MARC Ratings has assigned a preliminary rating of AA+IS to Pulau Indah Power Plant Sdn Bhd’s (PIPP) proposed Islamic Medium-Term Notes (IMTN) (Sukuk Wakalah) Programme of up to RM3.0 billion. The rating outlook is stable. PIPP owns and operates a 2x600MW combined-cycle gas turbine plant in Pulau Indah, Selangor, under a 21-year power purchase agreement (PPA) with offtaker Tenaga Nasional Berhad (TNB, AAA/Stable), expiring in February 2046.
PIPP is 75%-owned by Worldwide Holdings Berhad, a wholly-owned subsidiary of Selangor state’s statutory body Perbadanan Kemajuan Negeri Selangor, and 25%-owned by Korea Electric Power Corporation (KEPCO), the largest utility company in South Korea. Proceeds from the proposed Sukuk Wakalah Programme will, inter alia, refinance the outstanding RM2.7 billion syndicated term financing used to partially fund the power plant’s construction. The RM3.4 billion project was funded through an 80:20 debt-to-equity structure.
The rating reflects the strength of PIPP’s PPA with TNB, which shifts demand and fuel price risks to the offtaker, contingent on plant performance. It also incorporates strong projected cash flows, with a sensitised minimum post-distribution finance service cover ratio (FSCR) of 1.81x, consistent with the rating band. The rating is moderated by the risk of unforeseen operational issues affecting PIPP’s financial performance.
The transaction carries no construction risk, as the plant achieved commercial operation date on 1 March 2025. Although the plant’s track record is limited, the rating takes into account the use of proven technology, a long-term service agreement (LTSA) with the original equipment manufacturer GE Vernova, Inc. (GE), and technical support provided under a technical service agreement (TSA) with KEPCO. The plant uses GE’s 9HA.01 gas turbines, in commercial operation since 2016 and deemed reliable by the independent technical adviser, Fichtner GmbH & Co. KG.
The plant is operated in-house by Pulau Indah O&M Sdn Bhd (PIOM; 60%-owned by Worldwide Holdings and 40%-owned by KEPCO) under a 21-year operations and maintenance agreement (OMA). This collaboration brings together seasoned local professionals with years of experience in the domestic power sector, alongside KEPCO’s international expertise in thermal power plant operations. Operational risks are mitigated by performance guarantees in the OMA and the LTSA, along with technical support from KEPCO under the TSA. As the technical partner, KEPCO provides consulting and advisory services.
Gas is supplied under a 21-year contract by PETRONAS Energy & Gas Trading Sdn Bhd, a strong counterparty and subsidiary of Petroliam Nasional Berhad. In case of disruption, the plant can switch to distillate, with on-site storage covering 3.5 days of operations.
Under the PPA, PIPP receives full capacity payments (CP) — covering fixed operating costs, financing, and returns — provided its unplanned outage rate (UOR) stays below 4%. Since commissioning, the plant has mostly been on standby and operates using distillate due to gas supply disruption following a pipeline explosion in Putra Heights on 1 April 2025. Despite this, PIPP remained eligible for full CP. Normal operations resumed on 2 July 2025, and as of date, UOR has remained within PPA limits.
The PPA allows for full fuel cost pass-through and energy payments (EP) if the plant meets a stipulated heat rate. However, commissioning tests showed both units exceeded this rate by 1.4% on average, likely preventing full cost recovery. Consequently, liquidated damages (LDs) of RM308 million were paid by the engineering, procurement, construction and commissioning contractor (a consortium of POSCO Eco & Challenge Co. Ltd., Mitsubishi Corporation, and PEC Powercon Sdn Bhd) for failing to meet contracted performance levels. This amount is sufficient to offset the expected EP shortfall over the PPA term.
In 2025, revenue is projected at around RM1.3 billion and earnings before interest, tax, depreciation and amortisation (excluding LDs) at around RM275 million. The base case accounts for limited fuel cost pass-through, yet cash flow remains strong, with minimum and average FSCR of 1.92x and 2.41x (excluding outliers in 2025-2027 and 2041-2043 due to no/minimal sukuk repayments). Cash flows can withstand moderate downside scenarios: 2% above PPA heat rate, 2% above PPA UOR, and 10% higher operating expenses. To maintain strong coverage, distributions are restricted unless post-distribution FSCR exceeds 1.80x.