At 54 years of age, all George Surang wants to see is the completion and commissioning of the hydroelectric power plant in the Bakun Hydroelectric Project.

A member of the Kayan tribe and living upstream of Bakun, Surang has been working for several employers associated with the dam over the past 29 years.

In November 1981, he started with the Sarawak Electricity Supply Corporation or Sesco (now known as Sarawak Energy) conducting soil studies on the site where the dam is located. He later worked alongside Tan Sri Ting Pek Khing when Ekran was awarded the project in 1994.

When the project stalled in 1998, he was at the site taking care of the equipment. The Malaysia China Hydro Joint Venture (MCHJV) took over the project in 2002 and Surang has been with them since.

He vividly remembers Ting’s frequent visits to the dam’s site in the early days of its construction.

“He did not tolerate dissent and made quick decisions. He would be at the site on alternate days, checking on the progress.

At the end of the day, before he flew off in a helicopter, he would give the workers a treat,” recalls Surang who is the longest-serving employee of the Bakun project.

Ting was the kind of contractor who is at the work site every day supervising the workers and shouting at his managers to get the work done.

This is what Sime Darby Bhd — the lead manager of the MCHJV — lacks, say officials of Sarawak Hidro Sdn Bhd.
To begin with, the Sime Darby-led MCHJV was not in the running for the project, sources say. 

The job, they say, was initially meant to be given to a Gamuda Bhd-led consortium, but Sarawak Hidro’s board came under some pressure from the Ministry of Finance (MoF) to consider the Sime Darby party.

“The period for submitting tenders was extended and Sime Darby’s name came out tops with the lowest bid. Apart from low costs, Sime Darby also agreed to complete the project in 60 months, a clause that none of the other bidders was prepared to adhere to,” says a source.
Building a dam deep in Sarawak’s dense forests is a uphill task. And this was no simple dam — it was the biggest hydroelectric dam in Southeast Asia that would cover an area the size of Singapore when fully operational.

Slow start
To begin with, the job got off to a slow start. Although the contract was awarded in September 2002, the MCHJV only started dispatching its heavy machinery to the site more than six months later.

This was in stark contrast to the way Ting had operated.

When Ekran was given the green light, the Sarawak Survey Department had yet to firm up the boundaries of the land to be acquired from the natives for the project. But Ting, with the help of Surang, paid the natives compensation ahead of time to facilitate construction.

“Ting forked out his own money first to get the approval of the natives to start construction work. He asked for a reduction in price to secure the land but did not haggle too much,” Surang recalls.

Somewhere between late 2004 and early 2005, Sarawak Hidro wanted to terminate the services of the MCHJV. “But there was no political resolve at the time,” laments a senior MoF official.

Sarawak Hidro managing director Zulkifle Osman admits that Sime Darby’s top officials were sometimes not around for meetings when they wanted to know about the progress of the project.

“But let’s put the past behind us ... now we can see the resolve of the new Sime team to finish the project and hand it over to us by December,” he says.

Sarawak Hidro’s confidence stems from the fact that Sime Darby put Datuk Jauhari Hamidi in charge of the project two months ago. But completion, after a three-year delay, may be too little too late for the federal government-controlled Sarawak Hidro to extract maximum returns from Malaysia’s biggest hydroelectric dam.

With no off-taker for the power from Bakun, Sarawak Hidro has virtually no one to turn to except the state-owned Sarawak Energy. It is now in negotiations to sell the power to Sarawak Energy, but with the odds very much in the state’s favour, Sarawak Hidro realises that its options are limited.

More importantly, will Sarawak Energy pay Sarawak Hidro the extra cost incurred to complete the dam? Cost overruns and payments to Ting have raised the cost of building the dam to at least RM7.3 billion as of now, and this does not include future interest. Will Sarawak Energy take this into account?

Sarawak in the driver’s seat
When the Bakun Hydroelectric Project started in 1994, the idea was to transmit the power generated by the dam to the peninsula. The project came together with an undersea cable and the total cost was estimated at less than RM6 billion then.

The 1997/98 Asian financial crisis halted work on the project in 1998, upon which Ting’s Ekran collapsed.

In 2000, the MoF established Sarawak Hidro, which got the project going again. Ting’s Global Upline Sdn Bhd completed the coffer dam and the MCHJV was awarded the main civil works in September 2002.

But the undersea cable was left out of the revived Bakun plan. Instead there was a proposal by Tan Sri Syed Mokhtar Al-Bukhary to build an aluminium smelter, which was also dropped by the end of 2003. A year later, Sarawak Hidro brought back the option to build the undersea cable.

“When tenders were invited for the switchyard portion of the project, Sarawak Hidro included the option of transmitting the power to the peninsula,” says a Sarawak Hidro official.

Although this effectively put paid to hopes of the power from Bakun going to the smelter, the cost of manufacturing and installing the undersea cable was still an issue. Two years ago, it was estimated at more than RM8 billion, raising doubts about the viability of the undersea cable.

“What made matters worse was that the MCHJV could not give a firm date for when the civil works could be completed. This did not allow Sarawak Hidro or the federal government to make plans for the undersea cable,” says the official.

