Information on the Target

Gamuda Bhd has entered into a joint venture with Sabah Energy Corp Sdn Bhd (SEC) and Kerjaya Kagum Hitech JV Sdn Bhd (KKHJV) to develop a hydroelectric power plant in Tenom, Sabah. This initiative involves a private financing model and represents an investment of RM4 billion for the construction of a 187.5MW facility.

The hydroelectric power plant is expected to boost electricity generation in Sabah, which currently faces a supply-demand imbalance with less than a 12% reserve margin. As of 2021, the state's dependable electricity capacity was recorded at 1,180MW, necessitating the expansion of renewable energy sources.

Industry Overview in Sabah

Sabah's electricity sector is undergoing significant transformation, driven by the need for sustainable energy and increasing industrial demand for green power. The 2040 Sabah Energy Roadmap and Master Plan highlight the current challenges and outline strategies for enhancing energy reliability and diversification.

Hydroelectric power plays a crucial role in Sabah’s energy landscape as the state aims for greater renewable energy integration. With the commitment to expand clean energy capacities, the Tenom hydroelectric power plant aims to contribute up to 1,052GWh of clean energy annually.

Investments in renewable energy infrastructure are aligned with broader efforts towards environmental sustainability and compliance with local and international energy policies. This shift is also supported by government incentives aimed at attracting private investment in the renewable sector.

Moreover, the foundational focus on enhancing green energy has the potential to bolster Sabah's energy security, mitigate reliance on fossil fuels, and promote long-term economic growth within the region. As the demand for clean energy continues to rise, the development of projects like the Tenom plant will be pivotal for the state's energy future.

The Rationale Behind the Deal

The joint venture aligns with Gamuda's long-term strategies concerning environmental, social, and governance (ESG) commitments. It aims to address the urgent need for increased electricity generation capacity in Sabah to accommodate growing industrial demands while contributing to cleaner energy solutions.

By leveraging a consortium approach, the partners aim to efficiently manage the financial aspects of the project. The strategy includes a debt-to-equity ratio of 80:20, utilizing internally generated funds and borrowings, optimizing investment and facilitating the realization of the project’s objectives.

Information About the Investor

Gamuda Bhd is a prominent infrastructure and property development company in Malaysia, with a strong portfolio in various sectors, including engineering, construction, and property. Their commitment to sustainability has propelled them to invest in renewable projects, reinforcing their positioning as a leader in ESG compliance within the region.

As a stakeholder in the newly formed joint venture, Gamuda’s experienced management and technical expertise are expected to drive project success while contributing positively to the regional energy landscape. Their engagement in the hydroelectric sector is part of a broader commitment to environmentally responsible development.

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The establishment of this joint venture is a strategic move that could deliver significant long-term benefits, given the increasing emphasis on clean energy. Investing in the Tenom hydroelectric plant not only aligns with climate goals but also addresses critical energy supply issues in Sabah, making it a prudent choice.

Moreover, the project's tenure of 40 years provides a meaningful opportunity for sustained revenue generation and impacts positively towards Gamuda’s portfolio. Such long-term investments are often viewed favorably by markets, especially in the current climate where renewable energy sources are prioritized.

Furthermore, the expected stability of power prices and the structure of the partnership could mitigate financial risks associated with large-scale projects. By collaborating with experienced partners, Gamuda can leverage shared expertise to enhance the project's likelihood of success.

In summary, the venture presents a good investment opportunity, not only due to its alignment with environmental goals but also because of the strong market demand for energy in Sabah. As construction begins in the first half of 2024, it will be crucial to monitor developments, including the power purchase agreement, to evaluate the project's potential fully.

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