
the Operating Period shall comprise the following:
The Fixed Operating Cost is paid by TNB Prai to the Operator, in consideration of
the Works carried out during the Operating Period and comprises:
(b) Reimbursements:
The Fixed Operating Cost shall be invoiced and paid by TNB Prai in 12 equal
monthly instalments at the end of each month of each year during the Term. For
the avoidance of doubt, the first invoice for the Fixed Operating Cost shall be
issued after the expiry of thirty (30) days from the Commercial Operations Date.
The Variable Operating Cost is paid by TNB Prai to the Operator, in consideration
of the variable component of the Works carried out during the Operating Period.
The Variable Operating Cost shall be invoiced monthly at the end of each month
during the Operating Period.
The Term shall commence on the date of the OMA and shall continue for a
period being the later of:
(a) 21 years from the COD of the First Generating Block; and
The Term may be extended on a yearly basis upon mutual agreement between
the Parties. At least 1 year before the expiry of the Term, TNB Prai may notify the
Operator of its desire to extend the Term, whereupon the Parties shall commence
negotiations in good faith to reach to an agreement on the terms and conditions
of any extension.
The Operator's liability with respect to a claim or claims of any kind relating to the
OMA or the subject matter hereof, whether as a result of breach of contract,
warranty, indemnity, tort, strict liability or otherwise, shall be limited as follows:
(b) during the Operating Period, a cap of 30% of the Procurement, Operation
and Maintenance Cost due in the relevant year in each case for the
relevant year;
(c) an overall aggregate cap for the Term of 50% of the Operation and
Maintenance due in the base year during the Operating Period; and
For each year during the Term, the maximum amount of liquidated damages that
the Operator is liable shall be limited to 30% of the Fixed Operating Cost for the
respective year.
For each year during the Term, the maximum combined total amount of liquidated
damages that the Operator is liable be limited to 50% of the Fixed Operating Cost
for the respective year.
The heat rate (at the higher heating value) for each Generating Block throughout
the Term shall be no more than the applicable heat rates set out in the Schedule
of Heat Rates (at the Higher Heating Value) for each Generating Block in the
PPA.
∑k(DACPWK-DACAWK) x 1000 x 24
(b) In the event the contractual available capacity established prior to the
COD of each Generating Block is lower than the 535.715 MW, such lower
figure shall be considered the TAAC which the Operator is required to
maintain.
The average availability target for a contract year block shall not be less than the
CAAT of 94.0% as out in the PPA.
The Operator shall cause the Facility to comply with all Despatch Instructions as
set out in OMA.
The Operator shall cause the Facility to satisfy tests conducted by the GSO upon
issuance of a notice by TNB to TNB Prai to determine the capability of a
Generating Block to meet the specified MW level up to the Declared Daily
Available Capacity within the time specified in the notice.
The Operator shall cause the Facility to comply with or operate in conformity with
any of the operating standards or characteristics as set out and further described
in the PPA.
In the event the heat rate of a Generating Block exceeds the Guaranteed Net
Heat Rate and ACC ≥ ADFP, the Operator shall pay TNB Prai as liquidated
damages:
Where:
LDHR = Liquidated damages payable in the event the Guaranteed Net Heat Rate
is exceeded.
ACC = The aggregate audited fuel consumption (in Ringgit Malaysia) of the
relevant Generating Block based on net electrical output in the same financial
year of TNB Prai.
ADFP = Total fuel payment received by the Owner from TNB over a financial year
of TNB Prai in connection with the relevant Generating Block calculated in
accordance with the PPA.
In the event the Facility fails to achieve the Contracted Average Availability
Target, the Operator shall pay TNB Prai as liquidated damages 30% of the
Availability Target Payment.
In the event the Facility fails to comply with a despatch instruction, the Operator
shall pay to TNB Prai for each such failure and as liquidated damages an amount
equal to RM250,000 and the Energy Payment for any excess net electrical
output, save and except where the failure to comply with a Despatch Instruction
constitutes the third such failure to comply with a Despatch Instruction, within a
period of fourteen (14) days, whereby the Operator shall forthwith pay Liquidated
Damages in accordance with the following formula:-
In the event the Facility fails to comply with a Monitoring Test, the Operator shall
pay to TNB Prai for each such failure and as liquidated damages an amount
equal to RM250,000 and the Energy Payment for any excess net electrical
output, save and except where the failure to comply with a Monitoring Test
constitutes the third such failure to comply with a Monitoring Test, within a period
of fourteen (14) days, whereby the Operator shall forthwith pay Liquidated
Damages in accordance with the following formula:-
In the event the Facility fails to comply with or operate in conformity with any of
the operating standards or characteristics set out in the PPA, the Operator shall
pay to TNB Prai, for each such failure and as liquidated damages RM
100,000.00.
Bonus
In the event the heat rate of a Generating Block does not exceed the Guaranteed
Net Heat Rate and ACC < ADFP, TNP Prai shall pay to the Operator as a heat
rate bonus calculated as follows:
Whereby:
ACC = The aggregate audited fuel consumption (in Ringgit Malaysia) of the
relevant Generating Block based on net electrical output in the same financial
year of the Owner.
ADFP = Total fuel payment received by TNB Prai from TNB over a financial year
of TNB Prai in connection with the relevant Generating Block calculated in
accordance with the PPA.
If the Operator curtails output of electricity or shuts down the Facility, as a result
of TNB or GSO's refusal to accept net electrical output from the Facility:
(a) the Operator shall inform TNB Prai of the additional cost that Owner and
Operator may incur as a result of a rapid shutdown of the Facility (if
applicable); and
(b) TNB Prai must continue to pay the Operator the Procurement, Operation
and Maintenance Cost and, unless it is due to the Facility delivering net
electrical output which does not conform to the electrical characteristics
described in the PPA or an act or omission of the Operator, its employees,
agents or Subcontractors,
(i) TNB Prai must reimburse the Operator for any reasonable additional
resulting cost incurred by the Operator; and
(ii) the Operator will be excused from its Performance Guarantees and
will not be liable to pay any liquidated damages and will not be held
to be in breach of the OMA.
5.5.5.8 Termination
The OMA will automatically terminate upon the expiry of the Term, unless earlier
terminated or extended in accordance with the OMA.
(a) The occurrence of any of the following events at any time from the date of the
NTP, unless excused by Force Majeure or TNB Prai's failure to fulfil its
obligations under the OMA, shall constitute an Event of Default by the Operator:
(A) either (a) is persistent and repeated or (b) has not been remedied
within thirty (30) days (or such longer period as may be specified
in that notice) of receipt of a written notice from TNB Prai to do so;
and
if any dispute has occurred between the Operator and its employees
which results in a failure by the Operator to perform any work which
failure has any of the effects specified in (ii) above and such failure has
not been remedied within thirty (30) days of receipt of a notice from TNB
Prai to do so or if as a result of the industrial action of the Operator's
employees or any dispute between the Operator and its employees, tire
Operator has been unable to Operate the Facility for an aggregate of forty
five (45) days in any 3 year period; or
if the liability of the Operator under the OMA exceeds the amount referred
to in section 5.5.5.5 above for more than 2 consecutive years; TNB Prai
may by fifteen (15) days written notice to the Operator terminate the OMA;
or
(a) the Tested Annual Available Capacity falls below the level set out
in the OMA;
(b) the Unplanned Outage exceeds the level set out in the OMA;
and/or
(b) the Guaranteed Net Heat Rate exceeds the level referred to in the OMA as may
be demonstrated from the difference in the payments made for Nominated Fuel
supplied by the Nominated Fuel supplier and payment received for Energy
Payments from TNB under the PPA in each month;
for more than 3 consecutive Contract Years due to causes which are wholly
attributable to the breach by the Operator of any of its obligations under the OMA
BUT PROVIDED THAT if any dispute on this provision has been referred for
resolution in accordance with the provisions in the OMA on arbitration and
dispute resolution, the OMA shall not be terminated until such dispute is resolved.
(c) Except for the mechanisms provided to enable the Contractor to cure its failure to
perform its obligation, if there shall occur an Event of Default, TNB Prai may give
the Operator notice in writing specifying and describing the Event of Default
complained of. If TNB Prai gives such notice and the Operator does not
commence to diligently pursue to cure such Event of Default within twenty (20)
days after receipt of such notice and thereafter continue to pursue such cure
diligently and promptly and to complete such cure within ninety (90) days or such
longer period as may reasonably be required to effect such cure, TNB Prai may,
in addition to other remedies set forth in the OMA, terminate the OMA by written
notice to the Operator.
(a) The occurrence of any of the following events at any time from date of the Notice
To Proceed, unless excused by Force Majeure, shall constitute an Event of
Default by TNB Prai:
Insolvency
Default in payment
TNB Prai defaults in payment as and when due of any moneys payable (but
unpaid) under the OMA and such default shall continue for a period of 15 days
except for progress payment applications disputed in good faith by TNB Prai;
Breach of obligations
TNB Prai fails substantially to perform any of its obligations under this Agreement
in any material respect; or
Misrepresentation
any material representation made by TNB Prai herein shall be proved to have
been false or misleading in any material respect when made.
(b) If there shall occur an Event of Default in respect of TNB Prai, the Operator may
give TNB Prai notice in writing specifying in detail the Event of Default. If the
Operator gives such notice and TNB Prai does not commence to diligently pursue
the cure of such default within twenty (20) days after TNB Prai's receipt of such
notice and thereafter continue to pursue such cure diligently and promptly and to
complete such cure within such period or such longer period not to exceed ninety
(90) days as may reasonably be required to effect such cure, the Operator may
terminate the OMA by written notice to TNB Prai and seek remedies pursuant to
the OMA.
(ii) the Facility is purchased from TNB Prai following the termination of the
PPA, provided however TNB Prai shall use its reasonable endeavours to
assist the Operator in obtaining an agreement on terms no less favourable
than the OMA with the new owner of the Facility to allow the Operator to
continue to Operate and Maintain the Facility.
(b) Subject to extension in accordance with the OMA, the OMA should automatically
terminate 21 years after the COD of the First Generating Block, unless otherwise
agreed.
5.5.5.8.5 Assignment
The OMA shall not be subject to assignment by either party without the prior
written consent of the other party except that TNB Prai may assign the
Agreement to any financing Parties as security for providing the financing or
refinancing for the Facility. The Operator agrees to enter into an assignment and/
or direct agreement with TNB Prai and the Financing Parties in a form reasonably
required by the financing parties, subject to the consent of the Operator, which
consent must not be unreasonably withheld, that contemplates, amongst other
things, the exercise by the Financing Parties of the rights of TNB Prai under the
OMA so that the Financing Parties may step into the position of TNB Prai under
the OMA.
5.5.6.1 Overview
The LTMP was entered into on 21 January 2013 between TNB Prai and Siemens
AG and Siemens LS (Siemens AG and Siemens LS jointly referred to as “LTMP
Contractor”) to provide for the supply of long term maintenance services
consisting of parts, shop repairs, miscellaneous hardware and scheduled outage
services to the Facility by the LTMP Contractor.
The LTMP Contractor’s scope of work, the terms and conditions of the LTMP and
the LTMP contract price are based upon the following basic operating
parameters:
(a) operation and maintenance of the Gas Turbine shall be operated and
maintained in accordance with the operating regime and technical limits
specified in the LTMP;
(b) operation of the Power Plant and the take-over settings, using fuel and
consumables in accordance with the specifications contained in the
LTMP;
(c) the Power Plant shall be operated using water and chemicals meeting
the specifications contained in the LTMP, and TNB Prai shall ensure
that the LTMP Contractor has the right to take gas, water and chemical
samples at any time during the term of the LTMP; and
(d) the Power Plant shall be operated in such a way that the scheduled
outages can be conducted on the Gas Turbine in accordance with the
specifications contained in the LTMP.
The LTMP Contractor shall only be liable for at least negligently incorrectly given
or at least negligently omitted instructions regardless of the legal theory of
recovery whether based in contract, in tort (including negligence and strict
liability), under warranty, indemnity or otherwise. The LTMP Contractor shall not
be liable for the consequences of any failure to comply with the instructions.
The Mobilisation Fee consists of an offshore part (Siemens AG) and onshore part
(Siemens LS).
Each year a Fixed Fee shall be paid and invoiced in equal monthly instalments at
the beginning of each month, starting at the originally Scheduled COD of the 1st
Gas Turbine and ending at the end of the term of the LTMP. The total Fixed Fee
per year consists of an offshore part (Siemens AG) and onshore part (Siemens
LS).
The Variable Fee is based on the number of Equivalent Base Hours (“EBH”) the
gas turbine actually accrues starting from First Fire. The Variable Fee based on
EBH shall be paid at the end of each calendar month. The amount of each
monthly payment is based on the number of EBH that the Gas Turbine accrued in
the previous calendar month. The initial Variable Fee payment based on EBH
shall consist of the actual EBHs accrued between First Fire and actual TOC and
shall be invoiced to TNB Prai at originally Scheduled COD.
TNB Prai has the right to request services for a Scheduled Outage prior to the
Gas Turbine accruing the number of EBH requiring such inspection. If a
Scheduled Outage of the Gas Turbine is to be carried out prior to the planned
EBH intervals as defined in Attachment C (Planned Outage Schedule), a "true
up" payment shall be paid, equal to the difference between the actual paid
Variable Fee and the amount that would have been due if the outage was
performed at the EBH interval defined in the LTMP. The EBH Fee shall be
payable until commencement of the Scheduled Outage scheduled at 100.000
EBH.
