Asian projects, markets reaching milestones

By Michael T. Burr,Contributing Editor

Recent events have given the private power industry good reason to believe that the floodgates are opening in Asian markets. Examples of the industry`s tangible progress include Enron`s Dabhol project resuming construction in India, China`s government moving forward on power industry reforms, and a host of projects across Asia reaching important financing milestones.

According to Independent Energy`s Financial Rankings, 26 projects reached financial closing in the Asia/Pacific region during 1995, representing (US)$11.32 billion in investment. Indonesia led the pack with four projects totaling nearly (US)$5 billion, followed by the Philippines with four projects totaling (US)$2.3 billion. China made significant progress in 1995, with four projects closing for (US)$810 million–reflecting the difficulty of getting approvals for large projects in China.

“We`re in a dynamic period of financing breakthroughs,” said Dato Francis Yeoh, YTL Corp. managing director in Kuala Lumpur, Malaysia. “This transformation in Asia is unpredictable and exciting. Asia is like America in 1946, only Asia is 10 times larger, and it is growing 10 times faster.”

Economic growth is actually expected to slow across much of Asia in the next two years, according to the Asian Development Bank. Nevertheless, annual expansion in gross domestic product (GDP) will remain strong–8.5 percent to 10 percent in China; 6.5 percent to 7.7 percent in the Asian Tiger economies; 7.3 percent to 7.9 percent in Southeast Asia; and 5.4 percent to 6.2 percent in South Asia. As a result, governments and utility companies are pressing forward with plans to add new power capacity and refurbish existing plants. Further, several favorable trends promise to open up new private power opportunities.

Tracking trends

Several emerging trends are signaling the advancement of Asia`s private power industry beyond its embryonic stage. First, a number of private power companies have begun tapping in to capital markets for debt and equity. One example, Thai Cogeneration Company Ltd. of Bangkok, Thailand, launched an initial public offering of stock late last year. The offering for the Cogeneration Public Company Ltd. (COCO) was oversubscribed, with 39 million shares being sold to raise about (US)$90 million. Shares began trading on Thailand`s stock exchange in February.

Formed in 1993 as a joint venture of Thailand`s Banpu Coal, Nordic Power of Sweden and IVO of Finland, Thai Cogeneration Co. is developing a 300-MW cogeneration plant near Bangkok and is developing a number of projects in Asia. The first, 35-MW tranche of the company`s 300-MW project began operating in late 1995.

Another continuing trend in the Asian private power industry is increasing participation by Asian companies. Other companies involved include: Malaysian developers YTL Power Corp., Landmarks Bhd and Time Engineering; Daewoo Corp. of South Korea; Tomen and Marubeni of Japan; and Hopewell Holdings of Hong Kong, through subsidiary Consolidated Electric Power Asia.

Asian electric utility companies are increasingly diversifying into power development outside their own countries. In addition to Singapore Power, created late last year by the Singapore Public Utilities Board, other Asian utility companies developing power projects away from home include China Light and Power Ltd. of Hong Kong and Tenaga Nasional Bhd. (TNB) of Malaysia.

Cross-border electricity trading is also becoming more commonplace in Asia, creating more open markets for privately produced power. In one example, the Electricity Generating Authority of Thailand (EGAT) is planning to purchase 300 MW of capacity from the 650-MW Perlis power project, which is being developed in northern Malaysia by Landmarks Bhd. EGAT also reached an agreement with Electricity du Laos recently that settled a dispute over the price of power EGAT will buy from 1,500 MW of projects being developed in Laos. With significant hydropower resources–much of it being developed by private companies–Laos is seen as an important potential power exporter in the region.

Vietnam is also looking at Laos and other neighboring countries for power supplies in hopes that an integrated transmission system may eventually be created among countries in the lower Mekong River basin, including Vietnam, Laos Thailand and Cambodia. Vietnam has already begun building a transmission line linking it to Laos, and has held talks with Cambodia regarding a similar project.

In January, ranking electric utility officials from the member states of the Association of South East Asian Nations (ASEAN) signed an agreement to promote development of interconnected power grids in Southeast Asia. A new group, called the Heads of ASEAN Power Utilities and Authorities, will focus on bringing an interconnected ASEAN grid to fruition, in addition to increasing private-sector participation in the region`s power industries.

As such efforts continue, markets for private power will become broader and more stable, increasing the diversity and potential power purchasers and improving conditions for financing.

Gaining momentum

The private power industry has gained significant momentum in Asia over the past year. In addition to an impressive number of projects being financed, a large number of others appear to be reaching advanced stages of development. Also, several countries are continuing their efforts to restructure and liberalize power markets.

As these regulatory frameworks solidify and new financing models emerge, the financial community will become more comfortable with financing power projects in Asia. The result will be an increasingly favorable climate for private power development.