Mega-Sales needed to attract Rio Tinto to revives Bakun

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Aug 03 2007
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The country might have successfully pushed for the construction of one of the largest hydroelectric dam projects in Asia. The Bakun project in Malaysia’s Sarawak State was nevertheless hit by several postponements from the period of it being proposed till now, as if there was a curse trying to stop it from completion. It was more than a decade ago when the former premier Mahathir issued the go-ahead, regardless of the concerns on the environmental effects raised and the objection of the relocation of the original settlements within the area.

In the name of development, everything was bull-dozed to make the mega-project the size of Singapore itself becomes reality. Nothing can stop the decision, and so the Bakun project was started on an area covering 60,000 hectar. All it needs was the 1997-98 Asia Economy Crisis to stop the project, well, at least temporary. And since then the original blue-prints, the main contractors, bulders and others have changed.

In late June 2007, the stubborn government seems to have found the pulse to continue the project when Malaysia offered Japan’s Sumitomo Corp. (TYO: 8053) a $1.5 billion deal to lay a 700-kilometer long submarine cable which will transmit electricity from Bakun to Peninsular Malaysia despite the fact that the country has excess of 40% of un-used capacity currently.

So, there you go; you have the area the size of Singapore for you to play with by flooding it with waters. The people who stayed on the original lands were forced to settle somewhere else. The economy is back to pre-1997 crisis level (or is it?) and the government needs to spend in order to create business activities. The main contractor is more or less has been finalized and it’s none other than another GLC (government-linked-company) conglomerate Sime Darby Berhad (SIME: stock-code 4197). You have roped in the expertise from Japan to lay the cable and state-owned utility company Tenaga Nasional Berhad (KLSE: TENAGA, stock-code 5347) is surely the buyers of the electricity generated, regardless whether the nation really needs the extra capacity of 2,400 megawatts or not.

But suddenly the government realized they indeed need to build a business justification in order to sell the huge 2,400 megawatts or else the electricity will sit there idling, not that you can put it on the table as one of your dinner’s dishes. If you’re surprise with such methodology, please don’t, as that’s how the country works. The government’s concept is to build the infrastructure and worry about other problems later on as can be seen with most of the city-planning’s methodology. Thus you can see buildings being built up only to realize that the infrastructure such as the roads, severage systems, drainage systems and so on could not cater for future expansion – anyone care to enjoy the fun of having flash floods?

Earlier FinanceTwitter had blogged about the solution to the extra excessive electricity by courting power-hungry industry such as aluminium smelter. There’re couple of major players in the aluminium sector and based on the recent proposal from Rio Tinto (NYSE: RTP, stock) to acquire Canadian aluminum producer Alcan Inc. in a $38.1 billion cash-deal after Alcoa (NYSE: AA, stock) backed off, the Malaysia is talking aggressively trying to court Rio Tinto into Sarawak.

Yesterday, Aug 2, Rio told Reuters that it will sign an agreement next week with its Malaysian partner, Cahya Mata Sarawak Berhad (KLSE: CMSB, stock-code 2852) to pave the way for a feasibility study on a $2 billion aluminium smelter. Cahya Mata is part-owned by the family of Sarawak Chief Minister Abdul Taib Mahmud.

Whether Rio Tinto will proceed to build an aluminium smelter in Sawarak is yet to be seen, if the earning announcement by Rio yesterday is anything to goes by. Rising costs has cut its profit and the earnings fell to $3.25 billion from $3.8 billion a year ago. Even though the poor result was mainly caused by overruns at Rio Tinto’s Argyle diamond mine, the two main commodities that contributing nearly 90% of its earnings are iron ore and copper. Unless the potential profits from the aluminium justify a new smelter, Rio might take its own sweet time to make the decision to expand into Sarawak. Maybe Malaysia can do cheap-sales on the electricity to attract Rio, the same way current “Mega-Sales” is happening throughout Malaysia.

For the time being, the other Malaysia government agencies might want to take a look and solve of the problem of “sex-slaves” crying for help trapped inside
the Bakun perimeters currently. It’s disturbing to learn that while the gangsters and syndicates are known to supply the women, nothing is being done to rescue them. If you’ve not read this hot story, you can click
here to read it. Just because there’re 2,000 workers working within the project doesn’t gives the police the right to justify that the law-enforcers can’t do anything about it.

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