Tnb Northern - Im2.pdf

Strictly Private & Confidential

No:

TNB NORTHERN ENERGY BERHAD (Company No. 1024796-X)

INFORMATION MEMORANDUM

PROPOSED ISSUE OF, OFFER FOR SUBSCRIPTION OR PURCHASE OF, OR INVITATION TO SUBSCRIBE FOR OR PURCHASE OF SUKUK BASED ON THE SHARIAH PRINCIPLES OF IJARAH AND WAKALAH (“SUKUK TNB NE”) OF UP TO RM2.0 BILLION IN NOMINAL VALUE

Joint Principal Advisers, Joint Lead Arrangers and Joint Lead Managers

HSBC Amanah Malaysia Berhad

KAF Investment Bank Berhad

(Company No: 807705-X)

(Company No: 20657-W)

This Information Memorandum is dated 15 April 2013

TNB Northern Energy Berhad

Information Memorandum

RESPONSIBILITY STATEMENT This Information Memorandum has been approved by TNB Northern Energy Berhad (“TNB NE” or the “Issuer”), TNB Prai Sdn Bhd (“TNB Prai” or the “Project Company”) and Tenaga Nasional Berhad (“TNB” or the “Guarantor”) and TNB NE, TNB Prai and TNB accept full responsibility for the accuracy of the information contained in this Information Memorandum. To the best of the knowledge and belief of the Issuer, Project Company and Guarantor (having taken all reasonable care to ensure that such is the case), the information contained in this Information Memorandum is in accordance with the facts and does not omit anything likely to affect the import of such information. The Issuer, Project Company and Guarantor, having made all reasonable enquiries, confirm that this Information Memorandum contains all information which is material in the context of the Islamic securities based on the Shariah principles of Ijarah and Wakalah (“Sukuk TNB NE”) of up to RM2.0 billion in nominal value, that the information contained in this Information Memorandum is true and accurate in all material respects and is not misleading, that the opinions and intentions expressed in this Information Memorandum are honestly held and that there are no other facts the omission of which would make this Information Memorandum or any of such information or the expression of any such opinions or intentions misleading. E-DISCLAIMER This Information Memorandum may be sent to you in an electronic form. Distribution of the Information Memorandum to any persons, other than the person receiving the electronic transmission from the Issuer, the Joint Principal Advisers, the Joint Lead Arrangers, the Joint Lead Managers and their respective agents and any person retained to advise the person receiving the electronic transmission with respect thereto, is unauthorised. The person receiving the electronic transmission from the Issuer, the Joint Principal Advisers, the Joint Lead Arrangers, and the Joint Lead Managers or their respective agents is prohibited from disclosing the Information Memorandum, altering the contents of the Information Memorandum or forwarding a copy of the Information Memorandum or any portion thereof by electronic mail or otherwise to any person. By opening and accepting this electronic transmission of the Information Memorandum, the recipient agrees to the foregoing. Transmission over the internet may be subject to interruptions, transmission blackout, delayed transmission due to internet traffic, incorrect data transmission due to the public nature of the internet, data corruption, interception, unauthorised amendment, tampering, viruses or other technical, mechanical or systemic risks associated with internet transmissions. The Issuer, the Joint Principal Advisers, the Joint Lead Arrangers, and the Joint Lead Managers or their respective agents have not accepted and will not accept any responsibility and/or liability for any such interruption, transmission blackout, delayed transmission, incorrect data transmission, corruption, interception, amendment, tampering or viruses or any consequences thereof. The electronic transmission of the Information Memorandum is intended only for use by the addressee name in the email and may contain legally privileged and/or confidential information. If you are not the intended recipient of the e-mail, you are hereby notified that any dissemination, distribution or copying of the email, and any attachments thereto, is strictly prohibited. If you have received the email in error, please immediately notify by reply email and permanently delete all copies of the e-mail and destroy all printouts of it.

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TNB Northern Energy Berhad

Information Memorandum

IMPORTANT NOTICE AND GENERAL STATEMENT OF DISCLAIMER This Information Memorandum may not be, in whole or in part, reproduced or used for any other purpose, or shown, given, copied to or filed with any other person including, without limitation, any government or regulatory authority except with the prior written consent of the Issuer or as required under Malaysian laws, regulations or guidelines. The Joint Principal Advisers, the Joint Lead Arrangers and the Joint Lead Managers have not separately verified the information or data contained herein. Accordingly, no representation, warranty or undertaking, express or implied, is made and no responsibility or liability is accepted by the Joint Principal Advisers, the Joint Lead Arrangers and the Joint Lead Managers or their respective affiliates as to the authenticity, origin, validity, accuracy or completeness of the information or data contained in this Information Memorandum or any other information provided by the Issuer in connection with the Sukuk TNB NE or the distribution of this Information Memorandum. The Joint Principal Advisers, the Joint Lead Arrangers and the Joint Lead Managers do not accept any responsibility for the contents of this Information Memorandum or for any other statement, made or purported to be made by the Joint Principal Advisers, the Joint Lead Arrangers and the Joint Lead Managers or on their behalf in connection with the Issuer, TNB Prai and TNB or the issue and offering of the Sukuk TNB NE. The Joint Principal Advisers, the Joint Lead Arrangers and the Joint Lead Managers accordingly disclaim all and any liability whether arising in tort or contract or otherwise (save as referred to the above) which they might otherwise have in respect of this Information Memorandum or any such statement. No representation, warranty or undertaking, express or implied, is given or assumed by the Joint Principal Advisers, the Joint Lead Arrangers and the Joint Lead Managers as to the authenticity, origin, validity, accuracy or completeness of such information and data or that the information or data remains unchanged in any respect after the relevant date shown in this Information Memorandum. This Information Memorandum has not been and will not be made to comply with the laws of any jurisdiction outside Malaysia (“Foreign Jurisdiction”), and has not been and will not be lodged, registered or approved pursuant to or under any legislation of (or with or by any regulatory authorities or other relevant bodies of) any Foreign Jurisdiction and it does not constitute an offer of, or an invitation to subscribe for or purchase the Sukuk TNB NE or any other securities of any kind by any party in any Foreign Jurisdiction. This Information Memorandum is not and is not intended to be a prospectus. Unless otherwise specified in this Information Memorandum, the information contained in this Information Memorandum is correct as at the date hereof. The distribution or possession of this Information Memorandum in Malaysia or in any Foreign Jurisdiction may be restricted or prohibited by law. Each recipient is required by the Issuer, the Joint Principal Advisers, the Joint Lead Arrangers and the Joint Lead Managers to seek appropriate professional advice regarding, and to observe, any such restriction or prohibition. None of the Issuer, the Joint Principal Advisers, the Joint Lead Arrangers and the Joint Lead Managers accepts any responsibility or liability to any person in relation to the distribution or possession of this Information Memorandum in Malaysia or in any Foreign Jurisdiction. By accepting delivery of this Information Memorandum, each recipient agrees to the terms upon which this Information Memorandum is provided to such recipient as set out in this Information Memorandum, and further agrees and confirms that: (a) it will keep confidential all of such information and data, (b) it is lawful for the recipient to receive this Information Memorandum and to subscribe for or purchase the Sukuk TNB NE under all jurisdictions to

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TNB Northern Energy Berhad

Information Memorandum

which the recipient is subject, (c) the recipient will comply with all the applicable laws in connection with such subscription or purchase of the Sukuk TNB NE, (d) the Issuer, the Joint Principal Advisers, the Joint Lead Arrangers, the Joint Lead Managers and their respective directors, officers, employees, agents and professional advisers are not and will not be in breach of the laws of any jurisdiction to which the recipient is subject as a result of such subscription or purchase of the Sukuk TNB NE and they shall not have any responsibility or liability in the event that such subscription or purchase of the Sukuk TNB NE is or shall become unlawful, unenforceable, voidable or void, (e) it is aware that the Sukuk TNB NE can only be transferred or otherwise disposed of in accordance with the relevant selling restrictions and all applicable laws, (f) it has sufficient knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of subscribing for or purchasing the Sukuk TNB NE and is able and prepared to bear the economic and financial risks of investing in or holding the Sukuk TNB NE, (g) it is a person to whom an issue, offer or invitation to subscribe or purchase the Sukuk TNB NE would constitute an excluded offer or excluded issue as specified in Schedule 6 or Section 229(1)(b), and Schedule 7 or Section 230(1)(b) read together with Schedule 9 or Section 257(3) of the Capital Markets and Services Act 2007 (“CMSA”) (as amended from time to time) at issuance, and Schedule 6 or Section 229(1)(b) read together with Schedule 9 or Section 257(3) of the CMSA thereafter. This Information Memorandum is not intended to provide the basis of any credit or other evaluation and should not be considered as a recommendation by the Issuer, the Joint Principal Advisers, the Joint Lead Arrangers and the Joint Lead Managers that any recipient of this Information Memorandum should purchase any of the Sukuk TNB NE. Each investor contemplating purchasing any of the Sukuk TNB NE should make its own independent investigation of the financial condition and affairs, and its own appraisal of the creditworthiness, of the Issuer and the terms of the offering of the Sukuk TNB NE, including the merits and risks involved. ACKNOWLEDGMENT The Issuer hereby acknowledges and authorises HSBC Amanah Malaysia Berhad (Company No. 807705-X) and KAF Investment Bank Berhad (Company No. 20657-W) as Joint Principal Advisers (the “Joint Principal Advisers”), Joint Lead Arrangers (the “Joint Lead Arrangers”) and Joint Lead Managers (the “Joint Lead Managers”) to distribute this Information Memorandum on a confidential basis to potential investors for the sole purpose of assisting such investors to decide whether to subscribe for or purchase any Sukuk TNB NE. At the point of issuance of the Sukuk TNB NE, the Sukuk TNB NE may not be offered, sold or delivered, directly or indirectly, nor may any document or other material in connection therewith be distributed in Malaysia other than to persons falling within any one of the categories of persons specified in Schedule 6 (or Section 229(1)(b)) or Schedule 7 (or Section 230(1)(b)) read together with Schedule 9 (or Section 257(3)) of the CMSA.

STATEMENTS OF DISCLAIMER – SECURITIES COMMISSION In accordance with the CMSA, a copy of this Information Memorandum will be deposited with the Securities Commission, which takes no responsibility for its contents. The issue, offer or invitation in relation to the Sukuk TNB NE in this Information Memorandum is subject to the fulfilment of various conditions precedent including without limitation the approval from the Securities Commission and each recipient of this Information

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TNB Northern Energy Berhad

Information Memorandum

Memorandum acknowledges and agrees that the approval of the Securities Commission shall not be taken to indicate that the Securities Commission recommends the subscription or purchase of the Sukuk TNB NE. The Securities Commission shall not be liable for any non-disclosure on the part of the Issuer and assumes no responsibility for the correctness of any statements made or opinions or reports expressed in this Information Memorandum. FORWARD LOOKING STATEMENT Certain statements in this Information Memorandum are based on historical data, which may not be reflective of future results, and others are forward-looking in nature, which are subject to uncertainties and contingencies. All forward-looking statements are based on estimates and assumptions made by the Issuer, Project Company and Guarantor. Although the Board of Directors of the Issuer and the Project Company believe that these forward-looking statements are reasonable, the statements are nevertheless subject to known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements to differ materially from the future results, performance or achievements expressed or implied in such forward-looking statements. In light of these and other uncertainties, the inclusion of forward-looking statements in this Information Memorandum should not be regarded as a representation or warranty by the Issuer or the Project Company or its advisers or the Joint Lead Arrangers/ Joint Lead Managers that the plans and objectives of the Issuer will be achieved.

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TNB Northern Energy Berhad

Information Memorandum

CONFIDENTIALITY To the recipient of this Information Memorandum This Information Memorandum and its contents are strictly confidential and the information herein contained is given to the recipient strictly on the basis that the recipient shall ensure the same remains confidential. Accordingly, this Information Memorandum and its contents, or any information, which is made available to the recipient in connection with any further enquiries, must be held in complete confidence. This Information Memorandum is submitted to selected persons specifically in reference to the Sukuk TNB NE and may not be reproduced or used, in whole or in part, for any purpose, nor furnished to any person other than those to whom copies have been sent by the Joint Principal Advisers, Joint Lead Arrangers and the Joint Lead Managers. In the event that there is any contravention of this confidentiality undertaking or there is reasonable likelihood that this confidentiality undertaking may be contravened, each of the Issuer, the Joint Principal Advisers, the Joint Lead Arrangers and the Joint Lead Managers may, at its discretion, apply for any remedy available to the Issuer or the Joint Principal Advisers, the Joint Lead Arrangers and/or the Joint Lead Managers (as the case maybe) whether at law or equity, including without limitation, injunctions. Each of the Issuer and the Joint Principal Advisers, the Joint Lead Arrangers and the Joint Lead Managers is entitled to fully recover from the contravening party all costs, expenses and losses incurred and/or suffered, in this regard. For the avoidance of doubt, it is hereby deemed that this confidentiality undertaking shall be imposed upon the recipient, the recipient’s professional advisers, directors, employees and any other persons who may receive this Information Memorandum (or any part of it) from the recipient. The recipient must return this Information Memorandum and all reproductions thereof whether in whole or in part and any other information in connection therewith to the Joint Principal Advisers, the Joint Lead Arrangers and the Joint Lead Managers promptly upon the Joint Principal Advisers’, the Joint Lead Arrangers’, the Joint Lead Managers’ request, unless that recipient provides proof of a written undertaking satisfactory to the Joint Principal Advisers, the Joint Lead Arrangers and the Joint Lead Managers with respect to destroying these documents as soon as reasonably practicable after the said request from the Joint Principal Advisers, the Joint Lead Arrangers and the Joint Lead Managers.

INVESTORS SHOULD RELY ON THEIR OWN EVALUATION TO ASSESS THE MERITS AND RISKS OF THE INVESTMENT. EACH SERIES OF THE SUKUK TNB NE WILL CARRY DIFFERENT RISKS AND ALL POTENTIAL INVESTORS ARE STRONGLY ENCOURAGED TO EVALUATE EACH SUKUK TNB NE SERIES ON ITS OWN MERIT. IT IS RECOMMENDED THAT PROSPECTIVE INVESTORS CONSULT THEIR FINANCIAL, LEGAL AND OTHER ADVISERS BEFORE PURCHASING OR ACQUIRING OR SUBSCRIBING FOR THE SUKUK TNB NE.

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TABLE OF CONTENTS CLAUSE 1 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.8.1 1.8.2 1.8.3 2. 2.1 2.2 2.3 2.4 2.5 3. 3.1 3.2. 3.3 3.4 3.5 4. 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 5. 5.1 5.1.1 5.1.2 5.1.3 5.2 5.3 5.4 5.5 5.5.1 5.5.1.1 5.5.1.2 5.5.1.3 5.5.1.4 5.5.1.5 5.5.1.6 5.5.1.7 5.5.1.8 5.5.1.9 5.5.1.10 5.5.1.11

PAGE NO. EXECUTIVE SUMMARY ........................................................................................... 6 Introduction................................................................................................................. 6 Issuer.......................................................................................................................... 6 Project Company ........................................................................................................ 6 Guarantor...... ............................................................................................................. 6 Project Background .................................................................................................... 6 Project Structure ........................................................................................................ 7 Key Project Documents.............................................................................................. 7 Description of Sukuk TNB NE .................................................................................... 7 Rating ....................................................................................................................... 10 Issue Amount ........................................................................................................... 10 Selling Restriction .................................................................................................... 10 INFORMATION ON THE ISSUER ........................................................................... 12 Incorporation ............................................................................................................ 12 Principal Activities .................................................................................................... 12 Share Capital............................................................................................................ 12 Shareholding Structure ............................................................................................ 13 Profile of Directors.................................................................................................... 13 INFORMATION ON THE PROJECT COMPANY .................................................... 16 Incorporation ............................................................................................................ 16 Principal Activities .................................................................................................... 16 Share Capital............................................................................................................ 16 Shareholding Structure ............................................................................................ 16 Profile of Directors.................................................................................................... 17 INFORMATION ON THE GUARANTOR ................................................................. 21 Incorporation ............................................................................................................ 21 Principal Activities .................................................................................................... 21 Share Capital............................................................................................................ 21 Shareholding Structure ............................................................................................ 22 Profile of Directors.................................................................................................... 25 Management Team .................................................................................................. 33 Business Overview of the Guarantor ....................................................................... 40 Key Financial Highlights of the Guarantor ............................................................... 41 INFORMATION ON THE PROJECT ....................................................................... 42 Technical Description ............................................................................................... 42 Plant Site and Layout ............................................................................................... 42 Plant Process and Technology ................................................................................ 44 Project Construction Schedule................................................................................. 45 Licensing Requirement ............................................................................................ 45 Project Economics ................................................................................................... 46 Project Structure ...................................................................................................... 47 Summary Of Key Project Documents ...................................................................... 48 Power Purchase Agreement .................................................................................... 48 Overview....... ........................................................................................................... 48 Conditions Precedent to Commence Generation of Electricity ............................... 48 Conditions Precedent to Commercial Operation ..................................................... 49 Sale and Purchase Obligations................................................................................ 50 Purchase Price and Other Charges ......................................................................... 50 Billing and Payment ................................................................................................. 51 Liquidated Damages ................................................................................................ 51 Performance Security............................................................................................... 52 Facility Construction and Start-up ............................................................................ 52 Representations and Warranties ............................................................................. 52 Insurance.................................................................................................................. 53

TABLE OF CONTENTS CLAUSE 5.5.1.12 5.5.1.13 5.5.1.14 5.5.1.15 5.5.1.16 5.5.1.17 5.5.1.18 5.5.1.19 5.5.1.20 5.5.2.1 5.5.2.2 5.5.2.3 5.5.2.4 5.5.2.5 5.5.2.6 5.5.2.7 5.5.2.8 5.5.2.9 5.5.2.10 5.5.2.11 5.5.2.12 5.5.3.1 5.5.3.1.1 5.5.3.1.2 5.5.3.1.3 5.5.3.1.4 5.5.3.1.5 5.5.3.1.6 5.5.3.1.7 5.5.3.1.8 5.5.3.1.9 5.5.3.1.10 5.5.3.1.11 5.5.3.1.12 5.5.4 5.5.4.1 5.5.4.2 5.5.4.3 5.5.4.4 5.5.4.5 5.5.4.6 5.5.4.7 5.5.4.8 5.5.4.9 5.5.4.10 5.5.4.11 5.5.4.12 5.5.5 5.5.5.1 5.5.5.2 5.5.5.3 5.5.5.4 5.5.5.5 5.5.5.6

PAGE NO. Force Majeure .......................................................................................................... 53 Default and Termination ........................................................................................... 54 Termination Upon Event of Default .......................................................................... 56 Step-In Rights........................................................................................................... 56 Critical Milestones .................................................................................................... 57 Indemnification and Liability ..................................................................................... 57 Dispute Resolution and Arbitration .......................................................................... 57 Transfers and Assignment ....................................................................................... 58 Governing Law ......................................................................................................... 58 Overview .................................................................................................................. 59 Scope and Period of GSA ........................................................................................ 59 Delivery and Quantities ............................................................................................ 59 Annual Take-or-Pay ................................................................................................. 59 Liability ..................................................................................................................... 60 Delivery Pressure ..................................................................................................... 60 Price ......................................................................................................................... 60 Invoicing and Payment ............................................................................................. 62 Measurement ........................................................................................................... 62 Force Majeure Event ................................................................................................ 63 Termination .............................................................................................................. 63 Assignment............................................................................................................... 64 Salient Terms ........................................................................................................... 65 Scope of EPC Works ............................................................................................... 65 Commencement of EPC Works ............................................................................... 65 Contract Price........................................................................................................... 65 Time for Completion ................................................................................................. 65 Performance Security............................................................................................... 66 Defects Notification Period Performance Security ................................................... 67 Taking-Over.............................................................................................................. 67 Insurance.................................................................................................................. 70 Force Majeure .......................................................................................................... 71 Termination .............................................................................................................. 72 Liquidated Damages ................................................................................................ 75 Limitation of Liability ................................................................................................. 76 Land Lease Agreement ............................................................................................ 77 Grant of Lease.......................................................................................................... 77 Plant Land ................................................................................................................ 77 Lease Term .............................................................................................................. 77 Conditions Precedent ............................................................................................... 78 Lease Rental and Terms of Payment ...................................................................... 78 Delivery of Possession ............................................................................................. 78 Maintenance Costs .................................................................................................. 78 Termination .............................................................................................................. 78 Ownership ................................................................................................................ 79 Covenants of the Lessee ......................................................................................... 79 Covenants of the Lessor .......................................................................................... 79 Assignment............................................................................................................... 80 Operations And Maintenance Agreement................................................................ 80 Scope of Services .................................................................................................... 80 Contract Price........................................................................................................... 80 Term of Agreement .................................................................................................. 81 Limitation of Liability ................................................................................................. 82 Performance Guarantees ......................................................................................... 82 Liquidated Damages and Bonuses .......................................................................... 83

TABLE OF CONTENTS CLAUSE 5.5.5.7 5.5.5.8 5.5.5.8.1 5.5.5.8.2 5.5.5.8.3 5.5.5.8.4 5.5.5.8.5 5.5.6 5.5.6.1 5.5.6.2 5.5.6.3 5.5.6.4 5.5.6.5 5.5.6.6 5.5.6.7 5.5.6.8 5.5.6.9 5.5.6.10 5.5.6.10.1 5.5.6.10.2 5.5.6.10.3 5.5.6.10.4 5.5.6.10.5 5.5.6.10.6 5.5.7 5.5.7.1 5.5.7.1.1 5.5.7.1.2 5.5.7.1.3 5.5.7.1.4 5.5.7.1.5 5.5.7.1.6 5.5.7.1.7 5.5.7.1.8 5.5.7.1.9 5.5.7.1.10 5.5.7.1.11 5.5.7.1.12 5.6 5.6.1 5.6.2 6. 7. 7.1 7.1.1 7.1.2 7.1.3 7.1.4 7.1.5 7.1.6 7.2 7.2.1 7.3 7.3.1

PAGE NO. Curtailment of Operations ........................................................................................ 85 Termination.... .......................................................................................................... 85 Termination upon expiry........................................................................................... 85 Termination for Operator’s Default........................................................................... 85 Termination for TNB Prai’s Default .......................................................................... 87 Termination of EPC Contract, PPA or expiry of the Term ....................................... 88 Assignment............................................................................................................... 88 Long Term Maintenance Programme Contract ....................................................... 89 Overview .................................................................................................................. 89 Scope of Work .......................................................................................................... 89 Price and Payment Terms ....................................................................................... 89 Term of LTMP .......................................................................................................... 90 Limitation of Liability ................................................................................................. 91 Defects Liability and Warranty ................................................................................. 92 LTMP Contractor’s Insurance .................................................................................. 93 TNB Prai’s Insurance ............................................................................................... 93 Payment Security ..................................................................................................... 94 Termination .............................................................................................................. 94 LTMP Contractor’s Default ....................................................................................... 94 Termination for Convenience ................................................................................... 95 TNB Prai’s Default .................................................................................................... 95 Termination for Extended Force Majeure ................................................................ 96 Termination Fee ....................................................................................................... 96 Force Majeure .......................................................................................................... 97 Turnkey Contract ...................................................................................................... 98 Salient Terms ........................................................................................................... 98 Scope ....................................................................................................................... 98 Commencement of Works...................................................................................... 100 Contract Price......................................................................................................... 100 Performance Security............................................................................................. 101 Payment Terms ...................................................................................................... 101 Completion, Taking Over and Delays .................................................................... 101 Permit and Insurance ............................................................................................. 103 Force Majeure ........................................................................................................ 103 Termination by Employer ....................................................................................... 105 Liquidated Damages .............................................................................................. 107 Defects Liability ...................................................................................................... 108 Claims, Disputes and Arbitration............................................................................ 110 Project Insurance ................................................................................................... 111 Construction / Erection All Risks ............................................................................ 111 Marine Cargo.......................................................................................................... 111 PRINCIPAL TERMS AND CONDITIONS OF THE SUKUK TNB NE .................... 112 INVESTMENT CONSIDERATIONS ...................................................................... 166 Considerations Relating to the Sukuk TNB NE ..................................................... 166 Rating ..................................................................................................................... 166 No Prior Market in the Sukuk TNB NE ................................................................... 166 Suitability of Investments ....................................................................................... 168 Shariah Compliance ............................................................................................... 168 The Sponsor’s Completion Support and The Sponsor’s Rolling Guarantee ......... 168 Risk of Mandatory Redemption.............................................................................. 169 Risks Relating to the Issuer ................................................................................... 169 Issuer’s Ability to Meet its Obligations Under the Sukuk TNB NE ......................... 169 Risks Relating to the Project .................................................................................. 170 Construction Risks ................................................................................................. 170

TABLE OF CONTENTS CLAUSE 7.3.2 7.3.3 7.3.4 7.3.5 7.3.6 7.3.7 7.3.8 7.3.9 7.4 7.4.1 7.4.2

PAGE NO.

Technology and Operator Risk .............................................................................. 175 Gas Supply Risks ................................................................................................... 180 Force Majeure ........................................................................................................ 183 PPA Termination .................................................................................................... 183 GSA Termination .................................................................................................... 184 Adequacy of Insurance .......................................................................................... 184 Financial Considerations ........................................................................................ 185 Regulatory and Environmental Risks ..................................................................... 186 Risks Relating to the Guarantor ............................................................................. 189 TNB requires significant capital for its business .................................................... 189 Future restructuring of the electricity industry in Malaysia may have an adverse effect on TNB’s business and operations .............................................................. 189 7.4.3 The business of electricity generation, transmission and distribution involves many operating risks ........................................................................................................ 190 7.4.4 Fluctuations in the supply of certain energy sources could have a negative impact on TNB’s operational performance and profitability............................................... 190 7.4.5 TNB is subject to many environmental laws .......................................................... 190 8. OTHER INFORMATION – THE ISSUER .............................................................. 191 8.1 Contingent Liabilities .............................................................................................. 191 8.2 Material Litigation ................................................................................................... 191 8.3 Related Party Transactions .................................................................................... 191 9. OTHER INFORMATION – THE PROJECT COMPANY........................................ 192 9.1 Contingent Liabilities .............................................................................................. 192 9.2 Material Litigation ................................................................................................... 192 9.3 Related Party Transactions .................................................................................... 192 10. OTHER INFORMATION – THE GUARANTOR ..................................................... 193 10.1 Contingent Liabilities .............................................................................................. 193 10.2 Material Litigation ................................................................................................... 193 10.3 Related Party Transactions .................................................................................... 194 11. POTENTIAL CONFLICT OF INTEREST SITUATIONS ........................................ 195 APPENDIX 1................. ............................................................................................................... 196 AUDITED FINANCIAL STATEMENTS OF THE PROJECT COMPANY FOR THE FINANCIAL YEARS ENDED 31 AUGUST 2011 AND 31 AUGUST 2012 ...................................................... 196 APPENDIX 2................. ............................................................................................................... 197 AUDITED FINANCIAL STATEMENTS OF THE GUARANTOR FOR THE FINANCIAL YEARS ENDED 31 AUGUST 2011 AND 31 AUGUST 2012 ................................................................... 197 APPENDIX 3 (A)........... ............................................................................................................... 198 BASE CASE CASHFLOW PROJECTIONS FOR THE FINANCIAL YEARS 2016 TO 2036 ..... 198 APPENDIX 3 (B)............ .............................................................................................................. 197 SUMMARY OF SOURCES AND USES OF FUNDS OF THE PROJECT .................................. 197 APPENDIX 4................. ............................................................................................................... 142 ASSUMPTIONS OF BASE CASE CASHFLOW PROJECTIONS............................................... 142

TNB Northern Energy Berhad

Information Memorandum

GLOSSARY OF DEFINITIONS AND ABBREVIATIONS The following definitions (in addition to the definitions contained in the body herein) shall apply throughout this Information Memorandum except where the context otherwise requires: ACCA

:

Association of Chartered Certified Accountants

Accepted Contract Amount

:

as defined in Section 5.5.3.1.3

Act 520

:

Lembaga Pembangunan Malaysia Act, 1994

ACQ

:

Annual Contract Quantity

Asset

:

as defined in Section 1.8

Base Case Cashflow Projections

:

as defined in Section 5.3

BNM

:

Bank Negara Malaysia

Bursa

:

Bursa Malaysia Securities Berhad

CCGT

:

Combined Cycle Gas Turbine

CIDB

:

Construction Industry Development Board

COD

:

Commercial Operation Date

Companies Act

:

Companies Act of Malaysia 1965 (as amended from time to time

CMSA

:

Capital Markets and Services Act 2007 (as amended from time to time)

CEAR

:

as defined in Section 5.6.1

Declaration of Trust

:

as defined in Section 1.6.3

Delivery Point

:

as defined in Section 5.5.2.3

DEIA

:

Detailed Environmental Impact Assessment

DOE

:

Department of Environment

DSU

:

as defined in Section 5.6.1

DQ

:

Daily Quantity

EBH

:

Equivalent Base Hours

EC

:

Energy Commission of Malaysia

EIA Approval

:

means all the requisite approvals required from the Department of Environment under the Environmental Quality Act 1974 in respect of the Project pursuant to the submission of an Environmental Impact Assessment Report by IPP in relation thereto

EOH

:

Equivalent Operating Hours

Private & Confidential

Industri

Pembinaan

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TNB Northern Energy Berhad

Information Memorandum

ESA

:

Electricity Supply Act, 1990 (as amended from time to time)

Exempt Regime

:

regime under which the sukuk or debt securities are offered, issued or subscribed in accordance with section 229(1) or section 230(1) of the CMSA, and are listed but not quoted for trading on the Exchange

Exercise Price

:

as defined in Section 1.8

Facility

:

as defined in Section 5.5.3.1.1

FOR

:

Fixed Operating Rate

Government

:

The Government of Malaysia

Generation Licence

:

means the licence required to be obtained by IPP (in this case, TNB Prai) pursuant to Section 9 of the Electricity Supply Act 1990 to enable TNB Prai to own and operate the Plant and/or the Facility and deliver and sell electrical energy and generating capacity to TNB

Grant of Right

:

as defined in Section 1.8

Grant of Right Agreement

:

as defined in Section 1.8

Grantee

:

as defined in Section 1.8

Grantor

:

as defined in Section 1.8

GSA

:

Gas Sales Agreement dated 21 December 2012

Heat Rate Performance LDs

:

as defined in Section 7.3.1

Independent Consulting Engineer or “ICE”

:

Mott MacDonald Singapore Pte Ltd

Ijarah Lease Agreement

:

as defined in Section 1.8

Ijarah Project Lands

:

Part of the 2 pieces of lands held under titles HSD 50349 Lot PT 10 and HSD 55959 Lot PT 13, both in Bandar Prai, Seberang Perai Tengah, measuring approximately 77,610 sq m and 12,360 sq m respectively, where the Plant will be situated

Initial Operating Date or IOD

:

six (6) months prior to the scheduled COD

IPP

:

Independent Power Producer

IPP Pumphouse

:

as defined in Section 5.5.4.1

Issuer or TNB NE

:

TNB Northern 1024796-X)

Jetty

:

as defined in Section 5.5.4.2

Joint Lead Arrangers

:

HSBC Amanah Malaysia Berhad (Company No. 807705-X) and KAF Investment Bank Berhad (Company No. 20657-W)

Private & Confidential

Energy

Berhad

(Company

No.

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Information Memorandum

Joint Lead Managers

:

HSBC Amanah Malaysia Berhad (Company No. 807705-X) and KAF Investment Bank Berhad (Company No. 20657-W)

Joint Principal Advisers

:

HSBC Amanah Malaysia Berhad (Company No. 807705-X) and KAF Investment Bank Berhad (Company No. 20657-W)

LA

:

Lease Agreement

Lease Rentals

:

as defined in Section 1.8

Lease Period

:

as defined in Section 1.8

Lessee

:

as defined in Section 5.5.4.1

Lessor

:

as defined in Section 5.5.4.1

Letter of Consent

:

as defined in Section 5.5.4.4

LLA

:

Land Lease Agreement dated 30 November 2012

LLN

:

Lembaga Letrik Negara

LTMP

:

Long Term Maintenance Programme Contract dated 21 January 2013

LTMP Contractor

:

as defined in Section 5.5.6.1

MARC or Rating Agency

:

Malaysian Rating Corporation Berhad (Company No. 364803-V)

Marine Cargo Open Cover

:

as defined in Section 5.6.2

Material Damage

:

as defined in Section 5.6.1

Metering Equipment

:

as defined in Section 5.5.2.9

MIA

:

Malaysia Institute of Accountants

MW

:

megawatt

MyClear

:

Malaysian Electronic, Clearing Corporation Sdn Bhd (Company No. 836743-D)

Net ACQ

:

Net Annual Contract Quantity

New Lease

:

as defined in Section 5.5.4.3

NTP

:

Notice To Proceed

OEM

:

Original Equipment Manufacturer

Offtaker

:

as defined in 7.3.1

OMA

:

Operation & Maintenance Agreement dated 21 January 2013

One-off Rental

:

as defined in Section 1.8

Output Performance LDs

:

as defined in Section 7.3.1

Petronas

:

Petroliam Nasional Berhad

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TNB Northern Energy Berhad

Information Memorandum

PEIA

:

Periodic Distribution Amounts

:

as defined in Section 1.8

Plant

:

as defined in Section 5.5.1.1

Plant Land

:

as defined in Section 5.5.4.2

PPA

:

Power Purchase Agreement dated 30 November 2012

Project

:

the financing, design, engineering, procurement, construction, installation, testing, commissioning, ownership, operation and maintenance of the Plant

Project Agreements

:

as defined in Section 1.7

Project Company or TNB Prai

:

TNB Prai Sdn. Bhd. (Company No. 500784-D)

PTC

:

Principal Terms and Conditions

Purchaser

:

as defined in Section 1.8

Purchase Undertaking

:

as defined in Section 1.8

Redemption Amount

:

as defined in Section 1.8

RFP

:

Request for Proposal

RPS

:

Redeemable Preference Shares

Samsung E & C

:

Samsung Engineering & Construction (M) Sdn Bhd (Company No. 205537-V)

Samsung C & T

:

Samsung C & T Corporation

SC

:

Securities Commission Malaysia

Scheduled COD

:

as defined in Section 5.1.3

Series

:

as defined in Section 1.8

Service Charge Amount

:

as defined in Section 1.8

Servicing Agent

:

as defined in Section 1.8

SESB

:

Sabah Electricity Sdn. Bhd. (Company No. 462872W)

Shariah Adviser

:

HSBC Amanah Malaysia Berhad (Company No. 807705-X)

Siemens

:

Siemens Aktiengesellschaft (“Siemens AG”) and Siemens Malaysia Sdn Bhd (“Siemens LS”)

Sponsor’s Completion Support

:

as defined in item 2(l) of PTC

Sponsor’s Rolling Guarantee

:

as defined in item 2(l) of the PTC

SPV

:

Special Purpose Vehicle (generic term)

Stop Date

:

as defined in 5.5.4.4

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Preliminary Environmental Impact Assessment

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TNB Northern Energy Berhad

Information Memorandum

Sukuk TNB NE

:

Issuance of up to RM2.0 billion in nominal value of Islamic securities under the Islamic principle of Ijarah and Wakalah

Sukukholders

:

as defined in Section 1.8

Supplemental Lease Rentals

:

as defined in Section 1.8

Term Warranty

:

as defined in Section 5.5.6.6

Third Party Liability

:

as defined in Section 5.6.1

TNB or Guarantor or Sponsor or Off Taker

:

Tenaga Nasional Berhad (Company No. 200866-W)

TNB Remaco or the “O&M Contractor”

:

TNB Repair and Maintenance Sdn. Bhd. (Company No. 360318-P)

TOP

:

Take-Or-Pay Obligation

Total Loss Event

:

as defined in Section 1.8

Trust Asset

:

as defined in Section 1.8

Trustee

:

AmTrustees Berhad

Turnkey Contract

:

the contract between the Project Company and the Issuer, whereby the Issuer will procure the execution of the Project on a turnkey basis and administer and manage the development of the Project on behalf of the Project Company

Turnkey Structure

:

a dual-SPV contractual structure designed to mirror common project finance contractual agreements and risk allocation

VOR

:

Variable Operating Rate

Wakeel

:

as defined in Section 1.6

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TNB Northern Energy Berhad

1

EXECUTIVE SUMMARY

1.1

Introduction

Information Memorandum

The Issuer proposes to issue, offer for subscription of purchase, or invite subscriptions for or purchase of sukuk of up to RM2.0 billion in nominal value under the Shariah principles of Ijarah and Wakalah. 1.2

Issuer The Issuer was incorporated in Malaysia on 19 November 2012 under the Companies Act, 1965. It was initially incorporated as a private company limited by shares and later converted to a public company limited by shares with effect from 16 January 2013 with a registered address at The Company Secretary’s Office, Level 2, Tenaga Nasional Berhad Headquarters, No. 129, Jalan Bangsar, 59200 Kuala Lumpur.

1.3

Project Company TNB Prai was incorporated in Malaysia on 8 December 1999 under the Companies Act, 1965. It was incorporated as a private company limited by shares with a registered address at The Company Secretary’s Office, Level 2, Tenaga Nasional Berhad Headquarters, No. 129, Jalan Bangsar, 59200 Kuala Lumpur.

