SIME aborts cable, no more cheese or the Rats move it?

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Jun 25 2008
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If not for the news that Sime Darby Berhad (SIME: stock-code 4197) decided not to play the game of undersea cable, I would have forgotten about the highly controversial Bakun project. It was almost a year ago when I wrote about this to-be-white-elephant project unless of course the government could convince foreign investor to eat-up the 2,400 megawatts. Yes, only foreign investor particularly Rio Tinto (NYSE: RTP, stock) could take up the electricity in such scale simply because Rio Tinto is in the power-hungry mining industry producing aluminium, copper, iron ore, coal, gold etc. That would only works if the company could get dirt cheap electricity generated from Bakum dam.

So far besides MOU (memorandum of understanding) between Rio Tinto Alcan Group and Cahya Mata Sarawak Bhd (CMS), nothing much has been heard about the joint venture. SALCO (Sarawak Aluminium Co Sdn Bhd’s) was the name for the joint venture proposed which was suppose to build the RM7 billion aluminium smelter plant and in the process hoped to be able to consume 900 to 1,200 megawatts of power. The plan was to transmit the remaining 1,600 MW (megawatts) to Peninsula Malaysia via underwater cables, never mind that currently Tenaga Nasional Berhad’s (KLSE: TENAGA, stock-code 5347) has excess of 40% of un-used capacity.

Bakun Dam Location MapDespite owning 60% stake in the revived undersea cable project, Sime Darby was said to be slow and reluctant to sign on the dotted line with its consortium partners namely Tenaga Nasional Bhd and the Ministry of Finance, which have a 20% stake each. Sime Darby does not have the expertise and was expected to depends heavily on Japan’s Sumitomo Corp. (TYO: 8053) which was offered the $1.5 billion deal to lay a 700-kilometer long submarine cable from Sarawak to Peninsula Malaysia.

Today, Sime Darby announced it will not invest in an undersea cable project saying it did not fit with its business strategy (sure and to take such a long time to realize this?). However Sime Darby will proceed as a contractor for the dam. It was a puzzling decision considering the company was so eager Sime Darby abort Cable Projectwith the project two months ago. With this development the targeted deadline in 2013 will surely be missed, not that the project was feasible in the first place. Why backed off from the project when in fact it was an easy meat – subcontract the whole damn dirty jobs to Sumitomo (or whoever is interested) and take whatever left as pure profit.

Could the escalating cost (blame the turtle please) eat into the profit margin so much so that there’s not much money to be made by Sime Darby? Could there be technology problem to the ambitious mega-project that building the 700-kilometer cable would take ages that might surpass the 2013 deadline? Unless the agreement is not bias in Sime Darby’s favor why worry (about future escalating costs)? But then the government is almost bankrupt *grin* so don’t expect extra pocket money if you cannot deliver. Of course there’s speculation that the government is cutting almost all mega-projects’ cost to be relocated to “somewhere else.” So before you rejoice that billions of dollars will be saved, it could be smoke gets in your eyes.

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