Tuesday, April 24, 2012

Malaysia Ponders What to Do with a White Elephant

Cancellation of an aluminum smelter leaves the Bakun Dam with no reason to exist
The recent decision recently by Rio Tinto Alcan to pull out of a US$2 billion aluminum smelter project next to the Bakun Dam in Sarawak ends a five-year campaign to find something – anything – to do with the 2,400 megawatts of power generated by the mammoth dam, one of the cherished mega-projects of former Prime Minister Mahathir Mohamad.

The cancellation, over how much to charge for the dam's power, leaves both the Malaysian government and the state government in Sarawak stumbling around with vast amounts of generated power and nothing to use it for.

Negotiations had been underway since 2007 for the construction of the smelter. In a prepared news release, Rio Tinto Alcan chief executive officer Jacynthe Côté said that “while a great deal of progress was made in negotiations with Sarawak Energy Berhad, agreement on a long- term competitive power supply contract could not be reached.”

“We have built solid relationships with the government and our stakeholders in Sarawak and more broadly in Malaysia and we thank them for their support. Looking into the future, we remain interested in development opportunities that may arise within the state and the country,” Côté said.

The decision by the Australia-based mining company to pull out is the latest blow in a saga that has gone on since the early 1980s, over a facility that Transparency International has called a “monument to corruption.”

The dam, said to be the largest rock-and-gravel filled dam on earth, blocks the upper reaches of the Rajang River, standing as a white elephant on a global scale. The common wisdom is that it was developed so that Chief Minister Taib Mahmud could use it as an excuse to log the 23,000 hectares of virgin rainforest in the dam watershed and deliver the timber into the hands of timber barons. The Sarawak government is said to be planning another half-dozen dams to create even more unusable power. Environmentalists say the only reason for the dams is to provide an excuse to log off the watershed.

As there was no competitive bidding for the RM15 billion contract to build the dam in the first place, there was no competitive bidding over the plan to build the smelter. Cahya Mata Sarawak (CMS), a company connected to the Taib famly and which owns 40 percent of the Sarawak Aluminium Company (SALCO) smelter development, announced the termination in late March in a filing with the Malaysian stock exchange, to the jubilation of environmentalists.

“There is no market for the power,” Ame Trandem, the regional head of the International Rivers NGO, told Asia Sentinel. “They have resettled 10,000 people, it has had a devastating impact on the area and the people who live there. There is no market for the electricity.”

Former Prime Minister Ahmad Abdullah Badawi tried to cancel the project when he followed Mahathir into office, but was unable to do so, part of the eternal enmity he earned from Mahathir, who worked tirelessly to drive him from office. When Badawi came to power in 2003 as Malaysia’s prime minister, he told delegates to the 57th United Malays National Organization’s 57th general assembly that he would turn away from Mahathir’s economic strategies. “That era is over,” he told the delegates. It was soon Badawi’s era that was over.

Barry Wain. In his definitive history of Mahathr’s political career, “Malaysian Maverick: Mahathir Mohamad in Turbulent Times (Palgrave McMillan, US$88 from Amazon), estimated that Mahathir may well have wasted or burned up as much as RM100 billion (US$40 billion at earlier exchange rates when the projects were active) on grandiose projects and the corruption that that the projects engendered as he sought to turn Malaysia into an industrialized state. That includes the ill-fated Perwaja Steel project, which is estimated to have lost US$800 million before it was shut down; the Proton national car, which continues to bleed money, and many more.

In addition to allegedly serving as a forest plantation for Taib, the dam itself was part of a grandiose plan to meet electricity demand in peninsular Malaysia, nearly 700 km away, via a high voltage direct current cable, since the entire island of Borneo, where the dam is situated, including the Indonesian state of Kalimantan, is unlikely to be able to use the amount of electricity it was projected to produce in the foreseeable future.

In addition to the 700 km of underwater conduit, an additional 300km line was also envisioned to feed the power throughout peninsular Malaysia. Because of the distance of transmission, the underwater cables would have leaked more than half of the wattage before the power reached peninsular Malaysia. Even without Bakun, Sarawak’s installed electricity reserve capacity was estimated at 25 percent in 2005 and it hasn’t changed much since. At one point, the operation was projected to tie up the world’s entire cable-laying capability. No cable, however, has ever been laid and the power remains sequestered in Sarawak.

Approved by Mahathir after 14 years of off-and-on again studies, ridiculed by economists and environmentalists, the dam was halted repeatedly when companies connected with it went broke. The Asian financial crisis of 1997-1998, for instance, brought the dam project to a halt and forced the government to assume control from the consortium at an estimated cost of 1.6 billion ringgit to Malaysian taxpayers.

It was revived in 2000 through a wholly owned-government company, Sarawak Hidro, along with the Malaysia-China Hydro JV consortium. (This also isn‘t Bakun’s first flirtation with an aluminum smelter. One was previously proposed for Similajau, to be funded by the international financier Mohamed Ali Alabbar as a joint venture between Dubai Aluminum Co. Ltd and Gulf International Investment Group. Those plans collapsed due to construction delays and squabbles over contractual terms. By 2004 most of the minor partners to the consortium posted losses or substantially decreased profits.)

Taib Mahmud himself has faced numerous corruption allegations by critics over his 30-year career as chief minister, most recently when the NGO Sarawak Report linked his family to billions of dollars of properties in the United States, Australia, Canada, the United Kingdom and Malaysia. Asia Sentinel

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