1.4

Guarantor TNB was incorporated in Malaysia on 12 July 1990 under the Companies Act, 1965. It is a public company limited by shares with a registered address at The Company Secretary’s Office, Level 2, Tenaga Nasional Berhad Headquarters, No. 129, Jalan Bangsar, 59200 Kuala Lumpur.

1.5

Project Background In October 2012, TNB won a competitive bid to undertake the Project in response to a RFP by the EC. TNB has assigned its wholly-owned subsidiary TNB Prai to undertake the above development as the IPP. The generated electrical power will then be purchased by the Off-Taker, pursuant to a PPA. Gas will be supplied under a long-term GSA with Petronas. The project site is a brown field site located in the area of Prai, Butterworth, Penang, Malaysia which previously housed a 3 x 120 MW conventional oil-fired thermal power plant which has been decommissioned and demolished in 2002. The Project development operates under the Turnkey Structure whereby: (a)

TNB NE is to act as financee and undertake the construction of the Project; and

(b)

TNB Prai is to undertake the operations post COD.

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Information Memorandum

The sale of the Plant’s entire dependable capacity and net electrical output to the OffTaker is contracted under a 21-year Power Purchase Agreement. The Project Company will undertake the role of the IPP. The Issuer has engaged Samsung Engineering and Construction (M) Sdn Bhd, backed by a parent company guarantee from Samsung C & T as the EPC Contractor which will enter into a fixed-price, date-certain, turnkey EPC Contract with the Issuer. The Project will be operated by TNB Remaco, a 100% subsidiary of TNB, under a long-term OMA. The long-term maintenance services will be undertaken by the OEM and Siemens pursuant to a LTMP. 1.6

Project Structure The Project will be implemented utilising the Turnkey Structure which is set out in further detail in section 5.4 below.

1.7

Key Project Documents A summary of the Project Agreements (including supplemental/novation agreements thereto) for the Plant are as follows: Project Agreements

1.8

Contracting Parties

Date of Document

PPA

TNB Prai and TNB

30 November 2012

LLA

TNB and TNB Prai

30 November 2012

GSA

Petronas and TNB Prai

21 December 2012

EPC Contract

TNB NE and Samsung E&C

21 January 2013

OMA

TNB Prai and TNB Remaco

21 January 2013

LTMP

TNB Prai and Siemens

21 January 2013

Turnkey Contract

TNB Prai and TNB NE

21 January 2013

Description of Sukuk TNB NE The Proposal The proposed one-time issuance of up to Ringgit Malaysia Two Billion (RM2,000,000,000.00) in nominal value of Sukuk TNB NE is based on the Shariah principles of Ijarah and Wakalah. The Sukuk TNB NE will consist of 39 tranches with tenures ranging from 4 years to 23 years from the date of issue of the Sukuk TNB NE. The Sukuk TNB NE will be secured. The Sukuk TNB NE will not be listed on Bursa Malaysia Securities Berhad under its Exempt Regime, if the Issuer so decides. The PTC for the Sukuk TNB NE are set out in section 6 of this Information Memorandum.

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Information Memorandum

Shariah Principles of Ijarah and Wakalah Grant of Right Agreement Pursuant to the LLA entered into between TNB Prai and TNB as Land Lessor, the Ijarah Project Lands (as defined in paragraph (2)(d) of the PTC) are leased to TNB Prai for a duration of 24 years. TNB Prai (in its capacity as grantor (“Grantor”)) shall enter into a grant of right agreement (the “Grant of Right Agreement”) with TNB NE (in its capacity as grantee (“Grantee”)) acting on behalf of subscribers of the Sukuk TNB NE (“Sukukholders”), which term shall include any holders of the Sukuk TNB NE from time to time, to grant the right over the use of the Ijarah Project Lands and to derive the benefits of the usufruct rights over the use of the Ijarah Project Lands (the “Asset”) for a duration of 24 years or such period as corresponding to the lease term in the LLA with an option to be extendable for another 24 years subject to the PPA term being extended as set out in the LLA (“Grant of Right”). The Grantee will make a single upfront rental payment (“One-off Rental”) to the Grantor, which amount shall be equivalent to the aggregate proceeds to be raised from the issuance of the Sukuk TNB NE. Declaration of Trust and issuance of Sukuk TNB NE Pursuant to a Declaration of Trust, the Issuer (in its capacity as trustee) shall declare a trust over the Asset including the rights, title, interest and benefit, present and future, in and to under the Grant of Right Agreement, the Ijarah Lease Agreement (as defined below), the Service Agency Agreement and the Purchase Undertaking (the “Trust Asset”) for the benefit of the Sukukholders. The Issuer shall issue Sukuk TNB NE to the Sukukholders which shall represent the Sukukholders’ undivided proportionate beneficial ownership interest, rights and entitlements under the Trust Asset. The Sukuk TNB NE proceeds shall be utilised to pay the Grantor the One-off Rental under the Grant of Right Agreement. Ijarah Lease With the Asset held by the Issuer (in its capacity as Grantee), acting on behalf of the Sukukholders, the Issuer (in its capacity as Lessor) shall enter into an Ijarah Lease Agreement (the “Ijarah Lease Agreement”) with TNB Prai (as Lessee), to lease the Asset to the Lessee, for a tenor corresponding to the maturity of the final series (“Series”) of the Sukuk TNB NE, i.e. more than 4 years and not exceeding 23 years (the “Lease Period”), in consideration for pre-determined Ijarah rental payments (the “Lease Rentals”) which shall be the sum equivalent to the aggregate of all Periodic Distribution Amounts (as defined below) to be channeled by the Issuer to the Sukukholders as periodic distributions (“Periodic Distribution Amounts”) in proportion to their sukukholdings on each periodic distribution date. Under the Ijarah Lease Agreement, the Lessor shall be responsible for procuring takaful/insurance in respect of the Asset, and the Lessee has acknowledged that the Lessor may procure the Servicing Agent or its representative, in accordance with the terms and conditions set out in the Service Agency Agreement, to perform or to procure the payment of takaful/ insurance of the Asset under a Total Loss Event (as defined below).

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Information Memorandum

To the extent that the Servicing Agent incurs any cost and expenses in relation to the procurement of takaful/insurance (the “Service Charge Amount”), the Lease Rentals under the Ijarah Lease Agreement will provide for supplementary rental (forming part of the rental payments), which will be an amount equal to the Service Charge Amount incurred in the previous period (the “Supplementary Lease Rentals”). The Supplementary Lease Rentals due from the Lessee will be set off against the obligation of the Issuer to pay the Service Charge Amount to the Servicing Agent. Wakalah Arrangement Pursuant to a Wakalah Agreement, TNB Prai shall appoint the Issuer as its agent (“Wakeel”) for the provision of certain services for a wakalah fee of RM100.00, for a period corresponding to the period for the construction and delivery of the Plant to TNB Prai under the Turnkey Contract (referred to below). The Wakeel shall be responsible to: (a)

Safe-keep the One-off Rental paid to TNB Prai as Grantor on a Wadiah basis; and

(b)

To make payments including (a) payment on behalf of TNB Prai (as lessee) of the Lease Rentals to the Lessor; (b) any payments as set out paragraph (2)(m) of the PTC (Details on Utilisation of Proceeds) items (1) to (3); and (c) any other payments or cost in relation to and associated with the Project (as defined below) comprising those set out in the said paragraph (2)(m) items (4) to (6) of the PTC.

The Wakalah Agreement will cease upon the completed Plant being delivered to TNB Prai under the Turnkey Contract. Thereafter, TNB Prai as Lessee will pay the Lease Rentals directly to the Lessor, who in turn will channel to Sukukholders as Periodic Distribution Amounts. Service Agency Agreement Pursuant to a Service Agency Agreement, the Issuer (in its capacity as Lessor), acting on behalf of the Sukukholders, shall appoint TNB Prai as the “Servicing Agent” for a servicing agent fee of RM100.00, throughout the Lease Period to carry out certain of its obligations. The Servicing Agent shall be responsible to procure takaful/insurance in respect of the Asset that provides sufficient proceeds for the redemption of the Sukuk TNB NE under a Total Loss Event (as defined below). If the takaful/insurance proceeds are insufficient to cover the redemption amount due under the Sukuk TNB NE under a Total Loss Event (the “Redemption Amount”), the Servicing Agent shall be liable to make good the difference. Any excess from the takaful/insurance proceeds over the Redemption Amount, if any, shall be paid to the Servicing Agent as an incentive fee. “Total Loss Event” is the total loss or destruction of, or damage to the whole (and not part only) of the Asset under the Grant of Right Agreement and Ijarah Lease Agreement or any event or occurrence that renders the whole (and not part only) of the Asset permanently unfit for any economic use and the repair or remedial work in respect thereof is wholly uneconomical. For the avoidance of doubt, “Redemption Amount” shall be equal to the nominal value of all outstanding Sukuk TNB NE plus an amount equal to any Service Charge Private & Confidential

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TNB Northern Energy Berhad

Information Memorandum

Amount payable in respect of the Asset and provided that an amount equal to such Service Charge Amount has not already been paid by way of Supplementary Lease Rentals plus all accrued but unpaid Lease Rentals up to the date of the declaration of the Total Loss Event. Purchase Undertaking TNB Prai (as the “Purchaser”) will grant a purchase undertaking (the “Purchase Undertaking”) to the Issuer, whereby the Purchaser irrevocably undertakes to purchase the proportionate undivided ownership in the remaining period of the Grant of Right from the Sukukholders of the relevant series of the Sukuk TNB NE, upon declaration of a Dissolution Event (save for a Dissolution Event due to a Total Loss Event) or upon the Maturity Date whichever is earlier, at the relevant Exercise Price (defined below). The proceeds therefrom shall be utilised by the Issuer for the redemption of such relevant Sukuk TNB NE held by the Sukukholders which shall then be cancelled. In relation to the Purchase Undertaking, the “Exercise Price” is as follows:

1.8.1

(a)

upon declaration of a Dissolution Event (save for a Dissolution Event due to a Total Loss Event), the Exercise Price shall be equal to the nominal value of all outstanding Sukuk TNB NE plus an amount equal to any Service Charge Amount payable in respect of the Asset and provided that an amount equal to such Service Charge Amount has not already been paid by way of Supplementary Lease plus all accrued but unpaid Lease Rentals up to the date of the declaration of the Dissolution Event; or

(b)

upon maturity of the relevant series of the Sukuk TNB NE, the Exercise Price shall be equal to the nominal value of such series of the Sukuk TNB NE plus an amount equal to any Service Charge Amount payable in respect of the Asset and provided that an amount equal to such Service Charge Amount has not already been paid by way of Supplementary Lease Rentals plus all accrued but unpaid Lease Rentals up to the date of maturity.

Rating MARC has assigned preliminary rating of AAAIS to the Sukuk TNB NE.

1.8.2

Issue Amount Up to Ringgit Malaysia Two Billion (RM2,000,000,000.00) in nominal value.

1.8.3

Selling Restriction Selling Restrictions at Issuance The Sukuk TNB NE may only be offered, sold, transferred or otherwise disposed directly or indirectly to a person to whom an offer or invitation to subscribe the Sukuk TNB NE may be made and to whom the Sukuk TNB NE are issued would fall within Schedule 6 or Section 229(1)(b) and Schedule 7 or Section 230(1)(b) read together with Schedule 9 or Section 257(3) of the CMSA.

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TNB Northern Energy Berhad

Information Memorandum

Selling Restrictions Thereafter The Sukuk TNB NE may only be offered, sold, transferred or otherwise disposed directly or indirectly to a person to whom an offer or invitation to purchase the Sukuk TNB NE would fall within Schedule 6 or Section 229(1)(b) read together with Schedule 9 or Section 257 of the CMSA.

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Information Memorandum

2.

INFORMATION ON THE ISSUER

2.1

Incorporation The Issuer was incorporated in Malaysia on 19 November 2012 under the Companies Act, 1965. It was initially incorporated as a private company limited by shares and later converted to a public company limited by shares with effect from 16 January 2013 with a registered address at The Company Secretary’s Office, Level 2, Tenaga Nasional Berhad Headquarters, No. 129, Jalan Bangsar, 59200 Kuala Lumpur. The Issuer, TNB Prai and TNB are undertaking the financing, design, engineering, procurement, construction, installation, testing, commissioning, ownership, operation and maintenance of a 1071.43 MW combined cycle power plant in Prai, Pulau Pinang, Malaysia. The Issuer is a wholly owned subsidiary of the Project Company, who in turn, is wholly owned by TNB.

2.2

Principal Activities The Issuer was set up to provide engineering services concerning electricity and promote cooperation with any institutions or utilities inside or outside Malaysia in connection with the generation, transmission, distribution, supply accumulation and employment of electricity and is a contractor for power related projects. The Issuer is also a special purpose vehicle incorporated principally to act as the funding vehicle to part finance the Project as well as to procure the construction of the Project. Upon completion, the Project is to be transferred to the Project Company who will undertake the operation of the Project post completion. The Project Company has signed a PPA with TNB who also acts as the sponsor.

2.3

Share Capital As at 31 March 2013, the authorised share capital and the issued and fully paid-up share capital of the Issuer are as follows: Authorised Share Capital

RM10,000,000.00 comprising 2,000,000 ordinary shares of RM1.00 each and 8,000,000 Redeemable Preference Shares of RM1.00 each

Issued and Fully Paid-Up Share Capital

RM2.00 comprising 2 ordinary shares of RM1.00 each

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TNB Northern Energy Berhad

2.4

Information Memorandum

Shareholding Structure As at 31 March 2013, the shareholder of the Issuer is as follows:

Name of Shareholder TNB Prai Sdn Bhd

2.5

No. of Ordinary Shares of RM1.00 each held No.

(%)

2

100

Profile of Directors The board of directors of the Issuer and their respective profiles as at 31 March 2013 are as follows: Name of Director Mustaffa bin Ja’afar

Profile 54 years of age – Malaysian Encik Mustaffa bin Ja’afar holds a Bachelor of Science (Hons.) Electrical and Electronics Engineering from Brighton Polytechnic (now Brighton University), England. Encik Mustaffa bin Ja’afar joined LLN/TNB on 1 September 1982. He has served LLN/TNB in various capacities within the Generation Division since 1982 as Assistant Electrical Maintenance Engineer, Matrix Engineer, Deputy Site Manager / Electrical / C&I / Commissioning Engineer, Deputy Chief Resident Engineer, Project Manager, Head of Unit and Project Director. On 15 August 2011 he was appointed as General Manager (Engineering Services), Asset Development Department, Generation Division, which is currently known as Major Projects Department, New Business & Major Projects Division. Encik Mustaffa bin Ja’afar was appointed as Director of TNB NE on 19 November 2012.

Jamel bin Ibrahim

49 years of age – Malaysian Encik Jamel bin Ibrahim completed his education at the Emile Woolf College of Accountancy, London and is a Chartered Accountant under the Malaysian Institute of Accountants (MIA). He is also a fellow member of the Association of Chartered Certified Accountants, United Kingdom (ACCA).

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TNB Northern Energy Berhad

Name of Director

Information Memorandum

Profile He is currently holding a position as the Senior General Manager (Investment Management) in TNB from 2009 till present and has more than 20 years of working experience gained in various companies which include, a multi-national oil company, a merchant bank, a manufacturing company and a few others. Encik Jamel bin Ibrahim has served in various capacities since joining TNB, which includes holding the position of the Managing Director (TNB Properties Sdn Bhd) and General Manager (Property Services Department) from 2004 to 2009, Chief Financial Officer of TNB Liberty Power Limited, Pakistan from 2001 to 2004 and Head of Accounts Management, Distribution Division, TNB from 1999 to 2001. Prior to joining TNB, Encik Jamel bin Ibrahim was the Chief Financial Officer of Scomi Trading Sdn. Bhd. from 1995 to 1998, a Manager (Corporate Banking) in Rakyat Merchant Bankers Berhad from 1994 to 1995 and an Executive with Shell Malaysia Trading Sdn Bhd from 1988 to 1993. Encik Jamel bin Ibrahim was appointed as Director of TNB NE on 19 November 2012.

Ahmad Faraid bin Mohd Yahaya

54 years of age – Malaysian Encik Ahmad Faraid bin Mohd Yahaya holds a Bachelor of Science in Electrical and Electronics Engineering (Hons.) from Loughborough University of Technology, United Kingdom. He also holds a Master of Science in Control Engineering from Sheffield University, United Kingdom. Encik Ahmad Faraid bin Mohd Yahaya joined LLN/TNB on 1 September 1982. He has served LLN/TNB in various capacities within the Generation Division since 1982 as an Assistant Electrical Maintenance Engineer, Construction Engineer, Project Engineer/ Head of Matrix for Control & Instrumentation Section in Prai and Kapar Power Stations. He also has served TNB as the Engineering Manager and Project Manager for the 3 x 700 MW Manjung Coal-Fired Power Plant Project and as Project Director for Lahad Datu Coal-Fired Power Plant Project. Since 25 May 2011, he was appointed as the Project Director for the 1000 MW Manjung Coal-Fired Power Plant Project under the New Business & Major Projects Division, TNB.

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Name of Director

Information Memorandum

Profile Encik Ahmad Faraid bin Mohd Yahaya was appointed as Director of TNB NE on 18 March 2013.

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TNB Northern Energy Berhad

Information Memorandum

3.

INFORMATION ON THE PROJECT COMPANY

3.1

Incorporation TNB Prai was incorporated in Malaysia on 8 December 1999 under the Companies Act, 1965. It was incorporated as a private company limited shares with a registered address at The Company Secretary’s Office, Level 2, Tenaga Nasional Berhad Headquarters, No. 129, Jalan Bangsar, 59200 Kuala Lumpur.

3.2.

Principal Activities The Project Company is a private company limited by shares, incorporated and domiciled in Malaysia. The principal activities of the Project Company are to generate and deliver electricity energy and generating capacity to TNB. The Project Company is a wholly owned subsidiary of TNB.

3.3

Share Capital As at 31 March 2013, the authorised share capital and the issued and fully paid-up share capital of the Project Company are as follows:

3.4

Authorised Share Capital

RM25,000,000.00 comprising of 10,000,000 ordinary shares of RM1.00 each and 15,000,000 Redeemable Preference Shares of RM1.00 each.

Issued and Fully Paid-Up Share Capital

RM2.00 comprising of 2 ordinary shares of RM1.00 each.

Shareholding Structure As at 31 March 2013, the shareholder of the Project Company is as follows:

Name of Shareholder Tenaga Nasional Berhad

No. of Ordinary Shares of RM1.00 each held No.

(%)

2

100

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TNB Northern Energy Berhad

3.5

Information Memorandum

Profile of Directors The board of directors of the Project Company and their respective profiles as at 31 March 2013 are as follows: Name of Directors

Occupation

Job functions, responsibilities, educational & professional qualification, work experience

Datuk Seri Ir. President/Chief 56 years of age – Malaysian Azman bin Mohd Executive Officer, TNB Datuk Seri Ir. Azman bin Mohd holds a Bachelor of Engineering (Electrical Engineering), University of Liverpool, United Kingdom and a Master of Business Administration (MBA), University of Malaya. Datuk Seri Ir. Azman bin Mohd was appointed as the President/Chief Executive Officer of TNB on 1st July 2012. He has served the Company in various capacities within Distribution Division since 1979 including as Assistant District Engineer, District Manager, Area Manager, Assistant General Manager and General Manager. He was Senior General Manager of Operations (Region 2) and later made Vice President, Distribution from 14 November 2008 until 14 April 2010. Prior assuming his current position, he was then Executive Director/Chief Operating Officer. Datuk Seri Ir. Azman bin Mohd was appointed to the Board of TNB Prai on 30 June 2012. Dato’ Ir. Mohd Vice President 57 years of age – Malaysian Nazri bin (New Business & Shahruddin Major Projects) Dato’ Ir. Mohd Nazri bin Shahruddin TNB joined the LLN/TNB on 1 September 1979 upon completion of his studies in the United Kingdom as an LLN scholar. Dato’ Ir. Mohd Nazri bin Shahruddin has served in several power stations in the field of Operations and Maintenance and was involved in developing a number of power plants, most notably the Sultan Azlan Shah Power Station in Perak. Later, Dato’ Ir. Mohd Nazri bin Private & Confidential

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TNB Northern Energy Berhad

Name of Directors

Information Memorandum

Occupation

Job functions, responsibilities, educational & professional qualification, work experience Shahruddin headed a team from TNB, Khazanah Nasional Berhad and Malakoff Corporation Berhad which, in association with a private Saudi firm, developed the first Independent Water and Power Producer (IWPP) project in Saudi Arabia, the Shuaibah Power and Water Facility. He was based in Jeddah for three years to complete the project. In 2008, Dato’ Ir. Mohd Nazri bin Shahruddin was appointed Vice President of Generation, a position he held until his appointment in September 2012 as Vice President of New Business & Major Projects. Dato’ Ir. Mohd Nazri bin Shahruddin holds a Bachelor of Science in Mechanical Engineering from King’s College, University of London. Dato’ Ir. Mohd Nazri bin Shahruddin was appointed to the Board of TNB Prai on 1 November 2012.

Suhaimi bin Ali Senior General Hanafiah Manager (Major Projects) New Business & Major Projects Division TNB

54 years of age – Malaysian Encik Suhaimi bin Ali Hanafiah holds a Diploma in Mechanical Engineering and a Bachelor in Engineering (Mechanical) from Universiti Teknologi Malaysia, Johor. Encik Suhaimi bin Ali Hanafiah started to serve for LLN/TNB at Tuanku Jaafar Power Station, Port Dickson in 1 April 1980. The opportunity to work as a power plant Executive/Engineer has offered the in-depth knowledge and experiences on the operation and maintenance of a thermal power plant including overhaul of turbines, boilers and associated balance of plant. In December 1990, he was transferred to Connaught Bridge Power Station in Klang, as the Construction Manager (Mechanical) at Site Manager Office, the beginning of a new era, i.e. development of thermal projects. The construction, erection and commissioning activities have offered a vast experience in building a combined cycle gas turbine

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TNB Northern Energy Berhad

Name of Directors

Information Memorandum

Occupation

Job functions, responsibilities, educational & professional qualification, work experience power plant. Subsequently and until now, he is involved in the development of local and overseas projects for TNB, notably the Liberty Power Plant in Pakistan, the Sultan Azlan Shah Power Station in Manjung, Perak and the recent bidding for the 1000MW Combined Cycle gasfired power plant in Prai, Pulau Pinang. He was later appointed as Senior General Manager (Asset Development) Generation Division, on 25 May 2011, which is currently known as Major Projects Department of the New Business & Major Projects Division. This appointment has offered the opportunity for him to be involved and spearhead the development of new power projects. Encik Suhaimi bin Ali Hanafiah was appointed to the Board of TNB Prai on 1 November 2012.

Norazni Mohd Isa

binti Company Secretary of TNB

50 years of age – Malaysian Puan Norazni binti Mohd Isa holds a Master of Law from University of Malaya. Puan Norazni binti Mohd Isa was appointed as Legal Executive from 1990 to 1993 assisting the Head of Legal Department and later appointed as Contract Management Executive until 2002 in the Company Secretary Office, TNB. She was then promoted as Manager (Contract Management Department) in the Procurement Department until 2003 and later moved to Regulatory & Compliance Unit, Corporate Communication Department as Manager (Licensing & Compliance) Regulatory Unit. She was again promoted as Senior Manager (Share Purchasing) in the Procurement Division and served in the Division until 2011. Since then, Puan Norazni binti Mohd Isa has been appointed as Deputy Company Secretary and was currently promoted as Company Secretary of TNB with effect from 1 June 2012 and has resumed the

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Name of Directors

Information Memorandum

Occupation

Job functions, responsibilities, educational & professional qualification, work experience position ever since. Puan Norazni binti Mohd Isa was appointed to the Board of TNB Prai on 11 July 2011.

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TNB Northern Energy Berhad

Information Memorandum

4.

INFORMATION ON THE GUARANTOR

4.1

Incorporation TNB is the largest electricity utility in Malaysia and a leading utility company in Asia. Listed on the Main Board of Bursa Malaysia with almost RM87 billion in assets, TNB’s more than 33,500 employees serve an estimated 8.3 million customers in Peninsular Malaysia, Sabah and Labuan. TNB has been Keeping the Lights On in Malaysia ever since it was set up as the Central Electricity Board in 1949, powering national development by providing electricity.

4.2

Principal Activities TNB’s core businesses are in the generation, transmission and distribution of electricity. In Peninsular Malaysia, the Company supplies households and industry with electricity generated from six thermal stations and three major hydroelectric schemes. It also manages and operates the National Grid which links TNB power stations and IPPs to the distribution network. The grid is connected to Thailand’s transmission system in the north and Singapore’s transmission system in the south. In East Malaysia, TNB has 83% equity in SESB, which manages the Sabah grid. Other than its core business, TNB has diversified into the manufacture of transformers, high voltage switchgears and cables; the provision of professional consultancy services; and architectural, civil, electrical engineering works and services, repair and maintenance. TNB also engages in research and development, property development and management services. Tapping into opportunities available overseas, TNB is making inroads into emerging markets, focusing on the Asia-Pacific, Middle East and North Africa regions.

4.3

Share Capital As at 31 March 2013, the authorised share capital and the issued and fully paid-up share capital of TNB are as follows: Authorised Share Capital

RM10,000,001,501.00 comprising of 10,000,000,000 ordinary shares of RM1.00 each, 1,000 Class A Redeemable Preference Shares of RM1.00 each, 500 Class B Redeemable Preference Shares of RM1.00 each and 1 Special Rights Redeemable Preference Share of RM1.00.

Issued and Fully Paid-Up Share Capital

RM5,509,832,109 comprising of 5,509,832,109 ordinary shares of RM1.00 each and 1 Special Rights Redeemable Preference Share of RM1.00

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TNB Northern Energy Berhad

4.4

Information Memorandum

Shareholding Structure The substantial shareholders of the Guarantor as at 31 March 2013 are as follows: No.

Name of Substantial Shareholders

No. of Shares

(%)

1.

Khazanah Nasional Berhad

1,939,655,861

34.79

2.

Employees Provident Fund Board

707,723,819

12.69

1,875,000

shares held in its own name

649,946,182 shares held through Citigroup Nominees (Tempatan) Sdn. Bhd.

3.

19,679,862

shares held through Citigroup Nominees (Tempatan) Sdn. Bhd.

14,551,100

shares held through Citigroup Nominees (Tempatan) Sdn. Bhd.

7,957,675

shares held through Citigroup Nominees (Tempatan) Sdn. Bhd.

3,827,800

shares held through Citigroup Nominees (Tempatan) Sdn. Bhd.

3,380,000

shares held through Citigroup Nominees (Tempatan) Sdn. Bhd.

2,328,200

shares held through Citigroup Nominees (Tempatan) Sdn. Bhd.

2,055,000

shares held through Citigroup Nominees (Tempatan) Sdn. Bhd.

1,700,000

shares held through Citigroup Nominees (Tempatan) Sdn. Bhd.

423,000

shares held through Citigroup Nominees (Tempatan) Sdn. Bhd.

Amanahraya Trustees Berhad Skim Amanah Saham Bumiputera

Private & Confidential

584,843,968

10.49

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TNB Northern Energy Berhad

Information Memorandum

The 30 largest shareholders of the Guarantor as at 31 March 2013 are as follows: No.

Name of Shareholders

No. of Shares

%

1,879,655,861

33.72

1.

Khazanah Nasional Berhad

2.

Citigroup Nominees (Tempatan) Sdn. Bhd. Employees Provident Fund Board Amanahraya Trustees Berhad Skim Amanah Saham Bumiputera

649,946,182

11.66

584,843,968

10.49

4.

Lembaga Tabung Haji

210,615,968

3.78

5.

Cartaban Nominees (Asing) Sdn. Bhd. Exempt An for State Street Bank & Trust Company (West CLT OD67)

107,464,431

1.93

6.

Kumpulan Wang Persaraan (Diperbadankan)

74,209,200

1.33

7.

Amanahraya Trustees Berhad Amanah Saham Malaysia

68,000,000

1.22

8.

Amanahraya Trustees Berhad Amanah Saham Wawasan 2020

64,383,625

1.15

9.

Maybank Nominees (Tempatan) Sdn. Bhd. Maybank Trustees Berhad for Public Ittikal Fund (N14011970240)

51,700,000

0.93

10.

Cartaban Nominees (Tempatan) Sdn. Bhd. Exempt An for Eastspring Investments Berhad

50,572,718

0.91

11.

HSBC Nominees (Asing) Sdn. Bhd. Exempt An for the Bank of New York Mellon (Mellon Acct)

47,467,109

0.85

12.

Malaysia Nominees (Tempatan) Sendirian Berhad Great Eastern Life Assurance (Malaysia) Berhad (PAR 1) Maybank Nominees (Tempatan) Sdn. Bhd. Maybank Trustees Berhad for Public Regular Savings Fund (N14011940100)

47,205,525

0.85

40,149,575

0.72

3.

13.

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TNB Northern Energy Berhad

No.

Name of Shareholders

Information Memorandum

No. of Shares

%

14.

Amanahraya Trustees Berhad AS 1Malaysia

37,627,700

0.67

15.

AMSEC Nominees (Tempatan) Sdn. Bhd. AmTrustee Berhad for CIMB Islamic Dali Equity Growth Fund (UT-CIMB-DALI)

36,963,800

0.66

16.

HSBC Nominees (Asing) Sdn. Bhd. Exempt An for JPMorgan Chase Bank, National Association (U.A.E.)

36,209,726

0.65

17.

HSBC Nominees (Asing) Sdn. Bhd. Exempt An for JPMorgan Chase Bank, National Association (Saudi Arabia)

35,196,011

0.63

18.

Cartaban Nominees (Asing) Sdn. Bhd. Government of Singapore Investment Corporation Pte Ltd for Government of Singapore (C)

33,632,325

0.60

19.

HSBC Nominees (Asing) Sdn. Bhd. Exempt An for JPMorgan Chase Bank, National Association (U.S.A.)

29,387,861

0.53

20.

HSBC Nominees (Asing) Sdn. Bhd. BBH and Co Boston for Vanguard Emerging Markets Stock Index Fund

28,580,507

0.51

21.

Amanahraya Trustees Berhad Public Islamic Dividend Fund

24,654,175

0.44

22.

HSBC Nominees (Asing) Sdn. Bhd. Exempt An for JPMorgan Chase Bank, National Association (Resident -U.S.A.- 2)

23,603,900

0.42

23.

HSBC Nominees (Asing) Sdn. Bhd. HSBC BK Plc for Saudi Arabia Monetary Agency

22,227,800

0.40

24.

Cartaban Nominees (Tempatan) Sdn. Bhd.

21,738,625

0.39

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TNB Northern Energy Berhad

No.

Information Memorandum

Name of Shareholders

No. of Shares

%

Petroliam Nasional Berhad (Strategic Inv) 25.

Amanahraya Trustees Berhad Amanah Saham Didik

21,555,737

0.39

26.

Citigroup Nominees (Tempatan) Sdn. Bhd. Employees Provident Fund Board (Nomura)

19,679,862

0.35

27.

HSBC Nominees (Asing) Sdn. Bhd. Exempt An for JPMorgan Chase Bank National Association (Netherlands)

19,010,950

0.34

28.

Amanahraya Trustees Berhad Public Islamic Select Enterprises Fund

17,778,700

0.32

29.

Citigroup Nominees (Tempatan) Sdn. Bhd. Exempt An for American International Assurance Berhad

16,713,250

0.30

30.

HSBC Nominees (Asing) Sdn. Bhd. Exempt An for JPMorgan Chase Bank, National Association (Norges BK Lend)

15,569,475

0.28

4,316,344,566

77.42

Total

4.5

Profile of Directors The Board of directors of the Guarantor and their respective profiles as at 31 March 2013 are as follows: Name of Directors Tan Sri Moggie

Occupation

Leo NonIndependent Non-Executive Chairman, TNB

Job functions, responsibilities, educational & professional qualification, work experience 72 years of age – Malaysian Tan Sri Leo Moggie was appointed as NonIndependent Non-Executive Chairman to the Board of TNB on 12 April 2004. He holds a Master of Arts in History from University of Otago, New Zealand and a Master of Business Administration from Pennsylvania State University, United States of America. He is

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TNB Northern Energy Berhad

Name of Directors

Information Memorandum

Occupation

Job functions, responsibilities, educational & professional qualification, work experience the Chairman of the Board Finance and Investment Committee. Prior to his appointment as Chairman of TNB, Tan Sri Leo Moggie served the Malaysian Government for more than 38 years. He held several senior ministerial positions at both the Federal and State levels from 1976 until 2004 that included Minister of Energy, Communications and Multimedia (1998-2004), Minister of Works (1989-1995), Minister of Energy, Telecommunications and Posts (19781989 and 1995-1998), Minister of Local Government (1977-1978) and Minister of Welfare Services (1976-1977) in the State Government of Sarawak. He was elected as Member of Sarawak State Council from 1974 until 1978 and a Member of Parliament from 1974 until 2004. Tan Sri Leo Moggie’s other directorship in public companies include Digi.Com Berhad and ACE Jerneh Insurance Berhad. He also sits as Chairman on various Boards of TNB Group of Companies and several other private companies.

Dato’ NonMohammad Independent Zainal bin Non-Executive Shaari Director, TNB

50 years of age – Malaysian Dato’ Mohammad Zainal bin Shaari was appointed as Non-Independent Non-Executive Director to the Board of TNB on 31 March 2007. Dato’ Mohammad Zainal bin Shaari is a Fellow of the Institute of Chartered Accountants in England and Wales, ACCA of the United Kingdom. He is also a Member of the MIA and Malaysian Institute of Certified Public Accountants (MICPA). He serves as a member of the Board Tender Committee, Board Finance and Investment Committee and Board Nomination and Remuneration Committee. He has served in various capacities in the private sector, including with a public accounting firm in the United Kingdom from 1984 until 1990 and thereafter PricewaterhouseCoopers (PwC) until 2002. He was an Executive Director/Chief Operating Officer of Khazanah Nasional Berhad until February 2013.

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Name of Directors

Information Memorandum

Occupation

Dato’ Zainal Senior Abidin bin Putih Independent Non-Executive Director, TNB

Job functions, responsibilities, educational & professional qualification, work experience 67 years of age – Malaysian Dato’ Zainal Abidin bin Putih was appointed as Independent Non-Executive Director to the Board of TNB on 1 May 2003 and later, redesignated as Senior Independent NonExecutive Director on 1 October 2010. He serves as the Chairman of the Board Audit Committee and a Member of the Board Finance and Investment Committee. He is a qualified Chartered Accountant of the England and Wales Institute. He was formerly the Chairman of Malaysian Accounting Standards Board (MASB), Mentakab Rubber Company Berhad and Pengurusan Danaharta Nasional Berhad. He was also a past President of the MICPA, a former member of the Malaysian Communications and Multimedia Commission and a former Advisor to Messrs Ernst & Young Malaysia. Dato' Zainal Abidin bin Putih has extensive experience in public accounting practice and has been a Partner, Executive Director, Country Managing Partner and Chairman of Hanafiah Raslan & Mohamad which merged with Ernst & Young in 2002. He is currently the Chairman of Mobile Money International Sdn. Bhd. and a Trustee of the National Heart Institute Foundation. His other directorships in public companies include CIMB Group Holdings Berhad, Petron Malaysia Refining & Marketing Berhad (formerly known as ESSO Malaysia Berhad), Dutch Lady Milk Industries Berhad, Land & General Berhad, CIMB Investment Bank Berhad, CIMB Bank Berhad, Southeast Asia Special Asset Management Berhad and several other private companies

Tan Sri Dato’ Independent Hari Narayanan Non-Executive a/l Director, TNB Govindasamy

63 years of age – Malaysian Tan Sri Dato’ Hari Narayanan a/l Govindasamy was appointed as Independent Non-Executive Director to the Board of TNB on 1 March 1995. He is a holder Bachelor of Electrical and Electronics Engineering from the University of Northumbria, England. He serves as a Member

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Name of Directors

Information Memorandum

Occupation

Job functions, responsibilities, educational & professional qualification, work experience of the Board Audit Committee and Board Nomination and Remuneration Committee. He is a Registered Professional Engineer with the Board of Engineers, Malaysia. He has vast and diverse experience in the field of electrical and electronics engineering and has held key positions in InchCape Berhad and Tamco CutlerHammer Sdn. Bhd. He was formerly the Chairman of Noblemax Resources Sdn. Bhd. and Deputy Chairman of Emrail Sdn. Bhd His directorships in other public listed companies include S P Setia Berhad and Puncak Niaga Holdings Berhad, IEV Holdings Ltd and several other private companies.

Dato’ Fuad bin Independent Jaafar Non-Executive Director, TNB

70 years of age – Malaysian Dato’ Fuad bin Jaafar was appointed as Independent Non-Executive Director to the Board of TNB on 15 March 2007. He is a holder of Diploma in Technology from Brighton College of Technology (now Brighton University), United Kingdom. He is a Member of the Board Tender Committee, Board Disciplinary Committee and Board Nomination and Remuneration Committee. He began his career with TNB in 1966. He served for 35 years in various key positions including Assistant Distribution Engineer, Senior District Manager, Construction Engineer, Assistant Senior Construction Engineer, Senior Construction Engineer, Deputy Chief Engineer/Assistant General Manager and Deputy General Manager. Dato’ Fuad bin Jaafar was appointed as General Manager of the Transmission Division in January 1994 and was later made Senior General Manager of Energy Supply. He was TNB’s Chief Operating Officer and Executive Director from 4 September 1997, and then appointed as President/Chief Executive Officer on 16 October 2001, a position he held until November 2001. His directorships in private companies include Sarawak Hidro Sdn. Bhd. and TNB Group of Companies.

