KUALA LUMPUR (May 16): Cahya Mata Sarawak Bhd’s (CMSB) unit has obtained an interim injunction to restrain Syarikat Sesco Bhd from terminating electricity supply to its phosphate complex pending a hearing on the application between both parties.
In a filing to Bursa Malaysia, CMSB said the Kuching High Court has on Tuesday (May 16) granted Cahya Mata Phosphates Industries Sdn Bhd (CIMP) the ex parte ad interim injunction till May 25, 2023, when the inter parte hearing is scheduled for.
CMSB said this development follows the Emergency Arbitrator's refusal to grant interim measures to CIMP concerning a power purchase agreement (PPA) dispute with Sesco.
CMPI had referred the matter involving the PPA to the Asian International Arbitration Centre under the dispute resolution mechanism of the PPA dated January 15, 2019.
CMSB said although Sesco has deemed the PPA to be terminated with effect on May 11, 2023 due to alleged breach by CMPI, it is still a live issue which is yet to be determined in arbitration.
“Phosphates (CMPI) contends that the PPA is still subsisting between parties, hence the above injunction proceedings in the Kuching High Court to seek an order for preservation of status quo being performance of the PPA,” it said in the filing on Tuesday.
It added that the top management of CMSB is continuing to assert its claims through arbitration proceedings and explore all other possible legal recourse to protect all its rights.
On Monday (May 15), CMSB said it has disclosed a RM266 million contingent liability in its FY2022 audited financial statements in relation to the PPA dispute.
It added that the final details of the potential impact are yet to be determined as legal and arbitration proceedings are continuing and ongoing.
In its latest annual report, CMSB said, based on its 60% ownership interest in CMPI, extended an unsecured proportionate corporate guarantee to Sesco to guarantee the payment by CMPI of its obligations under the PPA entered with Sesco.
Under this arrangement, CMSB must either take a minimum electric supply capacity based on the computation in the contract upon commencement of commercial operations or pay for the electricity consumption shortfall.
As of Dec 31, 2022, the integrated phosphate complex at Samalaju Industrial Park, Sarawak has not achieved the stage of completion to produce phosphate on a commercial basis and therefore, CMPI is not deemed to have commenced commercial operations.
However, Sesco has billed CMSB for approximately RM266 million for cumulative electricity consumption shortfall and payment security shortfall as of Dec 31, 2022.
Based on advice obtained from an external legal counsel, the group has evaluated that CMPI is not liable to pay for the amount billed by Sesco on the basis that it has yet to commence commercial operations during that financial year.
As there is a possible obligation arising from this event, although CMSB has assessed that there is no probable outflow of resources to settle the obligation, this event has been disclosed as a contingent liability in CMSB’s financial statement.
CMSB had provided an irrevocable and unconditional guarantee to a consortium of banks in respect of all CMPI obligations and liabilities in a facility agreement dated Jan 18, 2020 entered into for a credit facility of US$80 million (RM360 million) and RM64.8 million provided that the aggregate does not exceed the facility limit of RM400 million granted to CMPI to part-finance the construction and development cost of its project.
“As at the reporting date, no values were placed on the unsecured corporate guarantees provided by the company as the directors regard the value of the credit enhancement provided by the corporate guarantees to be minimal and the likelihood of default to be low,” said CMSB in its 2022 annual report.