Construction Sector - Sarawak 500kv project to commence soon? Overweight

- Bernama quoted Sarawak Energy Bhd (SEB) CEO Torstein Dale Sjotveit as indicating that construction of Sarawak’s 500kV ‘backbone’ transmission line system worth up to RM3bil would commence soon. To be sure, SEB has signed firm power purchase agreements (PPA) with the first pioneer batch of SCORE investors for a total supply of 1,800MW. They are Tokuyama, Asia Minerals, Press Metal, OM Holdings and PLN (Persero) of Indonesia.

- Furthermore, an additional three customers have signed indicative term sheets with SEB for 600MW of power from the proposed Murum dam project. The project is now 75% completed, with production slated to start by early-2014.

- Following these deals, the entire firm capacity at both power plants has been filled. This would be followed by the start of construction works on the 600MW Balingian coal fired power plant by 2013, for its targeted commissioning in late-2015. Indicative demand has been strong.

- Poignantly, we are draw comfort from these latest developments. After several false starts, the 500kV transmission line – a vital cog of SCORE’s power infrastructure – seems to be firmly back on the ground.

- The local press had reported back in June that Sarawak Cable (S Cable) – through Trenergy Infrastructure and its partner China’s Sinohydro – was among the five original bidders that were shortlisted for this massive project. Interestingly, S Cable is in the midst of wrapping up the acquisition of Trenergy for RM65mil, whereby the deal could be sealed next month.

- Under its original agenda, the 500kV project was to be carried out in two phases. The first phase was supposed to run on the 200km Similajau- Bintulu-Tada, Sibu route, followed by the next phase to be awarded six months later. (Tada-Kuching: 340km).

- We understand that the transmission portion would still be in the region of ~RM1bil. But, the project could now be broken up into three portions with construction works to be completed in stages from late 2014 to late 2015. 

- As it takes a minimum of two years to construct the 500kV line, this re-affirms our earlier view of its imminent award by end-4Q12. Via Trenergy, we reckon that S Cable would still emerge as a frontrunner for the transmission portion – as well as that of other upcoming lines under SEB’s massive RM22bil power development agenda (until 2020). 

- The 500kV job aside, the rising demand for power within SCORE should accentuate more supporting transmission lines within this growth region. We expect the 275kV MambongWest Kalimantan line worth RM100mil to be next. This new line is required by SEB to export up to 230MW of electricity to the Indonesian province from mid-2014 onwards.

- As for the Balingian power plant (~RM3bil), we foresee some opportunities opening up for Sarawak-based contractors on the civil/infrastructure front, notably Hock Seng Lee.    

Source: AmeSecurities