Keppel’s infrastructure division and Keppel Infrastructure Trust A7RU (KIT) have proposed to enter into an agreement to amend and extend the capacity tolling agreement (CTA) for the Keppel Merlimau Cogen plant by 10 years, from 2030 to 2040. KIT owns a 51% stake in the plant, while Keppel owns the remaining 49%.
The plant, located on Jurong Island, is a combined cycle gas turbine power plant that has a generation capacity of about 1,300 MW.
The CTA, if amended and extended, is expected to generate up to $1.08 billion in long-term capacity payments for the plant, providing a stable base of contracted cashflows for the plant’s existing loan facility.
The move, which will resume the asset’s contributions, is also said to unlock value for both KIT’s and Keppel’s shareholders. If the capital restructuring of KMC was effected on Jan 1, 2023, KIT’s distribution per unit (DPU) would have been 11% higher at 4.28 cents from its actual DPU of 3.86 cents for the FY2023.
In addition to the CTA, Keppel’s infrastructure division has also proposed to amend and extend the operations and maintenance (O&M) contract for the plant for another 10 years to 2044. The amendment is worth up to about $342.84 million.
According to Keppel, the extension of both the CTA and the O&M contract will position the group as one of the major power generators in the Singapore electricity market. It would also further augment its market position as a leading Singapore energy player.
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“We are pleased to build on our partnership with KIT through the proposed extension of KMC’s CTA for another decade. KMC is a strategic component of Keppel’s asset-light integrated power business, bolstering our ability to provide customers with stable and competitive power supply through our end-to-end value chain,” says Janice Bong, managing director, power and renewables of Keppel’s infrastructure division.
“As the co-owner and operator of KMC, Keppel has been continually working with KIT to upgrade and enhance the asset to be one of the most efficient power plants in Singapore. We will continue working with stakeholders to explore ways to future-proof KMC, including enhancements to reduce carbon emissions as well as prepare the plant to capture opportunities in the hydrogen economy,” she adds.
“With the proposed CTA extension, we will be able to prolong cash flows from the KMC plant by another 10 years, which puts us in a strong position to restructure KMC’s loan facility towards resuming contributions sooner,” says Kevin Neo, CEO of KIT’s manager.
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“Through the proposed extension of the O&M contract with Keppel, KIT can further tap Keppel’s deep operating capabilities to undertake strategic asset enhancements to the KMC Plant that will improve its emissions intensity and allow it to contribute to the decarbonisation of Singapore’s power sector,” he adds.
The proposed amendment and extension of the CTA and O&M contract are subject to approval from Keppel’s shareholders as well as KIT’s unitholders at their respective extraordinary general meetings (EGMs).
As at 9.30am, shares in Keppel are trading at $7.39 while units in KIT are trading at 49.5 cents.
