The ASIA Miner - Reporting Important Issues to Mining Companies in the Asia Pacific Region
Issue link: http://asiaminer.epubxp.com/i/786114
Volume 14 • Issue 1 | 2017 | ASIA Miner | 27 Malaysia AFTER serving the energy demands of the state of Sarawak in East Malaysia effectively and efficiently for 70 years, Sarawak Energy is look- ing outwards and has started powering up areas beyond the state, including Indonesia. The company's business development vice president Nick Wright says Sarawak Energy is owned by the State Government, which is important because Sarawak has retained autonomy and control of its power resources since the formation of Malaysia. "For the previous 70 years we have been a traditional local, stable, vertically integrated electricity utility serving 600,000 account holders and a population of 2.5 million with their everyday electricity needs. In the past 10 years we have changed focus to become a power de- velopment company and are seeking, on behalf of the state, to lever- age Sarawak's natural advantage in bulk electricity production to sell to power intensive industries through our economic development strat- egy. He says since 2010 the company has signed 14 power purchase agreements for about 3000MW. "We have powered refineries for alu- minium, ferroalloys, manganese, poly-silicon and metallic silicon, and have major customers under construction at the Samalaju Industrial Park. "Our competitive advantage is based on bulk hydro power but we also have abundant coal and natural gas reserves. Our generation plan is to end up with about 60% hydro, 20% coal and 20% gas, which gives us significant flexibility and diversity compared to systems relying on one source of fuel. "Our master-planned package for serving power intensive industries is competitive electricity, a fully developed industrial park with treated water, land and roads, and a deepwater port with potential annual throughput of 46 million tonnes." Nick Wright says Sarawak Energy has secured in principle approval to commence construction of the next hydro-electric facility of a further 1300MW and has secured 250 million standard cubic feet of gas a day from Petronas, which underpins construction of a natural gas plant providing 1800MW. "When our next project is completed in 2017 we will have installed capacity of about 5100MW and when the hydro and natural gas proj- ects are complete, we will have 8000 or 9000MW in the early years of the next decade at which point we will be the most energy intensive economy on Earth. "Sarawak is positioning itself as the natural location for power inten- sive industry investment. For miners sitting on a resource, looking for a stable, low-risk environment to value add, we will prepare a pow- er purchase agreement with a fixed price component - an initial price with established inflation for up to 20 years. This will enable smelter or refinery sponsors to approach their bank and do financial modelling knowing exactly what the price will be, not only in year one but also in the final years of a 20-year contract." Beyond Sarawak The other string to the company's bow is that after 20 years of discus- sion and study, it has commissioned an inter-connection between Sar- awak and West Kalimantan, Indonesia. The 120km-long, 275kV line has a transfer capacity of about 550MW and at present the company is contracted to Indonesian power provider PLN for 230MW. "This has been successful for all parties," Nick Wright says. "We are displacing dirty, unreliable and expensive diesel and fuel oil in West Kalimantan, and there has been a dramatic improvement in reliability of the electric- ity system for ordinary consumers. "Due to the transfer capacity we can support companies affected by Indonesia's raw material export ban with an immediate and com- petitively priced power source. A company affected by the ban would otherwise have to negotiate with an IPP or develop a captive power station - they don't need to take land acquisition or fuel supply pass- through risks; they can just turn up and plug into the substation on a contract with PLN, backed up by Sarawak Energy. It is a very simple, low-risk solution for power intensive industry in Indonesia. "As well as removing the diesel subsidy, leaving the government with more funds to spend on more useful needs, it sets a precedent in terms of power trading success. We see abundant energy resources in Kalimantan and are equally open to the potential of buying resources from Indonesia, not just selling energy." In April 2016 the company signed a letter of intent with the Governor of Kalimantan Utara to support development of the abundant hydro re- sources in North Kalimantan. "We can see that Kalimantan Utara could be Indonesia's home of power intensive industry," Nick Wright says. "There is massive pent up demand and enormous physical potential, it's just a matter of having some support in bringing the two together, which is a role we can do subject to the national interest of Indonesia. "We have a fortunate combination – the geography, rainfall, moun- tains, good hydro power development and opportunities; a very wise and prudent shareholder which has established clear and consistent policy direction, and insists that the company is professionally man- aged; we are not subject to political interference; we are expected to maintain the highest possible standards of integrity with zero tolerance for corruption of any kind; and we have a great pool of 5000 Sarawa- kian staff, most of whom are young, and keen and eager to learn. You combine all of those things and you have something quite exciting." Sarawak Energy provides power to grow A hydro-electric power station in East Malaysia operated by Sarawak Energy.