IPPs will be exempted from windfall levy if ...
ALL independent power producers (IPPs) that successfully renegotiate their power purchase agreements (PPA) with Tenaga Nasional Bhd will be exempted from paying the recently introduced windfall levy.

The Cabinet on Wednesday agreed to allow IPPs and TNB to bring back their respective PPAs to the negotiating table.

In a statement issued yesterday, Second Finance Minister Tan Sri Nor Mohamed Yakcop said any IPPs that "succeeded to renegotiate their PPAs" would be exempted from paying the windfall profit levy, with the date of exemption to be made effective from the date the new PPA entered renegotiation.

He said a committee comprising the Economic Planning Unit in the Prime Minister's Department, his ministry and Energy, Water and Communications Ministry, would be established to supervise and co-ordinate renegotiation of the PPAs.

The government, he said, was confident that renegotiations would be successfully concluded within a year, taking into account the interest of all stakeholders, including IPP bondholders.

The IPPs had approached the government and indicated their willingness to renegotiate the agreements as a long-term solution towards a more sustainable power industry.

On June 4, the government had announced the application of the Windfall Profit Levy Act on IPPs.

In the context of electricity, Nor Mohamed said the government's principle objective was to ensure a sustainable power industry whereby the people and business consumers would continue to be assured of electricity supply at competitive tariff rates.

"Particularly with the current high fuel prices, the government is of the opinion that all stakeholders, including IPPs, must contribute towards the rising cost of electricity on a more equitable basis.

"To this end, the government had earlier in 2006 initiated renegotiations of existing PPAs in order to achieve a more sustainable power industry."

He said this was not unusual in the global context and in countries such as the United States, Northern Ireland, the Philippines and Indonesia.

"However, our renegotiations have thus far, not been successful. In the absence of progress on the renegotiations when the government announced the recent increase in electricity tariff, the Act applies to IPPs as an expedient mechanism to effect their contributions towards the higher cost of fuel," he said.

Under the Windfall Profit Levy (Electricity) Order 2008, which came into effect on July 1, the IPPs will pay a 30 per cent levy on returns on assets (ROA) above the nine per cent threshold of the power company's audited accounts. This tax is imposed on IPPs with an installed capacity of 30 megawatts.

IPPs, meanwhile, have objected to the implementation of the levy, among others saying that it would impact earnings and their ability to pay bondholders.