Invoices for change orders shall be submitted in accordance with the mutually
agreed price and procedure as specified in the change order.
Price Indexation
The term of this LTMP (the “Term”) shall commence on the Effective Date and,
unless terminated earlier pursuant to Clause 12 (Termination), it shall end for
each Gas Turbine upon completion of the earlier of:
(ii) the 8th Scheduled Outage of the applicable Gas Turbine has been
completed; or
(a) the date this LTMP is signed by both parties, or, if not signed by both
parties simultaneously, the date of signature by the second party
(“Signature Date”), and
(b) the date on which TNB NE, as party to the EPC Contract, issues a valid
notice to proceed. TNB Prai shall inform the LTMP Contractor immediately
after issuance and shall provide a copy of the notice to proceed.
Additional Term
(b) not all of the Scheduled Outages on the applicable Gas Turbine will have
been performed by the time the first Gas Turbine has reached its 6th
inspection;
If TNB Prai exercises the option for this extension, the Term shall end for
each Gas Turbine upon completion of the earlier of:
(B) the 8th Scheduled Outage of the applicable Gas Turbine has
been completed;
or
The LTMP Contractor shall be liable for any damage to the TNB Prai’s property
caused by negligent acts or omissions or wilful misconduct or based on strict
liability of the LTMP Contractor for the performance of its obligations hereunder.
However, TNB Prai expressly agrees that under no circumstances shall the
liability of the LTMP Contractor under any theory of recovery (including
reimbursement of costs incurred by TNB Prai), whether based in contract, in tort
(including negligence and strict liability), under warranty, indemnity or otherwise,
exceed caps (i) per event and Gas Turbine, (ii) per Contract Year and Gas
Turbine and (iii) in total aggregate over the Term for any physical damage to
property.
TNB Prai expressly agrees that its remedies provided herein are exclusive and
that under no circumstances (except for wilful misconduct, fraud and
indemnification under clause 13.1.1 of the LTMP) shall the liability of the LTMP
Contractor under any theory of recovery (including reimbursement of costs
incurred by TNB Prai), whether based in contract, in tort (including negligence
and strict liability), under warranty, indemnity or otherwise, exceed:
(a) in aggregate in any Contract Year 62.5% of the Contract Price paid to the
LTMP Contractor during such Contract Year, and
(b) in aggregate for any post term liability 15% of the yearly Contract Price
paid to the LTMP Contractor on average per year during the Term, and
The LTMP Contractor shall be liable for defects in material and workmanship, or
for normal wear and tear:
(a) of the program parts supplied by the LTMP Contractor under the LTMP,
and
(b) once the defects' liability for program parts under the EPC Contract has
expired, earliest however two (2) calendar years after Scheduled COD,
program parts which were delivered under the EPC Contract,
from the date supplied until the end of Term ("Term Warranty").
If during this period a program part fails to conform to the above Term Warranty
and the LTMP Contractor is promptly notified in writing by TNB Prai of the defect
within the Term Warranty period, the LTMP Contractor shall, at its option and
expense, either:
(ii) install a new or refurbished program part as substitute for the defective
program part.
(a) After the expiration of the Term, the LTMP Contractor shall be liable for
defects in material and workmanship of the program parts installed in
such Gas Turbine by LTMP Contractor during the performance of the last
Scheduled Outage until the earlier of:
(i) twelve (12) months after the date of completion of such Scheduled
Outage, or
(ii) eight thousand (8,000) EBHs after the date of completion of such
Scheduled Outage.
(b) If during this period a program part fails to conform to the above defects'
liability and the LTMP Contractor is promptly notified in writing by TNB
Prai of such defect within the above period, the LTMP Contractor shall, at
its option and expense, either:
During the Term, the LTMP Contractor shall maintain in full force and effect:
During the Term, TNB Prai shall maintain in full force and effect:
(a) Property all risk insurance, including boiler and machinery breakdown
coverage, covering all real and personal property of TNB Prai on a 100%
replacement cost basis.
TNB Prai’s insurances shall provide the best terms and conditions as are
reasonably available in the insurance market and shall be effected with insurers
(or, where the local insurance market is a restricted insurance market, with
reinsurers) being at least A-rated or better.
TNB Prai shall ensure that each of the insurances to be provided by TNB Prai in
accordance with this provision shall be primary to any insurance carried by TNB
Prai and TNB Prai’s subcontractors, and that each insurance shall name the
LTMP Contractor and its subcontractors as co-insured with insurer’s waiver of
subrogation.
TNB Prai shall provide to the LTMP Contractor a copy of the property all risks
and machinery breakdown insurance and, upon request, certificates or other
evidence of the other insurances. TNB Prai shall give the LTMP Contractor thirty
(30) days advance notice of any cancellation or material changes in such
policies.
TNB Prai shall ensure that the LTMP Contractor and its subcontractors are
named as co-insured with insurer’s waiver of subrogation in the construction /
erection all-risks’ insurance which has to be provided under the EPC Contract for
any activities of TNB Prai or its subcontractors before TOC.
5.5.6.10 Termination
Neither Party shall be entitled to terminate the LTMP, unless established under
the LTMP.
TNB Prai shall be entitled to terminate the LTMP by prior written notice to the
LTMP Contractor if the LTMP Contractor is in Default. The LTMP Contractor shall
be considered to be in “Default”:
(b) if the LTMP Contractor is in breach of any material provision of this LTMP,
and the LTMP Contractor has not commenced cure of such breach within
thirty (30) days after receipt of written notice from the TNB Prai of such
breach; or
(c) if the LTMP Contractor is in breach of any material provision of this LTMP,
and the LTMP Contractor is continuing to abandon the pursuit of the cure
of such breach twenty (20) days after having received written notice from
the TNB Prai that the TNB Prai may terminate this LTMP.
If TNB Prai elects to terminate this LTMP pursuant to the above provision, the
LTMP Contractor shall be entitled to retain or receive only those amounts paid or
payable hereunder at the time of termination. Upon such termination, the LTMP
Contractor shall stop work on the terminated portion of this LTMP and shall place
no further orders with lower tier subcontractors.
TNB Prai may, after the first Major Inspection, and upon thirty (30) days written
notice to the LTMP Contractor, at its sole option, terminate the LTMP, at any time
for the TNB Prai’s convenience.
In the event of any of the following occurs the LTMP Contractor may at its option
suspend wholly or partly the provision of its Works under the LTMP, if:
(i) TNB Prai having failed to make payment of any amount due and payable
to the LTMP Contractor within thirty (30) days after the receipt of a written
payment reminder by the LTMP Contractor; or
(ii) TNB Prai is insolvent or any proceeding is being instituted against TNB
Prai seeking to adjudicate TNB Prai as bankrupt or insolvent or TNB Prai
makes a general assignment for the benefit of its creditors or a receiver is
being appointed on account of any insolvency or TNB Prai is filing a
petition seeking to take advantage of any law relating to bankruptcy,
insolvency, winding up or readjustment of debts and, in the case of any
such proceeding instituted against TNB Prai (but not by TNB Prai) if such
proceeding is not dismissed within forty five (45) days of such filing; or
(iv) TNB Prai having failed to perform any of its material obligations under this
LTMP or having impeded the LTMP Contractor’s exercise of any of its
material rights under this Contract; or
(v) TNB Prai having failed to provide or maintain a letter of credit or security
instrument agreed upon by the parties to be provided pursuant to section
5.5.6.9 above (Payment Security).
In the event the LTMP Contractor suspends the provision of its Works, TNB Prai
shall pay the LTMP Contractor any additional Costs and expenses incurred
resulting from such suspension.
The LTMP Contractor may terminate a part or the whole LTMP by written notice
with immediate effect in case the requirements set forth in section 5.5.6.10.3
(i)(b) or (c) are given, with thirty (30) days written notice to TNB Prai in the other
cases stipulated in section 5.5.6.10.3(i)(d) or (e) and with sixty (60) days written
notice in case the TNB Prai having failed to make payment of any amount due
and payable to the LTMP Contractor.
(i) the LTMP Contractor shall stop all Works and place no further orders or
subcontracts, and
(ii) TNB Prai shall promptly pay the LTMP Contractor for all works, supplies
and Services performed and all reasonable termination cost, if any, from
lower tier subcontractors upon submission of the LTMP Contractor’s
invoice, and
(iii) TNB Prai shall pay for any other cost or liability which was reasonably
incurred by the LTMP Contractor under the circumstances including the
cost of removal / return of items or the repatriation of staff.
If one or more Force Majeure events continue to cause delay for more than six
(6) months, then either Party may terminate the LTMP with immediate effect. If
any of the Parties elects to terminate the LTMP pursuant to this Clause, then
upon such termination, the LTMP Contractor shall stop all Works related to the
LTMP and place no further orders or subcontracts, and TNB Prai shall promptly
pay the LTMP Contractor for all Works, supplies and Services performed until
and including the date such termination becomes effective.
TNB Prai shall pay to LTMP Contractor the applicable termination fee calculated
in accordance with the LTMP if:
(a) TNB Prai terminates this LTMP under Termination for convenience; or
(b) the LTMP Contractor terminates this LTMP as Termination for TNB Prai’s
Default.
For the purposes of this LTMP, Force Majeure shall mean an exceptional event,
condition, or circumstance or its effect which:
(a) is beyond the reasonable control of and occurs without fault or negligence
of Party claiming it as a Force Majeure Event;
(b) could not have been provided against by the Party claiming it as a Force
Majeure Event before entering into the LTMP;
Neither Party shall be liable for failure to perform any obligation or a delay in
performance resulting from Force Majeure including but not limited to acts of
God, acts of civil or military authority; acts of war whether declared or undeclared;
acts (including delay, failure to act) of any governmental authority, civil
disturbance, insurrection or riot, sabotage, terrorist acts, fire, inclement weather
conditions, earthquake, flood, strike, work stoppage or other labour difficulty,
embargo or car shortage.
In the event either Party is unable to perform its duties and obligations under this
LTMP as a result of a Force Majeure event, such Party shall give notice to the
other of such inability stating the Force Majeure event in question.
5.5.7.1.1 Scope
(a) design, procure, construct, manufacture, deliver to the Site and/or IF Site
and erect or install all equipment, systems, components and Materials
necessary to achieve successfully the Performance Guarantee, to
commission and be ready for the taking over of each Generating Block,
the Common Facilities and the Interconnection Facilities by their
respective Taking-Over Dates, to complete successfully the Tests On
Completion and to achieve the issuance of all the Taking-Over
Certificates, on a fixed priced, lump sum turnkey basis;
(b) design, engineer, construct and commission each Generating Block, the
Common Facilities, and the Interconnection Facilities as the case may be,
in accordance with this Turnkey Contract and where these are silent on
any specific matters, then in accordance with Prudent Utility Practices;
and
(c) design, engineer and construct each Generating Block to meet the
standards and requirements more particularly described in this Turnkey
Contract, as follows:
(i) in relation to noise and emissions, the Contractor shall ensure that
the Generating Blocks and/or the Facility complies with the
conditions and other provisions of the EIA Approval and the
environmental requirements. In relation to the start up time and
despatch ramp rates, the Contractor shall ensure that the
Generating Blocks and the Facility complies with the conditions as
specified in the Turnkey Contract;
(e) start-up, test and commission each Generating Block including initial
testing of components, calibration of controls and equipment, initial
operation of the Works and each component thereof, function and
verification tests, and all other start-up and initial operation functions
pertaining to the Works at the Site and/or IF Site. The Employer and the
Utility shall have the right (but shall not be obligated) to observe all start-
up and initial operation functions pertaining to the Works. At all times
during the performance of the Works, the Contractor shall use all
reasonable efforts to minimise (consistent with Prudent Utility Practices
and the terms of the Turnkey Contract) the use of fuels, utilities,
consumables, waste disposal services, electricity, water and chemicals;
(f) to use best efforts to make available for purchase by the Employer
suitable spare parts for the operation and maintenance of the Works for a
period of time following taking over;
(g) to provide as part of the Accepted Contract Amount, all Special Tools for
the operation and maintenance of the Plant;
(h) the Contractor shall submit to the Employer the construction schedule that
indicates, in a manner consistent with the overall construction schedule
then set forth, the proposed dates for completion of the individual features
of the Works set forth (as such construction schedule may be adjusted),
and the Employer shall have access to the updated schedules of the
Works and monthly progress reports of actual progress of the Works
prepared by the Contractor or as may be provided by the Subcontractor to
the Contractor, as the case may be; and
at all times, coordinate and liaise with the Employer, the Utility and/or Off-taker to
ensure that the notice and coordination activities stipulated in the Turnkey
Contract are achieved. In addition to the above and among others, the
Contractor shall be solely responsible in financing the Project. The Contractor
shall complete and/or present all written representations, undertakings, and other
documentation or information as may be reasonably required under the Turnkey
Contract to meet the requirements of the financial institutions.
