Rating update: Edra Energy successfully achieves plant completion

Published on 10 Mar 2022.

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Edra Energy Sdn Bhd (the Company) has reached commercial operations date (COD) for its last generating block (GB), bringing the construction phase of its 2,242 MW combined-cycle, gas turbine power plant in Alor Gajah, Melaka (the Plant or the Project) to an end on 28 February 2022. The Plant comprises three 747 MW GBs – GB1 and GB2 were completed on 16 December 2021 and 31 January 2022, respectively. 

The overall plant’s CODs are within our stressed assumptions, albeit delayed from the plant’s original scheduled CODs (SCOD) under the PPA. Edra Energy’s strong liquidity, exhibited via its ability to cushion the cashflow impact from delayed completion, underscores the AA3/Stable rating of its Sukuk Wakalah of up to RM5.085 bil in nominal value (2018/2038). The rating is further supported by a letter of undertaking from Edra Power Holdings Sdn Bhd (AA1/Stable) – Edra Energy’s immediate and sole holding company – to irrevocably and unconditionally provide liquidity support to the Company as and when required to preserve its finance service coverage ratio at a minimum 1.50 times.

Although the Plant has begun operations, temporary rectification works for defects in the offshore intake cooling water culvert remain ongoing, a long-term solution for which will only be concluded in 2024. The works are governed by a supplemental agreement to the engineering, procurement, construction and commissioning (EPCC) contract, at the EPCC contractors’ cost. While no operational disruption is expected, we will closely monitor the progress of works as well as the Plant’s operating performance, especially in the initial couple of years.

No cost overruns are anticipated but we do not discount the possibility of operational hiccups from the deployment of new technology for a plant of this scale. We have accounted for this by assuming a longer forced outage duration in our downside risk stress scenario, which results in lower projected cashflow generation. Edra Energy would be able to rely on its Long-Term Service Agreement with GE Global Parts & Products GmbH (the equipment supplier) which has provided guarantees on output, heat rates, planned and unplanned outages. The latter has also committed to make available critical and strategic spares in a timely manner for the warranty period which spans the first 36 months of operations.

Meanwhile, TNB, Edra Energy’s sole off-taker, is expected to review the extended SCOD under the PPA. Liquidated damages (LDs) would be payable to TNB for delays beyond the SCOD unless demonstrated by Edra Energy to the satisfaction of TNB that such delays arose as a result of force majeure events. LDs payable by Edra Energy under the PPA for delay, if any, will be contractually borne by the EPCC contractors unless the latter can show that the delay was caused by a force majeure event as specified in the EPCC contract. As the delivery of the Plant is undertaken by the EPCC contractors on a full-wrap and turnkey basis, LDs for delay that are payable to TNB will be passed on to the former.


Analytical contacts
Jack Kwan
(603) 3385 2532

Chong Van Nee, CFA
(603) 3385 2482

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