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Name of Directors

Information Memorandum

Occupation

Tan Sri Dato’ Independent Seri Siti Norma Non-Executive binti Yaakob Director, TNB

Job functions, responsibilities, educational & professional qualification, work experience 73 years of age – Malaysian Tan Sri Dato’ Seri Siti Norma binti Yaakob was appointed as Independent Non-Executive Director to the Board of TNB on 12 September 2008. She graduated as a Barrister-at-law from Gray’s Inn, London. She also holds a Certificate in Public International Law in Post-Finals Course, Council of Legal Education, London. Tan Sri Dato’ Seri Siti Norma binti Yaakob serves as the Chairman of the Board Disciplinary Committee and Board Nomination and Remuneration Committee. She is also a Member of the Board Finance and Investment Committee. She has held various senior positions in the Legal Service of Malaysia including Senior Assistant Registrar of the High Court, President of the Sessions Court, Senior Federal Counsel of the Attorney General's Chambers, Deputy Public Trustee and Chief Registrar of the Federal Court. Tan Sri Dato' Seri Siti Norma binti Yaakob was appointed as a Judge of the High Court of Malaya from 1983 until 1994 and thereafter appointed as a Judge of the Court of Appeal, Malaysia from 1994 until 2000. She was made a Judge of the Federal Court of Malaysia on 1 January 2001 and eventually elevated to Chief Judge of Malaya, a position she held from 8 February 2005 until her retirement on 5 January 2007. Tan Sri Dato' Seri Siti Norma binti Yaakob is presently the Chairman of Malaysian Competition Commission. Her directorships in other public companies include RAM Holdings Berhad, RAM Rating Services Berhad and RAM Ratings (Lanka) Limited.

Datuk Seri Ir President/Chief Azman bin Executive Mohd Officer, NonIndependent Executive Director, TNB

Private & Confidential

56 years of age – Malaysian Dato’ Seri Ir. Azman bin Mohd was appointed as a Non-Independent Executive Director to the Board of TNB on 15 April 2010.

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TNB Northern Energy Berhad

Name of Directors

Information Memorandum

Occupation

Job functions, responsibilities, educational & professional qualification, work experience He is a holder of Bachelor of Engineering (Electrical Engineering) from University of Liverpool, United Kingdom and Master of Business Administration (MBA) from University Malaya. He was appointed the President/Chief Executive Officer of TNB on 1 July 2012. He has served the Company in various capacities within Distribution Division since 1979 including as Assistant District Engineer, District Manager, Area Manager, Assistant General Manager, General Manager and Senior General Manager. He was the Vice President of Distribution from 14 November 2008 until 14 April 2010. Prior to assuming his current position, he was the Executive Director/Chief Operating Officer of TNB.

Dato’ Manaf Hashim

Abd Independent bin Non-Executive Director, TNB

57 years of age – Malaysian Dato’ Abd Manaf bin Hashim was appointed to the Board of TNB as Independent Non-Executive Director on 1 February 2010. He is a holder of Higher National Diploma in Engineering from Cambridgeshire College of Arts and Technology O.N.D. of Thames Valley University (Slough Campus). He serves as a Member of the Board Audit Committee, Board Disciplinary Committee and Board Tender Committee. He has been a Member of the Suruhanjaya Perkhidmatan Awam Negeri Perak since 2009 and serves as Chairman in several private companies that involve in the construction, telecommunications and solar hybrid sectors since 1993. Prior to that, he held various positions in Shapadu Decloedt Dredging Sdn. Bhd. (1990-1992), Industrial Boilers and Allied Equipment (IBAE)(1984-1986), Hakasa Sdn. Bhd. (1983-1984) and Asie Sdn. Bhd. (19821983). His directorship in public company includes Integrax Berhad and a number of private companies.

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Name of Directors

Information Memorandum

Occupation

Datuk Chung Independent Hon Cheong Non-Executive Director, TNB

Job functions, responsibilities, educational & professional qualification, work experience 52 years of age – Malaysian Datuk Chung Hon Cheong was appointed as Independent Non-Executive Director to the Board of TNB on 1 October 2010. He holds a qualification in Advance Computer Programming, CDS Computer Data Services. He serves as a Member of the Board Audit Committee and Board Finance and Investment Committee. He is the Chief Executive Officer/Executive Director of Rexit Berhad. He has over 30 years of professional experience in the information technology (IT) industry, where he began his career in the early 1980s. In 2001, he was appointed Managing Director of E-Resource.com Sdn. Bhd., a company that conducts research and development in RFID applications. Thereafter, he joined Rexit Solution Sdn. Bhd. in 2003 and later became Managing Director of Rexit Venture Sdn. Bhd. His directorships in other public companies include Rexit Berhad, Rexit (Labuan) Berhad and a number of private companies.

Datuk Nozirah Nonbinti Bahari Independent Non-Executive Director, TNB

58 years of age – Malaysian Datuk Nozirah binti Bahari was appointed to the Board of TNB as Non-Independent NonExecutive Director on 28 June 2011. She has a Bachelor of Social Science (Hons.) (Urban Studies) from University of Science, Malaysia and a Diploma in Public Administration from Institute of Public Administration (“INTAN”). She is the Chairman of Board Tender Committee and a Member of the Board Disciplinary Committee. She is the Deputy Secretary General (Management) in the Ministry of Finance. She has over 30 years service in the Malaysian Civil Service starting as an Assistant Secretary, Finance Division in the Ministry of Finance before rising to her current position. Among other positions she has held were Deputy Under Secretary, Procurement and Supplies Division

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TNB Northern Energy Berhad

Name of Directors

Information Memorandum

Occupation

Job functions, responsibilities, educational & professional qualification, work experience (2002-2004), Deputy Under Secretary, Loan Management, Financial Market and Actuary Division (2005-2007), Under Secretary, Loan Management, Financial Market and Actuary Division (2007-2011) and Director of Budget Management Division (21 March-20 May 2011) in the Ministry of Finance. Her directorships of public companies include Proton Holdings Berhad and Bank Simpanan Nasional Berhad.

Suria binti Ab Alternate Rahman Director to Dato’ Mohammad Zainal bin Shaari, NonIndependent Non-Executive Director, TNB

40 years of age – Malaysian Puan Suria binti Ab Rahman was appointed as Non-Independent Non-Executive Alternate Director to Dato’ Mohammad Zainal bin Shaari on 30 November 2009. She holds an MBA from the Judge Business School, University of Cambridge and a Bachelor of Science in Economics (Accounting and Finance) from London School of Economics. She is an Associate of the Institute of Chartered Accountants in England and Wales (ICAEW) and the Institute of Internal Auditors United Kingdom and Ireland as well as a Member of the MIA. She is a Director in Strategic Human Capital Management of Khazanah Nasional Berhad. Prior to that, she served the Managing Director's Office as a Director from June 2009 until June 2012. She has held various key roles in Khazanah Nasional Berhad that included Head of Risk Management Unit from February 2006 until May 2009 and Vice President, Risk Management Unit from April 2005 until January 2006. Prior to joining Khazanah Nasional Berhad, she served KPMG in its London offices for nine-and-a-half years from mid-1996 until 2005.

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4.6

Information Memorandum

Management Team The management team of the Guarantor and their respective profiles as at 31 March 2013 are as follows: Name of Management Team

Occupation

Datuk Seri Ir President/Chief Azman bin Executive Officer Mohd

Job functions, responsibilities, educational & professional qualification, work experience 56 years of age – Malaysian Datuk Seri Ir. Azman bin Mohd has held several key positions in TNB since joining the organisation 31 years ago. Starting his career as a District Office Electrical Engineer, he gradually acquired positions of greater responsibility, holding posts such as District Manager, State General Manager and General Manager of Strategic Management & Organisation Development at the company headquarters before being appointed as Senior General Manager of Operational Region 2 in 2006. On 14 November 2008, he was made Vice President of Distribution; and on 15 April 2010, he was appointed as Chief Operating Officer/Executive Director of TNB. He took over the helm of the company as its President/CEO on 1 July 2012. Datuk Seri Ir. Azman obtained a Diploma in Engineering from the England Newark Technical College, United Kingdom, in 1976, a Bachelor of Engineering in Electrical Engineering from the University of Liverpool, United Kingdom, in 1979, and a Master of Business Administration from the University of Malaya in 1996.

Fazlur Rahman Vice 44 years of age – Malaysian bin Zainuddin President/Chief Financial Officer Encik Fazlur Rahman bin Zainuddin, was (Group Finance) appointed as TNB Chief Financial Officer and Vice President (Group Finance) on 1 July 2012. Prior to this, he was the Chief Financial Officer of the Naza Group. Before joining the Naza Group in 2010, Encik Fazlur was with Telekom Malaysia Berhad (TM) for five years from 2005, during which time he served in a number of different capacities culminating in the position of Vice President, Business Development. Encik Fazlur Rahman bin Zainuddin also spent 10 years from 1995 with Shell Malaysia in various financial Private & Confidential

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TNB Northern Energy Berhad

Name of Management Team

Information Memorandum

Occupation

Job functions, responsibilities, educational & professional qualification, work experience management and corporate roles. Prior to that, he gained four years’ experience in public accounting practice, which included almost three years in PwC Kuala Lumpur as a tax consultant. Encik Fazlur Rahman bin Zainuddin also sits on the Board of Directors of various TNB subsidiaries. He is a professional accountant by training, a Fellow of the ACCA, United Kingdom, and a member of the MIA.

Dato’ Ir. Mohd Vice President 57 years of age – Malaysian Nazri bin (New Business & Shahruddin Major Projects) Dato’ Ir. Mohd Nazri bin Shahruddin joined the LLN on 1 September 1979 upon completion of his studies in the United Kingdom as an LLN scholar. He served in several power stations in the field of Operations and Maintenance and was involved in developing a number of power plants, most notably the Sultan Azlan Shah Power Station in Perak. Later, he headed a team from TNB, Khazanah Nasional Berhad and Malakoff Corporation Berhad which, in association with a private Saudi firm, developed the first Independent Water and Power Producer (IWPP) project in Saudi Arabia, the Shuaibah Power and Water Facility. He was based in Jeddah for three years to complete the project. In 2008, Dato’ Ir. Mohd Nazri bin Shahruddin was appointed Vice President of Generation, a position he held until his appointment in September 2012 as Vice President of New Business & Major Projects. He holds a Bachelor of Science in Mechanical Engineering from King’s College, University of London. Zainudin Ibrahim

Private & Confidential

bin Vice-President (Generation)

57 years of age – Malaysian Tuan Haji Zainudin bin Ibrahim began his 32year career in TNB as a Mechanical Engineer at Tuanku Ja’afar Power Station in 1980. Following a two-year stint as a Shift Charge Engineer at Sultan Ismail Power Station, Paka, he returned to Tuanku Ja’afar Power Station where he continued to serve for the Page | 34

TNB Northern Energy Berhad

Name of Management Team

Information Memorandum

Occupation

Job functions, responsibilities, educational & professional qualification, work experience next 20 years in various positions in the Maintenance Department culminating as a Senior Manager. Between 2007 and April 2012, he assumed the post of General Manager, first at the Putrajaya Power Station, and later at the Tuanku Ja’afar Power Station. He then spent six months as the Senior General Manager (Operations) of Generation Division. On 3 September 2012, he assumed his current position as the Vice President, Generation. Tuan Haji Zainudin bin Ibrahim obtained his Bachelor of Engineering in Mechanical Engineering from the University of Sheffield, United Kingdom in 1980 and his Master of Engineering Management from Universiti Tenaga Nasional (UNITEN) in 2005.

Datuk Rozimi Vice-President bin Remeli (Transmission)

56 years of age – Malaysian Datuk Rozimi bin Remeli has spent over 33 years in TNB. He started as a Technical Assistant in Distribution Butterworth, Penang. He then served in Transmission Maintenance since 1984 until he was promoted to General Manager of Maintenance in 2006. Later in 2007 he was again promoted to hold a position as a Senior General Manager Transmission Asset Development. On 9 January 2010, he assumed his current position as the Vice President, Transmission Division. Datuk Rozimi bin Remeli holds a Diploma in Electrical Engineering from Universiti Teknologi Malaysia, a Bachelor of Engineering from Northorp University, United States of America, and an MBA from Universiti Sains Malaysia. In addition, he is currently the Adjunct Professor in the Civil Engineering Department of UNITEN. He is also the National Mirror Committee Chairman for IEC/TC 115 where Malaysia is the participating member.

Datuk Ir. Vice-President Baharin bin Din (Distribution)

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50 years of age – Malaysian Datuk Ir. Baharin bin Din has spent almost his entire 27-year career at various engineering Page | 35

TNB Northern Energy Berhad

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Information Memorandum

Occupation

Job functions, responsibilities, educational & professional qualification, work experience positions in TNB, with the exception of twoand-a-half years when he served the Ministry of Energy, Telecommunications & Posts Malaysia, first as a Deputy Director, then a Director, of the Electrical Inspectorate Department, in Sabah then Pahang. At TNB, he has taken on managerial positions in the Engineering Department overlooking the development of Distribution. He has been involved in Business Development, Network Maintenance, Metering Services, Construction Service, Network Service, and Engineering Service and Logistics. In March 2007, he was made Managing Director of SESB, a position he held for four years before being assigned as Senior General Manager, Customer Service & Metering, in the Distribution Division on 1 December 2011. He was promoted to Vice President of Distribution on 1 January 2012. Datuk Ir. Baharin obtained a Bachelor of Science in Electrical Engineering from Syracuse University, New York, United States of America, and an MBA from UNITEN and Bond University, Australia, under a joint UNITEN/Bond MBA programme.

Dato’ Vice-President Muhammad (Human Razif bin Abdul Resources) Rahman

51 years of age – Malaysian Dato’ Muhammad Razif bin Abdul Rahman has spent his entire 28-year career with LLN/TNB. During this time, he has served in various capacities as Transmission Protection Engineer, Power Plant Engineer, TNB Workshop Services Sdn. Bhd. Business Development Manager, Perusahaan Otomobil Elektrik Malaysia’s Operations Manager and Head of Training at TNB Transmission Network Sdn. Bhd. In 2002, he moved from operations to the Group Human Resources Division, where he served as Head of Training & Development and, later, as Head of Human Resources Planning and Staffing, before been promoted to Vice President of Human Resources in December 2008.

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TNB Northern Energy Berhad

Name of Management Team

Information Memorandum

Occupation

Job functions, responsibilities, educational & professional qualification, work experience Dato’ Muhammad Razif bin Abdul Rahman obtained a degree in Electrical Engineering from the University of Liverpool in 1984.

Datin Roslina Vice-President binti Zainal (Planning)

51 years of age – Malaysian Datin Roslina binti Zainal has served TNB for 27 years, beginning as an Electrical Engineer in Johor Bahru when she joined LLN/TNB on 1 July, 1985. She was promoted to a Senior Engineer of Energy Planning at the Planning and Development Department in TNB’s headquarters in 1988, following which she was seconded as the Assistant Director of Energy in the Economic Planning Unit of the Prime Minister’s Office from 1991 to 1993. On her return to TNB, she was appointed as Manager, Regulatory & Business Strategy at the Corporate Planning Division and then Senior Manager, Strategic and Business Management. In 2005, she was made General Manager, Procurement of Energy, and on 1 April 2009, she assumed her current position of Vice President (Planning). She is also a member of the Planning Committee of the National Nuclear Development Programme, member of the Board of Engineers Malaysia, an advisor to the Institute of Energy Policy and Research, UNITEN, and a Director of TNB Fuel Services Sdn. Bhd. She obtained a degree in Electrical Engineering from the University of Lakehead, Canada, and an MBA from the University of New England, Australia.

Kamaruddin bin Chief Information 53 years of age – Malaysian Mahmood Officer Encik Kamaruddin bin Mahmood has more than 27 years’ experience in the Information & Communication Technologies (ICT) industry, the last seven years of which have been spent in TNB. He joined TNB in May 2005 as General Manager of the IT Department in the ICT Division. Since then, he has acquired a range of expertise within the ICT Division, spending seven months as General Manager of IT & Private & Confidential

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TNB Northern Energy Berhad

Name of Management Team

Information Memorandum

Occupation

Job functions, responsibilities, educational & professional qualification, work experience Telecommunications Development Department, one-and-a-half years as General Manager of the IT & Business Solutions Department, and another two years as Senior General Manager of the same department, following which he was promoted to his current position as Chief Information Officer (CIO) in March 2012. As CIO, he is responsible for ensuring the company’s vision, mission, strategy and goals are achieved through the effective use of ICT. Before joining TNB, he served in various key positions in ICT in large companies dealing in commodities and oil and gas. Encik Kamaruddin bin Mahmood obtained a Bachelor of Science from Murdoch University, Australia, and attended a Management Programme at Cambridge University, United Kingdom.

Ir. Syed Hanifah Syed Alwi

Abu Chief Bin Procurement Officer

56 years of age – Malaysian Ir. Syed Abu Hanifah Bin Syed Alwi, has served LLN/TNB for almost 30 years and has devoted half of his career to the procurement line. He began his career as an Assistant Engineer at Kuala Lumpur (South District) in the area of operation and maintenance of electrical systems up to 33kV. He was then promoted to become the District Manager at Kulim, Kedah, where he was exposed to the art of management. He was then transferred back to Kuala Lumpur and placed in the Engineering Department of the Distribution Division. He introduced new equipment and work processes so as to ensure that the best engineering practices were implemented in the Distribution Division. His career in procurement started in 1998 where he was assigned the position of Material Planning Manager of the Material Resource Management Dept in the Distribution Division. From there on he rose through the ranks to become Senior General Manager of the Material Management

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Name of Management Team

Information Memorandum

Occupation

Job functions, responsibilities, educational & professional qualification, work experience Department in the Distribution Division – his last post prior to the current position. He assumed the post of Chief Procurement Officer of TNB on 1 January 2013. He holds a degree in Electrical (Power) Engineering from Universiti Teknologi Mara (UiTM). He had the privilege of attending a Management Programme at Judge Business School, University of Cambridge, United Kingdom.

Dato’ Roslan Chief Corporate 56 years of age – Malaysian bin Ab Rahman Officer Dato’ Roslan bin Ab Rahman began his more than 30-year career at TNB in 1980, when he joined the company as an electrical engineer based in Batu Pahat, Johor. He then assumed positions of greater responsibility – from District Officer in Termerloh, Pahang to Senior Manager of Distribution at the Headquarters, and Senior District Manager in Klang followed by Kuantan. In 1999, he was promoted to Head of Corporate Quality at TNB’s headquarter; two years later he became General Manager of TNB Putrajaya/ Cyberjaya, following which he was appointed General Manager of Customer Service and Marketing, Distribution Division. Prior to being promoted to Chief Corporate Officer on 1 September 2012, he was a Senior General Manager, Operation Region 2, for a period of three years. He holds a Bachelor of Science in Electrical Engineering from the University of Southampton, United Kingdom. Norazni Mohd Isa

binti Company Secretary

50 years of age – Malaysian Puan Norazni binti Mohd Isa holds a Master of Laws from University of Malaya. Puan Norazni binti Mohd Isa was appointed as a Legal Executive from 1990 to 1993 assisting the Head of the Legal Department and later appointed as a Contract Management Executive until 2002 in the

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Occupation

Job functions, responsibilities, educational & professional qualification, work experience Company Secretary’s Office of TNB. She was then promoted as Manager (Contract Management Department) in the Procurement Department until 2003 and later moved to Regulatory & Compliance Unit, Corporate Communication Department as Manager (Licensing & Compliance) Regulatory Unit. She was again promoted as Senior Manager (Share Purchasing) in the Procurement Division and served in the Division until 2011. Since then, Puan Norazni binti Mohd Isa has been appointed as Deputy Company Secretary and was promoted as Company Secretary of TNB with effect from 1 June 2012 and has held the position ever since.

4.7

Business Overview of the Guarantor TNB’s core business lies in the generation, transmission and distribution of electricity. Driven by its central role to ‘Keep the Lights On’, TNB has become a leading utilities provider in the region. The Generation Division is responsible for generating electricity at TNB’s six thermal power stations and three hydroelectric power generating schemes in Peninsular Malaysia. Together with two IPPs that it supports, namely the wholly-owned Sultan Azlan Shah Power Station and the majority-owned Sultan Salahuddin Abdul Aziz Shah Power Station, these plants make up 36.6% of the generation market share in the peninsula. The Generation Division also owns TNB Liberty Power Limited of Pakistan. The Transmission Division transports electricity from power generators to distributors and large industrial customers. Its primary business includes operating the grid and maintaining thousands of circuit-kilometres of transmission lines and pylons in the peninsula. The division is committed to providing safe, secure and reliable electricity supply at optimal cost. The Distribution Division is responsible for reliable and robust network delivery. It plans, designs, constructs, operates and maintains the nation’s electricity supply system to provide sufficient electricity to all segments of customers, as efficiently as possible. The division also presents TNB’s frontline service, handling the Customer Service Centres, collecting revenue, and operating the Call Management Centres (TNB Careline 15454 and One Stop Engagement Centre 1-300-88-5454).

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4.8

Information Memorandum

Key Financial Highlights of the Guarantor Summary of the Guarantor’s Group Balance Sheet FYE RM’ Million

Unaudited three (3) months ended 30 November 2012

Audited 31 August 2012

31 August 2011 (Restated)

1 September 2010 (Restated)

Total assets

89,006.4

88,469.1

79,064.3

78,662.4

Total borrowings

22,444.4

23,071.8

19,054.1

21,095.6

Total liabilities

55,428.7

52,070.8

46,834.9

46,709.5

Share capital

5,535.3

5,501.6

5,456.6

4,352.7

Shareholders’ equity

33,316.8

36,137.3

31,997.4

31,761.7

Summary of the Guarantor’s Group Income Statement FYE RM’ Million

Unaudited three (3) months ended 30 November 2012

Audited

2012

2011 (Restated)

2010 (Restated)

Revenue

9,130.8

35,848.4

32,241.2

30,317.4

Operating profit

1,757.8

6,396.9

1,816.8

4,180.0

Profit/(loss) before taxation and zakat

2,002.6

5,537.2

1,156.7

4,019.4

Profit/(loss) tax

1,415.4

4,206.2

964.5

3,196.2

after

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5.

INFORMATION ON THE PROJECT

5.1

Technical Description

5.1.1

Plant Site and Layout The proposed plant is a CCGT power plant with a capacity of 1071.43 MW. The project site is a brown field site located in the area of Prai, Butterworth, Penang, Malaysia (Figure 5.1) which previously housed an oil-fired power plant which has been decommissioned and demolished. The nearest airport is the Bayan Lepas International Airport, on Penang Island approximately 25 km away. The nearest seaport and railway terminal is approximately 5km away. It is accessible by roads, expressways and railway. There is an adjacent power generation facility, i.e. Prai Power Plant, owned by Prai Power Sdn Bhd. FIGURE 5.1 - PROJECT LOCATION

Project Site



The Project site is located within the western section of Prai Industrial Estate with its west boundary bordering the sea (Figure 5.2). The Project site falls under the jurisdiction of District of Seberang Perai Tengah, Majlis Perbandaran Seberang Perai.

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FIGURE 5.2 – SATELLITE VIEW OF PROJECT SITE

P r o j e c t Si t e

The Project site is located on a brownfield site which used to house a 3x120 MW conventional oil-fired thermal power plant. The latter has been decommissioned and demolished with only some small structures and administration building remaining. FIGURE 5.3 – SITE PLAN OF THE PROJECT SITE

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The power station is to be built on the Plant Land. A new land plot, Plot A1, is currently being acquired from the State Government and a part of the circulating water system will occupy Plot A1 as shown in the diagrams below.

5.1.2

Plant Process and Technology The Plant will be a natural gas fired 1,071.43 MW CCGT power plant capable of operation on distillate backup fuel as well. The plant will consist of two Generating Blocks, each consisting of a single-shaft configuration including the Siemens H-class gas turbine (SGT5-8000H), a hydrogen cooled generator (SGen5-3000W), a Heat Recovery Steam Generators (HRSG) and a Siemens tandem-compound steam turbine (SST5-5000) coupled to the same generator via a self-shifting synchronous clutch.

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The Siemens’ H-Class combustion turbine technology is expected to achieve combined cycle efficiencies of up to and exceeding 60%. Exhaust gas from the gas turbine will be directed through an unfired horizontal HRSG, which is designed as a triple pressure, Benson-type, natural circulation boiler with a reheat section. The steam turbine will be a reheat condensing turbine comprising a combined high pressure (HP)/intermediate pressure (IP) turbine module and a double-flow low pressure (LP) turbine. Exhaust steam will be condensed in the once-through seawater cooled condenser. A 100% steam turbine bypass system will be provided for start-up and in case of a steam turbine trip. A fuel gas treatment system will be provided to measure, filter, heat and regulate the pressure of the gas according to the gas turbine requirements. The power plant will include the following key interfaces:

5.1.3



Connection to the TNB National Grid at the high voltage (HV) terminals of the Gas Insulated Switchgear (GIS).



Natural Gas Supply, as the primary fuel, by Petronas.



Distillate Fuel, as the backup fuel, to be purchased by TNB from four (4) major oil suppliers with fuel depots in Prai/Butterworth (Shell/Esso/Petronas/Chevron) and delivered by road tankers (distillate tanks will be provided for on-site storage).



Water supply by connection to the local municipal potable water system.



Once through seawater cooling supply by a submerged intake pipe and to discharge together with the treated waste water to a discharge outfall.

Project Construction Schedule The Power Facility and the Interconnection Facilities will be constructed pursuant to a fixed-price, date-certain, lump sum turnkey EPC Contract. Scheduled COD is defined as 1 January 2016 under the PPA and the Parties shall co-operate to procure that the Initial Operation Date of each Generating Block shall occur on 1 July 2015, six (6) months before Scheduled COD. A Limited Notice to Proceed was executed 30 November 2012 and the construction schedule pursuant to the EPC Contract is expected to be thirty two (32) months from Notice to Proceed for both Generating Blocks. The ICE has opined that for the schedules in the PPA and EPC Contract to coincide, NTP needs to be issued by 2 May 2013.

5.2

Licensing Requirement Under the ESA, a person who intends to operate a power plant is required to hold an electricity generation licence. Licences may be granted by the Commission with the approval of the Minister upon payment of such fees and upon such conditions as appear to be requisite or expedient having regard to the function and duties of the Energy Commission, established under the Energy Commission Act 2001.

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The requirement to procure the Generation Licence is a condition precedent to commencement of generation of electricity in respect of the first Generating Block under the PPA and constitutes a condition subsequent to the issuance of the Sukuk TNB NE, which is to be fulfilled within nine (9) months after the issuance of the Sukuk TNB NE. Accordingly, no later than nine (9) months after issuance of the Sukuk TNB NE, the Project Company is to provide a certified true copy of the generation license issued to them by the EC to the Issuer. The ESA further provides that a term of a generation license shall not without the express approval of the Minister (for the time being charged with the responsibility for matters relating to the supply of electricity) be for a period exceeding twenty-one (21) years. As at the date of this Information Memorandum, TNB Prai does not hold an electricity generation licence. 5.3

Project Economics Base Case Cashflow Projections The information and assumptions contained in a detailed financial model (“Base Case Cashflow Projections”) are discussed in this section and represent the current and anticipated contractual terms between TNB NE and the relevant parties as well as other assumptions on the operating and financial parameters of the Plant, made as of the date of this Information Memorandum. The Base Case Cashflow Projections and certain statements herein are forwardlooking statements and illustrative only. The calculations are based on certain assumptions which may not be realized. In addition, the forward-looking statements involve a number of risks and uncertainties. Each recipient should carefully conduct an independent evaluation of the financial projections of the Plant and associated due diligence to determine the viability of the under-mentioned assumptions. As the Project is still under development, these parameters are expected to change or be revised from time to time in the future. An extract of the Base Case Cashflow Projections is attached as Appendix 3 (A) of this Information Memorandum. The parameters of the Project assumed in the Base Case Cashflow Projections are summarized in Appendix 4 of this Information Memorandum. Project Capital Structure The sources and uses of funds presented in this section are derived from assumptions as to when payments under the EPC Contract and other Project expenditures are expected to occur. Shareholders’ funds are provided pari passu with issuances of the Sukuk TNB NE according to the assumed finance to equity ratio. Sponsor’s Equity Contribution will be provided on a pro-rata basis with the disbursement of proceeds from the issuance of the Sukuk TNB NE according to the assumed finance to equity ratio.

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A summary of the sources and uses of funds of the Project is attached as Appendix 3 (B) of this Information Memorandum. 5.4

Project Structure The Project will be implemented utilising a Turnkey Structure based on the key contractual relationships between the parties involved in the Project which is shown below: CONTRACTUAL STRUCTURE

Tenaga Nasional Berhad Offtaker

Petroliam Nasional Berhad Fuel Supplier

TNB Repair and Maintenance Sdn Bhd O&M Contractor

Tenaga Nasional Berhad Land Lessor

PPA

Tenaga Nasional Berhad Sponsor 100% Equity

GSA

TNB Prai Sdn Bhd Project Company OMA

LLA

Turnkey Contract

LTMP Siemens AG / Siemens

Malaysia Sdn Bhd OEM

100% Equity

TNB Northern Energy Berhad Issuer

EPC Samsung Engineering Contract and Construction (M)

Sdn Bhd EPC Contractor

Sukukholders

Source: Project Documents and Financing Documents

The Project Company is a SPV formed for the purpose of implementing the Project. The Project Company has entered into the following Project Documents: (a) (b) (c) (d) (e) (f)

Power Purchase Agreement with TNB; Gas Sales Agreement with Petronas; Operations and Maintenance Agreement with TNB Remaco; Long-Term Maintenance Program with Siemens AG and Siemens LS; Land Lease Agreement with TNB; Turnkey Contract with the Issuer.

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The Issuer is a SPV, formed for the purpose of carrying out the development, construction and financing of the Project and is a wholly-owned subsidiary of the Project Company. The Issuer will not be involved in the operation and/or maintenance of the Power Facility. The Issuer has entered into the following project documents: (a) Turnkey Contract with the Project Company; and (b) EPC Contract with the EPC Contractor. 5.5

Summary Of Key Project Documents In respect of defined terms in this section 5.5 only, where the same is not defined elsewhere in this preliminary IM, the defined terms have the meaning ascribed to them in the relevant Project Document.

5.5.1

Power Purchase Agreement The following section incorporates the key terms and conditions that are contained in the PPA entered into between TNB Prai and TNB on 30 November 2012.

5.5.1.1

Overview The PPA sets out the terms and conditions governing the sale and delivery of electricity and generating capacity from the Plant (defined in the PPA as the “Facility”) by TNB Prai to TNB and the purchase and receipt by TNB of such electricity and generating capacity from TNB Prai. TNB Prai shall design, construct, own, operate and maintain the Facility in accordance with the terms and conditions of the PPA. The commencement date of construction of the Facility is expected to be 4 May 2013. The Facility comprises of the following:

5.5.1.2

(a)

two generating blocks with each consisting of one (1) gas turbine, one (1) generator and one (1) steam turbine including one (1) heat recovery steam generator, operating in combined-cycle mode otherwise known as the “Generating Blocks”;

(b)

fuel facilities enabling the Facility to receive and utilise Fuel supplied under the Fuel Supply Contracts in quantities sufficient to permit the Facility to operate continuously at full load Despatch on natural gas or for three and a half days (3.5) days on the standby Distillate Fuel Oil otherwise known as the “Fuel Facilities”; and

(c)

interconnection facilities enabling TNB to receive electrical energy from the Facility and to maintain the stability of the Grid System, otherwise known as the “Interconnection Facilities”.

Conditions Precedent to Commence Generation of Electricity The Initial Operation Date of each Generating Block and the right of TNB Prai to commence generation of electrical energy at the Facility and to supply, deliver

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and sell electricity shall only occur upon satisfaction or waiver of the following conditions, namely that:

5.5.1.3

(a)

each of the Project Documents (i.e. the EPC Contract, the OMA, the GSA, the LLA and such other agreements designated by mutual agreement) is in full force and effect and all conditions precedent to their effectiveness (except for conditions relating to the PPA) are satisfied or waived;

(b)

the initial financing documents which have been entered into by TNB Prai are in full force and effect and all conditions precedent to their effectiveness have been satisfied or waived;

(c)

TNB Prai has submitted to TNB, with a copy to the Commission, the conceptual design of the Facility accompanied by a certificate from the independent engineer;

(d)

TNB Prai has submitted to TNB, with a copy to the Commission, one (1) certified copy of each of the initial financing documents and the Project Documents (other than the PPA);

(e)

TNB Prai has submitted to TNB a certified copy of the Generation Licence;

(f)

the Interconnection Facilities has been designed, manufactured, supplied, constructed, installed, tested and commissioned in accordance with the requirements of the PPA and prudent utility practices;

(g)

the performance security as set out in the PPA has been delivered to TNB and is in full force and effect;

(h)

TNB Prai has submitted to TNB, with a copy to the Commission, a certified copy of the ElA Approval;

(i)

the commissioning, start-up and testing programs set out in the PPA have been submitted by TNB Prai to TNB, with a copy to the Commission and approved by TNB which approval shall not be unreasonably withheld or delayed.

Conditions Precedent to Commercial Operation The COD for each Generating Block and the right of TNB Prai to supply and deliver net electrical output and daily available capacity and the obligation of TNB to accept and to purchase net electrical output and daily available capacity from that Generating Block or to make energy payments and available capacity payments to TNB Prai in respect of that Generating Block shall not occur until the satisfaction of the following: (a)

TNB Prai has submitted to TNB a copy of the "Commissioning Test Certificate" or similar document to the like effect issued by the Commission as contemplated by the Generation Licence in respect of that Generating Block being operational in combined cycle mode;

(b)

TNB Prai has submitted to TNB, with a copy to the Commission, the final design of the Facility and a certificate from the Independent Engineer stating that the relevant Generating Block and the Interconnection

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Facilities have been tested and commissioned in accordance with the tests contained in the PPA and the EPC Contract;

5.5.1.4

(c)

TNB Prai has established and declared the contractual available capacity for such Generating Block in accordance with the terms of the PPA and the test results show that TNB Prai can meet the declared contractual available capacity for that Generating Block;

(d)

no default by TNB Prai of (i) any material provision of the PPA or (ii) any provision of the Financing Documents, the breach of which could reasonably be expected to have a material adverse effect on TNB Prai’s ability to perform its obligations or availability of the rights of TNB under the PPA shall have occurred and be continuing;

(e)

the representations and warranties by TNB Prai in the PPA are true and correct in all material respects as if made on the COD of that Generating Block; and

(f)

all the documentation, data, information and certified test results set out in the PPA have been submitted by TNB Prai to TNB, with a copy to the Commission, and verified by TNB as being in conformance with the requirements of the PPA.

Sale and Purchase Obligations From the Initial Operation Date of each Generating Block and continuing throughout the Term, TNB shall accept all Test Energy and pay TNB Prai for such Test Energy in accordance with the PPA. From the COD of each Generating Block and continuing throughout the Term: (a)

TNB Prai shall deliver and sell to TNB, and TNB shall accept and purchase the net electrical output and daily available capacity from and of that Generating Block; and

(b)

TNB shall pay TNB Prai for such net electrical output and daily available capacity of that Generating Block in accordance with the PPA.

TNB is not obligated to accept net electrical output from a Generating Block that does not conform to the electrical characteristics set forth in the PPA. 5.5.1.5

Purchase Price and Other Charges TNB agrees to pay to TNB Prai the following charges from and after the initial operations date: (a)

Test Energy – for each kWh of test energy generated from the Facility and metered by TNB owned metering equipment at the interconnection points;

(b)

Available Capacity Payments – starting from the Commercial Operating Date of the First Generating Block;

(c)

Energy Payment – starting from the Commercial Operating Date of the First Generating Block;

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(d) 5.5.1.6

Information Memorandum

Start-up Payment – starting from the Commercial Operating Date of the First Generating Block;

Billing and Payment TNB shall within thirty (30) days of receipt of the Billing Statement pay in full to TNB Prai Available Capacity Payments, Energy Payments and Start-up Payments invoiced in such Billing Statement. A Billing Statement is to be issued monthly starting from the Initial Operation Date of the First Generating Block.

