Logical Output by Tim Sharp: Maverick Malaysia Steals A March

All right guys, you can retire the crystal balls. There we were, sober-suited, econometric, all eyes on South Korea and Thailand. Next thing you know, Malaysia is out there putting up close to 7,000MW of new plant – in a country whose peak demand hit 8,680MW early June and whose recovery is not yet certain.

Maverick? Well, yes!

On the face of it, it all hangs together. The country has 13.3GW installed capacity now and could do with around 20GW in 2005 to back estimated peak demand then of around 15GW.

Admittedly, this assumes the unlikely return of pre-recession economic growth and provides a generous reserve margin, but if you factor in present low power plant availability of around 70% and near-future retirement of some 4,000MW, it makes good enough sense.

Only problem is, in a country that is supposed to be privatising, the new capacity will be nowhere near least-cost. And once the anomalies start popping, they're hard to stop.

Conclusion: this is the country where you can have as free a market as you like as long as prime minister Dr. Mahathir Mohamad is in charge. And as he showed again on the campaign trail only a few weeks back, he's a man to whom xenophobic statements come easily.

But he's also extremely smart. You may not like the capital controls he imposed last September but they saved Malaysia from the worst of the Asian recession. As that fades, they also mean high domestic liquidity, low interest rates and an under-valued ringgit to get things moving again.

He's backing those measures with a massive public spending program to ensure Malaysia's economic pump is well and truly primed. And yes, power sector development is part of the program.

So ground-breaking for a 2,100MW coal-fired power plant in Perak state this month. Another 2,400MW of coal plant in the pipeline for two projects in neighboring Kedah and Selangor states. 650MW of gas-fired power slated for tiny Perlis state to the north where present installed capacity is a miniscule 68MW. And another 450MW for Kedah.

Lots of publicity, too, for Tenaga Nasional Berhad (TNB) divestiture of 40% equity in the country's flagship 2,500MW Kapar facility in Selangor, plus a casual throw-away – the Bakun hydro project in Sarawak will be revived "as soon as convenient".

Only 500MW to be sure, not the full 2,400, with TNB as lead contractor. But scaled down projects might be scaled back up. Significantly (though Siemens is sniffing round too), Asea Brown Boveri may still be that ill-starred project's main contractor.

But even if that doesn't pan out, ABB looks like getting an almost unheard of plum elsewhere -- (temporary) 60% equity in the Perlis project. Xenophobia or not, legislated norms and free markets aside, the power sector must revive now -- and no-one else is willing to ride Perlis' 10-fold capacity increase.

So where's the fire?

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