For the purposes of this section, the following definitions would apply:
“Special Tools” mean the special tools provided by the Contractor and/or the
Subcontractor for the operation and maintenance of the Plant or as may
otherwise be agreed, and shall include items normally included with the purchase
of equipment from Subcontractors. The Contractor shall hand over the Special
Tools to the Employer in good order, or replace them at its cost.
The Contractor shall commence Works under the Turnkey Contract upon the
execution of the Turnkey Contract.
The Contractor may subcontract the Works wholly or in part to Samsung E&C,
and the Contractor shall ensure that its obligations under the Turnkey Contract
shall apply to the EPC Contract. The Contractor shall remain responsible for the
Subcontractor’s performance and performance of its obligations under the
Turnkey Contract. The Contractor shall also remain responsible for the acts or
defaults of the Subcontractor, its agents or employees, as if they were the acts or
defaults of the Contractor.
Provided always, the adjusted Accepted Contract Amount shall not be more than
ten percent (10%) of the Accepted Contract Amount stipulated above.
The parties have since agreed to revise the Accepted Contract Amount by way of
a supplemental agreement which was entered into on 3 April 2013.
The Accepted Contract Amount shall be paid by the Employer to the Contractor
in stages after the issuance of the Taking-Over Certificate and the Employer shall
have the right to make payments in instalments in amounts and for the duration
to be agreed between the parties.
The Employer shall endeavour to apply, with the assistance of the Contractor, for
tax exemption for all import taxes on plant and materials imported into Malaysia
and excise duties on locally manufactured plant and materials. The Accepted
Contract Amount shall be adjusted when any tax exemptions are obtained. In the
event that no tax exemptions are obtained, the Contractor shall pay all taxes,
duties and fees required to be paid by him under the Turnkey Contract or by
applicable laws.
(a) The Contractor shall, if required by the Employer in writing, within seven
(7) days before the issuance of the NTP, obtain (at its cost) a
Performance Security for proper performance in the amount stated in the
Contract Information i.e. 20% of the Accepted Contract Amount.
(b) The Performance Security shall remain valid until the Taking-Over Date,
and shall be returned to the Contractor, if uncalled by the Employer within
twenty eight (28) days after the Taking-Over Date.
(c) Upon the Taking-Over Date, the Contractor shall, if required by the
Employer in writing, issue a new Performance Security in favour of the
Employer ("DNP Performance Security") at an amount as outlined in the
EPC Contract and subject to terms and conditions to be determined by
the Parties.
(d) The Contractor shall ensure that the Performance Security or the DNP
Performance Security is valid and enforceable until the Contractor has
executed and completed the Works and remedied any defects.
The Accepted Contract Amount shall be paid by the Employer to the Contractor
in stages after the issuance of the Taking-Over Certificate and the Employer shall
have the right to make payments in instalments in amounts and for the duration
to be agreed between the Employer and the Contractor.
(a) The Contractor shall schedule and perform the Works so as to cause
each Generating Block to be ready for taking over no later than its
scheduled or planned Taking-Over Date.
(b) The Contractor shall complete the whole of the Works, and each Section
(if any), within the Time For Completion for the Works, which shall not
exceed nine hundred and seventy four (974) days or section (as the case
may be), including:
(1) the Contractor has submitted the documents that are necessary to
enable the Employer to obtain the Commissioning Tests
certificate, or a document to similar effect, to be issued by the
Commission in accordance with the requirements of the
Generation Licence, and the Contractor has submitted the as-built
drawings and the provisional operation and maintenance manuals;
(3) all the documentation, data, information and certified test results
relating to the Works have been submitted by the Contractor to the
Employer's Representative, and verified by Off-taker as being in
conformance with the requirements to be determined within the
time frames set out therein.
(a) a Variation (unless an adjustment to the Time For Completion has been
agreed);
Taking Over
(1) the Works have been completed in accordance with this Turnkey
Contract, and except as allowed in sub-paragraph (b) below; and
(b) The Contractor may apply in writing to the Employer's Representative for
a Taking-Over Certificate not earlier than fourteen (14) days before the
Works are, in the Contractor's opinion, scheduled to be completed and
ready for taking over.
(2) reject the application, giving reasons and specifying the work
required to be done to enable the issuance of the Taking-Over
Certificate.
The Contractor and/or its Subcontractor shall procure all necessary and relevant
permits and insurances required for the performance of its obligations under this
Turnkey Contract.
The Turnkey Contract provides that "Force Majeure" means an exceptional event
or circumstance:
(b) which such Party could not reasonably have provided against before
entering into this Turnkey Contract;
(c) which, having arisen, such Party could not reasonably have avoided or
overcome; and
Force Majeure may include, but is not limited to, exceptional events or
circumstances of the kind listed below, so long as conditions (a) to (d) above are
satisfied:
(i) war, hostilities (whether war be declared or not), invasion, act of foreign
enemies;
(iii) riot, commotion, disorder, strike or lockout by persons other than the
Contractor's Personnel and other employees of the Contractor and
Subcontractor(s);
Any delay in, or total or partial failure of, performance of a Party caused by Force
Majeure shall not constitute a default hereunder provided, however, that:
(a) the affected Party shall use all reasonable commercial efforts to eliminate
any Force Majeure and mitigate or limit the effect of any such delay or
inability to perform and damages to the other Party;
(b) the affected Party gives the other Party notice of such Force Majeure
event;
(d) no liability of either Party which arose before the occurrence of the Force
Majeure event causing the suspension of performance shall be excused
as a result of such occurrence;
(f) when the affected Party is able to resume performance of its obligations
under this Turnkey Contract, that Party shall give the other party written
notice to that effect and shall promptly resume performance hereunder.
(a) In the event and to the extent that any event of Force Majeure affects the
Contractor's ability to meet any of its obligations under this Contract which
(i) to the extent that the delay(s) are, in the aggregate, one hundred
and forty (140) days or less, the Contractor shall absorb all of its
costs and expenses resulting from the said delay(s); and
(ii) to the extent that the delay(s) are, in the aggregate, more than one
hundred and forty (140) days, the Contractor shall be reimbursed
by the Employer for those incremental costs and expenses directly
resulting from the said delay(s) which are reasonably incurred by
the Contractor after the said one hundred and forty (140) days
period.
In the event that the Works or any part of the Works is damaged or destroyed
due to Force Majeure, then the Contractor shall only be obliged to reinstate or
replace the Works or part thereof which has been damaged or destroyed if
requested by the Employer, in which case it shall be entitled to an adjustment
under the terms of the Turnkey Contract.
(b) the Contractor fails substantially to perform any of its material obligations
under this Turnkey Contract which resulted in the termination of the PPA,
(c) the EPC Contract or any agreement which forms part of the EPC Contract
is terminated;
(g) failure to achieve the taking over of any Generating Block within one
hundred eighty (180) days after the Taking-Over Date for the relevant
Generating Block;
(h) the measured output of a Generating Block is more than five percent (5%)
below the Guaranteed Net Output for that Generating Block within one
hundred eighty (180) days after the Taking-Over Date for the relevant
Generating Block;
(i) the measured heat rate of a Generating Block is more than five percent
(5%) above the relevant Guaranteed Net Heat Rate for that Generating
Block within one hundred eighty (180) days after the Taking-Over Date for
the relevant Generating Block;
(j) the liquidated damages payable above have reached the maximum
liquidated damages payable under the relevant clause;
(k) the Contractor assigns or transfers this Turnkey Contract (or any right or
interest herein) without the express written consent of the Employer;
(l) the Contractor fails to comply with any provision of any applicable Laws or
Applicable Permit, and such failure is not remedied within fourteen (14)
days after the Contractor receives actual knowledge or such longer period
necessary for the Contractor to cure such failure, not to exceed eighty
four (84) days;
The Contractor shall pay liquidated damages to the Employer in accordance with
the provisions herein. The Parties agree that these damages shall not relieve the
Contractor from its obligation to complete the Works, or from any other duties,
obligations or responsibilities which it may have under this Turnkey Contract.
(iii) However, the total of the liquidated damages for delay in taking
over shall not exceed an amount equal to the value of 15% of the
Accepted Contract Amount.
(ii) If the heat rate established for such Generating Block in the
Performance Test exceeds the Guaranteed Net Heat Rate for the
relevant Generating Block, the Contractor shall pay to the
Employer as liquidated damages an amount to be determined.
The cumulative total of the liquidated damages in Items (a) and (b) above
shall not exceed an amount equal to the value of 20% of the Accepted
Contract Amount.
The Employer shall have the right to set off the liquidated damages, if
any, against any remaining payments of the Accepted Contract Amount
due to the Contractor.
(a) any and all scheduled payment due and owing to the Contractor on or
prior to the date of termination;
(b) a pro-rata payment for the Works properly performed by the Contractor
and/or its Subcontractor(s) prior to the date of termination; and
(a) complete any work which is outstanding on the date stated in the Taking-
Over Certificate, within such reasonable time as is instructed by the
Employer’s Representative; and
(a) with respect to Generating Block One (1) and the Common Facilities, for a
period of three hundred and sixty five (365) days from the Taking-Over
Date or such later date for taking over the Generating Block One (1) and
the Common Facilities as agreed between the Employer’s Representative
and the Contractor; or
(b) with respect to Generating Block Two (2), for a period of three hundred
and sixty five (365) days from the Taking-Over Date or such later date for
taking over the Generating Block Two (2) as agreed between the
Employer’s Representative and the Contractor; or
(d) with respect to such parts of the Facility that are not covered by the
clauses above for a period of three hundred and sixty five (365) days from
the Taking-Over Date for the Facility or such later date for taking over the
Facility as agreed between the Employer’s Representative and the
Contractor.
Contractor is to bear risk and cost for all work referred to above if the work is
attributable to:
(a) the design of the Works other than a part of the design for which the
Employer is responsible; or
(a) The Contractor shall start anew the Defects Notification Period for any
recurrent defect from the day of commissioning the changed, modified,
remedied or replaced parts for twenty four (24) months in the case of
Interconnection Facilities and twelve (12) months in all other cases.
(b) When to the extent of the Works or a major item of Plant cannot be used
because of a defect or damage, the Employer may extend the Defects
Notification Period by no more than two (2) years.
(c) The Defects Notification Period shall start anew in respect of parts of a
Generating Block and/or Facility which is renewed.
(a) The Employer shall fix a new date to remedy the defect or damage and
give reasonable notice of it if the Contractor fails to remedy any defect or
damage within a reasonable time.
(b) If the Contractor fails to remedy the defect or damage, the Employer may
at its option:
(i) carry out the work by himself or others at the Contractor’s cost;
If any error, defect, damages and/or failure of parts of the Works is discovered by
the Employer and/or the Utility within sixty (60) months after the Taking Over
Date for the relevant Generating Block or the Interconnection Facilities or the
Facility or such later date for taking over such relevant Generating Block or the
Interconnection Facilities or the Facility as agreed between the Employer’s
Representative and the Contractor, the Contractor warrants to repair, replace,
adjust and/or modify, provided that the defect was caused by the negligence of
the Contractor and was a latent defect.
Contractor’s Claims
If the Contractor considers himself to be entitled to any extension of the Time For
Completion (Turnkey) and/or any additional payment, the Contractor shall give
notice to the Employer’s Representative, describing the event giving rise to the
claim. The notice must be given within twenty eight (28) days after the Contractor
became aware of the event or circumstance, failure of which would render the
Time For Completion (Turnkey) to not to be extended and the Contractor shall
not be entitled to additional payment. Further, the Employer shall be discharged
from all liabilities in connection with the claim.
Amicable Settlement
(a) Both Parties shall attempt to settle any dispute arising from the Turnkey
Contract before the commencement of any arbitration.
(b) Both Parties shall continue to perform their obligations under the Turnkey
Contract in the event any dispute or arbitration arises.
Arbitration
(a) Any dispute, controversy or claim arising out of the Turnkey Contract, or
the breach, termination or invalidity thereof, shall be settled by arbitration
in accordance with the rules for arbitration of the Kuala Lumpur Regional
Centre for Arbitration by 1 arbitrator appointed in accordance with the said
rules. The language to be used shall be English.
(b) If any dispute arises in connection with the Turnkey Contract and the
Contractor opines that the dispute concerns subcontracted Works, the
Contractor may by notice in writing to the Subcontractor require that any
dispute under the subcontract shall be referred to the mediator and/or
arbitrator to whom the dispute under the Turnkey Contract is referred to.
Mediation
Either Party may suggest that the Parties undertake an ad-hoc mediation in
respect of a dispute.
The Project Company and the Issuer will procure and maintain the insurance
policies listed in sections 5.6.1 - 5.6.2 below over the construction period, with
licensed insurers in Malaysia. Both the Project Company and the Issuer will be
named as insured parties under the insurance policies procured for the Project.
The Construction/Erection All Risks insurance covers the works and project
materials, while in storage on site, during construction, erection, commissioning
and testing until the issuance of the taking-over certificate of the plant, plus an
additional warranty/maintenance period.
The Material Damage section of the policy is structured to cover for the
replacement value of the loss. Coverage provided by this policy is on an “all risks”
basis and covers most accidental losses common to construction/erection. The
full EPC Contract Price will be insured under the CEAR policy.
The Delay In Start-Up section of policy provides cover against loss of projected
revenue/fixed costs (including finance service costs), arising from the delay. The
sum insured will be the Debt Service (excluding principal repayment obligations)
and the Fixed costs only and the indemnity period is twenty (24) months.