5.5.1.7

Liquidated Damages Except in the event of any delay or default by TNB or the occurrence of a Force Majeure Event, TNB Prai agrees to pay TNB by way of pre-ascertained and agreed liquidated damages the following: (a)

if, due to the default of TNB Prai or its contractors or agents under the PPA, the COD of the First Generating Block does not occur on or before the Scheduled COD of the First Generating Block, TNB Prai shall pay to TNB liquidated damages in an amount equal to RM321,429.00 per day for each day following the Scheduled COD of the First Generating Block until the earlier of (i) the COD of the First Generating Block; (ii) the date on which the PPA is terminated by TNB in accordance with the provisions of the PPA; and (iii) one hundred and eighty (180) days after the Scheduled COD of the First Generating Block;

(b)

if, due to the default of TNB Prai or its contractors or agents under the PPA, the COD of the Second Generating Block does not occur on or before the Scheduled COD of the Second Generating Block, lPP shall pay to TNB liquidated damages in an amount equal to RM321,429.00 per day for each day following the Scheduled COD of the Second Generating Block until the earlier of (i) the COD of the Second Generating Block; (ii) the date on which the PPA is terminated by TNB in accordance with the provisions of the PPA; and (iii) one hundred and eighty (180) days after the Scheduled COD of the Second Generating Block;

(c)

if TNB Prai abandons the Project after the PPA becomes unconditional TNB Prai shall forthwith pay to TNB liquidated damages in an amount equal to RM 57,857,220.00;

(d)

if the Contractual Available Capacity of the affected Generating Block is less than the Nominal Capacity, then TNB Prai shall forthwith pay to TNB liquidated damages (the Performance Liquidated Damages) in an amount equal to Ringgit Malaysia five thousand (RM5,000.00) per kW (or part thereof) multiplied by the difference (expressed in kW) between the Nominal Capacity for that Generating Block and the Contractual Available Capacity for such Generating Block; and

(e)

if TNB Prai fails to comply with or operate in conformity with any of the standards or characteristics set out in the PPA, TNB Prai shall pay TNB liquidated damages amounting to RM100,000 for each such failure.

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5.5.1.8

Information Memorandum

Performance Security As security for the performance of TNB Prai’s obligations under the PPA, and no later than the earlier of: (a) (b)

seven (7) days from the Financial Closing Date; and two hundred and ten (210) days after the Effective Date,

TNB Prai is obligated to provide an irrevocable bank guarantee issued by a commercial bank reasonably acceptable to TNB in an amount equal to RM57,857,220.00. This bank guarantee shall permit drawings by TNB to satisfy the performance obligations of TNB Prai for liquidated damages. The bank guarantee is to remain valid until expiration of six (6) months after the Scheduled COD of the Second Generating Block. If TNB Prai fails to provide the bank guarantee within this time frame (or such other date as may be agreed between the parties), TNB may terminate the PPA by giving notice to TNB Prai. 5.5.1.9

Facility Construction and Start-up Construction work at the Site shall commence no later than 4 May 2013 and TNB Prai shall provide TNB with written confirmation that the Commencement Date has occurred within five (5) days after it occurs.

5.5.1.10

Representations and Warranties TNB Prai represents and warrants to TNB that as at the date of the PPA: (a)

TNB Prai is a private limited liability company duly organised and validly existing under the laws of Malaysia and TNB Prai has all requisite power and authority to conduct its business, to own its properties and to execute, deliver and perform its obligations under the PPA;

(b)

the execution, delivery and performance by TNB Prai of the PPA has been duly authorized by all necessary action, including applicable corporate authorizations, and does not and will not (i) require any consent or approval of TNB Prai’s board of Directors or shareholders, other than those that have been obtained; (ii) result in a breach of or constitute a default under, any provisions of TNB Prai’s constitution or incorporation documents, any indenture, contract or agreement to which it is a party or by which it or its assets may be bound, or violate any law, order, writ, judgement, injunction, decree, determination or award presently in effect which is applicable to TNB Prai;

(c)

the PPA constitutes a legal, valid and binding obligation of TNB Prai;

(d)

there is no pending action or proceeding affecting TNB Prai before any court, government entity or arbitrator that is likely to affect materially and adversely the financial condition or operations of TNB Prai and the ability of TNB Prai to perform its obligations under the PPA, or that purports to affect the legality, validity or enforceability of the PPA.

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5.5.1.11

Information Memorandum

Insurance TNB Prai shall maintain or procure to be maintained in effect the following insurance policies and coverage with respect to the Facility and where applicable, the Interconnection Facilities: (a)

from Commencement Date until the COD of each Generating Block, "Erection All Risks" insurance against damage to the Facility and the Interconnection Facilities in amounts not less than the total construction and erection cost of such facilities and on a replacement cost basis subject to deductibles of no more than RM7,750,000.00) for each and every loss;

(b)

throughout the Term, "Industrial All Risk" insurance covering all fixed assets all risk of physical loss or damage where the sum insured shall be on a full replacement value basis subject to deductibles of not more than RM3,500,000.00 for each and every loss;

(c)

throughout the Term, "Machinery Breakdown" insurance covering all machinery, plant, boilers and ancillary equipment forming part of the Facility against sudden and physical loss or damage where the sum insured shall be on a full replacement value basis subject to deductibles of not more than RM7,500,000.00 for each and every loss;

(d)

throughout the Term, "Public Liability" insurance with combined single limits for bodily injury and property damage of at least RM25,000,000.00 per occurrence, including coverage for pollution due to sudden and accidental causes; and

(e)

throughout the Term, any other insurances as required under the laws of Malaysia including but not limited to "Comprehensive Automobile Liability", "Motor Vehicle Liability", “Workmen's Compensation" and/or "Employer's Liability" insurance. All amounts referred to in the above sub-clauses shall be reviewed on an annual basis and may be revised subject to mutual agreement by the Parties.

5.5.1.12

Force Majeure Either party may terminate the PPA if a Force Majeure Event (“FM Event”) prevents either party from substantially performing any material obligation under the PPA for a period which exceeds one hundred and eighty (180) days. Note however that if a FM Event cannot be cured within one hundred and eighty (180) days with the use of reasonable diligence, then the period shall be extended for another one hundred and eighty (180) days. While there is a right of termination as a result of a FM Event provided under the PPA, the right is only exercisable upon giving thirty (30) days written notice if a FM Event is preventing either party from substantially performing any material obligation under the PPA for a period exceeding one hundred and eighty (180) days, subject to the following: (a)

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eighty (180) period shall be extended by a further period of one hundred and eighty (180) days; (b)

if the party affected is unable to remedy the FM Event by the further period, then the Parties shall consult as to what steps shall be taken with a view to mitigating or remedying the consequences of a FM Event;

This includes the affected Party demonstrating to the satisfaction of the other Party that (i) the affected Party is diligently applying reasonable efforts to execute a plan to overcome the FM Event and resume performance of the Agreement; (ii) that the FM Event can be overcome within a reasonable time after the expiration of the further period:

5.5.1.13

(a)

if the Parties agree to extend the further period then the above provisions apply with regards to the remedy and mitigation of the FM Event.

(b)

if the Parties are unable to agree to extend the further period, then either party may terminate the Agreement by thirty (30) days written notice of termination.

Default and Termination Each of the following events shall constitute an Event of Default by TNB Prai, unless excused under another provision of the PPA: (a)

TNB Prai fails to make a payment of any amount of substantial nature which is due and payable under the PPA within sixty (60) days after receipt of notice of non-payment from TNB;

(b)

TNB Prai fails to comply with or operate in conformity with any obligation of the PPA (other than a payment obligation) and such failure, if capable of remedy, continues uncured for a period of ninety (90) days, after receipt of notice of such failure from TNB;

(c)

TNB Prai is dissolved or liquidated, other than for the purpose of a voluntary dissolution or liquidation as part of a reorganisation or reincorporation;

(d)

TNB Prai applies for or consents to a receiver, manager, custodian, trustee or liquidator being appointed over or taking possession of all or a substantial part of its assets;

(e)

TNB Prai admits in writing its inability to pay its debts as they fall due;

(f)

TNB Prai makes a general assignment or an arrangement or composition with or for the benefit of its creditors;

(g)

TNB Prai commences a voluntary case or files a petition seeking to take advantage of any law relating to bankruptcy, insolvency, reorganisation of its debts, winding-up or composition or readjustment of its debts;

(h)

TNB Prai fails to dispute in a timely manner, or acquiesces in writing to, any petition filed against it in an involuntary case under any bankruptcy or similar law;

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(i)

TNB Prai takes any action for the purpose of effecting any of the events described in paragraphs (c) through (g) above;

(j)

the COD of a Generating Block fails to occur within six (6) months of the Scheduled COD of such Generating Block (unless otherwise excused or extended under the PPA;

(k)

TNB Prai abandons the Project after the Effective Date and fails to resume activities within a period of time agreeable to TNB;

(l)

the Generation Licence is suspended or revoked or terminated or expired due to TNB Prai's default, and TNB Prai has not caused the Generation Licence to be reinstated or renewed either (i) within the shorter of three hundred and sixty-five (365) days and the legally permissible period for such reinstatement or renewal or (ii) after having exhausted all available administrative or legal appeals and applications for such reinstatement or renewal; or

(m)

any of the following events occur prior to the fifth (5th) anniversary of the COD of the First Generating Block, without the prior written approval of the Federal Government of Malaysia: (i)

TNB Prai sells, conveys, transfers or otherwise disposes of the Project or any material part or any interest in it to any other Person or enters into an agreement to do so; or

(ii)

any Shareholder sells, transfers or otherwise disposes of any share in TNB Prai (including for this purpose the assignment of the beneficial interest therein the creation of any charge or other security interest over, such share or the renunciation or assignment of any right to receive or to subscribe for such share) or any interest in such share or enters into an agreement to do so; or

(iii)

there is a change in control of TNB Prai.

If an Event of Default occurs and is continuing, the non-defaulting party may terminate the PPA by giving written notice of such breach and the non-defaulting party’s intention to terminate the PPA to the defaulting party. Subject to the rights of the financing parties under the financing documents, TNB shall have a step-in right by written notice to assume operational responsibility for the Facility in the place of TNB Prai in order to complete construction or continue operation of the Facility or to complete any necessary repairs so as to assure uninterrupted availability of electrical energy from the Facility and TNB Prai shall use its best reasonable efforts to cause the financing parties specifically to acknowledge such right of TNB in the financing documents. TNB’s election to operate the Facility shall in no event be deemed to be a transfer of title or a transfer of TNB Prai’s obligations as owner thereof.

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5.5.1.14

Information Memorandum

Termination Upon Event of Default If an Event of Default occurs (other than an Event of Default falling within subparagraph (b) above that cannot be cured with the exercise of reasonable diligence within the period of ninety (90) days therein), the non-defaulting Party may terminate the PPA by giving fourteen (14) days' written notice to the other Party. If an Event of Default which falls within sub-paragraph (b) above cannot be cured with the exercise of reasonable diligence within the period of ninety (90) days specified therein, then that period shall be extended for a further period of one hundred and eighty (180) days. If the Event of Default continues uncured at the end of such further period, then the non-defaulting Party may terminate the PPA immediately by written notice to the defaulting Party. Option Upon Termination If TNB terminates the PPA as a result of an Event of Default by TNB Prai, TNB shall have the option but not the obligation, exercisable by notice in writing within sixty (60) days of the termination of the PPA, to purchase the Project in the manner and for the purchase price determined in accordance with the provisions of the PPA. If TNB Prai terminates the PPA as a result of an Event of Default by TNB, TNB Prai shall have the option but not the obligation, (exercisable by prior notice writing within sixty (60) days of the termination of the PPA), to sell the Project to TNB, in the manner and for the purchase price determined in accordance with the provisions of the PPA. In the event this option is exercised by TNB Prai, TNB shall be required to purchase the Project from TNB Prai.

5.5.1.15

Step-In Rights TNB TNB shall have the right, but under no circumstances the obligation to assume partial or complete (as TNB may decide) operational responsibility for the Facility (in the capacity of an operator only) in the place and instead of TNB Prai in order to continue operation of the Facility or complete any necessary repairs so as to assure uninterrupted availability of electrical energy from the Facility. Such step-in rights shall arise upon the occurrence and continuance of an Event of Default with respect to the Project which could reasonably be expected to materially adversely affect TNB Prai’s ability to operate and maintain the Facility in accordance with the PPA. TNB shall not exercise such step in rights until any applicable cure period specified has expired, unless at any earlier time the Financing Parties request TNB to step in under any right that has arisen under the Financing Documents. For so long as the Financing Documents remain in effect, TNB shall not exercise step-in rights hereunder if the operation of the Facility has been assumed by any Financing Party or any approved assignee or designee within the applicable cure period.

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TNB shall have the right at any time, but not exceeding six (6) months from the time TNB exercises its step-in rights, to return the operational responsibility for the Facility to TNB Prai, provided that TNB shall return the Facility to TNB Prai in a condition no worse than that immediately prior to the assumption of the operational responsibility for the Facility by TNB, ordinary wear and tear excepted. The Commission So long as consistent with the terms of the financing documents or the rights of the Financing Parties thereunder, if the Commission exercises its statutory right to operate the Facility, TNB shall continue to make Energy Payments for net electrical output despatched by the grid system operator and available capacity payments to TNB Prai in accordance with the PPA to the extent that a Generating Block is Available and to the extent such payments to TNB Prai are permitted by Law. 5.5.1.16

Critical Milestones One of the critical milestones in the PPA is that the Commencement Date is to occur by 4 May 2013. Other critical milestones in the PPA are that: (a)

the Financial Closing Date must occur by 2 May 2013. The “Financial Closing Date” is defined as - the date on which the Financing Documents relating to the financing or refinancing for the total construction costs of the Project have been entered into by the IPP and the Financing Parties, and all of the conditions precedent for the initial drawdown by IPP under such Financing Documents satisfied by IPP or waived by the Financing Parties thereunder.

(b)

the Project Documents must be fully effective and unconditional by 2 May 2013.

(c)

the Initial Operation Date of each Generating Block shall occur on 1 July 2015.

Notwithstanding the above, the failure to meet any of the critical milestones does not in itself amount to an Event of Default by TNB Prai under the PPA. 5.5.1.17

Indemnification and Liability TNB Prai shall defend, indemnify and hold TNB, and its officers, directors, agents, employees. contractors and subcontractors, harmless from and against any and all claims, judgments, liabilities, losses, costs, expenses (including reasonable lawyers' fees) and damages under every applicable environmental law or regulation arising out of the condition of the Site, TNB Prai's construction, ownership or operation of the Facility or TNB Prai’s construction of the Interconnection Facilities, except to the extent such damages are attributable to the negligence or misconduct of, or breach of the PPA by TNB, its officers, directors, agents, employees, contractors or subcontractors.

5.5.1.18

Dispute Resolution and Arbitration In the event of any dispute arising out of or relating to the PPA, either party may deliver to the other party a written notice identifying the dispute. The parties

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agree to attempt to resolve amicably all disputes promptly, equitably and in good faith manner. In the event that such a dispute is not settled amicably, the dispute shall be referred to arbitration. 5.5.1.19

Transfers and Assignment Except as required by the financing parties under the financing documents, TNB Prai shall not sell, convey, transfer or otherwise dispose of the Project or any material part or any interest in it to any other Person without the prior written consent of TNB and the Commission, which consent shall not be unreasonably withheld or delayed.

5.5.1.20

Governing Law The PPA is be governed by, and shall be construed in accordance with the laws of Malaysia. Subject to the arbitration provisions in the PPA, the Parties hereby submit to the exclusive jurisdiction of courts located in Kuala Lumpur, Wilayah Persekutuan.

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5.5.2

Gas Sales Agreement

5.5.2.1

Overview

Information Memorandum

The GSA was executed between Petronas and TNB Prai on 21 December 2012. Under the GSA, Petronas agreed to sell and deliver and TNB Prai agreed to purchase, receive and pay for natural gas for the purpose of electricity generation. 5.5.2.2

Scope and Period of GSA The term of the GSA shall be twenty one (21) calendar years and one (1) day from the First Contractual Delivery Date falling on 31 December 2015 unless the GSA is terminated earlier in accordance with its terms.

5.5.2.3

Delivery and Quantities For each day in each Contract Year, Petronas shall deliver Gas for each Contract Year up to a Daily Quantity (“DQ”) at the first flange located immediately downstream of the metering station of Petronas (the “Delivery Point”). Any amount to be delivered by the Seller over and above the DQ shall be on a reasonable endeavour basis and subject to supply availability.

5.5.2.4

Annual Take-or-Pay During the first ten (10) years of the term of the GSA (“Initial Term”), TNB Prai is bound by the GSA to purchase and take delivery of a minimum quantity of natural gas equivalent to 80% of the net Annual Contract Quantity (“ACQ”). After expiry of the Initial Term, TNB Prai shall be bound thereafter by the GSA to purchase and take delivery of natural gas equivalent to 85% of the net ACQ. In each Contract Year TNB Prai shall be obligated to take and pay for or to pay for if not taken, a quantity of Gas at least equal to the TOP Quantity. For the purpose of calculating the TOP Quantity, the Net ACQ is the ACQ for the Contract Year (i.e. the DQ multiplied by the number of days in the relevant Contract Year ) reduced by the Excused Quantities. The Excused Quantities are as follows: (a)

any quantity of Gas properly nominated on any day which the Seller has for reasons of Force Majeure Event, Emergency Situation, Maintenance Shutdown. Operational Shutdown or an Operational Flow Order not delivered or been prevented from delivering;

(b)

any quantity of Gas properly notified for delivery on any day which TNB Prai has for reasons of a Force Majeure Event, Emergency Situation, Maintenance Shutdown or Operational Shutdown not accepted or been prevented from accepting;

(c)

any quantity of Gas rejected by TNB Prai by reason of it being Off--Spec Gas;

(d)

any quantity of Gas properly nominated on any day which the Seller is unable to deliver for any other reason. except where the inability to deliver was due the fault and/or negligence of TNB Prai, save that where the

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quantity of Gas so nominated or notified for delivery exceeds the DQ in any particular day, the reduction of the ACQ for determining the Net ACQ shall only be limited to the difference between the DQ and the quantity of Gas which has been delivered or accepted, as the case may be. 5.5.2.5

Liability Petronas shall be liable for and indemnify and hold TNB Prai free and harmless from and against all claims, losses, damages, costs (including legal costs on a solicitor-client basis), expenses and liabilities: (a)

in respect of all injuries to, including death of any of the officers, servants agents or contractors of Petronas howsoever or by whomsoever caused and wherever arising whether or not such claims, losses, damages, costs (including legal costs on a solicitor-client basis) expenses and liabilities arose or were incurred as a result of any act, omission, negligence or breach of duty by TNB Prai, its officers, servants, agents or contractors;

(b)

arising out of or in connection with all damage to or destruction or loss of property, whether real or personal or otherwise, beneficially and/or absolutely owned by Petronas arising out of any act or omission of TNB Prai, its officers, servants, agents or contractors without regard to whether any act or omission of Petronas contributed to the damage, destruction or loss.

TNB Prai shall be liable for and indemnify and hold Petronas free and harmless from and against all claims, losses, damages, costs (including legal costs on a solicitor-client basis), expenses and liabilities:

5.5.2.6

(a)

in respect of all injuries to, including death of any of TNB Prai’s officers. servants, agents or contractors howsoever or by whomsoever caused and wherever arising whether or not such claims, losses, damages, costs (including legal costs on a solicitor-client basis), expenses and liabilities arose or were incurred as a result of any act, omission, negligence or breach of duty by Petronas, its officers, servants, agents or contractors;

(b)

arising out of or in connection with all damage to or destruction or loss of property, whether real or personal or otherwise, beneficially and/or absolutely owned by TNB Prai arising out of any act or omission of Petronas, its officers, servants, agents or contractors without regard to whether any act or omission of TNB Prai contributed to the damage, destruction or loss.

Delivery Pressure Petronas shall use its best endeavours to ensure that the Gas is delivered to TNB Prai at the Delivery Point at a delivery pressure of 2,500 kPag to 4,000 kPag.

5.5.2.7

Price The Contract Price of Gas bought by TNB Prai is calculated in accordance with the formula set out below:

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Pn =

Information Memorandum

(1-D)

x

Lx/52 1.05506

S x Ex 1.05506

+

+

R + T

P

= The Contract Price of Gas for Gas delivered in month 'n’ on a Gross Heating Value basis expressed in RM/GJ.

D

= 15% being the discount given to the power sector in Malaysia.

Lx

= the weighted average price of LNG exported from Malaysia on a free on board basis. expressed in RM/MT which will be calculated by dividing the total Exports Value over the Reference Period 'x' by the total Exports Volume over the Reference Period 'x' PROVIDED THAT there shall be at least one publication of the Exports Value and Exports Volume in any one Reference Period. Article 10.7(c) shall apply mutatis mutandis in respect of any adjustments to be made to an invoice. In any given year, Lx for Gas delivered in the following delivery periods shall use the following reference periods:

52

Delivery Period

Reference Period

January, February and March

September to November of the preceding year

April, May and June

December to February of the year

July, August and September

March to May of the year

October, November and December

June to August of the year

=

The Conversion factor from MT to MMBtu for LNG.

1.05506 =

The Conversion rate from MMBtu to GJ.

S

The LNG shipping tariff from Bintulu to Peninsular Malaysia, in USD/MMBtu, and where:

=

(a)

until 31 December 2014, S shall be fixed at USD0.50/MMBtu;

(b)

from 1 January 2015 and for each subsequent two-year periods, S will be reviewed by the Seller, expressed in USD/MMBtu, based on the following formula: S

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=

A

+

B

+

C

(i) A

=

75% x 0.50;

(ii) B

=

10% x 0.50 x 1.024 y and where y equals the year of review minus 2012; and

(iii) C

=

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quoted by the Platt's Asia Pacific/Arab Gulf Market Scan online services of Singapore cargoes at the location of Singapore for HSFO 380 cst over the 24 months immediately preceding the year of review.

5.5.2.8

Ex

=

The value of one (1) USD in RM based on Bank Negara's average TT/OD selling rate from commercial banks published in New Straits Times over the respective Reference Period.

R

=

The LNG regasification tariff at the Melaka LNG receiving terminal as published by the terminal operator from time to time, or as determined by a Regulator, expressed in RM/GJ.

T

=

The transportation tariff of dry gas using the PGU to the Buyer's Delivery Point, as published by the Transporter from time to time or as determined by a Regulator, expressed in RM/GJ.

Invoicing and Payment Petronas will invoice TNB Prai on a weekly basis, for quantities of natural gas delivered. Petronas will also issue quarterly and annual statements to TNB Prai. The weekly invoices are to be settled by TNB Prai within thirty (30) days from the date of receipt by TNB Prai of the said invoices. TNB Prai is required to furnish Petronas with a bank guarantee (valid for an initial term of twelve (12) months and subject to annual review thereafter) to be issued thirty (30) days prior to the First Contractual Delivery Date. The amount to be secured by the Bank Guarantee shall be calculated using the following formula: S =

P₃

x

DQ

x

30

Where: S is the amount to be secured by the Security; and P₃ is the equivalent to the average Contract Price of Gas of the three (3) months preceding the issuance date of the Security. 5.5.2.9

Measurement Petronas shall measure, test and analyse the Gas delivered, at its own cost, and done using its own measuring and testing appliances and equipment (“Metering Equipment”). While TNB Prai may install and operate (at its own cost) its own Metering Equipment, measurements taken by TNB Prai’s Metering Equipment will not be used in any way or prevail over the measurements taken by the Metering Equipment of Petronas. However, TNB Prai has the right from time to time, upon giving reasonable notice to the Seller, to inspect the Seller's Metering Equipment and the charts and other measurements and test data of the Seller.

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5.5.2.10

Information Memorandum

Force Majeure Event The GSA provides that in the event that either party is rendered unable by reason of a force majeure event to perform wholly or in part any of its obligations in the GSA, then such party shall be relieved of such obligations and shall not be deemed to be in breach of such obligations and shall not be liable to the other party in respect of such breach to the extent only that the force majeure event continues and for the period of such force majeure event. Force majeure events mean any event, condition or circumstances which is not reasonably foreseeable or, if reasonably foreseeable is beyond the reasonable control and without the fault or negligence of the party claiming force majeure which, despite all of such party’s reasonable efforts to prevent, avoid or mitigate, causes a delay, interference or disruption in the performance of its obligations under the GSA. Force majeure events include, without limitations, acts of God, acts of war, natural disasters, governmental expropriation or compulsory acquisition of the TNB Prai power station or any part of the facilities of Petronas, explosion or accident to Petronas’ plant or equipment or other facilities which are caused by a force majeure event, and failure of Petronas’ contractors to supply and deliver natural gas where such failure is caused by a force majeure event.

5.5.2.11

Termination Either Party may immediately upon giving written notice to the other Party, terminate the GSA if: (a)

the other Party commits a material breach of the GSA and if capable of remedy, fails to remedy that breach within thirty (30) days from the date of the notice from the non-defaulting Party specifying such a breach had occurred or such longer period as may be reasonable in the circumstance;

(b)

the other Party becomes insolvent or suspends payment of its debts generally or is unable to pay its debts as and when they fall due;

(c)

a receiver, manager, liquidator or similar officer is applied for, by or over the other Party or over all or a substantial part of the assets of such Party or an order is made or a resolution passed for the winding up liquidation and/or dissolution of that Party;

(d)

a Party secures or compounds with or enters into an arrangement with its creditors;

(e)

the Generation License is revoked at any time during the existence of the GSA; or

(f)

the Power Purchase Agreement is terminated at any time at any time during the existence of the GSA.

Petronas may by giving fourteen (14) days written notice to TNB Prai terminate the GSA in the following circumstances: (a)

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(b)

TNB Prai causes damage to the Petronas’ Facilities and such facilities have not been restored to its original condition within thirty (30) days or on such later date as Petronas may specify;

(c)

TNB Prai violates any material laws or Regulation in the performance of its obligations under the GSA;

(d)

TNB Prai fails to take Gas after a lapse of ninety (90) days continuously from the last day of offtake by the Buyer at any time due to any reason other than a Force Majeure Event or any other failure by Petronas to make delivery of the Gas at the Delivery Point;

(e)

TNB Prai unable to take or receive Gas continuously for a period of two (2) months at any time during the Supply Period (after the First Contractual Delivery Date) due to any reason other than a Force Majeure Event. Maintenance Shutdown, Operational Shutdown or any other failure by Petronas to make delivery of the Gas at the Delivery Point; or

(f)

the suspension of supply of Gas due to non-payment by TNB Prai continues for more than thirty (30) days.

Petronas may terminate the GSA forthwith, amongst others, (a) if TNB Prai fails to obtain or renew the bank guarantee for payment of the Gas supply; and (b) if Generation Licence is not issued to TNB Prai by the First Contractual Delivery Date. 5.5.2.12

Assignment TNB Prai shall not assign any of its rights or obligations arising under the GSA without the prior written consent of Petronas, and Petronas shall not be entitled to assign, novate or otherwise transfer any of its obligations under the GSA without the prior written consent of TNB Prai. Petronas shall be entitled to assign the benefits under the GSA provided prior written notice has been given to the Buyer. Notwithstanding the above, nothing shall prevent any Party from entering into any agreement to pledge, mortgage or charge its rights hereunder as security for any indebtedness incurred or to be incurred by such Party. (The rest of this page has been intentionally left blank)

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5.5.3

EPC Contract

5.5.3.1

Salient Terms

5.5.3.1.1

Scope of EPC Works

Information Memorandum

To establish the Facility together with associated facilities for the production of electrical power at Seberang Perai Tengah, in the district of Seberang Perai, Pulau Pinang Malaysia with associated interconnection facilities. TNB NE has entered into the EPC Contract with the EPC Contractor to provide for the complete design, engineering, manufacture, procurement, delivery, installation, construction, testing and commissioning thereof on the Facility a fixed price lump sum turnkey basis. 5.5.3.1.2

Commencement of EPC Works The EPC Contractor shall commence the EPC Works following issuance of the Notice To Proceed (“NTP”) following the satisfaction or waiver of the NTP Conditions. The Employer shall provide the Contractor with no less than fourteen (14) days' prior written notice of the issuance of the NTP Notice. NTP shall occur upon receipt by the Contractor of the NTP Notice, but shall not occur any earlier than 2 May 2013. Upon the occurrence of NTP, the Contractor shall diligently perform EPC Works to completion so that each Generating Block, and the Interconnection Facilities, shall be ready for taking -over on or before its scheduled or planned taking-over date.

5.5.3.1.3

Contract Price The contract price in respect of the EPC Works comprises fixed lump sums denominated in USD and EUR for the foreign/offshore portion of the EPC Works and a fixed lump sum denominated in RM for the local onshore portion of the EPC Works (the “Accepted Contract Amount”). The contract price includes the costs for design, execution and completion of the EPC works and remedying of any defects and any adjustments permitted under the EPC Contract.

5.5.3.1.4

Time for Completion The Contractor shall schedule and perform the Works so as to cause the Generating Blocks, the Interconnection Facilities and the Common Facilities to be ready for taking-over no later than its scheduled or planned Take-Over Date. The Employer shall schedule and perform the Works and each Section within the Time for Completion for the Works or Section including: (a)

achieving the passing of the Tests on Completion;

(b)

completing all work which is stated in the Contract for purposes of taking over;

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(c)

Information Memorandum

issuance of the Defects Notification Period Performance Security (“DNP Performance Security”) with an amount of 5% of the Contract Price in favour of the Employer.

The Contractor guarantees that each of the Sections shall be ready for Taking Over as follows:

5.5.3.1.5

(a)

for the Common Facilities, the date falling nine hundred and seventy four (974) days after the day the NTP Notice is issued (excluding such day);

(b)

for Generating Block 1 and associated parts of the Common Facilities, the date falling nine hundred and seventy four (974) days after the day the NTP Notice is issued (excluding such day);

(c)

for Generating Block 2 and associated parts of the Common Facilities, the date falling nine hundred and seventy four (974) days after the day the NTP Notice is issued (excluding such day); and

(d)

for the Interconnection Facilities and associated parts of the Common Facilities, the date falling no later than twenty (20) days prior to the first day on which electricity is generated from Generating Block 1.

Performance Security The EPC Contractor shall within seven (7) days prior to the NTP, obtain (at his cost) a Performance Security (irrevocable and payable unconditionally immediately upon demand) for proper performance in the amount and currencies stated in the Contract Information. The EPC Contractor shall deliver to TNB NE the Performance Security effective from the NTP and duly executed by a bank reasonably satisfactory to TNB NE and the Lenders with a minimum credit rating of A-, as security for the due performance by the EPC Contractor of its obligations under this Contract. The Performance Security shall be for an amount equivalent to 20% of the Accepted Contract Amount. The Performance Security shall remain valid until the Taking-Over Date of Generating Block 2, and shall be returned to the EPC Contractor, within twenty eight (28) days after the Taking-Over Date of Generating Block 2. TNB NE shall not make a claim under the Performance Security, except for amounts to which TNB NE is entitled under the Contract which shall be limited to the following events: (a)

failure by the EPC Contractor to extend the validity of the Performance Security;

(b)

failure by the EPC Contractor to pay TNB NE an amount due;

(c)

failure by the EPC Contractor to remedy a default within forty two (42) days after receiving TNB NE's notice requiring the default to be remedied;

(d)

circumstances which entitle TNB NE to termination under the EPC Contract, irrespective of whether notice of termination has been given.

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TNB NE shall indemnify and hold the EPC Contractor harmless against and from all damages, losses and expenses (including legal fees and expenses) resulting from a wrongful claim under the Performance Security. 5.5.3.1.6

Defects Notification Period Performance Security Upon the Taking-Over Date of Generating Block 2, the EPC Contractor shall issue a new performance security in favour of TNB NE ("DNP Performance Security") which shall be irrevocable and payable unconditionally immediately upon demand. The DNP Performance Security shall be for an amount equivalent to the total sum of 5% of the Accepted Contract Amount which includes the cost of necessary rectification and/or replacement identified at or during the Tests on Completion. The DNP Performance Security shall take effect from the Taking-Over Date of the Generating Block 2. The DNP Performance Security shall be adjusted on the expiry of the DNP of Generating Block 2, such that the DNP Performance Security represents an amount equivalent to 5% of the value of the interconnection Facilities and shall remain valid until the expiry of the DNP in respect of the Interconnection Facilities. In the event a major component is replaced or repaired during the DNP, TNB NE and EPC Contractor shall discuss the necessity for any extension in the validity of the DNP Performance Security which may be extended accordingly. If the terms of a Performance Security or a DNP Performance Security specify its expiry date, and the EPC Contractor has not become entitled to receive the relevant performance certificate by the date twenty eight (28) days prior to the expiry date, the EPC Contractor shall extend the validity of such security until the Works have been completed and any defects have been remedied.

5.5.3.1.7

Taking-Over The Taking-Over Requirements of a Generating Block shall be met when: (a)

(b)

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such Generating Block has passed: (i)

all of the Tests on Completion set out in the Employer’s Requirements i.e. Pre-Commissioning Tests, Commissioning Tests, Performance Tests and Reliability Run to the satisfaction of TNB NE; or

(ii)

all of the Tests on Completion except for the Performance Tests to demonstrate that such Generating Block meets the Guaranteed Net Power Output or Guaranteed Net Heat Rate but has attained the Minimum Acceptance Criteria and the Contractor has paid Liquidated Damages to TNB NE in respect of its failure to attain the Guaranteed Performance; and

such Generating Block (and its associated Common Facilities) complies with the Contract and applicable laws; and

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(c)

the Contractor has submitted the documents that are necessary to enable the Employer to obtain a commissioning test certificate, or a document to similar effect, to be issued by the Commission in accordance with the requirements of the Generation Licence;

(d)

the Interconnection Facilities have achieved taking-over;

(e)

the EPC Contractor has made training available to the Employer’s Personnel (or other nominees of TNB NE); and

(f)

the EPC Contractor has submitted to TNB NE the as-built drawings and the operation and maintenance manuals and the handbook as reasonably required by TNB NE for the safe and reliable operation of the Generating Block and its associated Common Facilities; and

(g)

the Contractor has submitted to the Employer written confirmation that title to the relevant Generating Block and its associated Common Facilities and all equipment and materials supplied in connection with the relevant Generating Block, whether by the EPC Contractor or any Subcontractor, has invested in TNB NE free from any liens and encumbrances; and

(h)

any other liquidated damages payable by the EPC Contractor to TNB NE have been paid and/or satisfied; and

(i)

the EPC Contractor has obtained all applicable permits and approvals required to be obtained in its name in accordance with the EPC Contract; and

(j)

the Contractor has issued all Contractor’s Documents including certified test results required to be issued to attain taking-over for the relevant Generating Block (and its associated Common Facilities) pursuant to the EPC Contract, and

(k)

all Works, Special Tools, Components or equipment required to be operational to attain taking-over of the relevant Generating Block (and its associated Common Facilities) are ready for safe operation or use by TNB NE in the manner for which they are intended; and

(l)

the EPC Contractor has returned all the equipment and materials belonging to TNB NE and removed all of its equipment, construction materials, temporary facilities, wreckage waste material and rubbish from such part of the Site and IF Site relevant to such Generating Block (and its associated Common Facilities), except for such equipment, construction materials and facilities required for the Works, if any, to be performed by the EPC Contractor following taking-over of the relevant Generating Block;

(m)

the EPC Contractor has left such part of the Site and IF Site relevant to such Generating Block free and clear from obstructions and impediments placed and Hazardous Substances introduced thereon by the EPC Contractor and is otherwise in the same condition (disrepair by reasonable ordinary wear and tear excepted) as on the NTP; and

(n)

the Contractor and the Employer have agreed the punch list items and except for such punch list items, all Works required pursuant to the EPC

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Contract to be completed on or prior to the taking-over of such Generating Block have been completed in accordance with the Contract. "Site" means the place where the Facility is to be constructed, and any other places as may be specified in the Contract as forming part of the Site. "Interconnection Facilities Site" or "IF Site" means all those parcels of land owned or leased, or to be owned or leased by the Employer, or over which the Employer has easement rights, and at, on, under, over, in or through which the Interconnection Facilities will be constructed or located and/or the Works in relation to the Interconnection Facilities is to be performed, carried out or conducted, all as shown in the Employer's Requirements. The Taking-Over Requirements of the Facility shall be met when the Generating Block 2 (and the balance of the Common Facilities) have satisfied the Taking Over Requirements above. The Taking-Over Requirements of the Interconnection Facilities shall be met when: (a)

the Interconnection Facilities have passed all of the Tests on Completion to the satisfaction of the Employer and in accordance with the EPC Contract ; and

(b)

the Interconnection Facilities have been constructed to the reasonable satisfaction of TNB NE and comply with the provisions of EPC Contract and applicable laws; and

(c)

the EPC Contractor has submitted to TNB NE the as-built drawings and the operation and maintenance manuals as required under the EPC Contract and as reasonably required by the TNB NE for the safe and reliable operation of the Interconnection Facilities and the Facility;

(d)

the EPC Contractor has submitted to TNB NE written confirmation that title to the Interconnection Facilities and all equipment and materials supplied in connection with the Interconnection Facilities, whether by the EPC Contractor or any Subcontractor, has vested in TNB NE free from any liens or encumbrances; and

(e)

all Works, Special Tools, components or equipment required to be operational to attain taking-over for the Interconnection Facilities are ready for safe operation or use by TNB NE in the manner for which they are intended.

Without prejudice to the above, the EPC Contractor shall have the right to make a request to the Engineer appointed under the EPC Contract or TNB NE for a waiver of the timely fulfilment of any of the Taking-Over Requirements provided always that the Facility can be operated safely and reliably.