Meanwhile, the March 2008 general election turned the tide in Sarawak’s favour.

Sarawak, under the control of Tan Sri Taib Mahmud, has 29 parliamentary seats and is a key ally of the federal government.

Such political strength added clout to the state’s intention to use the power from Bakun to fuel its Sarawak Corridor of Renewable Energy (SCORE), the objective of which is to develop a cluster of energy-intensive industries such as aluminium smelters in the state’s jungles. A key ingredient would be cheap energy, which is where Bakun plays a key role.

SCORE is banking on electricity of up to 28,000mw, out of which 20,000mw will be from hydroelectric power plants.

Sarawak Energy is already building a hydroelectric power plant in Murum with a capacity of 944mw. Apart from Murum, the company has plans to build another five such plants in the state as it plans to be an exporter of energy to the region.

Of all the dams in Sarawak, Bakun is a prized asset in terms of electricity generation as it can supply a large amount of constant power at cheap rates. Moreover, the cost of maintaining a hydroelectric dam is low. 

Hydroelectric dams are mostly used to supply power during peak hours. But in Bakun’s case, it will be able to supply up to 1,771mw and this can go up to 2,400mw.

Based on a firm capacity of 1,771mw and sales price of eight sen per kWh, consultants estimate that the Bakun Dam can generate revenue of at least RM850 million a year.

The main operational cost would be the water levy due to the state amounting to RM155 million a year. Assuming that other operational costs are kept at RM150 million, consultants see free cash flow of at least RM550 million a year from Bakun.

If Sarawak Energy is able to get cheap power from Bakun, it would be able to average down its own generation cost.

Its peak demand for power is said to be less than 800mw but the average cost per unit of electricity is high. At the moment, the cost per unit that Sarawak Energy incurs is believed to be more than 26 sen per unit as it has diesel plants in its grid system. Thus, cheap supply from Bakun would be cash flow-accretive for Sarawak Energy.

“The additional cash flow can be used to finance its building of other hydroelectric dams in Sarawak,” says an industry official.
With the power from Bakun, Sarawak Energy can also speed up negotiations with firms wanting to set up operations to develop energy-intensive factories such as aluminium smelting plants in the state.

In fact, a joint venture between Cahya Mata Sarawak (CMS) and Rio Tinto Alcan plans to build a aluminium smelting plant, but has yet to sign a power purchase agreement (PPA) with Sarawak Energy. CMS is majority-owned by the family of Taib Mahmud.  

Syed Mokhtar has also proposed building a smelter with Aluminium Corp of China with a capacity of up to 1.2 million tonnes a year while Press Metal Bhd has already established a smelting plant in the state.
For Sarawak Energy, a good accord with Sarawak Hidro on power from Bakun would enable it to conclude transactions with other entities such as CMS-Rio Tinto Alcan.
The company has also expressed its desire to undertake the undersea cable project if Bakun was in its stable.

Few options
In 1994, the total cost of Bakun and the cable was estimated at RM6 billion. But now, the cost of laying the cable alone is around RM10 billion. With Bakun expected to be completed at a cost of about RM7.3 billion, the entire project will cost Sarawak Hidro some RM17.3 billion at the very least.

The key issue here is, can the revenue from Bakun Dam — which has a capacity of up to 2,400mw — support the construction of the cable and the repayment of costs incurred for building the dam?

An industry consultant working on the project says revenue from Bakun can support the construction of the cable and supply power to Tenaga Nasional Bhd at 18 sen per kWh in Bentong, Pahang.

This is the rate that Tenaga is seeking if it is to take any electricity from Sarawak.

However, Sarawak Hidro officials doubt if the revenue from Bakun will be enough to support the repayment of the dam’s cost and finance the cable project.

“Even the dam project — for which the initial budget was less than RM5 billion — now costs a minimum of RM7.3 billion. What makes anybody think the cable project will not see a cost overrun?” asks a Sarawak Hidro official.

Zulkifle, meanwhile, stresses that discussions with Sarawak Energy are only on the sale of electricity and not on the sale of the entire Bakun Dam.

“There is no proposal to buy Bakun from Sarawak Hidro. What we are discussing now is to sell power to Sarawak Energy. We hope to conclude the deal soon,” he says.

As for the undersea cable project, Zulkifle says there are no plans for it now.

He does admit though that Sarawak Hidro has no choice but to sell its power to Sarawak Energy. For starters, they are looking at selling 200mw to 300mw to Sarawak Energy, he says.

“We have put in some proposals and are awaiting their feedback. Our proposals include a step-up tariff to maximise returns to Sarawak Hidro,” he adds.

It is said that Sarawak Hidro had proposed to sell electricity directly to off-takers such as aluminium smelters, but this was shot down by the state.

Without the undersea cable and Sarawak Energy as its only off-taker, the chances of Sarawak Hidro getting a good deal out of its prized asset Bakun Dam are slim. But does it have a choice? None at the moment, neither commercially nor politically.

This article appeared in Corporate page, The Edge Malaysia, Issue 819, Aug 16-22, 2010