The Third Party Liability section of the policy will provide insurance coverage to
the named insurers, for any legal action brought against them by third parties for
bodily injury or death, or loss or damage to third party property from sudden and
accidental means arising out of and in connection with the construction / erection
works. The Third Party Liability policy will have a limit of indemnity of RM
50,000,000 for each and every occurrence.
The Marine Cargo Open Cover provides insurance cover against loss or damage
to all materials including plant and equipment, spares, etc. during transit from the
time the materials leave the supplier’s premises anywhere in the world, during the
journey and includes all incidental storage and fabrication off-site until the
materials are delivered to the Site.
The Delay in Start-Up section of the Marine Cargo Open Cover provides cover
against loss of projected revenue/fixed costs (including finance service costs),
following a loss or damage to the shipment insured under the Marine Cargo Open
Cover (excluding principal repayment obligations) which consequently results in a
delay in commercial operations. The sum insured will be the Debt Service and
Fixed costs only and the indemnity period is eighteen (18) months.
1. BACKGROUND INFORMATION
a. Issuer
if the Issuer has been Not applicable as the Issuer is not a listed company
subjected to any action
by the stock exchange
for any breach of the
listing requirements or
rules issued by the
stock exchange, for
the past five years
prior to the date of
application
(ii) Joint lead arrangers HSBC Amanah and KAF (jointly known as the
“JLAs”)
(iv) Solicitors Messrs Zaid Ibrahim & Co., acting for the Issuer
Insurance Adviser
Project Company
Security Agent
KAF
Account Bank
HSBC Amanah
Ijarah Lease
Wakalah Arrangement
Purchase Undertaking
Rental
To be determined at the point of issuance of the
Sukuk TNB NE.
h. Availability period of Sukuk The period starting from the day all conditions
precedent are complied with (or waived, as the
case may be) to the satisfaction of the JLAs, up
to the date falling one (1) year from the date of
o. Rating
Credit rating(s) assigned The Sukuk TNB NE has been accorded a
(Please specify if this is an preliminary rating of AAAIS by the Rating
indicative rating) Agency.
r. Listing status and types of The Sukuk TNB NE will not be listed on any
listing, where applicable stock exchange.
Negative Covenants
Both Issuer and Project Company covenant
that, for so long as any Islamic Security is
outstanding, it will not:
(a) not add, delete, amend or substitute its
Memorandum or Articles of Association in a
manner inconsistent with the provisions of
the Transaction Documents unless required
by law;
(b) reduce its authorised or paid-up share
capital (except by way of purchase,
acquisition or reduction permitted under the
law or redemption of redeemable preference
shares permitted under the Transaction
Documents) whether by varying the amount,
structure or value thereof or the rights
attached thereto or by converting any of its
share capital into stock, or by consolidating,
dividing or sub-dividing all or any of its
shares which would have a Material
Adverse Effect;
(c) change in a material manner the nature or
scope of its existing business nor suspend a
substantial part of its business where such
change or suspension would have a
Material Adverse Effect;
(d) obtain or permit to exist any financial
indebtedness other than the following:
(i) the Sukuk TNB NE;
(ii) financing facilities from related
corporations of the Issuer that are
subordinated to the Sukuk TNB NE;
(iii) the financing facilities (“Permitted
Facilities”) arising from or in connection
with the Issuer’s obligations under the
Project Documents (including the PPA)
to any provision of bonds/performance
guarantee or in the ordinary course of
business, up to an amount to be agreed
with the Joint Lead Arrangers in the
Transaction Documents;
(iv) financing which repayment or
redemption are subordinated to the
Sukuk TNB NE;
(v) working capital facilities (“Working
Capital Facilities”) up to an amount to
be agreed with the Joint Lead Arrangers
in the Transaction Documents; and
(vi) any hedging arrangements entered into
by the Issuer or the Project Company in
Provisions
x on buy-back and The Issuer and its related corporations may at
. early redemption of sukuk any time purchase the Sukuk TNB NE in the
open market at any price, but any Sukuk TNB
NE repurchased by the Issuer and its
subsidiaries shall be cancelled and cannot be
resold.
Other
y principal terms and
. conditions for the proposal
(iv) Finance to Equity Ratio (“FE The Finance to Equity Ratio will be defined as:
Ratio”) the aggregate outstanding principal obligations
of the Issuer and Project Company under all
financing facilities (except in relation to
intercompany facilities from related corporations
of the Issuer), hire purchase obligations and
finance lease obligations; to
(a) Sponsor’s Equity Contribution.
(u) Base case finance service The Base Case FSCR is the ratio of:
cover ratio (“Base Case (a) the aggregate net operating cash flow
FSCR”) generated for the 6-monthly period ending
on each repayment date of the Issuer and
Project Company; to
(b) the aggregate amount that is required to be
paid (relating to outstanding principal
(xi) Designated Accounts The Issuer and Project Company shall open
and maintain the following Shariah compliant
designated accounts (“Designated Accounts”)
with the Account Bank:
Issuer Accounts
(a) Sukuk MYR Escrow Account;
(b) Sukuk USD Escrow Account;
(c) Sukuk EUR Escrow Account;
been satisfied.
Any credit balance remaining in the EUR EA
after the COD of the last Generating Block shall
be converted and deposited into the Issuer
MYR RA and the EUR EA will thereafter be
closed.
The EUR EA shall be jointly operated by the
Security Agent and the Issuer.
Distribution Account
The Project Company shall open a Shariah
compliant MYR Distribution Account for the
purpose of depositing the amount transferred
from the ProjCo MYR RA for any Restricted
Payments.
For avoidance of doubt, distributions from the
Distribution Account are at the sole discretion of
the Project Company and shall not be subject to
the Negative Covenants item (j) above.
The Distribution Account shall be operated by
the Project Company solely.
(xii) Issuer Priority Cashflow Priority application of cash flow from the Issuer
MYR RA shall be as follows:
(a) for transfers to the Issuer MYR OA for
payment of operating and maintenance
expenses, taxes, duties and compensation
payments;
(b) for payment of Periodic Distribution Amount,
fees, costs, expenses, commissions and
other financing costs payable in connection
with the Sukuk TNB NE;
(c) for payment of all principal obligations under
the Sukuk TNB NE;
(xiii) ProjCo Priority of Cashflow Priority application of cash flow from the ProjCo
MYR RA shall be as follows (except where the
insurance claims are not related to loss in
revenue, business interruption and/or delay in
start-up, item (f) of the “ProjCo Priority of
Cashflow” shall not apply):
(a) for transfers to the ProjCo MYR OA and/or
ProjCo EUR OA for payment of operating
and maintenance, taxes, duties, recurring
capital expenditures in respect of the
Project, including the Project Company’s
compensation payments and other payment
obligations under the Project Documents
including payments to Issuer due under the
Turnkey Contract;
(b) for compliance with the requirements in
connection with the Maintenance Reserve
Account and the Alternative Securities;
(c) for payment of periodic distribution
amount/profit payment, fees, costs,
expenses, commissions and other financing
costs payable in connection with the other
financing facilities as allowed under the
Transaction Documents;
(d) for payment of all principal obligations under
the other financing facilities as allowed
under the Transaction Documents;
(xvii) Mandatory Redemption The Issuer shall use the proceeds from any
performance liquidated damages received from
the EPC contractor to pay the Mandatory
Redemption Amount (as defined below). The
total amount to be applied to the mandatory
redemption (the “Mandatory Redemption
Amount”) will be the lower of:
(i) total proceeds relating to performance
liquidated damages received from the
EPC contractor; and
(ii) such amount necessary (following the
mandatory partial redemption) to restore
the projected minimum Base Case FSCR
at such time to 1.25x, after adjusting only
assumptions regarding net electrical
output of the Plant, and/or net heat rate of
the Plant in the Base Case Financial
Model to reflect the relevant reduced net
electrical output of the Plant and/or
increased net heat rate of the Plant.
Appendix 1
Service Agency
Agreement
6
Ijarah Lease
Agreement
3
Purchase
Undertaking
Step 1 TNB Prai (in its capacity as grantor (“Grantor”)) shall enter into a grant of right
agreement (the “Grant of Right Agreement”) with TNB NE (in its capacity as
grantee (“Grantee”)) acting on behalf of subscribers of the Sukuk TNB
NE(“Sukukholders”), which term shall include any holders of the Sukuk TNB NE
from time to time, to grant the right over the use of the Ijarah Project Lands and to
derive the benefits of the usufruct rights over the use of the Ijarah Project Lands
(the “Asset”) for a duration of 24 years or such period as corresponding to the
lease term in the LLA with an option to be extendable for another 24 years subject
to the PPA term being extended as set out in the LLA (“Grant of Right”). The
Grantee will make a single upfront rental payment (“One-off Rental”) to the
Grantor, which amount shall be equivalent to the aggregate proceeds to be raised
from the issuance of the Sukuk TNB NE.
Step 2 Pursuant to a Declaration of Trust, the Issuer (in its capacity as trustee) shall
declare a trust over the Asset including the rights, title, interest and benefit,
present and future, in and to under the Grant of Right Agreement, the Ijarah Lease
Agreement (as defined below), the Service Agency Agreement and the Purchase
Undertaking (the “Trust Asset”) for the benefit of the Sukukholders.
The Issuer shall issue Sukuk TNB NE to the Sukukholders which shall represent
the Sukukholders’ undivided proportionate beneficial ownership interest, rights
and entitlements under the Trust Asset. The Sukuk TNB NE proceeds shall be
utilised to pay the Grantor the One-off Rental under the Grant of Right Agreement.
Step 3 With the Asset held by the Issuer (in its capacity as Grantee), acting on behalf of
the Sukukholders, the Issuer (in its capacity as Lessor) shall enter into an Ijarah
Lease Agreement (the “Ijarah Lease Agreement”) with TNB Prai (as Lessee), to
lease the Asset to the Lessee, for a tenor corresponding to the maturity of the final
series (“Series”) of the Sukuk TNB NE, i.e. more than 4 years and not exceeding
23 years (the “Lease Period”).
Step 4 Pursuant to the Ijarah Lease Agreement, the Lessee shall pay the ijarah rental
payment (“Lease Rentals”) to the Lessor which shall be the sum equivalent to the
aggregate of all Periodic Distribution Amounts (as defined below) to be channeled
by the Issuer to the Sukukholders as periodic distributions (“Periodic Distribution
Amounts”) in proportion to the Sukuk TNB NE they hold on each periodic
distribution date.
Step 5 Pursuant to a Wakalah Agreement, TNB Prai shall appoint the Issuer as its agent
(“Wakeel”) for the provision of certain services for a wakalah fee of RM100.00, for
a period corresponding to the period for the construction and delivery of the Plant
to TNB Prai under the Turnkey Contract. The Wakeel shall be responsible to:
(i) Safe-keep the One-off Rental paid to TNB Prai as Grantor on a Wadiah basis;
and
(ii) To make payments including (a) payment on behalf of TNB Prai (as lessee) of
the Lease Rentals to the Lessor; (b) any payments as set out paragraph 2(m)of
the PTC (Details on Utilisation of Proceeds) items (1) to (3); and (c) any other
payments or cost in relation to and associated with the Project comprising those
set out in the said paragraph 2(m)items (4) to (6).
Step 6 Pursuant to a Service Agency Agreement, the Issuer (in its capacity as Lessor),
acting on behalf of the Sukukholders, shall appoint TNB Prai as the “Servicing
Agent” for a servicing agent fee of RM100.00, throughout the Lease Period to
carry out certain of its obligations. The Servicing Agent shall be responsible to
procure takaful/insurance in respect of the Asset that provides sufficient proceeds
for the redemption of the Sukuk TNB NE under a Total Loss Event. If the
takaful/insurance proceeds are insufficient to cover the redemption amount due
under the Sukuk TNB NE under a Total Loss Event (the “Redemption Amount”),
Service Agent shall undertake to pay shortfall amount. Thereafter any proceeds
from the takaful/insurance proceeds shall be for the account of Service Agent.
Step 7 The Wakalah Agreement will cease upon the completed Plant being delivered to
TNB Prai under the Turnkey Contract. Thereafter, TNB Prai as Lessee will pay the
Lease Rentals directly to the Lessor, who in turn will channel to Sukukholders as
Periodic Distribution Amounts.
Step 8 TNB Prai (as the “Purchaser”) will grant a purchase undertaking (the “Purchase
Undertaking”) to the Issuer, whereby the Purchaser irrevocably undertakes to
purchase the proportionate undivided ownership in the remaining period of the
Grant of Right from the Sukukholders of the relevant series of the Sukuk TNB NE,
upon declaration of a Dissolution Event (save for a Dissolution Event due to a
Total Loss Event), upon the occurrence of the Mandatory Redemption event or
upon the Maturity Date whichever is earlier, at the relevant Exercise Price or
Mandatory Redemption Exercise Price (where relevant). The proceeds therefrom
shall be utilised by the Issuer for the redemption of such relevant Sukuk TNB NE
held by the Sukukholders which shall then be cancelled.
7. INVESTMENT CONSIDERATIONS
Each issue of the Sukuk TNB NE will carry different risks and all potential investors
are strongly encouraged to evaluate each issue of the Sukuk TNB NE on its own
merit. Recipients of this Information Memorandum are advised to independently
evaluate the risks described in this section before making an investment decision.