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5.5.3.1.8

Information Memorandum

Insurance The EPC Contract requires for the maintenance of the following Insurances: EPC Contractor’s Insurance for EPC Contractor’s Equipment The EPC Contractor shall insure the Plant, Materials and EPC Contractor’s Documents for not less than the full reinstatement cost including the costs of demolition, removal of debris and professional fees and profit. This insurance shall be effective until the date of issue of the Taking-Over Certificate for the Works. Insurance for EPC Contractor’s Foreign Personnel Without limiting or reducing the EPC Contractor’s liability and responsibility as contained elsewhere in this Contract, the EPC Contractor shall immediately in relation to the Works once access to the Site or IF Site has been granted, procure from insurers licensed to underwrite such risks in the Country, according to international standards and on terms and conditions acceptable to TNB NE and maintain at its own cost and expense during the performance of the Works, all insurances prescribed by law, including but not limited to Contract Foreign Workmen's Compensation/Employer's Liability insurance applicable to its operations with respect to and for the duration of this Contract. Contractors Insurance for Motor Vehicle Liability Insurance Motor Vehicle Liability insurance with combined single limit for third party property damage of at least RM3,000,000.00 per occurrence and in aggregate, where applicable, covering vehicles owned, hired and non-owned and unlimited liability for bodily injury. Contractors Insurance required by Law The EPC Contractor shall maintain at its own cost and expense during the performance of the Works, all insurances prescribed by law Insurance for EPC Contractor’s local Personnel The EPC Contractor shall effect and maintain insurance against liability for claims, damages, losses and expenses (including legal fees and expenses) arising from injury, sickness, disease or death of any person employed by the EPC Contractor or any other of the EPC Contractor’s Personnel. TNB NE and the Engineer appointed under the EPC Contract shall also be indemnified under the policy of insurance, except that this insurance may exclude losses and claims to the extent that they arise from any act or neglect of TNB NE or of TNB NE's Personnel. The insurance shall be maintained in full force and effect during the whole time that these personnel are assisting in the execution of the Works. Employer's Insurance for Works and Plant TNB NE will, subscribe and maintain in full force and effect from the date of issue of the Notice to Proceed up to the Taking-Over Certificate, the insurance cover set out below:

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5.5.3.1.9

Information Memorandum

(a)

Workmen's Compensation/Contingent Employer's Liability for any person employed by Employer.

(b)

Construction/Erection All Risk insurance including liability to third parties for bodily injury and death or material damage arising out of, resulting or occurring from the engineering, construction, erection and Ownership of the Plant.

(c)

Employer's Motor Vehicle Insurance for liabilities resulting from the use and possession of motor vehicles, whether owned, hired, leased or otherwise used by Employer or its employees.

(d)

Marine Cargo subscribed and maintained before the first shipment, which shall be primary to any other insurance cover taken out, underwritten or maintained by or on behalf of the EPC Contractor.

Force Majeure In the EPC Contract, "Force Majeure" means an exceptional event or circumstance: (a)

which is beyond the reasonable control and occurs without fault or negligence on the part of the Party claiming it as a Force Majeure;

(b)

which such Party could not reasonably have provided against before entering into the Contract;

(c)

which, having arisen, such Party could not reasonably have avoided or overcome; and

(d)

which is not substantially attributable to the other Party.

Force Majeure may include, but is not limited to, exceptional events or circumstances of the kind including war, hostilities, rebellion, terrorism, riot, commotion, disorder, war, natural catastrophes, so long as conditions (a) to (d) above are satisfied. Any delay in, or total or partial failure of, performance of a Party caused by Force Majeure shall not constitute a default under the EPC Contract provided, however, that: (a)

the affected Party shall use all reasonable commercial efforts to eliminate any Force Majeure and mitigate or limit the effect of any such delay or inability to perform and damages to the other Party;

(b)

the affected Party gives the other Party notice of such Force Majeure;

(c)

the suspension of performance is of no greater scope and of no longer duration than is reasonably required by the Force Majeure;

(d)

no liability of either Party which arose before the occurrence of the Force Majeure causing the suspension of performance shall be excused as a result of such occurrence

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(e)

obligations of the Parries that are required to be completely performed before the occurrence of a Force Majeure event shall not be excused to the extent of the existing delay or default existing prior to such Force Majeure event;

(f)

when the affected Party is able to resume performance of its obligations under the EPC Contract, that Party shall give the other party written notice to that effect and shall promptly resume performance hereunder.

Consequences of Force Majeure In the event and to the extent that any event of Force Majeure that the EPC Contractor can demonstrate will or could affect the EPC Contractor's ability to meet any of its obligations under the EPC Contract including the Taking-Over Date or the Milestones under the EPC Contract, then the EPC Contractor shall, subject to sub-paragraph (a) below, be entitled to an adjustment under the provisions for variation and adjustment in one or more of such dates and in the Milestone Payment Schedule and the Project Schedule. Except as otherwise expressly set forth in the Force Majeure provisions, there shall be no adjustment to either the Performance Guarantees, and/ or the EPC Contract Price as a result of a Force Majeure event. If the EPC Contractor is delayed in the performance of the Works by a Force Majeure, then: (a)

to the extent that the delay (s) are, in the aggregate, one hundred and forty (140) days or less, the EPC Contractor shall absorb all of its costs and expenses resulting from said delay(s); and

(b)

to the extent that the delay(s) are, in the aggregate, more than one hundred and forty (140) days, the EPC Contractor shall be reimbursed by TNB NE for those incremental costs and expenses directly resulting from the said delay(s) which are reasonably incurred by the EPC Contractor after the said one hundred and forty (140)-day period.

In the event that the Works or any part of the Works is damaged or destroyed due to Force Majeure, then the EPC Contractor shall only be obliged to reinstate or replace the Works or part thereof which has been damaged or destroyed if requested by TNB NE, in which case it shall be entitled to an adjustment. Optional Termination, Payment and Release If the execution of substantially all the Works in progress is prevented for a continuous period of eighty four (84) days by reason of Force Majeure of which notice has been given, or for multiple periods which total more than one hundred and forty (140) days due to the same notified Force Majeure, then either Party may give to the other Party a notice of termination of the EPC Contract. In this event, the termination shall take effect seven (7) days after such notice is given. 5.5.3.1.10 Termination Termination by TNB NE The occurrence of any of the following events, unless excused by Force Majeure or TNB NE’s failure to fulfil its obligations under the EPC Contract, shall Private & Confidential

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constitute an Event of Default by the EPC Contractor, and TNB NE shall be entitled to terminate the Contract if: (a)

the EPC Contractor fails to comply with provisions with regards to the Performance Security or with a notice to correct;

(b)

the EPC Contractor fails substantially to perform any of its material obligations under the EPC Contract in any material respect, abandons the Works or otherwise plainly demonstrates the intention not to continue performance of his material obligations under the Contract;

(c)

the EPC Contractor without reasonable excuse fails: (i)

to proceed with the Works in accordance with the provisions of the EPC Contract; or

(ii)

the Engineer appointed under the EPC Contract reasonably determines that the EPC Contractor has failed to commence and continue to use reasonable efforts to carry out the Corrective Action thereunder within a specified reasonable time;

(d)

the EPC Contractor sub-contracts the whole of the Works or assigns or transfers the Contract without the express written consent of TNB NE;

(e)

the EPC Contractor is dissolved or adjudicated a bankrupt or insolvent, goes into liquidation, has a receiving or administration order made against him, compounds with his creditors, or carries on business under a receiver, trustee or manager for the benefit of his creditors, or if any act is done or event occurs which (under Applicable Laws) has a similar effect to any of these acts or events, which results in the EPC Contractor being unable to materially fulfil its obligations;

(f)

the EPC Contractor gives or offers to give (directly or indirectly) to any person any bribe, gift, gratuity, commission or other thing of value, as an inducement or reward for showing or forbearing to show favour or disfavour to any person in relation to the EPC Contract.

(g)

the EPC Contractor repudiates the EPC Contract, or provides a written notice to that effect to TNB NE, Engineer or other third party, or abandons the construction of any Generating Block for more than twenty eight (28) consecutive days without the written consent of TNB NE or reasonable excuse as determined by the Engineer appointed under the EPC Contract;

(h)

any material representation made by the EPC Contractor in the EPC Contract shall be proved to have been false or misleading in any material respect when made unless a remedy is provided for in the EPC Contract;

(i)

failure to achieve the Taking Over of any Generating Block within one hundred and eighty (180) days after the Taking-Over Date for the relevant Generating Block;

(j)

the Net Power Output of a Generating Block fails to meet the Minimum Acceptance Criteria set out in the Contract Information within one hundred

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and eighty (180) days after the Taking-Over Date for the relevant Generating Block; (k)

the measured heat rate of a Generating Block fails to meet the Minimum Acceptance Criteria set out in the Contract Information within one hundred and eighty (180) days after the Taking-Over Date for the relevant Generating Block;

(l)

Subject to (i) above, the liquidated damages payable under the EPC Contract has reached the maximum liquidated damages allowable;

(m)

the EPC Contractor or any of its Sub-Contractors fails to comply with any provision of any applicable Law or applicable Permit, and such failure is not remedied within

(n)

(i)

fourteen (14) days after the EPC Contractor receives actual knowledge thereof, or

(ii)

such longer period as may be necessary for the EPC Contractor to cure such failure, not to exceed eighty four (84) days, provided that the EPC Contractor diligently pursues the cure of such failure and such cure is effected in such a manner and within such time that such failure to comply could not reasonably be expected to have a material adverse effect on TNB NE, the Works or the EPC Contractor's ability to perform its obligations under the EPC Contract in accordance with the terms hereof; or

the EPC Contractor: (i)

knowingly fails to maintain any insurance policy required of it, or

(ii)

otherwise fails to maintain and, within two (2) business days of receiving actual knowledge of such failure, fails to correct its failure to maintain any such required insurance policy;

In any of these events or circumstances, TNB NE may, upon giving fourteen (14) days' notice to the EPC Contractor, terminate the Contract and expel the EPC Contractor from the Site and/or IF Site. However, in the case of sub-paragraph (e) or (f), TNB NE may by notice terminate the Contract immediately. Termination by EPC Contractor The occurrence of any of the following events, unless excused by Force Majeure, or the EPC Contractor's failure to fulfil its obligations, shall constitute an Event of Default by TNB NE, and the EPC Contractor shall be entitled to terminate the Contract if: (a)

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TNB NE defaults in payment as and when due of any moneys payable (but unpaid) under the EPC Contract and such default shall continue for a period of fifty six (56) days except for progress payment applications disputed in good faith by TNB NE; or

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(b)

TNB NE substantially fails to perform his material obligations under the Contract or a material aspect of its obligations which renders the EPC Contractor unable to achieve the Taking-Over of Generating Block,

(c)

a prolonged suspension affects the whole of the Works, or

(d)

TNB NE is dissolved or becomes bankrupt or insolvent, goes into liquidation, has a receiving or administration order made against him, compounds with his creditors, or carries on business under a receiver, trustee or manager for the benefit of his creditors, or if any act is done or event occurs which (under Applicable Laws) has a similar effect to any of these acts or events.

In any of these events or circumstances, the EPC Contractor may, upon giving fourteen (14) days’ notice to TNB NE, terminate the Contract. However, in the case of sub-paragraph (d), the EPC Contractor may by notice terminate the Contract immediately. 5.5.3.1.11 Liquidated Damages The EPC Contractor shall pay Liquidated Damages properly due to TNB NE in accordance with the provisions herein. Parties agree that these damages shall not relieve the EPC Contractor from his obligation to complete the Works, or from any other duties, obligations or responsibilities which he may have under the EPC Contract. (a)

Liquidated Damages for delay in Taking Over

The EPC Contractor shall pay to TNB NE by way of liquidated damages the amount stated in the EPC Contract Information, for each day of delay in achieving the Taking Over of Generating Block 1 and Generating Block 2 beyond the respective Taking-Over Date that is not the result of Force Majeure or TNB NE's failure to materially fulfil its obligations under this EPC Contract. For the avoidance of doubt, Liquidated Damages for delay in relation to Generating Block 1 and/or Generating Block 2 shall be payable in the event of any defect, damage or impairment which causes delay to the Interconnection Facilities which is required for commercial operation of Generating Block 1 or Generating Block 2 (as the case may be), notwithstanding that such defect, damage or impairment occurs after the Taking Over of the Interconnection Facilities. (b)

Liquidated Damages for Performance

(i)

Liquidated Damages - Output

In the event that Generating Block 1 or Generating Block 2 is ready for takingover but the relevant Generating Block's Net Power Output established in the Performance Test is less than the Guaranteed Net Power Output, (A)

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tolerance for instrument error, in accordance with codes and standards, all as identified in TNB NE’s Requirements; or (B)

If the EPC Contractor exercises the option to cure any deficiency in the Guarantee Net Power Output or Guaranteed Net Heat, the EPC Contractor shall pay to TNB NE as Liquidated Damages the amount to be calculated in accordance with the provisions of the EPC Contract and provide TNB NE with Curing Period Performance Security.

(ii)

Liquidated Damages – Heat Rate In the event that Generating Block 1 or 2 is ready for taking-over but the heat rate established for such Generating Block in the Performance Test exceeds the Guaranteed Net Heat Rate for the relevant Generating Block:

(A)

the EPC Contractor will pay to TNB NE as liquidated damage the amount stated in the EPC Contract Information for each kJ/kWh (or pro-rata) in excess of the Guaranteed Net Heat Rate for each Generating Block so affected after adjusting to the guaranteed conditions and allowing a tolerance for instrument error in accordance with codes and standards, all as identified in TNB NE's Requirements; or

(B)

If the EPC Contractor exercises the option to cure any deficiency in the Guarantee Net Power Output or Guaranteed Net Heat, the EPC Contractor shall pay to TNB NE as Liquidated Damages, the amount to be calculated in accordance with the provisions of the EPC Contract and provide TNB NE with the Curing Period Performance Security.

(C)

Payment of Liquidated Damages

TNB NE shall have the right to set off the liquidated damages, if any, against remaining payments of the EPC Contract Price due to the EPC Contractor hereunder. In the event that the remaining payments are insufficient, the EPC Contractor shall pay such liquidated damages within twenty eight (28) days upon demand in writing by TNB NE and if after such twenty eight (28) days the liquidated damages are still unpaid, TNB NE shall be entitled to commence recovery proceedings and charge interest on such unpaid amounts. 5.5.3.1.12 Limitation of Liability The total liability of the EPC Contractor to TNB NE, under or in connection with the EPC Contract other than under sub-clauses for Electricity, Water, Gas and Distillate Fuel Oil, Employer’s Equipment and Free-Issue Material, Indemnities and Intellectual and Industrial Property Rights, shall not exceed the Accepted EPC Contract Amount and shall exclude insurance proceeds. The total liability of the EPC Contractor to TNB NE for: (a)

Liquidated Damages for delay in Taking Over shall not exceed 15% of the Accepted EPC Contract Amount; and

(b)

Liquidated Damages for performance shall not exceed in aggregate a Ringgit Malaysia amount equal to the value of 20% of the Accepted EPC Contract Amount.

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The total liability of the EPC Contractor to TNB NE shall not exceed in aggregate a Ringgit Malaysia amount equal to the value of 20% of the Accepted EPC Contract Amount. No limitation of liability shall apply in any case of fraud, deliberate default or reckless misconduct by the defaulting Party. 5.5.4

Land Lease Agreement

5.5.4.1

Grant of Lease TNB Prai Sdn Bhd (Company No. 500784-D) (the “Lessee”) has been awarded the Project to build, own and operate a combined cycle power station to be located on the Plant Land (as hereinafter defined) and the Lessee is also desirous of utilizing a portion of the Jetty as a pumphouse (hereinafter referred to as the "IPP Pumphouse"). In pursuance thereof, Tenaga Nasional Berhad (Company No. 200866-W) (the “Lessor”) has agreed to grant a lease over the Plant Land and the IPP Pumphouse on an "as is where is" basis in accordance with the National Land Code 1965 and the Lessee has agreed to accept the lease of the Plant Land and the IPP Pumphouse for the Lease Term (as hereinafter defined) subject to the terms and upon the conditions set forth in the Lease Agreement (“LA”) dated 30 November 2012 to enable the Lessee to carry out its business of generation, supply and sale of electrical energy and generating capacity exclusively to the Lessor. For the purposes of this particular section, “Lease” means the valid and registrable lease for the Plant Land and the IPP Pumphouse for the Lease Term to be granted by the Lessor to the Lessee in respect of the Plant Land and the IPP Pumphouse in accordance with the provisions of the National Land Code 1965 (Form 15A).

5.5.4.2

Plant Land The Plant Land comprises of a portion of the land held under H.S.(D) 50349, PT 10, in Mukim Bandar Prai, District of Seberang Perai Tengah, Pulau Pinang measuring approximately 77,610 square meters (“Plant Land”). The jetty is held under H.S.(D) 55959, PT 13, Mukim Bandar Prai, District of Seberang Perai Tengah, Pulau Pinang measuring approximately 12,360 square meters (“Jetty”).

5.5.4.3

Lease Term The Lease Term commences from the Effective Date and ends on the day before the 21st anniversary of the COD (the COD is ascribed in the Power Purchase Agreement) of the First Generating Block and can be extended or earlier terminated. “Effective Date” means the date on which all conditions precedent listed in the clause below have been satisfied or waived.

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Extension of Lease Term Where the term of the Power Purchase Agreement is extended, the Lessee may extend the Lease Tenure by notifying the Lessor (“New Lease”). The tenure of the New Lease shall correspond with the extension of the Power Purchase Agreement and be based on the prevailing market condition. 5.5.4.4

Conditions Precedent The LA shall be conditional upon (a)

the Lessor obtaining the state consent for the grant of the Lease (“Letter of Consent”); and

(b)

for the Power Purchase Agreement is in full force and effect and all conditions precedent to its effectiveness are satisfied or waived.

If any of the above conditions are not satisfied on or before six (6) months from the Execution Date (“Stop Date”), the Lessor and Lessee shall extend the Stop Date to such date as may be mutually agreed in writing. 5.5.4.5

Lease Rental and Terms of Payment The annual rental in respect of the Lease for the Plant Land and the IPP Pumphouse to be paid by the Lessee to the Lessor, shall amount to RM970,000.00 only per annum and the first annual rental payment shall fall ten (10) Business Days after the Effective Date of the LA and thereafter the Rental for each subsequent year, for the duration of the Lease Term, shall be due to be paid on the anniversary of the first Due Date;

5.5.4.6

Delivery of Possession Possession of the Plant Land and IPP Pumphouse to the Lessee shall be delivered on the Effective Date. However, the Lessee may request for early delivery of possession of the Plant Land and IPP Pumphouse to commence site preparation work or preliminary construction works by way of a written request to the Lessor and the Lessor shall deliver the same within thirty (30) days of the Lessee’s written request.

5.5.4.7

Maintenance Costs The Lessee shall pay the Lessor the maintenance costs reasonably incurred by the Lessor (to a maximum of RM250,000.00 per annum). If the maintenance cost for a year is below the maximum RM250,000.00 limit, such difference shall be carried forward to the next year to increase that year’s annual maintenance limit would be increased.

5.5.4.8

Termination The Lessor is entitled to terminate the LA if the project is aborted prior to the Financial Closing Date or if the Lessee fails to satisfy a Walk Away Event by the relevant Walk Away Date In the event of such a termination, the Lessor shall return to the Lessee the portion of the Rental after deducting amounts for the proportion of Rental incurred and the cost of removal of the Lessee’s Facilities and cost of clearing up the Plant Land.

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In the event the LA is terminated by virtue of termination of the PPA and (as a consequence thereof) the Lessor purchases the Project, the LA shall terminate upon completion of the Lessor’s purchase of the Project and the Lessee shall deliver possession of the lands to the Lessor on that same date. In the event the LA is terminated by termination of the PPA and the Lessor does not purchase the Project, the Lessee shall (within three hundred and sixty five (365) days from date of PPA’s termination) remove all its facilities and clear up the lands for delivery of possession to the Lessor. The Lessor is not entitled to terminate or forfeit this LA so long as the PPA remains in force. For the purposes of this section, the following definitions would apply: “Walk Away Date” means the date listed against each Walk Away Event in the table below as the date by which the Walk Away Event must be achieved. “Walk Away Events” means those events marking the completion of certain critical steps in achieving the COD of a Generation Block on or before the Scheduled COD of such Generating Block, in accordance with the terms of the LLA, as identified in the table below. Walk Away Event

5.5.4.9

Walk Away Date

Occurrence of Financial Closing Date

2 July 2013

Issuance of NTP under the EPC

4 July 2013

Ownership During the Lease Term, the Lessee shall be deemed the legal and beneficial owner of the Lessee’s Facilities and the Lessor shall be deemed the legal and beneficial owner of the Lessor’s Facilities.

5.5.4.10

Covenants of the Lessee The Lessee shall bear all costs and expenses in obtaining the Letter of Consent and the registration of the Lease (Form 15A). Each party shall bear its own solicitors’ fees and costs in connection with the obtaining the Letter of Consent and the registration of the Lease (Form 15A).

5.5.4.11

Covenants of the Lessor Subject to the Lessee punctually paying the Rental and observing and performing all its covenants stipulated in this LA, the Lessor covenants that the Lessee shall peaceably and quietly hold and enjoy the Plant Land and the IPP Pumphouse.

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Assignment The Lessee shall not assign, transfer, sub-lease or grant any tenancy in respect of the Plant Land and the IPP Pumphouse, nor create any charge, lien, pledge or trust in respect of, or in any other manner or from whatsoever dispose of, the whole and/or any part of the Plant Land and the IPP Pumphouse or any part of any right or interest of the Lessee in the Plant Land and the IPP Pumphouse without the consent in writing of the Lessor. Notwithstanding the above, in the event that the Financing Documents (as defined in the PPA) require the Lessee to create an-assignment of the rights, benefits and obligations of the Lessee under the LLA in favour of the Lenders (as defined in the PPA) the Lessor shall provide its consent to the Lessee for the sole purpose of the same. In the event that the LLA or the PP A is terminated, the Lessee shall discharge the assignment, charge, lien or pledge (if any) created over the registered lease.

5.5.5

Operations And Maintenance Agreement TNB Northern Energy entered into the EPC Contract on 21 January 2013 for the design, engineering, procurement, and installation of the Facility. Consequently, TNB Prai entered into the the following agreements: (i) the LTMP Contract for the maintenance of 2 gas turbines that are to be installed in the Facility; (ii) the Turnkey Contract on 21 January 2013 for the procurement and sourcing of the skill, expertise and resources required to design, engineer, procure and install the Facility; and (iii) the OMA with TNB Remaco (the “Operator”) on 21 January 2013 for the operation and maintenance of the Facility.

5.5.5.1

Scope of Services The Operator is to operate the Facility as required to produce electrical energy from the Facility in accordance with the operation and maintenance manuals, prudent utility practice, the PPA, all applicable laws and the Grid Code. The Operator is to maintain the Facility including inspecting, monitoring, cleaning and taking of protective measures including testing as necessary with a view to keeping the Facility in good working order, repair, replacing parts and preventing it from prematurely deteriorating or wearing out in accordance with Prudent Utility Practices; and the Operator is to carry out other repairs to restore the subject equipment to a condition in which it can provide a substantially similar service as can be expected from equipment of equivalent age. The Operator has the obligation to meet the performance guarantees in respect of the tested annual availability capacity, contracted average availability target, heat rates and unscheduled outage limits as set out in the OMA.

5.5.5.2

Contract Price TNB Prai shall pay the Operator operation and maintenance costs, comprising: (a)

Mobilisation Cost The Mobilisation Cost is paid by TNB Prai to the Operator in consideration of the Works carried out during the Mobilisation Period.

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Fixed Operating Cost (FOC) The Fixed Operating Cost is paid by TNB Prai to the Operator, in consideration of the Works carried out during the Operating Period and comprises: (a)

Fee for the operation and maintenance

(b)

Reimbursements: (i)

O&M Staff Salary

(ii)

Insurance for O&M works (Workman Compensation and Vehicles only)

(iii)

General and Administrative (Staff, Travelling, Office Expenses and Maintenance)

(c)

Supply of Office, Safety, Lab Equipment, Tools and Vehicles

(d)

Supply of Consumables / Supplies / Expendables

The Fixed Operating Cost shall be invoiced and paid by TNB Prai in 12 equal monthly instalments at the end of each month of each year during the Term. For the avoidance of doubt, the first invoice for the Fixed Operating Cost shall be issued after the expiry of thirty (30) days from the Commercial Operations Date. Variable Operating Cost (VOC) The Variable Operating Cost is paid by TNB Prai to the Operator, in consideration of the variable component of the Works carried out during the Operating Period. The Variable Operating Cost shall be invoiced monthly at the end of each month during the Operating Period. 5.5.5.3

Term of Agreement The Term shall commence on the date of the OMA and shall continue for a period being the later of: (a)

21 years from the COD of the First Generating Block; and

(b)

the expiry of the PPA;

unless otherwise extended or terminated in accordance with the terms of the OMA. The Term may be extended on a yearly basis upon mutual agreement between the Parties. At least 1 year before the expiry of the Term, TNB Prai may notify the Operator of its desire to extend the Term, whereupon the Parties shall commence negotiations in good faith to reach to an agreement on the terms and conditions of any extension.

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5.5.5.4

Information Memorandum

Limitation of Liability Limit of Liability for Claims Relating To The OMA The Operator's liability with respect to a claim or claims of any kind relating to the OMA or the subject matter hereof, whether as a result of breach of contract, warranty, indemnity, tort, strict liability or otherwise, shall be limited as follows: (a)

during the Mobilisation Period, an aggregate cap of 30% of the Mobilisation Cost;

(b)

during the Operating Period, a cap of 30% of the Procurement, Operation and Maintenance Cost due in the relevant year in each case for the relevant year;

(c)

an overall aggregate cap for the Term of 50% of the Operation and Maintenance due in the base year during the Operating Period; and

(d)

The Contractor's gross negligence or wilful default, the Contractor's liability under its indemnification obligations and any liability satisfied by the proceeds of Contractor's insurance are all excluded from the caps listed above.

Limit of Liability for Each Performance Guarantee For each year during the Term, the maximum amount of liquidated damages that the Operator is liable shall be limited to 30% of the Fixed Operating Cost for the respective year. Limit of Liability for Total of All Performance Guarantees For each year during the Term, the maximum combined total amount of liquidated damages that the Operator is liable be limited to 50% of the Fixed Operating Cost for the respective year. 5.5.5.5

Performance Guarantees Guaranteed Net Heat Rate The heat rate (at the higher heating value) for each Generating Block throughout the Term shall be no more than the applicable heat rates set out in the Schedule of Heat Rates (at the Higher Heating Value) for each Generating Block in the PPA. Unplanned Outage Limit (UOL) The aggregate unplanned outage (measured in kWh) of each Generating Block throughout out the Term as calculated in accordance with the formula below shall not exceed UOL₁: ∑k(DACPWK-DACAWK) x 1000 x 24

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Tested Annual Available Capacity (TAAC) (a)

The TAAC of each Generating Block throughout the Term as establishedand determined in accordance with the PPA and Appendix C of the PPA shall not be less than 535.715 MW.

(b)

In the event the contractual available capacity established prior to the COD of each Generating Block is lower than the 535.715 MW, such lower figure shall be considered the TAAC which the Operator is required to maintain.

Contracted Average Availability Target (CAAT) The average availability target for a contract year block shall not be less than the CAAT of 94.0% as out in the PPA. Compliance with Despatch Instructions The Operator shall cause the Facility to comply with all Despatch Instructions as set out in OMA. Satisfaction of Monitoring Tests The Operator shall cause the Facility to satisfy tests conducted by the GSO upon issuance of a notice by TNB to TNB Prai to determine the capability of a Generating Block to meet the specified MW level up to the Declared Daily Available Capacity within the time specified in the notice. Compliance with Operating Standards or Characteristics The Operator shall cause the Facility to comply with or operate in conformity with any of the operating standards or characteristics as set out and further described in the PPA. 5.5.5.6

Liquidated Damages and Bonuses Failure to Maintain Guaranteed Net Heat Rate In the event the heat rate of a Generating Block exceeds the Guaranteed Net Heat Rate and ACC ≥ ADFP, the Operator shall pay TNB Prai as liquidated damages: Where: LDHR (in RM) = (ACC - ADFP) x 30% LDHR = Liquidated damages payable in the event the Guaranteed Net Heat Rate is exceeded. ACC = The aggregate audited fuel consumption (in Ringgit Malaysia) of the relevant Generating Block based on net electrical output in the same financial year of TNB Prai.

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ADFP = Total fuel payment received by the Owner from TNB over a financial year of TNB Prai in connection with the relevant Generating Block calculated in accordance with the PPA. Failure to Maintain Unplanned Outage Limit In the event the aggregate unplanned outage (measured in kWh) calculated in accordance with the calculation as per the UOL above exceeds UOL the Operator shall pay TNB Prai, as liquidated damages, 30% of the reduction in Available Capacity Payments. Failure to Achieve Tested Annual Available Capacity (TAAC) In the event the Tested Annual Available Capacity is established or determined at less than 535.715 MW the Operator shall pay TNB Prai as liquidated damages, 30% of the reduction in Available Capacity Payments for each day in accordance with the PPA. Contracted Average Availability Target (CAAT) In the event the Facility fails to achieve the Contracted Average Availability Target, the Operator shall pay TNB Prai as liquidated damages 30% of the Availability Target Payment. Failure to Comply with Despatch Instructions In the event the Facility fails to comply with a despatch instruction, the Operator shall pay to TNB Prai for each such failure and as liquidated damages an amount equal to RM250,000 and the Energy Payment for any excess net electrical output, save and except where the failure to comply with a Despatch Instruction constitutes the third such failure to comply with a Despatch Instruction, within a period of fourteen (14) days, whereby the Operator shall forthwith pay Liquidated Damages in accordance with the following formula:(Reference Despatch Level - Deemed Declared Available Capacity) x CCR x Reference Period Failure to Satisfy Monitoring Tests In the event the Facility fails to comply with a Monitoring Test, the Operator shall pay to TNB Prai for each such failure and as liquidated damages an amount equal to RM250,000 and the Energy Payment for any excess net electrical output, save and except where the failure to comply with a Monitoring Test constitutes the third such failure to comply with a Monitoring Test, within a period of fourteen (14) days, whereby the Operator shall forthwith pay Liquidated Damages in accordance with the following formula:(Reference Despatch Level - Deemed Declared Available Capacity) x CCR x Reference Period Failure to Comply with Operating Standards or Characteristics In the event the Facility fails to comply with or operate in conformity with any of the operating standards or characteristics set out in the PPA, the Operator shall Private & Confidential

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pay to TNB Prai, for each such failure and as liquidated damages RM 100,000.00. Bonus In the event the heat rate of a Generating Block does not exceed the Guaranteed Net Heat Rate and ACC < ADFP, TNP Prai shall pay to the Operator as a heat rate bonus calculated as follows: 30% x (ADFP – ACC) Whereby: ACC = The aggregate audited fuel consumption (in Ringgit Malaysia) of the relevant Generating Block based on net electrical output in the same financial year of the Owner. ADFP = Total fuel payment received by TNB Prai from TNB over a financial year of TNB Prai in connection with the relevant Generating Block calculated in accordance with the PPA. 5.5.5.7

Curtailment of Operations If the Operator curtails output of electricity or shuts down the Facility, as a result of TNB or GSO's refusal to accept net electrical output from the Facility:

5.5.5.8

(a)

the Operator shall inform TNB Prai of the additional cost that Owner and Operator may incur as a result of a rapid shutdown of the Facility (if applicable); and

(b)

TNB Prai must continue to pay the Operator the Procurement, Operation and Maintenance Cost and, unless it is due to the Facility delivering net electrical output which does not conform to the electrical characteristics described in the PPA or an act or omission of the Operator, its employees, agents or Subcontractors, (i)

TNB Prai must reimburse the Operator for any reasonable additional resulting cost incurred by the Operator; and

(ii)

the Operator will be excused from its Performance Guarantees and will not be liable to pay any liquidated damages and will not be held to be in breach of the OMA.

Termination

5.5.5.8.1 Termination upon expiry The OMA will automatically terminate upon the expiry of the Term, unless earlier terminated or extended in accordance with the OMA. 5.5.5.8.2 Termination for Operator’s Default (a)

The occurrence of any of the following events at any time from the date of the NTP, unless excused by Force Majeure or TNB Prai's failure to fulfil its obligations under the OMA, shall constitute an Event of Default by the Operator:

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(i)

Information Memorandum

Wilful Misconduct if the Operator has committed an intentional breach or demonstrated a reckless disregard in the performance of the Works and such actions have not been remedied within ten (10) days (or such longer period as may be specified in that notice) of receipt of a written notice from TNB Prai requiring the Operator to do so; or

(ii)

Breach of obligations if without prejudice to the provision of (iv) below, the Operator commits a breach of its obligations under the OMA and receives written notice in respect thereof from TNB Prai and if such breach: (A)

either (a) is persistent and repeated or (b) has not been remedied within thirty (30) days (or such longer period as may be specified in that notice) of receipt of a written notice from TNB Prai to do so; and

(B)

materially disrupts or materially adversely affects or prejudices: (1) (2)

(iii)

the management of the Facility as required by Law; or the performance of the Works; or

Insolvency of Operator if the Operator is dissolved or adjudicated a bankrupt, makes a general assignment for the benefit of creditors, seeks or consents to the appointment of a receiver, custodian, or similar official for any substantial part of its property; institutes any proceedings seeking an order for relief or to adjudicate it insolvent or for an adjustment of its debts under any law relating to bankruptcy or insolvency;

(iv)

Employee Disputes if any dispute has occurred between the Operator and its employees which results in a failure by the Operator to perform any work which failure has any of the effects specified in (ii) above and such failure has not been remedied within thirty (30) days of receipt of a notice from TNB Prai to do so or if as a result of the industrial action of the Operator's employees or any dispute between the Operator and its employees, tire Operator has been unable to Operate the Facility for an aggregate of forty five (45) days in any 3 year period; or

(v)

Cessation of Business if the Operator ceases to carry on power station operation as its principal business; TNB Prai may by fifteen (15) days' written notice to the Operator to terminate the OMA; or

(vi)

Maximum Liability if the liability of the Operator under the OMA exceeds the amount referred to in section 5.5.5.5 above for more than 2 consecutive years; TNB Prai

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may by fifteen (15) days written notice to the Operator terminate the OMA; or (vii)

Reduction in Availability and Efficiency If at any time during the Operating Period:

(b)

(a)

the Tested Annual Available Capacity falls below the level set out in the OMA;

(b)

the Unplanned Outage exceeds the level set out in the OMA; and/or

the Guaranteed Net Heat Rate exceeds the level referred to in the OMA as may be demonstrated from the difference in the payments made for Nominated Fuel supplied by the Nominated Fuel supplier and payment received for Energy Payments from TNB under the PPA in each month; for more than 3 consecutive Contract Years due to causes which are wholly attributable to the breach by the Operator of any of its obligations under the OMA BUT PROVIDED THAT if any dispute on this provision has been referred for resolution in accordance with the provisions in the OMA on arbitration and dispute resolution, the OMA shall not be terminated until such dispute is resolved.

(c)

Except for the mechanisms provided to enable the Contractor to cure its failure to perform its obligation, if there shall occur an Event of Default, TNB Prai may give the Operator notice in writing specifying and describing the Event of Default complained of. If TNB Prai gives such notice and the Operator does not commence to diligently pursue to cure such Event of Default within twenty (20) days after receipt of such notice and thereafter continue to pursue such cure diligently and promptly and to complete such cure within ninety (90) days or such longer period as may reasonably be required to effect such cure, TNB Prai may, in addition to other remedies set forth in the OMA, terminate the OMA by written notice to the Operator.

5.5.5.8.3 Termination for TNB Prai’s Default (a)

The occurrence of any of the following events at any time from date of the Notice To Proceed, unless excused by Force Majeure, shall constitute an Event of Default by TNB Prai: Insolvency TNB Prai is dissolved or adjudicated a bankrupt; makes a general assignment for the benefit of creditors; seeks or consents to the appointment of a receiver, custodian, or similar official for any substantial part of its property; institutes any proceedings seeking an order for relief or to adjudicate it insolvent or adjustment of its debts under any law relating to bankruptcy or insolvency; Default in payment TNB Prai defaults in payment as and when due of any moneys payable (but unpaid) under the OMA and such default shall continue for a period of 15 days except for progress payment applications disputed in good faith by TNB Prai;

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Breach of obligations TNB Prai fails substantially to perform any of its obligations under this Agreement in any material respect; or Misrepresentation any material representation made by TNB Prai herein shall be proved to have been false or misleading in any material respect when made. (b)

If there shall occur an Event of Default in respect of TNB Prai, the Operator may give TNB Prai notice in writing specifying in detail the Event of Default. If the Operator gives such notice and TNB Prai does not commence to diligently pursue the cure of such default within twenty (20) days after TNB Prai's receipt of such notice and thereafter continue to pursue such cure diligently and promptly and to complete such cure within such period or such longer period not to exceed ninety (90) days as may reasonably be required to effect such cure, the Operator may terminate the OMA by written notice to TNB Prai and seek remedies pursuant to the OMA.

5.5.5.8.4 Termination of EPC Contract, PPA or expiry of the Term (a)

The OMA may be terminated, at TNB Prai's option, if: (i)

the EPC Contract is terminated prior to the commencement of the Mobilisation Period, provided however the Mobilisation Cost due and any other reasonable costs incurred by the Operator pursuant to its performance prior to such termination and its reasonable costs pursuant to such termination shall be paid or reimbursed by TNB Prai; or

(ii)

the Facility is purchased from TNB Prai following the termination of the PPA, provided however TNB Prai shall use its reasonable endeavours to assist the Operator in obtaining an agreement on terms no less favourable than the OMA with the new owner of the Facility to allow the Operator to continue to Operate and Maintain the Facility.

(b)

Subject to extension in accordance with the OMA, the OMA should automatically terminate 21 years after the COD of the First Generating Block, unless otherwise agreed.

5.5.5.8.5

Assignment The OMA shall not be subject to assignment by either party without the prior written consent of the other party except that TNB Prai may assign the Agreement to any financing Parties as security for providing the financing or refinancing for the Facility. The Operator agrees to enter into an assignment and/ or direct agreement with TNB Prai and the Financing Parties in a form reasonably required by the financing parties, subject to the consent of the Operator, which consent must not be unreasonably withheld, that contemplates, amongst other things, the exercise by the Financing Parties of the rights of TNB Prai under the OMA so that the Financing Parties may step into the position of TNB Prai under the OMA.

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5.5.6

Long Term Maintenance Programme Contract

5.5.6.1

Overview

Information Memorandum

The LTMP was entered into on 21 January 2013 between TNB Prai and Siemens AG and Siemens LS (Siemens AG and Siemens LS jointly referred to as “LTMP Contractor”) to provide for the supply of long term maintenance services consisting of parts, shop repairs, miscellaneous hardware and scheduled outage services to the Facility by the LTMP Contractor. 5.5.6.2

Scope of Work The LTMP Contractor’s scope of work, the terms and conditions of the LTMP and the LTMP contract price are based upon the following basic operating parameters: (a)

operation and maintenance of the Gas Turbine shall be operated and maintained in accordance with the operating regime and technical limits specified in the LTMP;

(b)

operation of the Power Plant and the take-over settings, using fuel and consumables in accordance with the specifications contained in the LTMP;

(c)

the Power Plant shall be operated using water and chemicals meeting the specifications contained in the LTMP, and TNB Prai shall ensure that the LTMP Contractor has the right to take gas, water and chemical samples at any time during the term of the LTMP; and

(d)

the Power Plant shall be operated in such a way that the scheduled outages can be conducted on the Gas Turbine in accordance with the specifications contained in the LTMP.

The LTMP Contractor shall only be liable for at least negligently incorrectly given or at least negligently omitted instructions regardless of the legal theory of recovery whether based in contract, in tort (including negligence and strict liability), under warranty, indemnity or otherwise. The LTMP Contractor shall not be liable for the consequences of any failure to comply with the instructions. 5.5.6.3

Price and Payment Terms In consideration of the LTMP Contractor's performance of its obligations carried out within its scope of work under the LTMP, TNB Prai shall pay to the LTMP Contractor the following fees: (a)

Mobilisation Fee.

The Mobilisation Fee consists of an offshore part (Siemens AG) and onshore part (Siemens LS). (b)

Fixed Fee:

Each year a Fixed Fee shall be paid and invoiced in equal monthly instalments at the beginning of each month, starting at the originally Scheduled COD of the 1st Private & Confidential

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Gas Turbine and ending at the end of the term of the LTMP. The total Fixed Fee per year consists of an offshore part (Siemens AG) and onshore part (Siemens LS). (c)

Variable Fee:

The Variable Fee is based on the number of Equivalent Base Hours (“EBH”) the gas turbine actually accrues starting from First Fire. The Variable Fee based on EBH shall be paid at the end of each calendar month. The amount of each monthly payment is based on the number of EBH that the Gas Turbine accrued in the previous calendar month. The initial Variable Fee payment based on EBH shall consist of the actual EBHs accrued between First Fire and actual TOC and shall be invoiced to TNB Prai at originally Scheduled COD. TNB Prai has the right to request services for a Scheduled Outage prior to the Gas Turbine accruing the number of EBH requiring such inspection. If a Scheduled Outage of the Gas Turbine is to be carried out prior to the planned EBH intervals as defined in Attachment C (Planned Outage Schedule), a "true up" payment shall be paid, equal to the difference between the actual paid Variable Fee and the amount that would have been due if the outage was performed at the EBH interval defined in the LTMP. The EBH Fee shall be payable until commencement of the Scheduled Outage scheduled at 100.000 EBH. (d)

Payments for extra work (if any)

Invoices for change orders shall be submitted in accordance with the mutually agreed price and procedure as specified in the change order. Price Indexation Except as otherwise provided in the LTMP, each instalment payment shall be subject to adjustment in accordance with the price indexation formula as set out in the LTMP. 5.5.6.4

Term of LTMP The term of this LTMP (the “Term”) shall commence on the Effective Date and, unless terminated earlier pursuant to Clause 12 (Termination), it shall end for each Gas Turbine upon completion of the earlier of: (a)

(b)

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the later of: (i)

a prescribed level of accumulated EBHs on the applicable Gas Turbine, calculated from First Firing of the applicable Gas Turbine; or

(ii)

the 8th Scheduled Outage of the applicable Gas Turbine has been completed; or

20 years after the Effective Date

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“Effective Date” means the later of: (a)

the date this LTMP is signed by both parties, or, if not signed by both parties simultaneously, the date of signature by the second party (“Signature Date”), and

(b)

the date on which TNB NE, as party to the EPC Contract, issues a valid notice to proceed. TNB Prai shall inform the LTMP Contractor immediately after issuance and shall provide a copy of the notice to proceed.

Additional Term If TNB Prai anticipates that: (a)

the achievement of the aforesaid prescribed level of accumulated EBHs on the applicable Gas Turbine will not have occurred by the time the first Gas Turbine has reached its 6th inspection, or

(b)

not all of the Scheduled Outages on the applicable Gas Turbine will have been performed by the time the first Gas Turbine has reached its 6th inspection; TNB Prai shall be entitled to order an extension of the Term (“Additional Term”) by sending a written notice to the LTMP Contractor not earlier than 7 years from the Effective date but prior to the first Gas Turbine reaching its 6th inspection. If TNB Prai exercises the option for this extension, the Term shall end for each Gas Turbine upon completion of the earlier of: (i)

the later of: (A)

the aforesaid prescribed level of accumulated EBHs on the applicable Gas Turbine, calculated from First Firing of the applicable Gas Turbine; or

(B)

the 8th Scheduled Outage of the applicable Gas Turbine has been completed;

or (ii) 5.5.6.5

24 years after the Effective Date.

Limitation of Liability The LTMP Contractor shall be liable for any damage to the TNB Prai’s property caused by negligent acts or omissions or wilful misconduct or based on strict liability of the LTMP Contractor for the performance of its obligations hereunder. However, TNB Prai expressly agrees that under no circumstances shall the liability of the LTMP Contractor under any theory of recovery (including reimbursement of costs incurred by TNB Prai), whether based in contract, in tort (including negligence and strict liability), under warranty, indemnity or otherwise, exceed caps (i) per event and Gas Turbine, (ii) per Contract Year and Gas

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Turbine and (iii) in total aggregate over the Term for any physical damage to property. TNB Prai expressly agrees that its remedies provided herein are exclusive and that under no circumstances (except for wilful misconduct, fraud and indemnification under clause 13.1.1 of the LTMP) shall the liability of the LTMP Contractor under any theory of recovery (including reimbursement of costs incurred by TNB Prai), whether based in contract, in tort (including negligence and strict liability), under warranty, indemnity or otherwise, exceed:

5.5.6.6

(a)

in aggregate in any Contract Year 62.5% of the Contract Price paid to the LTMP Contractor during such Contract Year, and

(b)

in aggregate for any post term liability 15% of the yearly Contract Price paid to the LTMP Contractor on average per year during the Term, and

(c)

as the maximum aggregate 62.5% of the total Contract Price.

Defects Liability and Warranty Term Warranty for Program Parts The LTMP Contractor shall be liable for defects in material and workmanship, or for normal wear and tear: (a)

of the program parts supplied by the LTMP Contractor under the LTMP, and

(b)

once the defects' liability for program parts under the EPC Contract has expired, earliest however two (2) calendar years after Scheduled COD, program parts which were delivered under the EPC Contract,

from the date supplied until the end of Term ("Term Warranty"). If during this period a program part fails to conform to the above Term Warranty and the LTMP Contractor is promptly notified in writing by TNB Prai of the defect within the Term Warranty period, the LTMP Contractor shall, at its option and expense, either: (i)

repair the defective program part; or

(ii)

install a new or refurbished program part as substitute for the defective program part.

Post-Term Defects Liability for Program Parts (a)

After the expiration of the Term, the LTMP Contractor shall be liable for defects in material and workmanship of the program parts installed in such Gas Turbine by LTMP Contractor during the performance of the last Scheduled Outage until the earlier of: (i)

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5.5.6.7

Information Memorandum

eight thousand (8,000) EBHs after the date of completion of such Scheduled Outage.

If during this period a program part fails to conform to the above defects' liability and the LTMP Contractor is promptly notified in writing by TNB Prai of such defect within the above period, the LTMP Contractor shall, at its option and expense, either: (i)

repair the defective program part, or

(ii)

install a new or refurbished program part as substitute for the defective program part.

LTMP Contractor’s Insurance During the Term, the LTMP Contractor shall maintain in full force and effect: (a)

General comprehensive third party liability insurance, including bodily injury, property damage, products / completed operations, standard contractual and accidental environmental impairment / pollution liability; this cover may exclude however damage to property of third parties (including TNB Prai’s property) which is under care, custody or control of the insured.

(b)

Employer’s liability and workmen compensation insurance in accordance with any Applicable Laws; where any Applicable Laws do not require any specific regulations or amounts, the LTMP Contractor shall arrange this insurance as it is customarily done according to good industrial practices.

(c)

Automobile liability insurance in accordance with any Applicable Laws; where any Applicable Laws do not require any specific regulations or amounts, the LTMP Contractor shall arrange this insurance as it is customarily done according to good industrial practices. The coverage shall be at the usual levels in the ordinary course of business. Upon request, the LTMP Contractor shall provide to TNB Prai certificates or other evidence of such coverage. The LTMP Contractor shall give TNB Prai thirty (30) days advance notice of any cancellation or material changes in such policies.

5.5.6.8

TNB Prai’s Insurance During the Term, TNB Prai shall maintain in full force and effect: (a)

Property all risk insurance, including boiler and machinery breakdown coverage, covering all real and personal property of TNB Prai on a 100% replacement cost basis.

(b)

General comprehensive third party liability insurance, including bodily injury, property damage, products / completed operations, standard contractual and accidental environmental impairment / pollution liability.

TNB Prai’s insurances shall provide the best terms and conditions as are reasonably available in the insurance market and shall be effected with insurers Private & Confidential

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(or, where the local insurance market is a restricted insurance market, with reinsurers) being at least A-rated or better. TNB Prai shall ensure that each of the insurances to be provided by TNB Prai in accordance with this provision shall be primary to any insurance carried by TNB Prai and TNB Prai’s subcontractors, and that each insurance shall name the LTMP Contractor and its subcontractors as co-insured with insurer’s waiver of subrogation. TNB Prai shall provide to the LTMP Contractor a copy of the property all risks and machinery breakdown insurance and, upon request, certificates or other evidence of the other insurances. TNB Prai shall give the LTMP Contractor thirty (30) days advance notice of any cancellation or material changes in such policies. TNB Prai’s Insurance before TOC TNB Prai shall ensure that the LTMP Contractor and its subcontractors are named as co-insured with insurer’s waiver of subrogation in the construction / erection all-risks’ insurance which has to be provided under the EPC Contract for any activities of TNB Prai or its subcontractors before TOC. 5.5.6.9

Payment Security Financial security as is acceptable to LTMP Contractor (such as a bank bond) shall be established to secure TNB Prai's payments under this Contract. Such financial security shall (i) be issued by a entity acceptable to the LTMP Contractor, (ii) be established by TNB Prai in favour of the LTMP Contractor within fifteen (15) days from Effective Date, (iii) be in a form prescribed in the LTMP, (iv) guarantee payments of the Contract Price; and (v) remain in full force and effect until all payments due to the LTMP Contractor under this Contract have been paid in full. Within ten (10) days of TNB Prai's submittal of notice from the LTMP Contractor, TNB Prai shall extend the validity or increase the amount of such payment security as may be required to effect full payment of any amendment or Change Order or Instruction to TNB Prai. All expenses incurred by TNB Prai in connection with the establishment and operation of such payment security shall be for the account of the TNB Prai.

5.5.6.10

Termination Neither Party shall be entitled to terminate the LTMP, unless established under the LTMP.

5.5.6.10.1 LTMP Contractor’s Default TNB Prai shall be entitled to terminate the LTMP by prior written notice to the LTMP Contractor if the LTMP Contractor is in Default. The LTMP Contractor shall be considered to be in “Default”: (a)

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if the LTMP Contractor is insolvent or if any proceeding is instituted against the LTMP Contractor seeking to adjudicate the LTMP Contractor as bankrupt or insolvent, or if the LTMP Contractor makes a general assignment for the benefit of its creditors, or if a receiver is appointed on account of the insolvency of the LTMP Contractor, or if LTMP Contractor files a petition seeking to take advantage of any other Law relating to Page | 94

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bankruptcy, insolvency, winding up or composition or readjustment of debts and, in the case of any such proceeding instituted against the LTMP Contractor (but not by the LTMP Contractor) if such proceeding is not dismissed within forty five (45) days of such filing; or (b)

if the LTMP Contractor is in breach of any material provision of this LTMP, and the LTMP Contractor has not commenced cure of such breach within thirty (30) days after receipt of written notice from the TNB Prai of such breach; or

(c)

if the LTMP Contractor is in breach of any material provision of this LTMP, and the LTMP Contractor is continuing to abandon the pursuit of the cure of such breach twenty (20) days after having received written notice from the TNB Prai that the TNB Prai may terminate this LTMP.

The LTMP Contractor shall not be considered to be in breach of a provision of this LTMP in case payment of liquidated damages is the remedy foreseen for such breach and the LTMP Contractor is not in default of payment of such liquidated damages. If TNB Prai elects to terminate this LTMP pursuant to the above provision, the LTMP Contractor shall be entitled to retain or receive only those amounts paid or payable hereunder at the time of termination. Upon such termination, the LTMP Contractor shall stop work on the terminated portion of this LTMP and shall place no further orders with lower tier subcontractors. 5.5.6.10.2 Termination for Convenience TNB Prai may, after the first Major Inspection, and upon thirty (30) days written notice to the LTMP Contractor, at its sole option, terminate the LTMP, at any time for the TNB Prai’s convenience. 5.5.6.10.3 TNB Prai’s Default (a)

Suspension for TNB Prai’s Default In the event of any of the following occurs the LTMP Contractor may at its option suspend wholly or partly the provision of its Works under the LTMP, if: (i)

TNB Prai having failed to make payment of any amount due and payable to the LTMP Contractor within thirty (30) days after the receipt of a written payment reminder by the LTMP Contractor; or

(ii)

TNB Prai is insolvent or any proceeding is being instituted against TNB Prai seeking to adjudicate TNB Prai as bankrupt or insolvent or TNB Prai makes a general assignment for the benefit of its creditors or a receiver is being appointed on account of any insolvency or TNB Prai is filing a petition seeking to take advantage of any law relating to bankruptcy, insolvency, winding up or readjustment of debts and, in the case of any such proceeding instituted against TNB Prai (but not by TNB Prai) if such proceeding is not dismissed within forty five (45) days of such filing; or

(iii)

upon a change in the ownership or ultimate management control of TNB Prai, the LTMP Contractor reasonably believes that this change could

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materially affect the LTMP Contractor’s interests, including without limitation the sale of any ownership interest in TNB Prai or the Power Plant to any entity in competition with LTMP Contractor; or (iv)

TNB Prai having failed to perform any of its material obligations under this LTMP or having impeded the LTMP Contractor’s exercise of any of its material rights under this Contract; or

(v)

TNB Prai having failed to provide or maintain a letter of credit or security instrument agreed upon by the parties to be provided pursuant to section 5.5.6.9 above (Payment Security).

In the event the LTMP Contractor suspends the provision of its Works, TNB Prai shall pay the LTMP Contractor any additional Costs and expenses incurred resulting from such suspension. (b)

Termination for TNB Prai’s Default The LTMP Contractor may terminate a part or the whole LTMP by written notice with immediate effect in case the requirements set forth in section 5.5.6.10.3 (i)(b) or (c) are given, with thirty (30) days written notice to TNB Prai in the other cases stipulated in section 5.5.6.10.3(i)(d) or (e) and with sixty (60) days written notice in case the TNB Prai having failed to make payment of any amount due and payable to the LTMP Contractor. Upon the termination by the LTMP Contractor becoming effective: (i)

the LTMP Contractor shall stop all Works and place no further orders or subcontracts, and

(ii)

TNB Prai shall promptly pay the LTMP Contractor for all works, supplies and Services performed and all reasonable termination cost, if any, from lower tier subcontractors upon submission of the LTMP Contractor’s invoice, and

(iii)

TNB Prai shall pay for any other cost or liability which was reasonably incurred by the LTMP Contractor under the circumstances including the cost of removal / return of items or the repatriation of staff.

5.5.6.10.4 Termination for Extended Force Majeure If one or more Force Majeure events continue to cause delay for more than six (6) months, then either Party may terminate the LTMP with immediate effect. If any of the Parties elects to terminate the LTMP pursuant to this Clause, then upon such termination, the LTMP Contractor shall stop all Works related to the LTMP and place no further orders or subcontracts, and TNB Prai shall promptly pay the LTMP Contractor for all Works, supplies and Services performed until and including the date such termination becomes effective. 5.5.6.10.5 Termination Fee TNB Prai shall pay to LTMP Contractor the applicable termination fee calculated in accordance with the LTMP if:

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(a)

TNB Prai terminates this LTMP under Termination for convenience; or

(b)

the LTMP Contractor terminates this LTMP as Termination for TNB Prai’s Default.

5.5.6.10.6 Force Majeure Excuse by Force Majeure For the purposes of this LTMP, Force Majeure shall mean an exceptional event, condition, or circumstance or its effect which: (a)

is beyond the reasonable control of and occurs without fault or negligence of Party claiming it as a Force Majeure Event;

(b)

could not have been provided against by the Party claiming it as a Force Majeure Event before entering into the LTMP;

(c)

causes a delay or disruption in the performance of any obligation of the Party claiming it as a Force Majeure Event under this LTMP despite all reasonable efforts of the Party claiming it as a Force Majeure Event to prevent it or mitigate its effects.

Neither Party shall be liable for failure to perform any obligation or a delay in performance resulting from Force Majeure including but not limited to acts of God, acts of civil or military authority; acts of war whether declared or undeclared; acts (including delay, failure to act) of any governmental authority, civil disturbance, insurrection or riot, sabotage, terrorist acts, fire, inclement weather conditions, earthquake, flood, strike, work stoppage or other labour difficulty, embargo or car shortage. Under no circumstances TNB Prai shall be excused by a Force Majeure Event from its payment obligations in respect of the Contract Price. Effect of Force Majeure In the event either Party is unable to perform its duties and obligations under this LTMP as a result of a Force Majeure event, such Party shall give notice to the other of such inability stating the Force Majeure event in question. In the event of a delay in performance caused by Force Majeure, the date of Delivery or the date of the duties and obligations for the Party claiming Force Majeure shall be extended by a period of time reasonably necessary to overcome the effect of such delay. Immediately upon cessation of the relevant Force Majeure event, the Party claiming it as a Force Majeure event shall give notice of such cessation to the other Party. Notwithstanding the aforementioned, the Party claiming Force Majeure Event shall continue to perform its obligations during any period of Force Majeure to the extent reasonably practicable. Neither Party shall be entitled to cost relief in case of Force Majeure.

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5.5.7

Turnkey Contract

5.5.7.1

Salient Terms

5.5.7.1.1

Scope TNB Northern Energy Berhad (Company No. 1024796-X) (“TNB NE” or “Contractor”) entered into the Turnkey Contract dated 21 January 2013 with TNB Prai Sdn Bhd (Company No. 500784-D) (“TNB Prai” or “Employer”) the Contractor undertook to perform the Works, including but not limited to the following: (a)

design, procure, construct, manufacture, deliver to the Site and/or IF Site and erect or install all equipment, systems, components and Materials necessary to achieve successfully the Performance Guarantee, to commission and be ready for the taking over of each Generating Block, the Common Facilities and the Interconnection Facilities by their respective Taking-Over Dates, to complete successfully the Tests On Completion and to achieve the issuance of all the Taking-Over Certificates, on a fixed priced, lump sum turnkey basis;

(b)

design, engineer, construct and commission each Generating Block, the Common Facilities, and the Interconnection Facilities as the case may be, in accordance with this Turnkey Contract and where these are silent on any specific matters, then in accordance with Prudent Utility Practices; and

(c)

design, engineer and construct each Generating Block to meet the standards and requirements more particularly described in this Turnkey Contract, as follows:

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(i)

in relation to noise and emissions, the Contractor shall ensure that the Generating Blocks and/or the Facility complies with the conditions and other provisions of the EIA Approval and the environmental requirements. In relation to the start up time and despatch ramp rates, the Contractor shall ensure that the Generating Blocks and the Facility complies with the conditions as specified in the Turnkey Contract;

(ii)

electric energy generated by each Generating Block, shall be capable of being delivered to the Interconnection Point and shall meet all technical requirements, operating standards and characteristics contained in the Turnkey Contract and the Grid Code;

(iii)

each Generating Block shall be designed, engineered and constructed to meet its respective Guaranteed Net Output;

(iv)

each Generating Block shall be designed, engineered and constructed to meet its respective Guaranteed Net Heat Rate;

(v)

each Generating Block, shall be designed, engineered and constructed to meet the Permitted Emissions;

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(vi)

each Generating Block shall be designed, engineered and constructed to meet the Permitted Noise Level;

(vii)

each Generating Block shall be designed, engineered and constructed to meet all other performance and operation parameters in accordance with Prudent Utility Practices; and

(viii)

the Interconnection Facilities shall be designed, engineered and constructed to meet all performance and operation parameters in accordance with the Turnkey Contract;

(i)

connect each Generating Block to the Interconnection Point to receive or deliver electricity;

(ii)

connect each Generating Block to the relevant delivery point(s) to receive or deliver fuel, water, waste and any other input or output of the Works, other than electricity;

(e)

start-up, test and commission each Generating Block including initial testing of components, calibration of controls and equipment, initial operation of the Works and each component thereof, function and verification tests, and all other start-up and initial operation functions pertaining to the Works at the Site and/or IF Site. The Employer and the Utility shall have the right (but shall not be obligated) to observe all startup and initial operation functions pertaining to the Works. At all times during the performance of the Works, the Contractor shall use all reasonable efforts to minimise (consistent with Prudent Utility Practices and the terms of the Turnkey Contract) the use of fuels, utilities, consumables, waste disposal services, electricity, water and chemicals;

(f)

to use best efforts to make available for purchase by the Employer suitable spare parts for the operation and maintenance of the Works for a period of time following taking over;

(g)

to provide as part of the Accepted Contract Amount, all Special Tools for the operation and maintenance of the Plant;

(h)

the Contractor shall submit to the Employer the construction schedule that indicates, in a manner consistent with the overall construction schedule then set forth, the proposed dates for completion of the individual features of the Works set forth (as such construction schedule may be adjusted), and the Employer shall have access to the updated schedules of the Works and monthly progress reports of actual progress of the Works prepared by the Contractor or as may be provided by the Subcontractor to the Contractor, as the case may be; and

at all times, coordinate and liaise with the Employer, the Utility and/or Off-taker to ensure that the notice and coordination activities stipulated in the Turnkey Contract are achieved. In addition to the above and among others, the Contractor shall be solely responsible in financing the Project. The Contractor shall complete and/or present all written representations, undertakings, and other documentation or information as may be reasonably required under the Turnkey Contract to meet the requirements of the financial institutions.

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For the purposes of this section, the following definitions would apply: “Accepted Contract Amount” means the amount described as such in this Turnkey Contract for the execution and completion of the Works and the remedying of any defects. “Project” means the design, construction, ownership, operation, maintenance and financing of the Power Plant to generate and deliver electrical energy and make generating capacity available to the Offtaker. “Special Tools” mean the special tools provided by the Contractor and/or the Subcontractor for the operation and maintenance of the Plant or as may otherwise be agreed, and shall include items normally included with the purchase of equipment from Subcontractors. The Contractor shall hand over the Special Tools to the Employer in good order, or replace them at its cost. “Subcontractor” means any person named in this Turnkey Contract as a subcontractor, or any person appointed as a subcontractor, for a part of or for the entire Works and the legal successors in title to each of these persons. “Works” mean the designing, manufacturing, delivery, installation, commissioning and testing (including performance and guarantee tests) of the Project and its associated facilities; or the permanent works and temporary works, or either of them as appropriate. 5.5.7.1.2

Commencement of Works The Contractor shall commence Works under the Turnkey Contract upon the execution of the Turnkey Contract. The Contractor may subcontract the Works wholly or in part to Samsung E&C, and the Contractor shall ensure that its obligations under the Turnkey Contract shall apply to the EPC Contract. The Contractor shall remain responsible for the Subcontractor’s performance and performance of its obligations under the Turnkey Contract. The Contractor shall also remain responsible for the acts or defaults of the Subcontractor, its agents or employees, as if they were the acts or defaults of the Contractor.

5.5.7.1.3

Contract Price In consideration of the Contractor performing its obligations under this Turnkey Contract, the Employer shall be obligated to pay the Contractor, the Accepted Contract Amount inclusive of duties and taxes, provided that the Accepted Contract Amount may be adjusted under the following circumstances: (a)

There is a variation in the construction cost in respect of this Turnkey Contract; or

(b)

There is a variation in the components of the Accepted Contract Amount.

Provided always, the adjusted Accepted Contract Amount shall not be more than ten percent (10%) of the Accepted Contract Amount stipulated above. The parties have since agreed to revise the Accepted Contract Amount by way of a supplemental agreement which was entered into on 3 April 2013. Private & Confidential

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The Accepted Contract Amount shall be paid by the Employer to the Contractor in stages after the issuance of the Taking-Over Certificate and the Employer shall have the right to make payments in instalments in amounts and for the duration to be agreed between the parties. The Employer shall endeavour to apply, with the assistance of the Contractor, for tax exemption for all import taxes on plant and materials imported into Malaysia and excise duties on locally manufactured plant and materials. The Accepted Contract Amount shall be adjusted when any tax exemptions are obtained. In the event that no tax exemptions are obtained, the Contractor shall pay all taxes, duties and fees required to be paid by him under the Turnkey Contract or by applicable laws. 5.5.7.1.4

Performance Security (a)

The Contractor shall, if required by the Employer in writing, within seven (7) days before the issuance of the NTP, obtain (at its cost) a Performance Security for proper performance in the amount stated in the Contract Information i.e. 20% of the Accepted Contract Amount. The Contractor shall deliver to the Employer the Performance Security effective from the date of issue duly executed by a bank satisfactory to the Employer, as security for the due performance by the Contractor of its obligations under this Turnkey Contract.

5.5.7.1.5

(b)

The Performance Security shall remain valid until the Taking-Over Date, and shall be returned to the Contractor, if uncalled by the Employer within twenty eight (28) days after the Taking-Over Date.

(c)

Upon the Taking-Over Date, the Contractor shall, if required by the Employer in writing, issue a new Performance Security in favour of the Employer ("DNP Performance Security") at an amount as outlined in the EPC Contract and subject to terms and conditions to be determined by the Parties.

(d)

The Contractor shall ensure that the Performance Security or the DNP Performance Security is valid and enforceable until the Contractor has executed and completed the Works and remedied any defects.

Payment Terms The Accepted Contract Amount shall be paid by the Employer to the Contractor in stages after the issuance of the Taking-Over Certificate and the Employer shall have the right to make payments in instalments in amounts and for the duration to be agreed between the Employer and the Contractor.

5.5.7.1.6

Completion, Taking Over and Delays Time for Completion (a)

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The Contractor shall complete the whole of the Works, and each Section (if any), within the Time For Completion for the Works, which shall not exceed nine hundred and seventy four (974) days or section (as the case may be), including: (1)

achieving the passing of the Tests On Completion;

(2)

completing all work which is stated in this Turnkey Contract as being required for the Works or Section to be considered to be completed for the purposes of taking-over; and

(3)

the issuance of the DNP Performance Security at an amount and subject to terms and conditions to be determined by the Parties and in favour of the Employer, if required by the Employer in writing.

The Works shall not be considered to be complete until: (1)

the Contractor has submitted the documents that are necessary to enable the Employer to obtain the Commissioning Tests certificate, or a document to similar effect, to be issued by the Commission in accordance with the requirements of the Generation Licence, and the Contractor has submitted the as-built drawings and the provisional operation and maintenance manuals;

(2)

the Contractor has established, determined and declared the Guaranteed Net Output and Guaranteed Net Heat Rate in accordance with this Turnkey Contract; and

(3)

all the documentation, data, information and certified test results relating to the Works have been submitted by the Contractor to the Employer's Representative, and verified by Off-taker as being in conformance with the requirements to be determined within the time frames set out therein.

Extension Of Time For Completion The Contractor shall be entitled to an extension of the Time For Completion, if and to the extent that completion for the taking over of the Works is or will be delayed by any of the following causes: (a)

a Variation (unless an adjustment to the Time For Completion has been agreed);

(b)

a cause of delay giving an entitlement to extension of time under a SubClause of these Conditions;

(c)

exceptionally adverse and Unforeseeable climatic conditions;

(d)

Unforeseeable shortages in the availability of personnel or Goods caused by epidemic or governmental actions;

(e)

any delay, impediment or prevention caused by or attributable to the Employer, the Employer's Personnel and the Employer's other contractors on the Site; or

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any delay, impediment or prevention caused by or attributable to TNB as a utility.

Taking Over (a)

5.5.7.1.7

The Works shall be taken over by the Employer when: (1)

the Works have been completed in accordance with this Turnkey Contract, and except as allowed in sub-paragraph (b) below; and

(2)

a Taking-Over Certificate for the Works has been issued, or is deemed to have been issued in accordance with this Sub-Clause.

(b)

The Contractor may apply in writing to the Employer's Representative for a Taking-Over Certificate not earlier than fourteen (14) days before the Works are, in the Contractor's opinion, scheduled to be completed and ready for taking over.

(c)

The Employer’s Representative shall, after receiving the Contractor’s application: (1)

issue the Taking-Over Certificate to the Contractor, stating the date on which the Works were completed in accordance to the Turnkey Contract, except for any minor outstanding work(s) and defects which will not substantially affect the use of the Works for their intended purpose (either until or whilst this work is completed and these defects are remedied); or

(2)

reject the application, giving reasons and specifying the work required to be done to enable the issuance of the Taking-Over Certificate.

Permit and Insurance The Contractor and/or its Subcontractor shall procure all necessary and relevant permits and insurances required for the performance of its obligations under this Turnkey Contract.

5.5.7.1.8

Force Majeure The Turnkey Contract provides that "Force Majeure" means an exceptional event or circumstance: (a)

which is beyond a Party's control;

(b)

which such Party could not reasonably have provided against before entering into this Turnkey Contract;

(c)

which, having arisen, such Party could not reasonably have avoided or overcome; and

(d)

which is not substantially attributable to the other Party.

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Force Majeure may include, but is not limited to, exceptional events or circumstances of the kind listed below, so long as conditions (a) to (d) above are satisfied: (i)

war, hostilities (whether war be declared or not), invasion, act of foreign enemies;

(ii)

rebellion, terrorism, revolution, insurrection, military or usurped power, or civil war;

(iii)

riot, commotion, disorder, strike or lockout by persons other than the Contractor's Personnel and other employees of the Contractor and Subcontractor(s);

(iv)

ammunitions of war, explosive materials, ionising radiation or contamination by radio-activity, except as may be attributable to the Contractor's use of such munitions, explosives, radiation or radio-activity; and

(v)

natural catastrophes such as earthquake, hurricane, typhoon or volcanic activity.

Excused Performance Due To Force Majeure Any delay in, or total or partial failure of, performance of a Party caused by Force Majeure shall not constitute a default hereunder provided, however, that: (a)

the affected Party shall use all reasonable commercial efforts to eliminate any Force Majeure and mitigate or limit the effect of any such delay or inability to perform and damages to the other Party;

(b)

the affected Party gives the other Party notice of such Force Majeure event;

(c)

the suspension of performance is of no greater scope and of no longer duration than is reasonably required by the Force Majeure event;

(d)

no liability of either Party which arose before the occurrence of the Force Majeure event causing the suspension of performance shall be excused as a result of such occurrence;

(e)

obligations of the Parties that are required to be completely performed before the occurrence of a Force Majeure event shall not be excused to the extent of the existing delay or default existing prior to such Force Majeure event;

(f)

when the affected Party is able to resume performance of its obligations under this Turnkey Contract, that Party shall give the other party written notice to that effect and shall promptly resume performance hereunder.

Consequences of Force Majeure (a)

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adversely affect the Taking-Over Date, then the Contractor shall be entitled to an adjustment under the provisions of the Turnkey Contract. There shall be no adjustment to either the Performance Guarantees, and/or the Accepted Contract Amount as a result of a Force Majeure event. (b)

If the Contractor is delayed in the performance of the Works by a Force Majeure event, then: (i)

to the extent that the delay(s) are, in the aggregate, one hundred and forty (140) days or less, the Contractor shall absorb all of its costs and expenses resulting from the said delay(s); and

(ii)

to the extent that the delay(s) are, in the aggregate, more than one hundred and forty (140) days, the Contractor shall be reimbursed by the Employer for those incremental costs and expenses directly resulting from the said delay(s) which are reasonably incurred by the Contractor after the said one hundred and forty (140) days period.

In the event that the Works or any part of the Works is damaged or destroyed due to Force Majeure, then the Contractor shall only be obliged to reinstate or replace the Works or part thereof which has been damaged or destroyed if requested by the Employer, in which case it shall be entitled to an adjustment under the terms of the Turnkey Contract. Force Majeure affecting Subcontractor If any Subcontractor is entitled under any contract or agreement relating to the Works to relief from Force Majeure on terms additional to or broader than those specified, such additional or broader Force Majeure events or circumstances shall not excuse the Contractor’s non-performance or entitle it to relief. Optional Termination, Payment and Release If the execution of substantially all the Works in progress is prevented for a continuous period of eighty four (84) days by reason of Force Majeure of which notice has been given, or for multiple periods which total more than one hundred and forty (140) days due to the same notified Force Majeure, then either Party may give to the other Party a notice of termination of this Turnkey Contract. In this event, the termination shall take effect seven (7) days after the notice is given. 5.5.7.1.9

Termination by Employer The Employer shall be entitled to terminate this Turnkey Contract if: (a)

the Contractor fails to comply with section 5.5.7.1.4 (Performance Security) above or with a notice issued by the Employer to make good a failure and to remedy it within a specified reasonable time;

(b)

the Contractor fails substantially to perform any of its material obligations under this Turnkey Contract which resulted in the termination of the PPA,

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abandons the Works or demonstrates the intention not to continue performance of its material obligations under the Turnkey Contract; (c)

the EPC Contract or any agreement which forms part of the EPC Contract is terminated;

(d)

the Contractor without reasonable excuse fails: (i)

to proceed with the Works in accordance with paragraph 5.5.7.1.6 (Commencement, Taking Over, Delays And Suspension); or

(ii)

to commence and continue to use reasonable efforts to carry out the corrective action thereunder within a specified reasonable time as reasonably determined by the Employer's Representative;

(e)

the Contractor is dissolved or adjudicated a bankrupt or insolvent, goes into liquidation, has a receiving or administration order made against him, compounds with its creditors, or carries on business under a receiver, trustee or manager for the benefit of its creditors, or if any act is done or event occurs which (under applicable Laws) has a similar effect to any of these acts or events, which results in the Contractor being unable to materially fulfil its obligations;

(f)

the Contractor repudiates this Turnkey Contract, or abandons the construction of any Generating Block for more than twenty eight (28) consecutive days without the written consent of the Employer or reasonable excuse as determined by the Employer's Representative;

(g)

failure to achieve the taking over of any Generating Block within one hundred eighty (180) days after the Taking-Over Date for the relevant Generating Block;

(h)

the measured output of a Generating Block is more than five percent (5%) below the Guaranteed Net Output for that Generating Block within one hundred eighty (180) days after the Taking-Over Date for the relevant Generating Block;

(i)

the measured heat rate of a Generating Block is more than five percent (5%) above the relevant Guaranteed Net Heat Rate for that Generating Block within one hundred eighty (180) days after the Taking-Over Date for the relevant Generating Block;

(j)

the liquidated damages payable above have reached the maximum liquidated damages payable under the relevant clause;

(k)

the Contractor assigns or transfers this Turnkey Contract (or any right or interest herein) without the express written consent of the Employer;

(l)

the Contractor fails to comply with any provision of any applicable Laws or Applicable Permit, and such failure is not remedied within fourteen (14) days after the Contractor receives actual knowledge or such longer period necessary for the Contractor to cure such failure, not to exceed eighty four (84) days;

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the Contractor knowingly fails to maintain any insurance coverages required of it or within two (2) days of receiving actual knowledge of such failure, fails to correct its failure to maintain any such required insurance coverages.

5.5.7.1.10 Liquidated Damages The Contractor shall pay liquidated damages to the Employer in accordance with the provisions herein. The Parties agree that these damages shall not relieve the Contractor from its obligation to complete the Works, or from any other duties, obligations or responsibilities which it may have under this Turnkey Contract. (a)

(b)

Liquidated Damages for Delay In Taking Over (i)

The Contractor shall pay to the Employer agreed Liquidated Damages for each day of delay in achieving the taking over of Generating Block One (1) and Generating Block Two (2), beyond the Taking-Over Date that is not the result of Force Majeure or the Employer's failure to materially fulfil its obligations under this Turnkey Contract.