The Sukuk TNB NE are subject to certain risk factors that could adversely affect,
amongst others, the business of the Issuer and/or the Project Company. The risk
factors relating to the Sukuk TNB NE and its possible mitigating factors which are
summarised below do not purport to be comprehensive or exhaustive and are not
intended to be a substitute or replacement for an independent assessment of the risk
factors that may affect the Sukuk TNB NE. Each investor should carefully conduct his
or her independent evaluation of the risks associated with investing in the Sukuk TNB
NE.
7.1.1 Rating
MARC has assigned a preliminary rating of AAAIS for the Sukuk TNB NE. A rating is
not a recommendation to purchase, hold or sell the Sukuk TNB NE. There is no
assurance that a rating will remain in effect for any given period of time or that a
rating will not be downgraded, suspended or withdrawn entirely by MARC in the
future, if, in its judgment, circumstances in the future so warrant. Further, such a
rating is not a guarantee of repayment or that there will be no default by the Issuer
under the Sukuk TNB NE. In the event that the rating initially assigned to the Sukuk
TNB NE is subsequently downgraded, suspended or withdrawn for any reason, no
person or entity will be obliged to provide any additional credit enhancement with
respect to the Sukuk TNB NE. Any downgrading, suspension or withdrawal of a
rating may have an adverse effect on the liquidity and market price of the Sukuk TNB
NE. Any downgrading, suspension or withdrawal of a rating will not constitute an
event of default with respect to the Sukuk TNB NE or an event by itself that warrants
the Sukuk TNB NE to be immediately due and payable.
The Sukuk TNB NE comprises a new issue of securities for which there is currently
no secondary market. There can be no assurance that such secondary market will
develop or, if it does develop, that it will provide the Sukukholders with the liquidity of
investments or will continue for the tenor of the Sukuk TNB NE. If a market develops,
the market value of the Sukuk TNB NE may fluctuate. Any sale of the Sukuk TNB NE
by the Sukukholders in any secondary market which may develop may be at a
discount from the original issue price of the Sukuk TNB NE, depending on many
factors, including the prevailing interest rates and the market for similar securities.
Trading prices of the Sukuk TNB NE may also be influenced by numerous factors,
including the operating results and/or financial condition of the Issuer, political,
economic, financial and any other factors that can affect the capital markets, the
industry or the Issuer. Adverse economic developments could have a material
adverse effect on the market value of the Sukuk TNB NE.
Each potential investor in the Sukuk TNB NE must determine the suitability of its
investment in light of its own circumstances. In particular, each potential investor
should:
(ii) have access to, and knowledge of, appropriate analytical tools to evaluate, in
the context of its particular financial situation, an investment in the Sukuk TNB
NE and the impact the Sukuk TNB NE will have on its overall investment
portfolio;
(iii) have sufficient financial resources and liquidity to bear all of the risks of an
investment in the Sukuk TNB NE;
(iv) understand thoroughly the terms of the Sukuk TNB NE and be familiar with
the behaviour of any relevant indices and financial markets; and
be able to evaluate (either alone or with the help of a financial adviser) possible
scenarios for economic and other factors that may affect its investment and its ability
to bear the applicable risks.
Notwithstanding the approvals of the Shariah Adviser of the Sukuk TNB NE, case law
in Malaysia indicates that the courts in Malaysia may still examine the issue of
whether there has been compliance with Shariah and if held to be non-Shariah
compliant, the recoverability of the profit element under the Sukuk TNB NE may be
affected. No assurance is given that the approval(s) of the Shariah Adviser will not be
subject to challenge on grounds that the Sukuk TNB NE is not Shariah compliant.
7.1.5 The Sponsor’s Completion Support and The Sponsor’s Rolling Guarantee
Other than recourse to the internally generated funds of the Issuer which would
primarily consist of Project cash flows, the ability of Sukukholders to recover amounts
due by the Issuer on the Sukuk TNB NE will also be dependent upon the ability of
TNB to fulfil its obligations under the Sponsor’s Completion Support or the Sponsor’s
Rolling Guarantee as set out in Item 2(l) of the PTC.
Under the Sponsor’s Completion Support, TNB shall provide an unconditional and
irrevocable guarantee for the period commencing from (and including) the issue date
of the Sukuk TNB NE and expiring on the date falling twelve (12) months from the
Scheduled COD or the date upon the declaration of a Dissolution Event (whichever is
earlier) to: (1) fund any cost overruns incurred relating to the Project for up to a cap
of 10% of the Project cost as reflected in the Base Case Financial Model; and (2)
fund any principal obligations and Periodic Distribution Amounts under the
Transaction Documents for up to twelve (12) months post the Scheduled COD.
Under the Sponsor’s Rolling Guarantee, upon cessation of the Sponsor’s Completion
Support and until the final maturity date of the Sukuk TNB NE or the date upon the
declaration of a Dissolution Event (whichever is earlier), the Sponsor shall provide a
rolling, unconditional and irrevocable guarantee in an amount equivalent to the next
However, investors should be aware that the Sponsor’s Completion Support and the
Sponsor’s Rolling Guarantee do not include any accelerated payments upon a
declaration of a Dissolution Event. As such, in the event of the occurrence of a
Dissolution Event, Sukukholders will effectively be compelled to choose between (a)
refraining from declaring an EOD and relying on the Sponsor’s Completion Support
or the Sponsor’s Rolling Guarantee (as the case may be) and the Rolling Guarantee
as the source of repayment; or (b) declaring an EOD and commencing enforcement
of the Transaction Documents and securities whereby the Sponsor’s Completion
Support or the Sponsor’s Rolling Guarantee will not then cover the accelerated
amounts due.
Further to the above, the ability of TNB to meet its obligations under the Sponsor’s
Completion Support or the Sponsor’s Rolling Guarantee (as the case may be) is in
turn, dependent on the successful continuation of TNB’s business of generation,
transmission and distribution of electricity in Peninsular Malaysia. In this regard, there
is no assurance that any disruption, decline or threat to the continuation of TNB’s
business will not have an adverse effect on the Issuer’s ability to meet payments due
under the terms and conditions of the Sukuk TNB NE and the Transaction
Documents.
The provision for mandatory redemption to the Sukukholders earlier than the fixed
maturity date may result in the Sukukholders incurring capital loss as this will impact
the Sukukholders who purchased the Sukuk TNB NE above par. The liquidity of the
remaining Sukuk TNB NE may be affected.
7.2.1 Issuer’s Ability to Meet its Obligations Under the Sukuk TNB NE
The PPA specifies the Scheduled COD to be 1 January 2016. Failure to achieve
COD on or before the scheduled COD due to default of Project Company or its
contractors will result in the PPA Delay LDs being payable by the Project Company
to TNB in an amount of RM321,429 per day per Generating Block of delay. Failure
to achieve COD within six (6) months of the scheduled COD is a Project Company’s
EOD.
However, the following factors are to be considered as mitigating factors to the risks:
(i) the ICE confirming the construction schedule is representative of the current
market for gas-fired power stations worldwide and they consider the
construction schedule to be achievable by the EPC Contractor;
(ii) the ICE opining the EPC Contractor and original equipment supplier have
experience with the type of plant being specified and can deliver the Project in
a timely and proficient manner;
(iii) the EPC Contractor has a major global presence in many disciplines including
engineering, procurement and construction and has been involved in the
successful development of a number of large power projects. The original
equipment supplier, Siemens, is one of the largest power plant engineering,
procurement and construction companies and is one of the most experienced
and capable organizations in successfully implementing combined cycle gas
turbine projects. The ICE has opined that both organizations are suitably
qualified for the Project. Siemens and Samsung have also successfully
completed a number of turnkey EPC projects together, including gas-fired
power plant projects in Singapore, Indonesia and the Kingdom of Saudi
Arabia;
(v) pursuant to the EPC Contract, the EPC Contractor is liable for Delay LDs per
day per Generating Block of delay between the scheduled COD and the date
COD is actually achieved. The Delay LDs are required to compensate the
Project Company/ Issuer for:
Delay LDs are capped at 15% of the Accepted EPC Contract Amount. The ICE has
opined that the Delay LD cap will cover a period of four hundred and seventy two
(472) Generating Block days and is adequate, as the period would cover the longstop
date under the EPC Contract, which falls one hundred and eighty (180) days after the
scheduled COD.
Testing and commissioning commence at the Initial Operating Date (“IOD”), which is
six (6) months prior to the scheduled COD. All performance of the testing and
commissioning and verification of results will be subject to monitoring by the Sponsor
and the ICE. The Sponsor has extensive prior experience in the testing and
commissioning of power projects. By virtue of being both the off-taker and the
Sponsor, TNB is in a position to ensure that potential delays can be identified and
managed at an early stage.
Under the PPA, the Power Facility is required to achieve a Net Power Output of
1,071.43 MW upon completion. Failure to achieve the Guaranteed Net Power Output
will result in the PPA Performance LDs payable to TNB in an amount of RM5,000.00
per kW of shortfall. Available Capacity Payment is made on the basis of the most
recent tested annual available capacity. Therefore it is important EPC Contractor is
able to deliver a plant of Net Power Output of no less than 1,071.43 MW.
The EPC Contractor is liable for performance liquidated damages for output shortfall
(“Output Performance LDs”) per kW/Generating Block of shortfall if it fails to
achieve the performance guarantees under the EPC Contract. The EPC Contractor
may elect to pay Output Performance LDs at the Taking-Over Date. Alternatively, the
EPC Contractor may choose to initiate steps to achieve the Guaranteed Net Power
Output within a cumulative total curing period of two years.
Therefore, the Output Performance LDs would be paid at the latest 2 years after
Taking-Over Date if the EPC Contractor elects to return to the Power Facility to
attempt to achieve the Guaranteed Net Power Output. Therefore, there is a risk that
the Project Company would not recover lost revenues due to reduced capacity during
the 2-year cure period. The non-compensated reduced revenue period is however
limited to 2 years only and the Finance Services remains supported by the reduced
revenue levels and the Sponsor’s Rolling Guarantee.
Performance LDs are capped at 20% of the Accepted EPC Contract Amount. The
Output Performance LDs will, together with Heat Rate Performance LDs, be
supported by performance security representing twenty per cent (20%) of the
Accepted EPC Contract Amount. The ICE has confirmed that the level of the Output
Performance LDs is sufficient to recover lost revenues due to reduced capacity and
make payments for PPA Performance LDs. However, the ICE has opined that a 5%
MW output shortfall requires a total LD equal to 24% of the Accepted EPC Contract
Amount, which is more than the liability cap of 20%. Nevertheless, the Output
Performance LDs up to the level of the liability cap are sufficient to meet the PPA
Performance LDs payable to TNB.
(i) the LD cap and provision of the performance security is considered adequate
to incentivise the EPC Contractor to complete and warrant the Power Facility.
(ii) the limit on the Performance LDs is consistent with the current market
conditions and is considered acceptable.
(c) Failure to Achieve the Contracted Heat Rate Under the PPA
Under the PPA, the Fuel Payment component of the tariff paid to the Project
Company is calculated based on the Applicable Heat Rate. The Applicable Heat Rate
is the contracted heat rate, as set out in the PPA.
Contractually, there are no margins between the weighted plant heat rate based on
EPC heat rate values and PPA table of heat rates. Nevertheless, certain margins are
expected to be achieved during operations (please refer to the section on Heat Rate
Performance during operations below).
Therefore, if the EPC Contractor fails to achieve the heat rate performance target
equal to, or better than, the contracted heat rate as set out in the PPA, and/or if the
heat rate achieved by the EPC Contractor degrades such that the heat rate is higher
than the contracted heat rate as set out in the PPA, the Project Company is at risk of
receiving fuel payments which do not fully compensate the Project Company for the
fuel costs incurred.
The heat rate performance risk is primarily mitigated by the nature of selected
technology and the track record and experience of Siemens, the technology supplier.
On top of that, the EPC Contract will contain a weighted average Heat Rate
Performance Guarantee which is equivalent to the weighted average of the
contracted heat rate under the PPA, a minimum performance level of one hundred
and five per cent (105%) of the guaranteed heat rate as well as performance and
reliability tests, which must be successfully completed prior to Issuer taking over the
plant. The ICE has opined that the minimum acceptable performance level for heat
rate is in line with normal practice.
The EPC Contractor is liable for performance liquidated damages for heat rate (“Heat
Rate Performance LDs”) if it fails to achieve the Guaranteed Net Heat Rate under
the EPC Contract. The EPC Contractor may elect to pay Heat Rate Performance LDs
at the Taking-Over Date. Alternatively, the EPC Contractor may choose to initiate
steps to achieve the Guaranteed Net Power Output within a cumulative total curing
period of two years.
Therefore, the Heat Rate Performance LDs would be paid at the latest 2 years after
Taking-Over Date if the EPC Contractor elects to return to the Power Facility to
attempt to achieve the Guaranteed Net Heat Rate. Therefore, there is a risk that the
Project Company would not recover additional fuel costs due to a higher heat rate
during the 2-year cure period. The non-compensated additional fuel costs period is
however limited to 2 years only and the Finance Services remains supported by the
reduced revenue levels and the Sponsor’s Rolling Guarantee.
Performance LDs are capped at 20% of the Accepted EPC Contract Amount. The
Heat Rate Performance LDs will, together with Output Performance LDs, be
supported by performance security representing twenty per cent (20%) of the
Accepted EPC Contract Amount. The ICE has confirmed that the level of the Heat
Rate Performance LDs is sufficient to recover additional fuel costs due to a higher
heat rate. However, The ICE has opined that the maximum acceptable heat rate
requires a total LD equal to 149% of the Accepted EPC Contract Amount, which is
more than the liability cap of 20%. Hence, there is a risk that the Heat Rate
Performance LDs paid up to the liability cap will not be sufficient to recover additional
fuel costs due to a higher heat rate. Under the EPC contract, reaching the LD cap is
an event of default, and hence negotiations will take place that could further reduce
the exposure of the Owner.
ICE has confirmed that:
(i) the LD cap and provision of the performance security is considered adequate
to incentivise the EPC Contractor to complete and warrant the Power Facility.
(ii) the limit on the Performance LDs is consistent with the current market
conditions and is considered acceptable.
The EPC Contract is on a fixed-price basis, such that cost overruns may arise from
variation orders that are not compensated via the PPA change in law provisions and
there is limited scope for other price increases under the EPC Contract.
The Issuer retains risk in some aspects of the project which are not necessarily within
the Issuer’s control. The key risks include, inter alia, additional costs and delays
resulting from:
(iii) any changes in law or in the applicable codes and standards after 30
November 2012;
The risk of unforeseeable physical conditions and presence of artefacts on the Site is
substantially mitigated by the extensive knowledge of the Site gained by the Sponsor
from the development and operation of the previous Perai Power Station on the
proposed site. Nevertheless, there is a risk of existing ground contamination, which
may increase the risk of unforeseen costs. This risk is mitigated through the financing
plan including a budget for site remediation costs of RM 10 million and a contingency
amount equivalent to 1.5% of EPC Contract Amount (or 1.1% of total Project Cost).
There is also Sponsor’s Completion Support equivalent to ten per cent (10.0%) of the
total Project Cost.
The Issuer’s risks are events outside the control of the Issuer1, but if these risks
occur, generally, the Issuer will not receive any compensation from TNB or any
insurance proceeds with which to reinstate such damage or loss, or to cover any lost
revenue during any resultant delays (save for where an Emergency Condition which
relates to the Grid System where TNB will have to compensate the Project Company
pursuant to clause 20 of the PPA). The Issuer’s risks events outside the control of the
Issuer relates to “political force majeure” events occurring in Malaysia and uninsured
force majeure events. The risk of “political force majeure” events occurring in
Malaysia would need to be assessed by the Finance Parties. The insurance package
proposed to be put in place limits substantially the range of uninsured force majeure
events which can have an impact on the Power Facility. The ICE has confirmed that
the risk of damage to the Power Facility due to any Grid System malfunction, failure
or breakdown is low.
This risk is mitigated through the 180 day longstop date under the PPA, the financing
plan including contingency equivalent to 1.5% of EPC Contract Amount (or 1.1% of
total Project Cost) and Sponsor’s Completion Support equivalent to ten per cent
(10.0%) of the total Project Cost. The level of contingency included in the financing
plan, together with the Sponsor’s Completion Support is in excess of the contingency
level recommended by the ICE. The ICE has confirmed that EPC Contractor’s
technical proposal is considered suitable for the Project requirement.
(a) Any delay to the initial operation date imposed by the GSO beyond
fifteen (15) days;
Additionally, if COD of a Generating Block fails to occur within thirty (30) days
from its scheduled date due to any delay to its initial operation date imposed
by the GSO, the Offtaker will pay Available Capacity Payments to the IPP
from the date that is thirty (30) days after the Scheduled COD.
If TNB fails to complete the transmission facilities specified in the PPA by the
stipulated date thereby delaying COD of the Generating Block, it will pay IPP
the full Available Capacity Payments from the Scheduled COD.
1
Other than the Issuer's occupation of the Site, which is within the Issuer's control.
There are a number of mismatches between the risks allocation and rights of
the Project Company under the PPA and the risks allocation and the rights of
the EPC Contractor under the EPC Contract, which leave the Issuer bearing a
number of risks. This is particularly the case on issues relating to
unforeseeable ground conditions, rights to suggest design changes, rights to
delay testing or provision of services during testing and commissioning, and
changes in law. These mismatches could, individually or when combined,
give rise to cost increases or delays that could have a significant impact on
the Project. Nevertheless, TNB can request design changes, not only to
interconnection but also to the Facility. The impact of those requested
changes can be limited. Although TNB has the right to review and approve
the design, the approval is limited to achievement of the technical information
contained within appendices to the PPA. However, this includes the Grid
Code which can be amended by TNB at any time. In view of TNB’s role as
both Offtaker and Sponsor, it is in a position to manage any risks relating to
design changes.
The proposed gas turbine will be supplied by Siemens, which utilises Siemens’ H-
Class SGT5-8000H combustion turbine technology. This program concept began in
October 2000. The engine basic design started in November 2001. Only one SGT5-
8000 in single shaft combine cycle configuration (“SCC5-8000H-1S”) is currently in
operation, at Irsching 4 in Germany where it was first fired in December 2007 and the
testing and validation was completed in August 2009. The GT validation and tests
accumulated 4,365 Equivalent Operating Hours (“EOH”) with 85 starts.
SCC5-8000H-1S power plants in Turkey and Germany are due for COD in February
2015 and September 2015 respectively.
Due to its limited track record, the SGT5-8000H can be considered as more
technically and commercially risky than its proven predecessor, the SGT5-4000F and
may initially result in higher unavailability compared to engines with significant
operational hours.
(i) The EPC Contractor and original equipment supplier having experience of
engineering, procuring and constructing plants with similar operating
parameters. Siemens is one of the largest power plant engineering,
procurement and construction companies and is one of the most experienced
and capable organizations in successfully implementing CCGT projects;
(ii) Siemens has spent more than 10 years with significant research and
development investment to create a robust 8000H gas turbine technology.
The thorough testing and validation ensured a mature and proven first 8000H
gas turbine on commercial operation. The performance, hardware integrity
and lifetime prediction has been confirmed with the first 8000H gas turbine
through 5 inspections.
(iii) The provision of a latent defect period of five years where the contractor is
required to make good any defects identified during the term of the warranty;
(iv) Gas turbine and compressor spare parts are kept by Siemens for delivery to
site within 48 hours. Siemens spare parts inventory is installed and
established in Berlin to support the global 8000H fleet. Other strategic spares
i.e. for HRSG and Steam Turbine will be purchased by the Operator and kept
at site. Siemens will maintain their maintenance support specialists based in
the region, who will work with the Operator;
(v) The plant control system is supplied with the required hardware and/or
software to allow the control system to be interfaced to third party applications
for the purpose of real time extraction of process data.
In addition, the Available Capacity Payment is made on the basis of the most recent
tested annual available capacity. Therefore, it is critical that the Power Facility is able
to achieve tested annual available capacity equal to the Nominal Capacity over the
long-term as well as daily actual available capacity being at least equal to the daily
planned available capacity on an ongoing basis.
The following factors are to be considered to mitigate the aforesaid risks:
(i) The EPC Contract will provide for tests on completion including a reliability
run, with failure to pass such tests resulting in the right of the Issuer to order a
retest or reject Power Facility.
(ii) The responsibilities of the Project Company are passed through to the
Operator via the inclusion of the PPA and the GSA obligations in the
schedules of OMA.
(iii) The Operator provides guarantees and the OMA provides for a payment and
incentive mechanism on the Operator which are formulated to align with the
performance targets of the Project Company under the PPA. These include
penalties on the Operator where, inter alia:
(1) the Power Facility suffers unplanned outages at a rate exceeding four
per cent (4%);
(2) the Power Facility suffers unplanned outages at a rate exceeding six per
cent (6%);
(3) the Tested Annual Available Capacity of each Generating Block is lower
than the Guaranteed Capacity2;
(4) the Power Facility fails to achieve the Contracted Average Availability
Target of 94%, as set out in the PPA;
(iv) Whilst the payment and incentive mechanism under the OMA is not designed
to achieve a direct pass-through of the revenue loss suffered by the Project
Company, the ICE has confirmed that performance guarantees under the
OMA and the performance targets under the PPA are aligned from a technical
perspective. Therefore, the Operator is incentivised to ensure ongoing
compliance of the Power Facility with the performance targets under the PPA.
(v) The Operator is the largest operation and maintenance service provider to the
power generation sector in Malaysia and is highly experienced in operating
and maintaining power plants, including gas fired combined cycle power
plants.
(vi) The Sponsor’s Rolling Guarantee in an amount equivalent to the next semi-
annual scheduled Finance Service, until the final maturity date of the Sukuk
TNB NE.
In addition, the ICE has estimated that the expected Net Power Output could be less
than the Net Power Output of 1,071.43 MW required under the PPA, based on the
proposed design and technical solution. The potential output shortfall arises from the
expected auxiliary system losses and would occur following the Taking-Over Date,
which means that Output Performance LDs would not be payable by the EPC
2
“Guaranteed Capacity” is defined as the lower of (i) Contractual Available Capacity and (ii) 535.715 MW.
Contractual Available Capacity is the capacity achieved by the EPC Contractor.
Contractor. Investors should note that this is based on estimates by the ICE and
should consider it in the context of the mitigating factors stated below.
The Project Company has also assumed that there will be no capacity degradation,
as based on their previous experience, it is expected that new turbine models
generally see an improvement in performance as it undergoes more operating hours.
As the SCC5-8000H-1S is the newest model in Siemen’s stable, the Project
Company expects to see improvements in its performance on or after COD. The ICE
has opined that it is common that turbines experience a capacity degradation of
around 2.5% over the life of the asset.
(i) As noted above, the Operator provides guarantees and the OMA provides for a
payment and incentive mechanism on the Operator which are formulated to
align with the performance targets of the Project Company under the PPA;
(ii) There are margins expected in the Net Power Output, as reference conditions
for corrected output during testing are more severe than actual site conditions.
The ICE has confirmed that, based on historical trends, this assumption is not
unreasonable;
(iii) The Sponsor’s Rolling Guarantee in an amount equivalent to the next semi-
annual scheduled Finance Service, until the final maturity date of the Sukuk
TNB NE.
Under the PPA, the Fuel Payment component of the tariff paid to the Project
Company is calculated based on the Applicable Heat Rate. The Applicable Heat Rate
is the lower of the contracted heat rate, as set out in the PPA.
The Project Company therefore needs to ensure it is able to maintain in the long term
a heat rate at the Power Facility that is at least equal to the contracted heat rate,
otherwise the fuel payment component of the tariff may not fully compensate the
Project Company for the actual cost of fuel incurred.
The PPA does not include adjustments for heat rate degradation, though this will be
expected to occur in practice. Contractually, there are no margins between the
weighted plant heat rate based on EPC heat rate values and PPA table of heat rates.
Nevertheless, there are margins expected in the actual heat rate during operations,
as site conditions for heat rate during testing are more severe than actual site
conditions. The ICE has confirmed that, based on historical trends, this assumption is
not unreasonable.
The following factors are also considered to mitigate the said risks:
(i) Under the OMA, the Operator has accepted the same performance values
stipulated under the PPA and takes on the heat rate performance risk,
guaranteeing the Power Facility will meet the Applicable Heat Rate, with no
adjustments for heat rate degradation. Failure to meet the guaranteed heat
rate will result in LDs payable by the Operator, equal to thirty per cent (30%)
of the increased costs of fuel payable by the Project Company. Nevertheless,
the ICE has opined the LD cap provided under the OMA covers heat rate
degradation of only 0.4%, which is below the expected actual heat rate
(ii) Whilst the payment and incentive mechanism under the OMA is not designed
to achieve a full pass-through of the increased costs suffered by the Project
Company as a result of Operator failure to meet the heat rate guarantee, the
heat rate performance guarantees under the OMA and the heat rate
performance targets under the PPA are the same. The Operator is
incentivised to ensure ongoing compliance of the Power Facility with the heat
rate performance target under the PPA due to the LDs applicable under the
OMA and the profit sharing with the Operator on actual cost savings on fuel.
However it should be noted that the performance LDs under the OMA will not
cover the expected heat rate degradation.
(iii) Under the LTMP, LDs relating to heat rate degradation are payable by
Siemens, covering about 5% of the actual loss incurred. There is also a profit
sharing mechanism with Siemens under the LTMP, if the gas turbine heat
rate improvement is beyond 1% of the guaranteed heat rate after a major
inspection.
(iv) The Sponsor’s Rolling Guarantee in an amount equivalent to the next semi-
annual scheduled Finance Service, until the final maturity date of the Sukuk
TNB NE.
O&M Costs will be largely covered by the FOR and VOR components of the tariff.
Under the PPA, FOR and VOR are pre-agreed fixed values in Ringgit Malaysia and
indexed at four per cent (4%) every four (4) years.
The Project Company will engage the Operator as the operation and maintenance
contractor for the Project. The Operator does not provide any security for the
performance of its obligations under the OMA. This is due to the quasi-owner-
operator approach of the project structure and in view of the Operator being a wholly-
owned subsidiary of the Sponsor. Further, the Operator is an experienced provider of
operation and maintenance services to power plants and is the largest of such
provider in Malaysia.