(ii)

Liquidated damages for delay in relation to Generating Block One (1) and Generating Block Two (2) shall be payable in the event of any defect, damage or impairment of which causes delay to the Interconnection Facilities which is required for commercial operation of Generating Block One (I) or Generating Block Two (2) (as the case may be), notwithstanding that such defect, damage or impairment occurs after the taking over of the Interconnection Facilities.

(iii)

However, the total of the liquidated damages for delay in taking over shall not exceed an amount equal to the value of 15% of the Accepted Contract Amount.

Liquidated Damages for Performance (i)

If a Generating Block’s output established in the Performance Test is less than the Guaranteed Net Output, the Contractor shall pay to the Employer as liquidated damages an amount to be determined.

(ii)

If the heat rate established for such Generating Block in the Performance Test exceeds the Guaranteed Net Heat Rate for the relevant Generating Block, the Contractor shall pay to the Employer as liquidated damages an amount to be determined.

(iii)

However, the total of the liquidated damages for performance payable by the Contractor shall not exceed an amount equal to the value of 20% of the Accepted Contract Amount.

The cumulative total of the liquidated damages in Items (a) and (b) above shall not exceed an amount equal to the value of 20% of the Accepted Contract Amount.

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Payment of Liquidated Damages The Employer shall have the right to set off the liquidated damages, if any, against any remaining payments of the Accepted Contract Amount due to the Contractor.

Payment Upon Termination In the event of termination by no fault of the Contractor, the Contractor shall be entitled to the Termination Payment, which is equal to the sum of: (a)

any and all scheduled payment due and owing to the Contractor on or prior to the date of termination;

(b)

a pro-rata payment for the Works properly performed by the Contractor and/or its Subcontractor(s) prior to the date of termination; and

all reasonable, actual termination costs incurred by the Contractor as a direct result of terminating, including any outstanding financing costs, and demobilising all aspects 5.5.7.1.11 Defects Liability Completion of Outstanding Work And Remedying Defects The Contractor shall: (a)

complete any work which is outstanding on the date stated in the TakingOver Certificate, within such reasonable time as is instructed by the Employer’s Representative; and

(b)

execute all work required to remedy defects or damage, as may be notified by the Employer on or before the expiry date of the relevant Defects Notification Period for the Works or Section, as the case may be.

If a defect appears or damage occurs, the Contractor shall be notified by the Employer. Defects Notification Period The Contractor warrants to remedy defects or damage: (a)

with respect to Generating Block One (1) and the Common Facilities, for a period of three hundred and sixty five (365) days from the Taking-Over Date or such later date for taking over the Generating Block One (1) and the Common Facilities as agreed between the Employer’s Representative and the Contractor; or

(b)

with respect to Generating Block Two (2), for a period of three hundred and sixty five (365) days from the Taking-Over Date or such later date for taking over the Generating Block Two (2) as agreed between the Employer’s Representative and the Contractor; or

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(c)

with respect to the Interconnection Facilities, for a period of seven hundred and thirty (730) days from the Taking-Over Date or such later date for taking over the Interconnection Facilities as agreed between the Employer’s Representative and the Contractor; or

(d)

with respect to such parts of the Facility that are not covered by the clauses above for a period of three hundred and sixty five (365) days from the Taking-Over Date for the Facility or such later date for taking over the Facility as agreed between the Employer’s Representative and the Contractor.

Cost of Remedying Defects Contractor is to bear risk and cost for all work referred to above if the work is attributable to: (a)

the design of the Works other than a part of the design for which the Employer is responsible; or

(b)

Plant, Materials or workmanship not in accordance with the Turnkey Contract;

(c)

Improper operation or maintenance for matters which the Contractor is responsible for; or

(d)

Contractor failing to comply with any other obligation.

Extension of Defects Notification Period for Recurring Defects (a)

The Contractor shall start anew the Defects Notification Period for any recurrent defect from the day of commissioning the changed, modified, remedied or replaced parts for twenty four (24) months in the case of Interconnection Facilities and twelve (12) months in all other cases.

(b)

When to the extent of the Works or a major item of Plant cannot be used because of a defect or damage, the Employer may extend the Defects Notification Period by no more than two (2) years.

(c)

The Defects Notification Period shall start anew in respect of parts of a Generating Block and/or Facility which is renewed.

Failure to Remedy Defects (a)

The Employer shall fix a new date to remedy the defect or damage and give reasonable notice of it if the Contractor fails to remedy any defect or damage within a reasonable time.

(b)

If the Contractor fails to remedy the defect or damage, the Employer may at its option:

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if the defect or damage deprives the Employer of substantially the whole benefit of the Works or any major parts of the Works, terminate the Turnkey Contract, in whole or in part. The Employer shall then be entitled to recover all sums paid for the Works or for such part, plus financing costs, cost of dismantling, clearing the Site and returning Plant and Materials to the Contractor.

Latent Defect Period If any error, defect, damages and/or failure of parts of the Works is discovered by the Employer and/or the Utility within sixty (60) months after the Taking Over Date for the relevant Generating Block or the Interconnection Facilities or the Facility or such later date for taking over such relevant Generating Block or the Interconnection Facilities or the Facility as agreed between the Employer’s Representative and the Contractor, the Contractor warrants to repair, replace, adjust and/or modify, provided that the defect was caused by the negligence of the Contractor and was a latent defect. 5.5.7.1.12 Claims, Disputes and Arbitration Contractor’s Claims If the Contractor considers himself to be entitled to any extension of the Time For Completion (Turnkey) and/or any additional payment, the Contractor shall give notice to the Employer’s Representative, describing the event giving rise to the claim. The notice must be given within twenty eight (28) days after the Contractor became aware of the event or circumstance, failure of which would render the Time For Completion (Turnkey) to not to be extended and the Contractor shall not be entitled to additional payment. Further, the Employer shall be discharged from all liabilities in connection with the claim. Amicable Settlement (a)

Both Parties shall attempt to settle any dispute arising from the Turnkey Contract before the commencement of any arbitration.

(b)

Both Parties shall continue to perform their obligations under the Turnkey Contract in the event any dispute or arbitration arises.

Arbitration (a)

Any dispute, controversy or claim arising out of the Turnkey Contract, or the breach, termination or invalidity thereof, shall be settled by arbitration in accordance with the rules for arbitration of the Kuala Lumpur Regional Centre for Arbitration by 1 arbitrator appointed in accordance with the said rules. The language to be used shall be English.

(b)

If any dispute arises in connection with the Turnkey Contract and the Contractor opines that the dispute concerns subcontracted Works, the Contractor may by notice in writing to the Subcontractor require that any dispute under the subcontract shall be referred to the mediator and/or arbitrator to whom the dispute under the Turnkey Contract is referred to.

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Mediation Either Party may suggest that the Parties undertake an ad-hoc mediation in respect of a dispute. 5.6

Project Insurance The Project Company and the Issuer will procure and maintain the insurance policies listed in sections 5.6.1 - 5.6.2 below over the construction period, with licensed insurers in Malaysia. Both the Project Company and the Issuer will be named as insured parties under the insurance policies procured for the Project.

5.6.1

Construction / Erection All Risks The Construction/Erection All Risks insurance covers the works and project materials, while in storage on site, during construction, erection, commissioning and testing until the issuance of the taking-over certificate of the plant, plus an additional warranty/maintenance period. The Material Damage section of the policy is structured to cover for the replacement value of the loss. Coverage provided by this policy is on an “all risks” basis and covers most accidental losses common to construction/erection. The full EPC Contract Price will be insured under the CEAR policy. The Delay In Start-Up section of policy provides cover against loss of projected revenue/fixed costs (including finance service costs), arising from the delay. The sum insured will be the Debt Service (excluding principal repayment obligations) and the Fixed costs only and the indemnity period is twenty (24) months. The Third Party Liability section of the policy will provide insurance coverage to the named insurers, for any legal action brought against them by third parties for bodily injury or death, or loss or damage to third party property from sudden and accidental means arising out of and in connection with the construction / erection works. The Third Party Liability policy will have a limit of indemnity of RM 50,000,000 for each and every occurrence.

5.6.2

Marine Cargo The Marine Cargo Open Cover provides insurance cover against loss or damage to all materials including plant and equipment, spares, etc. during transit from the time the materials leave the supplier’s premises anywhere in the world, during the journey and includes all incidental storage and fabrication off-site until the materials are delivered to the Site. The Delay in Start-Up section of the Marine Cargo Open Cover provides cover against loss of projected revenue/fixed costs (including finance service costs), following a loss or damage to the shipment insured under the Marine Cargo Open Cover (excluding principal repayment obligations) which consequently results in a delay in commercial operations. The sum insured will be the Debt Service and Fixed costs only and the indemnity period is eighteen (18) months. (The rest of this page has been intentionally left blank)

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6.

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PRINCIPAL TERMS AND CONDITIONS OF THE SUKUK TNB NE

1.

BACKGROUND INFORMATION

a.

Issuer (i)

Name

TNB Northern Energy Berhad (“TNB Northern Energy”, “TNB NE” or the “Issuer”)

(ii)

Address

Company Secretary’s Office, Level 2, Tenaga Nasional Berhad Headquarters, No. 129 Jalan Bangsar, 59200 Kuala Lumpur

(iii)

Business registration

(iv)

Date and place of incorporation

19 November 2012 / Malaysia

(v)

Date of listing

Not listed

(vi)

Status on residence

Resident controlled company

(vii)

Principal activities

Generating and supplying electricity and handling other matters relating to electricity in Malaysia

(viii)

Board of directors

As at 30 March 2013, the members of the Board of Directors of TNB NE are as follows:

(ix)

no.

Structure of shareholdings and names of shareholders or, in the case of a public company, names of all substantial shareholders

Company No. 1024796-X

(a)

Mustaffa bin Ja’afar (NRIC: 590223-01-5633)

(b)

Jamel bin Ibrahim (NRIC: 641204-07-5689)

(c)

Ahmad Faraid Bin Mohd Yahaya (NRIC: 591024-07-5873)

As at 30 March 2013, the substantial shareholders and structure of their shareholdings of the Issuer are as follows: Name

TNB Prai Sdn Bhd (x)

No. of ordinary shares of RM1.00 each held

Shareholding (%)

2

100

Authorised, issued Authorised Share Capital as at 30 March 2013 and paid-up capital RM10,000,000.00 divided into 2,000,000 ordinary shares of RM1.00 each and 8,000,000 Redeemable Preference Shares of RM1.00 each

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Issued and Fully Paid-up Share Capital as at 30 March 2013 RM2.00 divided into 2 ordinary shares of RM1.00 each (xi)

Disclosure of the following



if the Issuer or its None board of members have been convicted or charged with any offence under the securities laws, corporation laws or other laws involving fraud or dishonesty in a court of law, for the past five years prior to the date of application; and



if the Issuer has been Not applicable as the Issuer is not a listed company subjected to any action by the stock exchange for any breach of the listing requirements or rules issued by the stock exchange, for the past five years prior to the date of application

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2.

INDICATIVE PRINCIPAL TERMS AND CONDITIONS

a.

Name of parties involved in the proposed transactions (where applicable) (i)

Joint principal advisers

HSBC Amanah Malaysia Berhad (“HSBC Amanah”) and KAF Investment Bank Berhad (“KAF”)

(ii)

Joint lead arrangers

HSBC Amanah and KAF (jointly known as the “JLAs”)

(iii)

Co- arranger

Not applicable

(iv)

Solicitors

Messrs Zaid Ibrahim & Co., acting for the Issuer Messrs Adnan Sundra & Low, acting for the JLAs

(v)

Financial adviser

HSBC Bank Malaysia Berhad

(vi)

Technical adviser / Environmental Adviser

Mott MacDonald Singapore Pte Ltd

(vii)

Sukuk Trustee

AmTrustees Berhad

(viii) Shariah adviser

HSBC Amanah

(ix)

Guarantor

Tenaga Nasional Berhad “Sponsor” or the “Guarantor”)

(x)

Valuer

Not applicable

(xi)

Facility Agent

KAF

(xii)

Primary subscriber(s) (under a bought-deal arrangement) and amount subscribed

To be determined prior to issuance

(xiii) Underwriter(s) and amount underwritten

Not applicable

(xiv) Central depository

Bank Negara Malaysia (“BNM”)

(xv)

BNM

Paying agent

(xvi) Reporting accountant

PricewaterhouseCoopers (“PwC”)

(xvii) Calculation agent

Not applicable

(xviii) Others (please specify)

Joint Lead Managers (“JLMs”)

(“TNB”,

the

HSBC Amanah and KAF Private & Confidential

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Joint Bookrunners (“JBs”) HSBC Amanah and KAF Insurance Adviser Sterling Insurance Broker Sdn Bhd Project Company TNB Prai Sdn Bhd (“TNB Prai” or the “Project Company”) Security Agent KAF Account Bank HSBC Amanah b.

Islamic principles used

c.

Facility description

Ijarah and Wakalah Issue of Sukuk Issuance of up to RM2.0 billion in nominal value of Islamic securities under the Islamic principles of Ijarah and Wakalah (“Sukuk TNB NE”). Grant of Right Agreement Pursuant to a Land Lease Agreement (the “LLA”) entered into between TNB Prai and TNB as Land Lessor, the Ijarah Project Lands (as defined below) are leased to TNB Prai for a duration of 24 years. TNB Prai (in its capacity as grantor (“Grantor”)) shall enter into a grant of right agreement (the “Grant of Right Agreement”) with TNB NE (in its capacity as grantee (“Grantee”)) acting on behalf of subscribers of the Sukuk TNB NE (“Sukukholders”), which term shall include any holders of the Sukuk TNB NE from time to time, to grant the right over the use of the Ijarah Project Lands and to derive the benefits of the usufruct rights over the use of the Ijarah Project Lands (the “Asset”) for a duration of 24 years or such period as corresponding to the lease term in the LLA with an option to be extendable for another 24 years subject to the PPA term being extended as set out in the LLA (“Grant of Right”). The Grantee will make a single upfront rental payment (“One-off Rental”) to the Grantor, which amount shall be equivalent to

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the aggregate proceeds to be raised from the issuance of the Sukuk TNB NE. Declaration of Trust and issuance of Sukuk TNB NE Pursuant to a Declaration of Trust, the Issuer (in its capacity as trustee) shall declare a trust over the Asset including the rights, title, interest and benefit, present and future, in and to under the Grant of Right Agreement, the Ijarah Lease Agreement (as defined below), the Service Agency Agreement and the Purchase Undertaking (the “Trust Asset”) for the benefit of the Sukukholders. The Issuer shall issue Sukuk TNB NE to the Sukukholders which shall represent the Sukukholders’ undivided proportionate beneficial ownership interest, rights and entitlements under the Trust Asset. The Sukuk TNB NE proceeds shall be utilised to pay the Grantor the One-off Rental under the Grant of Right Agreement. Ijarah Lease With the Asset held by the Issuer (in its capacity as Grantee), acting on behalf of the Sukukholders, the Issuer (in its capacity as Lessor) shall enter into an Ijarah Lease Agreement (the “Ijarah Lease Agreement”) with TNB Prai (as Lessee), to lease the Asset to the Lessee, for a tenor corresponding to the maturity of the final series (“Series”) of the Sukuk TNB NE, i.e. more than 4 years and not exceeding 23 years (the “Lease Period”), in consideration for pre-determined Ijarah rental payments (the “Lease Rentals”) which shall be the sum equivalent to the aggregate of all Periodic Distribution Amounts (as defined below) to be channeled by the Issuer to the Sukukholders as periodic distributions (“Periodic Distribution Amounts”) in proportion to their sukukholdings on each periodic distribution date. Under the Ijarah Lease Agreement, the Lessor shall be responsible for procuring takaful/insurance in respect of the Asset, and the Lessee has acknowledged that the Lessor may procure the Servicing Agent or its representative, in accordance with the terms and conditions set out in the Service Agency Agreement, to perform or to procure the payment of takaful/ insurance of the Asset under a Total Loss Event (as defined below). Private & Confidential

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To the extent that the Servicing Agent incurs any cost and expenses in relation to the procurement of takaful/insurance (the “Service Charge Amount”:), the Lease Rentals under the Ijarah Lease Agreement will provide for supplementary rental (forming part of the rental payments), which will be an amount equal to the Service Charge Amount incurred in the previous period (the Supplementary Lease Rentals”). The Supplementary Lease Rentals due from the Lessee will be set off against the obligation of the Issuer to pay the Service Charge Amount to the Servicing Agent. Wakalah Arrangement Pursuant to a Wakalah Agreement, TNB Prai shall appoint the Issuer as its agent (“Wakeel”) for the provision of certain services for a wakalah fee of RM100.00, for a period corresponding to the period for the construction and delivery of the Plant to TNB Prai under the Turnkey Contract (referred to below). The Wakeel shall be responsible to: (i)

Safe-keep the One-off Rental paid to TNB Prai as Grantor on a Wadiah basis; and

(ii)

To make payments including (a) payment on behalf of TNB Prai (as lessee) of the Lease Rentals to the Lessor; (b) any payments as set out paragraph (2)(m) below (Details on Utilisation of Proceeds) items (1) to (3); and (c) any other payments or cost in relation to and associated with the Project (as defined below) comprising those set out in the said paragraph (2)(m) items (4) to (6).

The Wakalah Agreement will cease upon the completed Plant being delivered to TNB Prai under the Turnkey Contract. Thereafter, TNB Prai as Lessee will pay the Lease Rentals directly to the Lessor, who in turn will channel to Sukukholders as Periodic Distribution Amounts. Service Agency Agreement Pursuant to a Service Agency Agreement, the Issuer (in its capacity as Lessor), acting on Private & Confidential

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behalf of the Sukukholders, shall appoint TNB Prai as the “Servicing Agent” for a servicing agent fee of RM100.00, throughout the Lease Period to carry out certain of its obligations. The Servicing Agent shall be responsible to procure takaful/insurance in respect of the Asset that provides sufficient proceeds for the redemption of the Sukuk TNB NE under a Total Loss Event (as defined below). If the takaful/insurance proceeds are insufficient to cover the redemption amount due under the Sukuk TNB NE under a Total Loss Event (the “Redemption Amount”), the Servicing Agent shall be liable to make good the difference. Any excess from the takaful/insurance proceeds over the Redemption Amount, if any, shall be paid to the Servicing Agent as an incentive fee. “Total Loss Event” is the total loss or destruction of, or damage to the whole (and not part only) of the Asset under the Grant of Right Agreement and Ijarah Lease Agreement or any event or occurrence that renders the whole (and not part only) of the Asset permanently unfit for any economic use and the repair or remedial work in respect thereof is wholly uneconomical. For the avoidance of doubt, “Redemption Amount” shall be equal to the nominal value of all outstanding Sukuk TNB NE plus an amount equal to any Service Charge Amount payable in respect of the Asset and provided that an amount equal to such Service Charge Amount has not already been paid by way of Supplementary Lease Rentals plus all accrued but unpaid Lease Rentals up to the date of the declaration of the Total Loss Event. Purchase Undertaking TNB Prai (as the “Purchaser”) will grant a purchase undertaking (the “Purchase Undertaking”) to the Issuer, whereby the Purchaser irrevocably undertakes to purchase the proportionate undivided ownership in the remaining period of the Grant of Right from the Sukukholders of the relevant series of the Sukuk TNB NE, upon declaration of a Dissolution Event (save for a Dissolution Event due to a Total Loss Event) or upon the Maturity Date whichever is earlier, at the relevant Exercise Price (defined below). The proceeds therefrom shall be utilised by the Issuer for the redemption of such relevant Sukuk TNB NE Private & Confidential

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held by the Sukukholders which shall then be cancelled. In relation to the Purchase Undertaking, the “Exercise Price” is as follows: (a) upon declaration of a Dissolution Event (save for a Dissolution Event due to a Total Loss Event), the Exercise Price shall be equal to the nominal value of all outstanding Sukuk TNB NE plus an amount equal to any Service Charge Amount payable in respect of the Asset and provided that an amount equal to such Service Charge Amount has not already been paid by way of Supplementary Lease plus all accrued but unpaid Lease Rentals up to the date of the declaration of the Dissolution Event; or (b) upon maturity of the relevant series of the Sukuk TNB NE, the Exercise Price shall be equal to the nominal value of such series of the Sukuk TNB NE plus an amount equal to any Service Charge Amount payable in respect of the Asset and provided that an amount equal to such Service Charge Amount has not already been paid by way of Supplementary Lease Rentals plus all accrued but unpaid Lease Rentals up to the date of maturity. In the event there is a Mandatory Redemption event as set out in paragraph (2)(y)(xvii), TNB Prai (as the “Purchaser”) will, pursuant to the Purchase Undertaking, purchase the relevant proportionate undivided ownership in the remaining period of the Grant of Right from the Sukukholders of the relevant series of the Sukuk TNB NE, at the relevant Mandatory Redemption Exercise Price (defined below). The proceeds therefrom shall be utilised by the Issuer for the redemption of such relevant Sukuk TNB NE held by the Sukukholders which shall then be cancelled. In relation to the Purchase Undertaking, the “Mandatory Redemption Exercise Price” is equal to the percentage of the Mandatory Redemption Amount allotted to the respective series as set out in paragraph (2)(y)(xvii)(a) and (b). “Turnkey Contract” means the contract between the Project Company and the Issuer, whereby the Issuer will procure the execution of the Project on a turnkey basis and administer and manage the development of the Project on Private & Confidential

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behalf of the Project Company. “Project” means, the financing, design, engineering, procurement, construction, installation, testing, commissioning, ownership, operation and maintenance of a 1071.43MW combined cycle gas-fired power plant (“Plant”) in Prai, Pulau Pinang. A diagrammatical illustration for Sukuk TNB NE is set out in Appendix 1. The “Ijarah Project Lands”, which are part of the 2 pieces of lands held under titles HSD 50349 Lot PT 10 and HSD 55959 Lot PT 13, both in Bandar Prai, Seberang Perai Tengah, measuring approximately 77,610 sq m and 12,360 sq m respectively, where the Plant will be situated.

d.

Identified assets

e.

Purchase and selling Purchase and selling price price/rental (where applicable) Not applicable Rental To be determined at the point of issuance of the Sukuk TNB NE.

f.

Issue/Sukuk Size

g.

Tenure of issue/Sukuk

Sukuk of up to RM2 billion in nominal value, one-off issuance based on the Shariah principles of Ijarah and Wakalah (“Sukuk TNB NE”) The tenor of each Series of the Sukuk TNB NE shall be more than four (4) years and up to twenty three (23) years (subject to finalisation of cashflow projections and comments by the relevant rating agency) from the issue date. For the avoidance of doubt, there will only be a one-off issuance of the Sukuk TNB NE, accordingly, all the Series of Sukuk TNB NE will have the same issue date. It is expected that the Sukuk TNB NE will consist of 39 Series, with tenors ranging from 4 years to 23 years.

h.

Availability period of Sukuk

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approval by the Securities Commission (“SC”). To be determined prior to issuance of the Sukuk TNB NE (“Periodic Distribution Rate”).

i.

Profit/coupon/rental rate

j.

Profit/coupon/rental frequency

payment The frequency of the periodic distribution amounts (“Periodic Distribution Amounts”) for the Sukuk TNB NE shall be on a semiannual basis. The periodic distribution dates (“Periodic Distribution Dates”) shall be the date for payment of each of the Periodic Distribution Amount, being each date falling at the end of consecutive six (6) month periods commencing from the Issue Date.

k.

Profit/coupon/rental basis

payment

l.

Security/collateral, applicable

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The Periodic Distribution Amounts shall be calculated based on the actual number of days elapsed and 365 days basis (actual/365).

where The Sukuk TNB NE shall be secured by: (1)

A first ranking assignment of all of the Issuer and Project Company’s rights, interests, titles and benefits under the Project Documents (as defined below) including all the performance and/or maintenance bonds issued or to be issued to the Issuer and/or the Project Company in relation to the Project, and the proceeds therefrom, excluding the generation license;

(2)

A first ranking assignment and charge of all Designated Accounts (as defined below) and the credit balances therein;

(3)

A debenture incorporating a first ranking fixed and floating charge on the assets of the Project Company and the Issuer in relation to the Project, both present and future;

(4)

A first ranking assignment of all relevant material insurance policies/ Takaful contracts of the Project Company and the Issuer in respect of the Project;

(5)

Sponsor’s Completion referred to below);

(6)

Sponsor’s Rolling Guarantee (as referred to below);

(7)

Security to be granted as conditions subsequent pursuant to sub-paragraphs 2(y)(ii)(f) and 2(y)(ii)(h) below;

Support

(as

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Such other security as may be required by the rating agency to achieve the requisite rating for the Sukuk TNB NE or advised by the legal counsel of the Joint Lead Arrangers as are mutually agreed between the Joint Lead Arrangers and the Issuer. Sponsor’s Completion Support The Sponsor shall provide an unconditional and irrevocable guarantee for the period (“Guarantee Period”) commencing from (and including) the issue date of the Sukuk TNB NE and expiring on the date falling 12 months from the Scheduled COD (as defined below) or the date upon the declaration of a Dissolution Event (whichever is earlier) to: (1)

fund any cost overruns incurred relating to the Project for up to a cap of 10% of the Project cost as reflected in the Base Case Financial Model (as defined below); and

(2)

fund any principal obligations and Periodic Distribution Amounts under the Transaction Documents (as defined below) (“Finance Service”) for up to 12 months post the Scheduled COD (as defined below).

The Sponsor shall have the right, but not the obligation, to increase the guaranteed amount and/or extend the period of the guarantee at its sole discretion. For the avoidance of doubt, the Sponsor’s Completion Support shall not include any accelerated payments upon a declaration of a Dissolution Event. The Sponsor’s Completion Support shall cease and have no further effect on the earlier of the expiry of the Guarantee Period and the date on which the following having been fulfilled to the reasonable satisfaction of the Security Agent: (i)

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certification has been received from the Technical Adviser confirming the date specified in the Taking Over Certificate issued by the Issuer’s engineer under the EPCC as the date on which the Works (as defined in the EPCC) are completed in accordance with the EPCC;

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(ii)

all costs incurred or payable prior to Commercial Operation Date (as defined in the PPA) in relation to the Project have been paid (including any cost overruns); and

(iii)

all Conditions Subsequent have been satisfied.

Sponsor’s Rolling Guarantee Upon cessation of the Sponsor’s Completion Support and until the final maturity date of the Sukuk TNB NE or the date upon the declaration of a Dissolution Event (whichever is earlier), the Sponsor shall provide a rolling, unconditional and irrevocable guarantee in an amount equivalent to the next 6-month Finance Service. The Sponsor’s Rolling Guarantee shall automatically be renewed at every Periodic Distribution Dates or when drawn. For the avoidance of doubt, the Sponsor’s Rolling Guarantee shall not include any accelerated payments upon a declaration of a Dissolution Event. 28 calendar days prior to each Periodic Distribution Date, in the event that the cash balance in the Issuer MYR RA is less than the upcoming scheduled Finance Service amount payable (“Upcoming Finance Service”), the Sponsor’s Rolling Guarantee will be drawn to fund the Issuer MYR RA, via the ProjCo MYR RA, up to an amount equivalent to the Upcoming Finance Service. m. Details on utilisation of proceeds by Issuer. If proceeds are to be utilised for project or capital expenditure, description of the project or capital expenditure, where applicable

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The Issuer and Project Company shall undertake to use the proceeds only for the following Shariah-compliant utilisations in connection with the Project: (1)

pay and/or towards reimbursement of all costs associated with the Project including but not limited to site acquisition, development, design, construction, compensation payments, start-up, initial operations of the Project pursuant to the Project Documents;

(2)

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(including fees and costs incurred for the establishment of the Sukuk TNB NE facility and issuances thereunder, if any) prior to the COD of the Project; (3)

pay and/or towards reimbursement of any other Project related costs, including consultant fees, takaful contribution and contingencies;

(4)

meet the working capital requirements of the Issuer/Project Company in relation to the Project;

(5)

inter-company advances between the Issuer and Project Company for payments of any costs associated to the Project; and

(6)

conversions into USD and EUR for the payments of all Project costs.

For the avoidance of doubt, the use of the proceeds by the Issuer as set out above shall not be subject to the “Priority of Cashflow” as provided below, and in particular, any reimbursement of costs and expenses advanced to the Issuer or the Project Company prior to issuance of the Sukuk TNB NE will not be subject to the restrictions on payments set out in Negative Covenants item (j) (Restricted Payments). n.

Sinking fund and designated Sinking fund accounts: none. accounts, where applicable Designated Accounts: refer to item 2(y)(xi)

o.

Rating

p.



Credit rating(s) assigned The Sukuk TNB NE has been accorded a (Please specify if this is an preliminary rating of AAAIS by the Rating Agency. indicative rating)



Name of agency

Mode of issue

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credit

rating Malaysian Rating Corporation Berhad (Co. No. 364803-V) The Sukuk TNB NE may be issued via bought deal or via book-building on a best effort basis or via direct placement on a best effort basis.

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Selling restriction, including Selling Restrictions at Issuance tradability (i.e. tradable or nontradable) The Sukuk TNB NE may only be offered, sold, transferred or otherwise disposed directly or indirectly to a person to whom an offer or invitation to subscribe the Sukuk TNB NE may be made and to whom the Sukuk TNB NE are issued would fall within Schedule 6 or Section 229(1)(b) of the Capital Markets and Services Act 2007 (“CMSA”) and Schedule 7 or Section 230(1)(b) of the CMSA, read together with Schedule 9 or Section 257(3) of the CMSA. Selling Restrictions Thereafter The Sukuk TNB NE may only be offered, sold, transferred or otherwise disposed directly or indirectly to a person to whom an offer or invitation to purchase the Sukuk TNB NE would fall within Schedule 6 or Section 229(1)(b) of the CMSA, read together with Schedule 9 or Section 257 of the CMSA.

r.

Listing status and types of The Sukuk TNB NE will not be listed on any listing, where applicable stock exchange.

s.

Other regulatory approvals None. required in relation to the issue, offer or invitation to subscribe or purchase sukuk, and whether or not obtained

t.

Conditions precedent

To include but not limited to the following: A.

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Main Documentation

(a)

The Project Documents and Transaction Documents (as defined below) have been signed and where applicable stamped or endorsed as being exempted from stamp duty and presented for registration with the relevant registries (where applicable) including the High Court of Malaya in respect of the power of attorneys. For the avoidance of doubt, “Transaction Documents” in context of this condition precedent only, excludes the security documents required to be perfected under paragraph 2(y)(ii) (Conditions Subsequent) below; and

(b)

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case may be, other than those set out in paragraph 2(y)(ii) (Conditions Subsequent). (c)

Receipt from the Issuer and Project Company, as the case may be, certified true copies of all the executed and where applicable, stamped Project Documents and any other supplemental documentation in relation thereto.

For the purposes of this PTC, “Transaction Documents” means the transaction documents executed or to be executed in connection with the proposed issue of the Sukuk TNB NE, which term includes issue documents, Shariah required documents and security documents relating to the Sukuk TNB NE.

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B.

The Issuer / Project Company

(a)

Certified true copies of the Certificate of Incorporation and the Memorandum and Articles of Association of the Issuer and Project Company;

(b)

Certified true copies of the Forms 24 and 49 of the Issuer and Project Company;

(c)

A certified true copy of a board resolution of the Issuer and Project Company authorising, among others, the execution of the relevant Transaction Documents;

(d)

A list of the Issuer and Project Company’s authorised signatories and their respective specimen signatures;

(e)

A report of the relevant company search of the Issuer and Project Company;

(f)

A report of the relevant winding-up search or the relevant statutory declaration of the Issuer and Project Company; and

(g)

Evidence satisfactory to the Joint Lead Arrangers that the Project Company has an issued and paid-up share capital of not less than RM5m.

C.

General

(a)

The approval from Commission (“SC”);

(b)

The Sukuk TNB NE shall have received

the

Securities

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a rating of at least AAAIS from the Rating Agency;

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(c)

Evidence that all the Designated Accounts have been opened and in accordance with the provisions of this PTC;

(d)

Evidence that the Forms 34 (as prescribed under the Companies Act), where applicable, in respect of the charges created pursuant to the relevant Transaction Documents (for the purpose of registration of such charges with the Companies Commission of Malaysia (“CCM”) in accordance with Section 108 of the Companies Act 1965) have been duly lodged with the CCM and that immediately prior to the lodgement of such Forms 34, a search conducted on such company in respect of which the Form 34 is filed, revealed that there are no other charges that have been registered by it with the CCM;

(e)

The Joint Lead Arrangers have received a satisfactory legal opinion from the Issuer’s solicitors addressed to them advising with respect to, among others, the legality, validity and enforceability of the Project Documents (excluding the generation license) against the Issuer/Project Company and confirming to the Joint Lead Arrangers that all the conditions precedents in relation to the Project Documents (if applicable) have been fulfilled;

(f)

The Joint Lead Arrangers have received a satisfactory legal opinion from their legal counsel addressed to them and the Trustee advising with respect to, among others, the legality, validity and enforceability of the Transaction Documents and a confirmation from the legal counsel addressed to the Joint Lead Arrangers confirming that all the conditions precedent in relation to the Transaction Documents have been fulfilled;

(g)

A written report from the Technical Adviser in form and substance satisfactory to the Joint Lead Arrangers;

(h)

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satisfactory to the Joint Lead Arrangers;

u.

Representations warranties

and

(i)

A written report from the Environmental Adviser in form and substance satisfactory to the Joint Lead Arrangers;

(j)

Receipt of a certified true copy of the environmental impact assessment report ("EIA") and environmental management plan ("EMP") in respect of the Project and evidence that all conditions in the EIA and EMP reports (which are required to have been met at such time) have been met and approved by the Department of Environment ("DOE");

(k)

Evidence of the confirmation from the Shariah Advisers that the structure and mechanism together with the Transaction Documents of the Sukuk TNB NE are in compliance with Shariah principles;

(l)

Delivery of a financial model, showing a minimum projected base case FSCR of at least 1.25x ("Base Case FSCR") and a FE Ratio not exceeding 70:30, satisfactory to the Joint Lead Arrangers (the "Base Case Financial Model");

(m)

All transaction fees, costs and expenses have been fully paid or documentary evidence that it will be paid from the issue proceeds; and

(n)

Such other conditions precedent as may be advised by the legal counsel of the Joint Lead Arrangers and to be mutually agreed between the Joint Lead Arrangers and the Issuer.