The Project Company retains risk in some aspects of the project which are not
necessarily within the Project Company’s control. The key risks include, inter alia:
(i) The Project Company’s cash flows may be negatively affected by operating
expenses of the Project Company being higher than initially budgeted, e.g.
escalation of payments under the LTMP at higher rates than assumed in the
Base Case Financial Model;
(ii) The OMA provides for reimbursement by the Project Company to the
Operator for any costs incurred relating to emergency conditions, including
when scheduled outages are delayed etc. This is contrary to PPA where the
Project Company is not compensated for this.
(2) a change in quality of the Nominated Fuel against the quality stipulated
in the OMA;
(3) any material change in the EPC Contract which has a material impact
on the operation and maintenance of the Power Facility;
(4) when more than an aggregate of 300 hours of operation of all the gas
turbines on distillate fuel per year have been reached, except to the
extent that such change is compensated under the LTMP.
(i) The ICE has opined that the O&M budget is acceptable and that, via its other
projects, the Sponsor and Operator have the capability and resource to
implement a suitable O&M plan
(ii) The Project Company will also set aside a Maintenance Reserve Account,
with a minimum balance of RM24m, consistent with the PPA requirements.
(iii) The Sponsor’s Rolling Guarantee in an amount equivalent to the next semi-
annual scheduled Finance Service, until the final maturity date of the Sukuk
TNB NE.
Under the PPA, the Project Company does not take despatch risk as the Available
Capacity Payment component of the tariff is paid regardless of actual despatch level
of the Power Facility, provided that the Power Facility does not exceed unplanned
outage limits provided under the PPA and meets the PPA availability targets.
Available Capacity Payment is set at a level intended to be sufficient to cover fixed
costs, finance service, taxes and to provide sufficient return to the Sponsor.
Furthermore, the Power Facility is expected to be despatched as a base load power
plant, as the coal plants are expected to be despatched first as base load plants and
the next cheapest and efficient gas-fired plant will follow. This is expected to be the
Power Facility, in view of the improved efficiencies, vis-à-vis the existing gas-fired
plants in Malaysia.
(a) Price
As long as the Government Directive is in place, the Project Company shall pay
Petronas for the committed gas quantities based on the regulated gas price. Under
the PPA, fuel cost that will be passed through to TNB will be based on the weighted
average fuel price derived by dividing the amount paid by the Project Company to
Petronas for gas consumed by the aggregate GJ of such natural gas consumed. In
periods where the Plant is not available on natural gas, the Project Company can
changeover to Distillate Fuel Oil and TNB will make Energy Payments based on the
cost of Distillate Fuel Oil consumed during such period. ICE has confirmed that fuel
price variations do not impact the Project from a technical perspective as fuel costs
are passed through to TNB under the PPA, subject to the Project Company achieving
the Guaranteed Net Heat Rate under the PPA.
Petronas has an obligation to make available gas to the Project Company up to the
Daily Quantity (“DQ”). The ICE has confirmed that the DQ nominated in the GSA is
adequate to meet the requirements of the Power Facility at 100% load, taking into
account degradation. Petronas has the right to revise the DQ downwards for the
remaining Contract Years if the consumption of gas for any two consecutive Contract
Years is less than the TOP Quantity, save that the Seller shall not revise the DQ
downwards in the event the Delivered Quantity to the Power Sector for the same two
Contract Years is equal to or exceeds the TOP Quantity for the Power Sector for the
same period. If the DQ is revised to a level below what is required to operate the
Power Facility at 100% load, the Project may face reduced revenues due to reduced
gas availability. The risk of such downward revision is considered minimal, as the
majority of the gas-fired power plants in Malaysia have historically been despatched
as base load plants which will enable all such plants to meet the TOP levels on
aggregate. The Sponsor expects this to continue to hold true, even with the
additional gas-fired capacity that are expected to be tendered, given the increasing
electricity demand in the country. Furthermore, certain existing combined cycle gas-
fired power plants will be expiring between 2015 and 2017 and the fuel mix strategy
in daily operation will remain.
The delivery of Commissioning Gas will be subject to Petronas and the Project
Company, in good faith, discussing and agreeing on the quantities of Commissioning
Gas that the Project Company would require, the timing for delivery and the terms for
delivery and acceptance. The Project Company has no recourse to Petronas for any
delays in commissioning and will be liable for delays under the PPA if Commissioning
Gas is unavailable or agreement cannot be reached. The Sponsor views this to be
acceptable as given the history of cooperation with Petronas on other gas-fired
plants.
Under the PPA, the Project Company has the right to declare availability on Distillate
Fuel Oil if the Project Company and TNB agree that gas is not available and it is not
resulting from a breach by the Project Company. Disruptions in gas supply due to a
force majeure event would constitute a Force Majeure Event under the PPA, which in
turn allows the Project Company to switch over to and be available based on
Distillate Fuel Oil as well.
Once the Project Company declares availability based on Distillate Fuel Oil, it will be
obligated to despatch based on Distillate Fuel Oil if so instructed by the GSO. Under
the O&M agreement, distillate firing is limited to 300 hrs in aggregate over any one
year (total for both Generating Blocks). Distillate firing carries a penalty in terms of
EBH of 1.3, ie every three hours firing on Distillate Fuel Oil is equivalent to four hours
running on gas. Substantial distillate running will hence mean shorter intervals
between overhauls. If the Project Company despatches based on Distillate Fuel Oil
over a prolonged period, it may face lower availability due to distillate firing triggers
reductions set out in PPA. However, the Sponsor believes that, looking at the plan for
scheduled maintenance outage supplied by the OEM there is ample margin for the
Project Company to achieve the 94% Availability Target in a 3-year block if it is
instructed to run on Distillate Fuel Oil despite the accelerated interval between
overhauls. It is to be noted that the GSO will exercise great prudence when
dispatching any power plant on Distillate Fuel Oil as this cost is absorbed by TNB
and not passed to the consumer at large.
Additional pipeline facilities are needed for the supply of gas by Petronas to the
Project and Petronas will be appointing a contractor for the development of these
additional facilities. Under the GSA, the cost of these additional facilities are the
responsibility of the Project Company and the financing plan includes a provision of
RM 160 million for these costs. A delay in completion of these facilities could result in
a failure to achieve first energisation of the Power Facility and consequently, a failure
to meet Scheduled COD and a need to pay PPA Delay LDs. The following factors are
to be considered to mitigate the said risks:
(i) A history of cooperation between TNB and Petronas on fuel supply to gas-fired
plants.
(ii) The Sponsor’s Rolling Guarantee in an amount equivalent to the next semi-
annual scheduled Finance Service, until the final maturity date of the Sukuk
TNB NE.
Petronas has an obligation to make available gas to the Project Company, pursuant
to a TOP. The TOP quantity is 80% of the Net Annual Contract Quantity (“Net ACQ”)
for the first ten (10) Contract Years and 85% of Net ACQ thereafter. The Net ACQ is
calculated as the DQ, multiplied by the number of days in the Contract Year, less the
excused quantity.
Failure to take the TOP Quantity in any Contract Year would mean that the Project
Company has to pay for the quantity of gas not taken, up to the TOP Quantity. For
any gas paid for but not taken, the Project Company has up to three (3) years to
nominate Make-Up Gas based on the difference between the prevailing gas price at
the point of delivery and the price already paid.
Notwithstanding the TOP obligations, IPP will be able to fully pass through the cost of
TOP gas under the PPA.
(d) Quality
Pursuant to the GSA, Petronas undertakes to supply natural gas of a certain quality.
Petronas shall use its best endeavours to ensure that the gas delivered to the Project
Company conforms to the specifications set out in the GSA. Petronas has the right to
discontinue delivery of Off-Spec Gas if, in its reasonable opinion, such delivery may
cause damage to the Petronas’ facilities. The Project Company shall use best
endeavours to take receipt of Off-Spec Gas, but it, too, has the right to reject Off-
Spec Gas from the Seller if, in its reasonable opinion, such receipt may cause
damage to the Power Facility.
The risk of delivery of Off-Spec gas is seen to be relatively low risk to the Project,
based on the Sponsor’s experience on other gas-fired plants in its portfolio.
Force majeure provisions are found in the PPA, GSA, EPC Contract, LTMP, OMA,
LLA and Turnkey Contract (“the Agreements”).
There is a risk that the Project Company and the Issuer may be adversely affected by
a force majeure event either directly or indirectly if the other project counterparties to
the affected Agreements are relieved of their contractual obligations thereunder.
There is a risk that the Sukukholders may not receive all of their outstanding debt
and related costs on the termination of the PPA due to an EOD of the Project
Company, where TNB elects to acquire the Power Facility. If the PPA is terminated
by TNB due to the Project Company’s EOD, TNB has the option, but not the
obligation, to purchase the Project for a purchase price equal to:
(a) all of the outstanding indebtedness if the Sponsor's gross equity contribution
amounts to twenty percent (20%) or more of the Total Project Costs, and
ninety-five percent (95%) of the outstanding indebtedness if the Sponsor's
gross equity contribution is less than twenty percent (20%) of the Total
Project Costs; plus
(c) reasonable costs and expenses of Project Company which are incurred or
suffered as a result of purchase of the Project by TNB; minus
(d) cash balances at bank and in hand and liquid securities held by the Project
Company.
Sukukholders are at risk in the event TNB elects not to purchase the Project upon
termination of the Project Company’s EOD and as such, TNB would be under no
obligation to pay any termination sums. Potential investors must evaluate the
performance risk of the Project Company with respect to its obligations under the
PPA and the ability of the Project Company to carry out those obligations in
accordance with the requirements under the PPA and the resulting risk of the Project
Company’s EOD leading to termination.
If TNB elects to purchase the Project upon termination of the Project Company’s
EOD, the purchase price may comprise of ninety-five per cent (95%) of the
outstanding indebtedness only, in the case where the Sponsor’s gross equity
contribution is less than twenty percent of the Total Project Costs. This is considered
to be low risk, since the Sponsor’s gross equity contribution in the Base Case
Financial Model is in excess of twenty percent.
TNB has a number of rights to set-off amounts owing to it from the Project Company,
including all liquidated damages payable by the Project Company. This creates a risk
to the Financing Parties that TNB may set-off amounts owing to it at termination and
reduce the termination payments that may be payable. This risk is mitigated by the
strength of the Sponsor’s operational experience, the likelihood of any operational
failure leading to termination and the fact that TNB is both the Off-taker and the
Sponsor for the Project.
Under the GSA, Petronas is entitled to give fourteen (14) days written notice to the
Project Company to terminate the GSA in certain circumstances, including:
(a) if the Project Company fails to take gas after a lapse of ninety (90) days
continuously from the last day of offtake, other than due to a Force Majeure
event or a failure by Petronas to deliver gas;
(b) if the Project Company is unable to take or receive gas continuously for a
period of two (2) months at any time during the supply period, other than due
to a Force Majeure event, Maintenance Shutdown, Operational Shutdown or
a failure by Petronas to deliver gas.
The Project Company expects to meet its electricity generation obligations under the
PPA by using natural gas as the main source of fuel and the Power Facility is not
expected to run on Distillate Fuel Oil on a long term basis. The ICE has opined that it
is unlikely for the above to occur, as it would need both Generating Blocks to be
unavailable at the same time and for a minimum period of two (2) months, not
excused by Force Majeure. The ICE has further opined that during the operations
period, to facilitate resource scheduling, the intention will be to schedule the
maintenance of the turbines at separate periods.
Nevertheless, the Project Company will not receive any compensation if the GSA is
terminated. Prospective investors should evaluate and consider the risk of an event
arising which leads to termination of the GSA.
The Issuer and the Project Company maintain insurance policies to mitigate certain
risks in accordance with the provisions of the PPA. The conditions precedent for the
issuance of Sukuk TNB NE include a written report from the Insurance Adviser in
form and substance satisfactory to the Joint Lead Arrangers. In particular, Investors
should take note that the DSU section of CEAR and Marine Cargo Open Cover
policies do not cover principal repayment obligations.
However, there can be no assurance that there will be sufficient coverage to fully
protect against interruption to business, generation of revenue, increased
expenditure or any other liabilities associated with the business of the Issuer and the
Project Company. In addition, the creditworthiness of the reinsurers (the ultimate
parties who bear the insurance risk) may impact the ability of the Issuer and/ or the
Project Company to receive amounts payable as a result of insured events in full.
The Sponsor will contribute at least more than thirty per cent (30.0%) of Project
Costs in the form of equity and RPS prior to COD. The risk of the Sponsor failing to
contribute the required equity to the Project is mitigated by the financial strength of
the Sponsor. The Sponsor has been able to consistently obtain AAA ratings for its
senior corporate debt facilities and non-recourse debt facilities at subsidiary project
level from the Rating Agency.
Exposure to the risk of foreign currency fluctuations during the construction phase
arises mainly from EPC costs denominated in USD and EUR, which will be actively
managed by the Sponsor. This risk is mitigated by the Sponsor’s significant
experience as a power developer and in managing foreign currency exposures
across its portfolio, as well as the Sponsor’s Completion Support equivalent to ten
per cent (10%) of project costs.
Exposure to foreign currency fluctuations during the operations phase arises mainly
from the EUR-denominated payments under the LTMP and will also be actively
managed by the Sponsor. This risk is similar mitigated by the Sponsor’s experience
in managing foreign currency exposures across its portfolio, as well as the Sponsor’s
Rolling Guarantee in an amount equivalent to the next semi-annual scheduled
Finance Service, until the final maturity date of the Sukuk TNB NE.
The following steps will be taken by the Sponsor on behalf of the Project Company
and Issuer to mitigate the foreign exchange risk:
The Sponsor purchases currencies more than two (2) days before settlement
date provided firm amount and value date are known earlier to avoid
speculative hedging as stipulated under BNM rules and regulations. This
mechanism will enable the Sponsor to lock-in the forward rates upfront to
protect the Project Company and Issuer from adverse currency fluctuation.
The Sponsor will carry out an opportunistic spot buying of USD and EUR
whenever MYR strengthens against the currencies. The floats will act as
natural hedge and any USD and EUR payments will be settled via foreign
currency accounts. Whenever necessary, the Sponsor may purchase the
additional amount of USD and EUR to top up the floats should the amounts
decrease due to utilisation.
(c) Inflation
The Project Company enjoys some protection against Malaysian inflation risk as the
fixed operating rate and variable operating rate components of the tariff are escalated
at a rate of four per cent (4%) every four years.
The Issuer is not exposed to interest rate risk for the Sukuk TNB NE, as the periodic
distribution rates for the Sukuk TNB NE are fixed over the term of the Sukuk TNB
NE.
A change in law resulting in the Project Company being required to make capital
improvements in excess of RM10,000,000.00 will result in TNB and Project Company
renegotiating the CRF component of the tariff. If the parties cannot agree the dispute
resolution process applies.
Under the Lembaga Pembangunan Industri Pembinaan Malaysia Act, 1994 (“Act
520”), no person shall undertake to carry out and complete any construction works
unless he is registered with the CIDB and holds a valid certificate of registration
issued by the CIDB. While the construction of the Works will be sub-contracted to the
EPC Contractor pursuant to the EPC Contract, TNB NE will nevertheless be required
to procure CIDB Licence in order to perform its obligations under the Turnkey
Contract and as a condition subsequent to the issuance of the Sukuk TNB NE, to be
fulfilled no later than six (6) months after the issuance of the Sukuk TNB NE.
Investors should therefore consider the regulatory and legal implications should there
be a delay in obtaining the CIDB Licence, in view of the above.
Under the ESA, a person who intends to operate a power plant is required to hold an
electricity generation licence. The requirement to procure the Generation Licence
forms a condition precedent to commencement of generation of electricity in respect
of the first Generating Block under the PPA and constitutes a condition subsequent
to issuance of the Sukuk TNB NE, which condition subsequent is to be fulfilled within
nine (9) months after the issuance of the Sukuk TNB NE. A delay in obtaining the
Generation Licence could delay the commissioning of the Power Facility, which, if the
delay results in Scheduled COD not being met, would reduce the revenues and
cashflow of the Project Company post-COD.
Unless and until such Generation Licence is obtained, the Project Company would
not be able to commence generation of electricity. The Energy Commission, in
issuing such licence, may also impose such conditions as may appear to be requisite
or expedient in accordance with the provisions of the ESA. There is no certainty as to
the nature of such conditions that may be imposed. Pursuant to the ESA, in the event
of a breach of any of such conditions imposed, the Generation Licence may be
suspended or revoked by the Energy Commission.
Under the PPA, TNB is entitled to terminate the PPA in accordance with its terms in
the event the Generation Licence is suspended or revoked or terminated due to the
Project Company’s default and the Project Company has not caused the same to be
reinstated or renewed within the stipulated remedy period.
The Project Company and the Issuer will require various approvals, licences, permits
and certificates to operate their business and the Power Facility and will be required
to renew these approvals, licences, permits and certificates or to obtain new
approvals, licences, permits and certificates. Whilst the Project Company and the
Issuer may not have experienced any significant difficulty in renewing and
maintaining the approvals, licences, permits and certificates granted, there will not be
any assurance that in the future the relevant authorities will issue or renew any
required approvals, licences, permits or certificates in a timely manner or at all.
Failure to renew, maintain or obtain the required approvals, licences, permits and
certificates may interrupt the operations or delay or prevent the implementation of
any capacity expansion or other new projects and may have a material adverse
effect on the Project Company and the Issuer’s business, financial condition and
results of operations.
The Project Company will occupy the Project Lands for purposes of the construction
of the Power Facility.
However, the Ijarah Project Lands contain restrictions over, amongst others, lease
and charge of the Ijarah Project Lands without the prior consent of the state
authorities. Whilst consent of the state authority for the lease of the Ijarah Project
Lands by TNB has been obtained, consent for creation of the charge over the Ijarah
Project Lands to secure the Sukuk TNB NE has not been applied, hence the charge
over the Ijarah Project Lands cannot be created at Financial Close. As for the
Additional Land, it has not been alienated to TNB.
Further, pending alienation of the Additional Land in favour of TNB, the lease of the
Additional Land by TNB to the Project Company and the receipt of the consent of the
State Authorities for the lease and creation of the charge respectively, the creation of
the charge over the Additional Lands to secure the Sukuk cannot be created at
Financial Close.
In view of that, the following are conditions subsequent to the issuance of the Sukuk:
(i) presentation for registration in the name of the Project Company of the lease
of the Ijarah Project Lands;
(ii) presentation for registration of a charge over the lease of the Ijarah Project
Lands;
(iii) alienation in favour of TNB of the Additional Land and delivery of a lease
agreement between TNB and the Project Company in respect of the
Additional Land; and
(iv) presentation for registration of the lease over the Additional Land in favour of
the Project Company and the charge over such lease.
The risk lies in that the state authorities may not approve the registration of the lease
and charge to be entered in respect of the Project Lands or that it will not grant its
consent to the creation of the charge over the Project Lands respectively.
In addition to the above, there is further risk that the relevant authorities may delay or
not complete the relevant administrative procedures or that alienation may result in
the land being subject to conditions (a) which are unfavourable for its intended usage
by the parties; or (b) which restrict or otherwise prohibit the creation of security in the
manner contemplated by the terms and conditions of the Sukuk TNB NE.
Notwithstanding the above, the Lease Agreement for the lease of the Ijarah Project
Lands by TNB to the Project Company has been entered into on 30 November 2012
and receipt of the consent of the state authorities for the lease of the Ijarah Project
Lands by TNB to the Project Company has been obtained on 1 April 2013.
“Project Lands” means collectively, the Additional Land and the Ijarah Project Lands.
“Financial Close” means the date upon which the Financing Documents providing the
total debt requirements implementing the Project shall have been signed and are in
full force and effect and funds are committed and available to be drawn.
The Project is located within an existing power plant site and as such, impact on the
surrounding environment is expected to be limited.
The Project, as with all other IPPs, is subject to environmental legislations, policies
and regulations. These include meeting air, water and noise emission standards.
There can be no assurance that the standards imposed by the environmental
legislations and regulations will not change or otherwise result in the increase in
costs or losses of or reductions in revenue to the Project Company and the Issuer.
(c) reasonable costs and expenses of Project Company which are incurred or
suffered as a result of purchase of the Project by TNB; minus
(d) cash balances at bank and in hand and liquid securities held by the Project
Company.
TNB incurs substantial capital expenditure relating to new projects as well as the
replacement of operating assets and infrastructure. The capital expenditures are
expected to be funded through a combination of internally generated cash flow and
other external financing sources. If TNB is unable to fund capital expenditures from
internally generated cash flow or obtain funds from external sources on acceptable
terms or in timely manner, or at all, the capital expenditures would have to be
deferred. This may restrict TNB’s ability to grow and, over time, may reduce the
quality and reliability of the service it provides as well as adversely affect future
profitability.
7.4.2 Future restructuring of the electricity industry in Malaysia may have an adverse
effect on TNB’s business and operations
The Government may consider a reform of the Malaysian Electricity Supply Industry
in the future in order to enhance transparency and efficiency of the industry. There is
no assurance that can be made as to the form and scope of any final restructuring
plan that will be adopted by the Government, if any. Nevertheless any efforts on
industry restructuring must ensure that all the prerequisites such as fuel subsidy, fuel
cost pass through, tariff cross subsidy etc must be addressed and resolved before
moving ahead. There can be no assurance that any industry restructuring will not
have an adverse effect on TNB’s business and operations.
7.4.4 Fluctuations in the supply of certain energy sources could have a negative
impact on TNB’s operational performance and profitability
Fluctuations in the fuel supply to the electricity industry may require TNB to rely to a
greater extent on other more expensive fuel sources for generating electricity.
Furthermore, under the existing power purchase agreements between TNB and the
IPPs, any increase in fuel costs to those IPPs may be passed through to TNB. The
gas allocation to the power sector has decreased significantly since January 2010,
below the requirement level of 1,250 mmscfd. The situation has deteriorated further
in December 2010 when one of the gas facilities caught fire and has to be on long
outages for repair works. Since then, the average gas supply to power sector has
consistently been below 1,250 mmscfd. Although existing coal plants have been
maximised during this period, the shortfall in gas volume has also been replaced by
utilising more oil and distillates, which are more expensive. There can be no
assurance that such shortages or fluctuations in the supply of energy sources will not
continue in the future, which may adversely affect TNB’s performance and
profitability.
TNB’s operations are subject to various environmental laws relating to water, air and
noise pollution and the disposal of hazardous materials. Although TNB believes that
it is in compliance in all material aspects of these environmental laws, some risk of
environmental costs and liabilities is inherent in their operations and there can be no
assurance that material costs and liabilities will not be incurred in the future in this
regard. Compliance with environmental laws and regulations may also result in
delays in the expansion and development of TNB’s generation plants, transmission
and distribution systems.
The Issuer is a newly incorporated special purpose vehicle and therefore does not
have any contingent liabilities.
As at 31 March 2013, the Issuer confirms that there are no related party transactions.
As at 31 August 2012, the directors of the Project Company are not aware of any
material contingent liabilities other than as disclosed in the audited financial
statements.
As at 31 March 2013, the Project Company confirms that there are no related party
transactions to disclose.
As at 31 August 2012, the directors of the Guarantor are not aware of any material
contingent liabilities other than as disclosed in the audited financial statements.
Respondent Irham Niaga Sdn Bhd (INSB) & Irham Niaga Logistics Sdn
Bhd (INLSB)
Nature of claim The suit filed by INSB & INLSB against TNB at the Kuala
Lumpur High Court to enforce an arbitration award obtained
against TNB Transmission Network Sdn Bhd (a TNB
subsidiary).
(i) the Final Award due to the 1st Plaintiff for the sum of
RM106,888,499.34
(ii) the Final Award due to the 2nd Plaintiff for the sum of
RM6,102,922.50
The Guarantor is of the opinion that this case has no material adverse impact on the
Guarantor’s business.
There are two (2) related party transactions entered into by the Guarantor or its
subsidiaries with the major shareholders during the last 3 years as follows:
To the best of the Guarantor’s knowledge, there are no related party transactions that
were not at arms’ length and for full value.
A. HSBC
As at the date hereof and after making enquiries as were reasonable in the
circumstances, HSBC confirms that, to the best of its knowledge and belief,
there is no existing or potential conflict of interest in its capacity as, amongst
others, one of the Joint Principal Advisers, Joint Lead Arrangers, Joint Lead
Managers and Joint Bookrunners as well as the Shariah Advisor in respect of
the proposed issue of the Sukuk TNB NE.
B. KAF
As at the date hereof and after making enquiries as were reasonable in the
circumstances, KAF confirms that, to the best of its knowledge and belief,
there is no existing or potential conflict of interest in its capacity as, amongst
others, one of the Joint Principal Advisers, Joint Lead Arrangers, Joint Lead
Managers and Joint Bookrunners as well as Facility Agent / Security Agent in
respect of the proposed issue of the Sukuk TNB NE.
C. AmTrustees Berhad
As at the date hereof and after making enquiries as were reasonable in the
circumstances, AmTrustees Berhad confirms that, to the best of its
knowledge and belief, it is not aware of any circumstances which would give
rise to a potential conflict of interest in its capacity as the Trustee in respect of
the proposed issue of the Sukuk TNB NE.
As at the date hereof and after making enquiries as were reasonable in the
circumstances, Messrs Zaid Ibrahim & Co. is not aware of any circumstance
that would give rise to a conflict of interest in its capacity as the legal counsel
to the Issuer and the Project Company in respect of the proposed issue of the
Sukuk TNB NE.
As at the date hereof and after making enquiries as were reasonable in the
circumstances, Messrs Adnan Sundra & Low is not aware of any
circumstance that would give rise to a conflict of interest in its capacity as the
legal counsel to the Joint Principal Advisers and Joint Lead Arrangers in
respect of the proposed issue of the Sukuk TNB NE.
F. PricewaterhouseCoopers, Malaysia
As at the date hereof and after making enquiries as were reasonable in the
circumstances, PricewaterhouseCoopers, Malaysia, is not aware of any
circumstance that would give rise to a conflict of interest in its capacity as the
reporting accountants in respect of the proposed issue of the Sukuk TNB NE.
APPENDIX 1
APPENDIX 2