Each of the Issuer and Project Company represents and warrants to all the counterparties of the facility agreement as follows: (a) it is a company incorporated and laws of Malaysia, its business and assets;

with limited liability duly validly existing under the has full power to carry on to own its property and

(b) subject to the perfection requirements referred to in the legal opinion delivered under paragraph 2(t) (Conditions Precedent) and paragraph 2(y)(ii) (Conditions Subsequent) and upon taking all necessary actions and obtaining the consents and Private & Confidential

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approvals referred to under paragraph 2(t) (Conditions Precedent) and paragraph 2(y)(ii) (Conditions Subsequent), its memorandum and articles of association incorporate provisions which authorise, and all necessary corporate and other relevant actions have been taken to authorise, and all relevant consents and approvals of any administrative, governmental or other authority or body in Malaysia have been duly obtained and are in full force and effect which are required to authorise it to execute and deliver and perform the transactions contemplated in the Transaction Documents in accordance with their terms; (c) subject to any general principles of law limiting its obligations referred to in the legal opinion delivered under paragraph 2(t) (Conditions Precedent) and paragraph 2(y)(ii) (Conditions Subsequent) and upon taking all necessary actions and obtaining the consents and approvals referred to under paragraph 2(t) (Conditions Precedent) and paragraph 2(y)(ii) (Conditions Subsequent), the Sukuk TNB NE and each of the other Transaction Documents, is or will be when executed and/or issued, as the case may be, in full force and effect and constitutes, or will when executed or issued, as the case may be, constitute, its valid and legally binding obligations enforceable in accordance with the terms of the Sukuk TNB NE and each such Transaction Document; (d) subject to the perfection requirements referred to in the legal opinion delivered under paragraph 2(t) (Conditions Precedent) and paragraph 2(y)(ii) (Conditions Subsequent) and upon taking all necessary actions and obtaining the consents and approvals referred to under paragraph 2(t) (Conditions Precedent) and paragraph 2(y)(ii) (Conditions Subsequent), neither the execution and delivery of any of the Transaction Documents by the Issuer, nor the performance of any of the transactions contemplated by the Transaction Documents by the Issuer, did or does as at the date the representation and warranty is made or repeated (i) contravene or constitute a default under any provision contained in any financing agreement, instrument, law, ordinance, decree, Private & Confidential

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judgment, order, rule, regulation, licence, permit or consent by which it or any of its assets are bound or which is applicable to it or any of its assets, (ii) cause the powers of its directors, whether imposed by or contained in its memorandum and articles of association or in any agreement, instrument, law, ordinance, decree, order, rule, regulation, judgment or otherwise, to be exceeded, or (iii) cause the creation or imposition of any security interest or restriction of any nature on any of its assets (other than the securities as contemplated under this PTC); which will have a Material Adverse Effect or a material adverse effect on the validity or enforceability of the Transaction Documents or the right or remedies of a party (other than the Issuer) under the Transaction Documents; (e) save for the perfection requirements referred to in the legal opinion delivered under paragraph 2(t) (Conditions Precedent) for Issuance and paragraph 2(y)(ii) (Conditions Subsequent) and upon taking all necessary actions and obtaining the consents and approvals referred to under paragraph 2(t) (Conditions Precedent) and paragraph 2(y)(ii) (Conditions Subsequent), no authorisation, approval, consent, licence, exemption, registration, recording, filing or notarisation and no payment of any duty or tax and no other action whatsoever is necessary to ensure the legality, validity, enforceability of its liabilities and obligations or the rights of the Sukukholders under the Transaction Documents or the Sukuk TNB NE; (f) save for the CIDB Licence which the Issuer will obtain within 6 months after issuance of the Notice to Proceed (as defined in the EPCC) Sukuk TNB NE, all consents, licences, approvals or authorisations of governmental authorities in Malaysia which are required for it to own its assets and carry on its business as it is being conducted have been duly obtained and complied with and are in full force and effect where failure to do so would have a Material Adverse Effect; (g) except as disclosed to the Trustee in writing, no litigation, arbitration or administrative proceeding or claim is current, presently in progress or pending against it or any of its Private & Confidential

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assets which would have a Material Adverse Effect; (h) the information memorandum issued in connection with the Sukuk TNB NE (“Information Memorandum” which term shall include the Information Memorandum as amended or supplemented from time to time) does not contain any statements or information which are false or misleading in any material respect, or from which there is a material omission which makes the statement therein, in light of the circumstances under which they are made, misleading in any material respect as at the date of the Information Memorandum or such other date specified therein and all expressions of expectation, intention, belief and opinion contained therein were honestly made on reasonable grounds after due and careful inquiry by the Issuer based on facts existing as at the date of the Information Memorandum or such other dates specified therein; (i) there has been no material adverse change in the financial condition of the Issuer since the date of its incorporation (where no audited financial statements have been prepared) or since its last audited financial statements, which would have a Material Adverse Effect; (j) no Dissolution Event has occurred and continuing. (k) unless otherwise disclosed, its latest audited financial statements (including the cashflow statements, income statements and balance sheet) have been prepared in accordance with approved accounting standards in Malaysia and give a true and fair view of its financial position for that year and the state of its affairs at that date, as the case may be; (l) all necessary returns have been delivered to the relevant taxation authorities and there has not been default in the payment of any tax; (m) it has fully disclosed in writing to the Facility Agent, the Security Agent and the Joint Lead Managers all facts relating to it which it knows or should reasonably know and which are material for disclosure to the Trustee or the Sukukholders in the context Private & Confidential

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of the Transaction Documents; (n) the Sukuk TNB NE constitute direct, unconditional and secured obligations of the Issuer and at all times rank: (i) pari passu, without discrimination, preference, priority amongst themselves; (ii) at least pari passu with all other present and future unsecured and unsubordinated obligations of the Issuer, subject to those preferred by law; (o) Each copy of the Project Documents delivered to the Trustee/Security Agent is true and complete; (p) Save for the Project Documents delivered to the Trustee/Security Agent there is no other agreement in connection with the Project, or arrangements which amend, supplement or change the effect of any Project Document in any material respect; and (q) all takaful/insurances required under the Project Documents have been effected and are valid and binding and all takaful contributions/ premiums due have been paid and, so far as the Issuer is aware, nothing has been done or omitted to be done which has made or could make any such policy void or voidable. “Material Adverse Effect” means, in relation to any event, the occurrence of which materially and adversely affect the ability of the Issuer, Project Company or Sponsor to perform its respective obligations under the Sukuk TNB NE and/or any of the Transaction Documents to which it is a party. The representations and warranties are given on the date of the relevant agreements and repeated on the date of the issue request and the issue date of the Sukuk TNB NE only with respect to the facts and circumstances then subsisting, as if repeated by reference to the then existing circumstances. v.

Events of default, dissolution The following events: event and enforcement event, (a) the Issuer fails to pay any principal or profit where applicable under the Sukuk TNB NE and such failure is not remedied within five (5) business days from its due date; (b) the Issuer, Project Company and/or Sponsor fails to observe or perform any of

Private & Confidential

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its obligations under any of the Transaction Documents or under any undertaking or arrangement entered into in connection therewith (other than an obligation of the type referred to in paragraph (a) above) where such failure would have a Material Adverse Effect, and in the case of a failure which in the reasonable opinion of the Trustee is capable of being remedied, the Issuer does not remedy the failure within 30 days after the Issuer became aware or having been notified by the Trustee in writing of the failure to comply; (c) any representation or warranty made or given by the Issuer and/or Project Company under the Transaction Documents or which is contained in any certificate, document or statement furnished at any time pursuant to the terms of the Sukuk TNB NE and/or any of the Transaction Documents proves to have been incorrect or misleading in any material respects on or as of the date made or given or deemed made or given, where such event would have a Material Adverse Effect and in the case of a failure which in the reasonable opinion of the Trustee is capable of being remedied, the Issuer and/or Project Company do not remedy the failure within 30 days after the Issuer and/or Project Company become aware of such misrepresentation or has been notified by the Trustee in writing of such misrepresentation; (d) any of the Project Documents is terminated or there has been a breach of any material obligations by the Issuer, Project Company and/or project counterparties under any of such documents which would have a Material Adverse Effect and which, if capable of remedy, has not been remedied to the reasonable satisfaction of the Trustee within a period of 30 days after the Issuer and/or Project Company became aware or having been notified by the Trustee in writing of such breach; (e) any financial indebtedness (other than the Sukuk TNB NE) of the Issuer and/or Project Company becomes due or payable or capable of being declared due or payable prior to its stated maturity, or any guarantee or similar obligations of any of the Issuer and/or Project Company for financial indebtedness is not discharged at maturity Private & Confidential

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or when called and such declaration of financial indebtedness being due or payable or such call on the guarantee or similar obligations would have a Material Adverse Effect unless within 90 days: (i) it is contested in good faith by the Issuer and/or Project Company; or (ii) the Trustee is furnished with evidence that the relevant creditors’ agreement has been obtained not to declare due or not to call on the guarantee or similar obligations or to waive such default or not to take any further action in relation thereto. For the purpose of this paragraph, “financial indebtedness” shall mean, without duplication or double counting, whether Islamic or conventional: a.

all indebtedness for borrowed money in respect of which interest and profit charges are customarily paid and other indebtedness under or pursuant to Islamic financing;

b.

all indebtedness for or in respect of any amount raised pursuant to the issue of bonds, notes, debentures, loan stock or any similar instrument;

c.

all financial guarantees by the Issuer and/or Project Company of financial indebtedness of others; and

d.

all hire purchase and finance lease obligations of the Issuer and/or Project Company,

provided that notwithstanding the foregoing, the term "financial indebtedness" shall not include subordinated shareholders loans or advances, redeemable preference shares, vendor financing, trade credits in the ordinary course of business or security or refundable deposits taken in the ordinary course of business. (f) an encumbrancer takes possession of, or a trustee, receiver, receiver and manager or similar officer is appointed in respect of the whole or any part of the assets of the Issuer and/or Project Company, or distress, legal process, sequestration or any form of execution is levied or enforced or sued out against such assets which would have a Private & Confidential

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Material Adverse Effect and is not discharged within 90 days, or any security interest which may for the time being affect any of such assets becomes enforceable and which would have a Material Adverse Effect. (g) the Issuer and/or Project Company fails to satisfy any judgement involving material liabilities passed against it by any court of competent jurisdiction (excluding those liabilities in which it is confirmed that insurance coverage can be claimed) which would have a Material Adverse Effect provided that no Dissolution Event shall occur under this paragraph (g) if: (i) an appeal against such judgement has been made to any appropriate appellate court within the time prescribed by law; or (ii) an application is made to discharge or stay such judgment within the time prescribed by law; unless for the purposes of and followed by a reconstruction previously approved in writing by the Trustee where during or following such reconstruction the Issuer and/or Project Company becomes or is declared to be insolvent, a winding-up order has been made against the Issuer and/or Project Company or any step is taken for the winding-up, dissolution or liquidation of the Issuer and/or Project Company or a resolution is passed for the winding-up of the Issuer and/or Project Company or a petition for winding-up is presented against the Issuer and/or Project Company (unless such petition is frivolous or vexatious or related to a claim to which the Issuer has a good defence or which is being contested in good faith by the Issuer) and the Issuer and/or Project Company has not taken any action in good faith to set aside such petition or the petition is not withdrawn or discharged within 90 days from the date of service of such winding-up petition or a winding-up order has been made against the Issuer and/or Project Company; (h) unless for the purposes of and followed by a reconstruction previously approved in writing by the Trustee and where during or following such reconstruction the Issuer Private & Confidential

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and/or Project Company becomes or is declared to be insolvent, the Issuer and/or Project Company: (i) convenes a meeting of its creditors or proposes or makes any arrangement (including any scheme of arrangement under Section 176 of the Companies Act, 1965) or composition or begins negotiations with its creditors, or takes any proceedings or other steps, with a view to a rescheduling or deferral of all or a part of its indebtedness; or (ii) a moratorium is agreed or declared by a court of competent jurisdiction in respect of or affecting all or a part of its indebtedness; or (iii) makes any assignment for the benefit of its creditors in respect of or affecting all or a part of its indebtedness, which, would have a Material Adverse Effect; (i) where there is a revocation, withholding, invalidation or modification of any license, authorisation, approval or consent necessary for the Issuer and/or Project Company to carry on its business which would have a Material Adverse Effect; (j) any creditor of the Issuer and/or Project Company exercises a contractual right to take over the financial management of the Issuer and/or Project Company and such event would have a Material Adverse Effect; (k) the Issuer and/or Project Company repudiates any of the Transaction Documents or Project Documents to which it is a party; (l) all or a part of the assets, undertakings, rights or revenue of the Issuer and/or Project Company are seized, nationalised, expropriated or compulsorily acquired by or under the authority of any governmental body which would have a Material Adverse Effect; (m) any event or events has or have occurred or a situation exists which would have a Material Adverse Effect and in the case of the occurrence of such event or situation which in the reasonable opinion of the Trustee is capable of being remedied, the Private & Confidential

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Issuer and/or Project Company does not remedy it within 60 days after the Issuer and/or Project Company became aware or having been notified in writing by the Trustee of the event or situation; (n) the occurrence of Total Loss Event; (o) COD does not occur within 6 months of the Scheduled COD in the manner set out in the PPA (unless otherwise excused or extended under the PPA); (p) the Issuer and Project Company ceases to be 100% owned by the Sponsor directly or indirectly; (q) the Issuer and/or Project Company changes in a material manner the nature or scope of its business, or suspends the operation of any part of its business which it now conducts directly or indirectly; (r) At any time: (aa) it is illegal or unlawful for the Issuer and/or Project Company to perform any of its obligations under the Transaction Documents or at any time any of the provisions of the Transaction Documents is or becomes illegal, void, voidable or unenforceable; and (bb) any of the provisions of the Project Documents, in so far as it relates to material obligations under the Project Documents that remain undischarged is or becomes illegal, void, voidable or unenforceable and has a Material Adverse Effect, unless such Project Document has been sufficiently replaced to the satisfaction of the Trustee; (s) For whatever reason any of the Security Interests created under any of the Transaction Documents is rendered invalid generally or defective in any material way or ceases to have first ranking priority (save and except for those which are preferred by law); (t) Where the generation licence is: (i) terminated, revoked or ceases to be in full force and effect without a substitute licence being issued therefor within 180 days of such termination, revocation or cessation; or (ii) modified and the effect of such modification would be to prevent the Private & Confidential

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implementation or carrying out of all or a substantial part of the Project (v) Such other Dissolution Events as may be advised by the legal counsel of the Joint Lead Arrangers and which have been mutually agreed between the Joint Lead Arrangers and the Issuer. Upon the occurrence of a Dissolution Event which is continuing, the Trustee may, at its sole and absolute discretion and shall, if so directed by an extraordinary resolution of the Sukukholders (subject to its rights to be indemnified to its satisfaction against all reasonable costs and expenses thereby occasioned), declare (by giving notice to the Issuer) that a Dissolution Event has occurred whereupon the Trustee shall be entitled to accelerate the nominal value of the Sukuk TNB NE and the Periodic Distribution Amounts accrued until the date of such declaration by way of exercising the Purchase Undertaking and thereupon, the Exercise Price shall be due and payable, and enforce its rights under the Transaction Documents. w.

Covenants

Positive Covenants (a) The Issuer covenants that so long as the Sukuk TNB NE are outstanding:it shall maintain a paying agent who is based in Malaysia; (b) during the construction period prior to the COD, the Issuer shall submit a progress report every quarter to the Technical Adviser for verification and to the Trustee, and which shall contain (i) a summary of progress towards achieving the COD, (ii) estimated date of COD, (iii) confirmation of construction and other costs paid up to the date of the then quarterly progress report and estimated remaining capital expenditure/ construction-related costs and pre-operational expenditure to be incurred towards the implementation of the COD and (iv) details of actual or likely cost overruns; and (c) during the construction period prior to the COD, the Issuer shall procure the EA to provide a report every quarter to the Trustee confirming the Issuer’s compliance with the EMP and all relevant material environmental laws, permits, guidelines and regulations.

Private & Confidential

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Both Issuer and Project Company covenants that so long as the Sukuk TNB NE are outstanding: (a) it: (i) has at all times observed, performed and complied with all its covenants, representations, warranties and other relevant obligations under the Transaction Documents to which each is a party and shall provide to the Trustee at least on an annual basis, a certificate confirming the same, and confirming that there does not exist or had not existed, from the date the Sukuk TNB NE were issued or the date of the last certificate, as the case may be, any Dissolution Event, and if such is not the case, to specify the same; and (ii) is in material compliance with the EMP and all relevant material environmental laws, permits, guidelines and regulations; (b) it shall deliver to the Trustee the following: (i) as soon as they become available (and in any event within a period to be mutually agreed in the Transaction Documents after the end of its financial year) copies of its financial statements for that year which shall contain the income statement and balance sheet, and which are audited by a firm of independent certified public accountants acceptable to the Trustee (“Auditors”); (ii) as soon as they become available (and in any event within a period to be mutually agreed in the Transaction Documents after the end of the first half of its financial year) copies of its unaudited financial statements for that half-yearly period which shall contain the income statement and balance sheet; (iii) promptly, such additional financial or other information or reports as the Trustee may from time to time reasonably request including without limitation, such information as the Trustee may require in order for the Trustee to discharge its duties and obligations to the extent permitted by law and would not result in the Issuer Private & Confidential

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breaching any stock exchange requirements, duty of confidentiality or confidentiality obligations; (c) it shall promptly notify the Trustee of any litigation or other proceedings of any nature whatsoever being initiated against it before any court or tribunal or administrative agency which would have a Material Adverse Effect; (d) it shall promptly give notice to the Trustee of: (i) any change in the utilisation of proceeds from the Sukuk TNB NE from that set out in the Transaction Documents; (ii) the occurrence of any Dissolution Event; (iii) any substantial change in the nature of its business; (iv) any change in the withholding tax position or taxing jurisdiction of the Issuer; or (v) any amendments or variations made to any of the Project Documents and provide a certified true copy thereof. (e) it shall maintain in full force and effect all relevant authorisations, consents, rights, licences, approvals and permits (governmental and otherwise) and will promptly obtain any further authorisations, consents, rights, licences, approvals and permits (governmental and otherwise) which is or may become necessary to enable it to own its assets, to carry on its business or for the Issuer to enter into or perform its obligations under the Transaction Documents or to ensure the legality, validity, enforceability, admissibility in evidence of its obligations or the priority or rights of the Trustee/the Facility Agent/the Security Agent or the Sukukholders under the Transaction Documents where failure to do so would have a Material Adverse Effect; (f) it shall at all times on demand by the Trustee (acting reasonably) execute all such further documents and do all such further acts reasonably necessary at any time or times to give further effect to the terms and conditions of the Transaction Documents and Project Documents; Private & Confidential

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(g) it shall exercise reasonable diligence in carrying out its business and affairs and in accordance with sound financial and commercial standards and practices and its Memorandum and Articles of Association; (h) it shall prepare its financial statements on a basis consistently applied in accordance with approved accounting standards in Malaysia (unless otherwise disclosed) and those financial statements shall give a true and fair view of its results of the operations for the period to which the financial statements are made up; (i) it shall maintain an accounting system and records in compliance with applicable statutory requirements and in accordance with generally accepted accounting principles in Malaysia which are adequate to record and reflect its operations and financial condition and it will permit upon reasonable request by the Trustee or its agent and servants and any person appointed or authorised by it with prior notice and at all reasonable times to have access to and to inspect its books of accounts and records relating to its business at any office, branch or place of business of the Issuer and all records kept by any other persons subject to such parties executing confidentiality undertakings as prescribed by the Issuer/Project Company and provided further that such access and disclosure does not result in any contravention of any laws, regulations or directives by the Issuer/Project Company and would not result in the Issuer breaching any stock exchange requirements, duty of confidentiality or confidentiality obligations; (j) it shall promptly comply with all applicable laws (including the provisions of the Capital Markets and Services Act 2007 and all circulars, conditions or guidelines issued by the Securities Commission from time to time) as may be applicable to it; (k) the Issuer and Project Company shall provide the Trustee and its representatives reasonable access to the Project site and inspection of all relevant Project Documents at all reasonable times provided prior notice has been given to the Issuer and Project Company and subject to such parties executing confidentiality undertakings as Private & Confidential

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prescribed by the Issuer and Project Company and provided further that such access and disclosure does not result in any contravention of any laws, regulations or directives by the Issuer and would not result in the Issuer/Project Company breaching any stock exchange requirements, duty of confidentiality or confidentiality obligations; (l) it shall open and maintain each of the required Designated Accounts and pay all relevant amounts into such accounts and make all payments from such accounts, only as permitted under the Transaction Documents; (m) it shall ensure that the Sukuk TNB NE will at all times rank at least pari passu with all other present and future unsecured and unsubordinated obligations of the Issuer and/or Project Company; (n) it shall deliver to the Trustee the following: (i)

Distribution FSCR calculation (certified by at least one director of each of the Issuer and the Project Company) for the balance sheet closing date of the relevant financial statements on a semi-annual basis;

(ii) FE Ratio calculation (certified by at least one director of each of the Issuer and the Project Company) for the balance sheet closing date of the relevant financial statements on a semi-annual basis; (iii) promptly, such additional financial or other information or reports as the Trustee may from time to time reasonably request including without limitation, such information as the Trustee may require in order for the Trustee to discharge its duties and obligations to the extent permitted by law and would not result in the Issuer breaching any stock exchange requirements, duty of confidentiality or confidentiality obligations; and (o)

Private & Confidential

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Negative Covenants Both Issuer and Project Company covenant that, for so long as any Islamic Security is outstanding, it will not: (a) not add, delete, amend or substitute its Memorandum or Articles of Association in a manner inconsistent with the provisions of the Transaction Documents unless required by law; (b) reduce its authorised or paid-up share capital (except by way of purchase, acquisition or reduction permitted under the law or redemption of redeemable preference shares permitted under the Transaction Documents) whether by varying the amount, structure or value thereof or the rights attached thereto or by converting any of its share capital into stock, or by consolidating, dividing or sub-dividing all or any of its shares which would have a Material Adverse Effect; (c) change in a material manner the nature or scope of its existing business nor suspend a substantial part of its business where such change or suspension would have a Material Adverse Effect; (d) obtain or permit to exist any financial indebtedness other than the following: (i) the Sukuk TNB NE; (ii) financing facilities from related corporations of the Issuer that are subordinated to the Sukuk TNB NE; (iii) the financing facilities (“Permitted Facilities”) arising from or in connection with the Issuer’s obligations under the Project Documents (including the PPA) to any provision of bonds/performance guarantee or in the ordinary course of business, up to an amount to be agreed with the Joint Lead Arrangers in the Transaction Documents; (iv) financing which repayment or redemption are subordinated to the Sukuk TNB NE; (v) working capital facilities (“Working Capital Facilities”) up to an amount to be agreed with the Joint Lead Arrangers in the Transaction Documents; and (vi) any hedging arrangements entered into by the Issuer or the Project Company in Private & Confidential

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connection to the Project to hedge against not more than one hundred per centum (100%) of its foreign currency exposure in relation to payments under the EPCC and LTMP. (e) create or permit to exist any security interest over its assets, except for: (i) liens arising in the ordinary course of business by operation of law and not by way of contract; (ii) those security as contemplated in this PTC; (iii) securities given for the Permitted Facilities and Working Capital Facilities; (iv) securities given as an alternative (whether in whole or in part) to the Permitted Facilities and Working Capital Facilities (“Alternative Securities”); (v) any netting or set-off arrangement entered into in the ordinary course of banking arrangements for the purpose of netting debit and credit balances; (vi) security created in relation to documentary credits, trust receipts and bankers acceptances opened in the ordinary course of business; (vii) security arising under retention of title, leases, hire purchase or conditional sale arrangements in respect of any assets or goods supplied in the ordinary course of business; (viii) security created in respect solely of indebtedness incurred or assumed for the purpose of financing the purchase price of any asset (including but not limited to shares), in each case, created solely over such assets; (ix) security created in respect of liabilities which exist on any property or asset prior to its acquisition or arising after such acquisition pursuant to contractual commitments entered into prior to, but not in connection with or in contemplation of, such acquisition; (x) security existing as at the date of the Transaction Documents and disclosed to the Trustee; (xi) security created with the prior written consent of the Trustee; and

Private & Confidential

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(xii) security which equally and rateably secures the obligations under the Sukuk TNB NE. (f) sell, transfer or lease or otherwise dispose of or in any case cease to exercise control over, whether by a single transaction or a number of transactions, related or not, the whole or part of the Issuer’s undertaking, business or assets, except: (i) sale or disposal of the Issuer’s undertaking, business or assets which is in the ordinary course of business and on ordinary commercial terms on the basis of arm’s length transaction; or (ii) disposal of any of the Issuer’s undertaking, business or assets due to obsolescence ,deterioration, surplus, redundant, damaged and/or defective ; or (iii) as permitted under the Sukuk TNB NE; or (iv) solely for the purpose of facilitating any Islamic financing in connection with any of the financing facilities allowed under the Sukuk TNB NE; or (v) sale or disposal pursuant to security permitted under the Sukuk TNB NE; or (vi) sale or disposal which would not have a Material Adverse Effect; or (vii) sale or disposal constituted by creation of permitted security; or (viii) sale or disposal in exchange for other assets comparable or superior as to value. (g) use the proceeds of the issue of the Sukuk TNB NE for any purpose other than as stated in the Transaction Documents; (h) put to its directors or shareholders any resolution for, or appoint any liquidator for, its winding-up or any resolution for the commencement of any bankruptcy or insolvency proceeding with respect to it; (i) enter into any contract, transaction or engage in any business or activity other than: (i) the Transaction Documents to which it is a party (or any amendment or supplemental agreement thereto); Private & Confidential

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(ii) as provided for or permitted in the Transaction Documents; (iii) such matters as incidental to the Sukuk TNB NE or the Transaction Documents; or (iv) in the ordinary course of its business (j) make any transfers to the Distribution Account in order to declare or pay any dividends or make any distribution whether income or capital in nature to its shareholders or redeem any preference shares (“Restricted Payments”) if: (i) the Distribution FSCR on the most recent scheduled principal repayment date (as defined below) falls below 1.50 times before and after such payment or distribution; (ii) in respect of distributions declared or made after Commercial Operations Date, the FE Ratio will not exceed 75:25 after such payment or distribution; (iii) COD (as defined in the PPA) has not occurred; (iv) first repayment of the Sukuk TNB NE has not been made; and (v) a Dissolution Event has occurred and is continuing or if following such payment or distribution, a Dissolution Event would occur. For the purposes of this paragraph, the distribution finance service cover ratio (“Distribution FSCR”) is, on the most recent scheduled principal repayment date of the Sukuk TNB NE, the ratio of aggregate Net Available Cash (as defined below) for the relevant 6 month period of the Issuer and Project Company to Total Finance Service (as defined below) to be paid for such period of the Issuer and Project Company, where: (A) net available cash (“Net Available Cash”) for any period is the aggregate of: (i)

the net operating cash flow generated during the previous 6 months period; and

(ii) income on cash balances during the previous 6 months; and

Private & Confidential

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(iii) all cash balances (including those of the Designated Accounts) at the end of the 6 month period; and (iv) the amount guaranteed by the Sponsor’s Rolling Guarantee at the beginning of the 6 month period; less (v) all Restricted Payments, intercompany facilities from related corporations of the Issuer, and any other subordinated payments during the previous 6 months. For the avoidance of doubt, such amounts will also include the nominal value of any Permitted Investments; and (B) Total Finance Service refers to the aggregate amount that is required to be paid (relating to outstanding principal obligations and periodic distribution amounts, and all other corresponding amounts) in connection with all financing facilities of the Issuer and Project Company (except in relation to intercompany facilities from related corporations of the Issuer/Project Company) for the next 6 months period. In this regard, the net operating cash flow generated means (a) with respect to inflow, all the deposits received under the respective revenue accounts below and (b) with respect to outflow, the item (a) listed under the heading “Issuer Priority of Cashflow” and “ProjCo Priority of Cashflow” below. For the avoidance of doubt: (aa) any double counting shall be disregarded; and (bb) any payments of dividends or distributions (whether income or capital in nature) or redemption of any preference shares shall only be made from the Distribution Account and not from any other account. In the event there is a dispute and the Trustee requires certification from any external party (choice of such party must be acceptable to the Trustee) in relation to the calculation of the said Distribution FSCR, the Issuer shall promptly procure such certification prior to the relevant periodic distribution amount date. Such external party’s certification shall be provided to the Trustee before the Trustee Private & Confidential

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gives any confirmation as required above and such external party’s certification is final. (k) amend, vary, terminate (except due to lapse of time), replace or supplement (or agree to do so) any of its Project Documents which would have a Material Adverse Effect; (l) waive, or agree to waive any breach or proposed breach in any of the Project Documents by any of its counterparties which would have a Material Adverse Effect; (m) do any act or omit to do any act, or execute or omit to execute any document which may render any of the Project Documents to be illegal, void, voidable or unenforceable which would have a Material Adverse Effect; (n) enter into any agreement with its related corporations or associated companies if it has a Material Adverse Effect; (o) provide any financing facility to any party other than in compliance with the Listing Requirements; (p) open any bank accounts other than Designated Accounts, other than any accounts permitted under the Transaction Documents or approved by the Trustee; and (q) Such other Negative Covenants as may be advised by the legal counsel of the Joint Lead Arrangers and to be mutually agreed between the Joint Lead Arrangers and the Issuer. Provisions x on buy-back and The Issuer and its related corporations may at any time purchase the Sukuk TNB NE in the . early redemption of sukuk open market at any price, but any Sukuk TNB NE repurchased by the Issuer and its subsidiaries shall be cancelled and cannot be resold. Other y principal terms and . conditions for the proposal (i)

Conditions Precedent to Conditions precedent to each disbursement from the Escrow Accounts to include but not Each Disbursement limited to the following: (a) All representations and warranties are true and correct in all material respects by reference to the facts and circumstances subsisting at such time; (b) No Events of Default/ Dissolution Events have occurred and are continuing;

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(c) Such drawdown would not cause the FE Ratio to exceed the FE Ratio set out in the Base Case Financial Model after such drawdown; (d) Receipt of a drawdown certificate, including certification by the Technical Adviser, if applicable, in accordance with the Transaction Documents; and (e) Such other conditions precedent as may be advised by the legal counsel of the Joint Lead Arrangers and to be mutually agreed between the Joint Lead Arrangers and the Issuer. (ii) Conditions Subsequent

To include the following: (a) No later than the COD, evidence and confirmation from the Project Company that all operational period insurance cover has been effected and is in full force and effect. For the avoidance of doubt, if item (ii)(b) below is met no later than COD, this item (ii)(a) is considered satisfied; (b) No later than 1 month after COD, receipt of a confirmation from the Insurance Adviser that the agreed operational phase insurance cover has been effected, in line with the requirements of the Transaction Documents; (c) No later than 9 months after issuance of the Sukuk TNB NE, receipt of a certified true copy of the generation license from the Energy Commission; (d) No later than 6 months after issuance of the Notice to Proceed (as defined in the EPCC), the Issuer has obtained the Construction Industry Development Board licence (“CIDB Licence”) and have provided a certified true copy of the same to the Security Agent/Trustee; (e) No later than 12 months after issuance of the Sukuk TNB NE, presentation for registration in the name of the Project Company of the lease of the Ijarah Project Lands (as defined below) and the Issuer or the Project Company shall have provided the original title to the lease to the Security Agent; (f)

Private & Confidential

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Security Agent and the Project Company shall have provided the Security Agent with: (i) the receipt of such presentation from the relevant land authority; (ii) evidence that the Form 34 (as prescribed under the Companies Act) in respect of such charge has been lodged with the CCM; and (iii) a legal opinion satisfactory to the Security Agent (from legal counsel approved by the Security Agent), and addressed to the Security Agent advising with respect to, among others, the legality, validity and enforceability of such charge; (g) No later than 12 months after issuance of the Sukuk TNB NE, alienation in favour of TNB of a third piece of land to be identified in the Transaction Documents (“Additional Land”) and the Issuer or the Project Company shall have provided the original title to the lease to the Security Agent for safekeeping together with: (i) a lease agreement made between TNB and the Project Company in respect of the Additional Land; and (ii) a legal opinion satisfactory to the Security Agent (from legal counsel approved by the Security Agent), and addressed to the Security Agent advising with respect to, among others, the legality, validity and enforceability of such lease against the Issuer/Project Company;

Private & Confidential

(h)

No later than 12 months after issuance of the Sukuk TNB NE, presentation for registration of (i) the lease over the Additional Land in favour of the Project Company together with (ii) the charge over such lease in favour of Security Agent and the Project Company shall have provided the Security Agent with: (aa) certified true copies of the receipts of such presentations from the relevant land authority; (bb) evidence that the Form 34 (as prescribed under the Companies Act) in respect of such charge has been lodged with the CCM; and (cc) a legal opinion satisfactory to the Security Agent (from legal counsel approved by the Security Agent), and addressed to the Security Agent advising with respect to, among others, the legality, validity and enforceability of such charge against the Issuer/Project Company; and

(i)

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Lead Arrangers and to be mutually agreed between the Joint Lead Arrangers and the Issuer. “Ijarah Project Lands” has the meaning ascribed to it above. The Additional Land and the Ijarah Project Lands shall collectively be referred to as the “Project Lands”. (iii)

Form and Denomination

The Sukuk TNB NE shall be issued in accordance with (1) the “Participation and Operation Rules for Payment and Securities Services (“MyClear Rules”) issued by Malaysian Electronic Clearing Corporation Sdn Bhd (“MyClear”), and (2) Operational Procedures for Securities Services issued by MyClear (“MyClear Procedures”) or their replacement thereof (collectively the “MyClear Rules and Procedures”) applicable from time to time. Each Series of the Sukuk TNB NE shall be represented by a global certificate to be deposited with BNM, and shall be exchanged for definitive bearer form only in certain limited circumstances. The denomination of the Sukuk TNB NE shall be RM1,000 or in multiples of RM1,000 at the time of issuance.

(iv) Finance to Equity Ratio (“FE The Finance to Equity Ratio will be defined as: Ratio”) the aggregate outstanding principal obligations of the Issuer and Project Company under all financing facilities (except in relation to intercompany facilities from related corporations of the Issuer), hire purchase obligations and finance lease obligations; to (a) Sponsor’s Equity Contribution. For the avoidance of doubt, outstanding principal obligations under the Sukuk TNB NE shall be deemed equivalent to the aggregate amounts disbursed from the Escrow Accounts into the Disbursement Accounts as at such date. (u)

Base case finance service The Base Case FSCR is the ratio of: cover ratio (“Base Case (a) the aggregate net operating cash flow FSCR”) generated for the 6-monthly period ending on each repayment date of the Issuer and Project Company; to (b) the aggregate amount that is required to be paid (relating to outstanding principal

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obligations and periodic distribution amounts, and all other corresponding amounts) in connection with all financing facilities of the Issuer and Project Company (except in relation to intercompany facilities from related corporations of the Issuer) for the current 6-month period. In this regard, the net operating cash flow generated means (a) with respect to inflow, all the deposits received under respective revenue accounts below and (b) with respect to outflow, the item (a) listed under the heading “Issuer Priority of Cashflow” and “ProjCo Priority of Cashflow” below. (vi)

Transferable Restrictions.

Transferability

(vii) Governing Jurisdiction

Laws

and

but

subject

to

the

Selling

The Sukuk TNB NE and the Transaction Documents shall be governed by the laws of Malaysia. The Issuer and Project Company shall unconditionally and irrevocably submit to the exclusive jurisdictions of the courts of Malaysia.

(viii) Taxation

(ix)

No Payment of Interest

Private & Confidential

All payments by the Issuer shall be made without withholding or deductions for or on account of any present or future tax, duty or charge of whatsoever nature imposed or levied by or on behalf of Malaysia or any other applicable jurisdictions, or any authority thereof or therein having power to tax, unless such withholding or deduction is required by law, in which event the payer shall not be required to make such additional amount so that the payee would receive the full amount which the payee would have received if no such withholding or deductions are made. For the avoidance of doubt and notwithstanding any other provision to the contrary herein, it is hereby agreed and declared that nothing in this indicative principal terms and conditions and the Transaction Documents shall oblige or entitle any party nor shall any party pay or receive or recover interest on any amount due or payable to another party pursuant to the indicative principal terms and conditions or the Transaction Documents and the parties hereby expressly waive and reject any entitlement to recover such interest.

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(x)

Other Conditions

The Sukuk TNB NE shall at all times be governed by the guidelines issued and to be issued from time to time by Securities Commission, BNM, MyClear having jurisdiction over matters pertaining to the Sukuk TNB NE.

(xi)

Designated Accounts

The Issuer and Project Company shall open and maintain the following Shariah compliant designated accounts (“Designated Accounts”) with the Account Bank: Issuer Accounts (a) Sukuk MYR Escrow Account; (b) Sukuk USD Escrow Account; (c) Sukuk EUR Escrow Account; (The Sukuk MYR Escrow Account, Sukuk USD Escrow Account and Sukuk EUR Escrow Account will be collectively known as the Escrow Accounts”). (d) (e) (f)

Issuer MYR Disbursement Account; Issuer USD Disbursement Account; Issuer EUR Disbursement Account; (The Sukuk MYR Disbursement Account, Sukuk USD Disbursement Account and Sukuk EUR Disbursement Account will be collectively known as the “Disbursement Accounts”).

(g) (h)

Issuer MYR Revenue Account; and Issuer MYR Operating Account.

Project Company Accounts (i) Project Company MYR Disbursement Account; (j) Project Company MYR Revenue Account; (k) Project Company MYR Operating Account; (l) Project Company EUR Operating Account; (m) Maintenance Reserve Account; and (n) Distribution Account. The Issuer and Project Company shall not have any bank accounts other than the Designated Accounts so long as any of the Sukuk TNB NE is outstanding, unless otherwise agreed by the Trustee (acting reasonably). Private & Confidential

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Upon enforcement of security, the Security Agent shall be the sole signatory of all Designated Accounts, except Distribution Account. Sukuk MYR Escrow Account (“MYR EA”) The Issuer shall open a Shariah compliant MYR Sukuk escrow account for the purpose of depositing and/or remitting the issuance proceeds of the Sukuk TNB NE. The Issuer shall use the credit balances in the MYR EA for the payments into the Issuer MYR DA, subject to the Conditions Precedent to each Utilisation having been satisfied or transfers to the USD EA and EUR EA, up to one hundred per centum (100%) of its foreign currency exposure in relation to payments under the EPCC. Any credit balance remaining in the MYR EA after the COD of the last Generating Block shall be deposited into the Issuer MYR RA and the MYR EA will thereafter be closed. The MYR EA shall be jointly operated by the Security Agent and the Issuer. Sukuk USD Escrow Account (“USD EA”) The Issuer shall open a Shariah compliant USD Sukuk escrow account for the purpose of depositing and/or remitting the proceeds from foreign exchange conversions between the Escrow Accounts. The Issuer shall use the credit balances in the USD EA for the payments into the Issuer USD DA, subject to the Conditions Precedent to each Utilisation having been satisfied. Any credit balance remaining in the USD EA after the COD of the last Generating Block shall be converted and deposited into the Issuer MYR RA and the USD EA will thereafter be closed. The USD EA shall be jointly operated by the Security Agent and the Issuer. Sukuk EUR Escrow Account (“EUR EA”) The Issuer shall open a Shariah compliant EUR Sukuk escrow account for the purpose of depositing and/or remitting the proceeds from foreign exchange conversions between the Escrow Accounts. The Issuer shall use the credit balances in the EUR EA for the payments into the Issuer EUR DA, subject to the Conditions Precedent to each Utilisation having Private & Confidential

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been satisfied. Any credit balance remaining in the EUR EA after the COD of the last Generating Block shall be converted and deposited into the Issuer MYR RA and the EUR EA will thereafter be closed. The EUR EA shall be jointly operated by the Security Agent and the Issuer. Issuer MYR Disbursement Account (“Issuer MYR DA”) The Issuer shall open a Shariah compliant MYR disbursement account for the purpose of depositing MYR proceeds of Sponsor’s Equity Contribution, intercompany advances and the Sponsor’s Completion Support Payments (if any), disbursements from the MYR EA, any compensation payments and relevant insurance proceeds received. The Issuer shall use the credit balances in the Issuer MYR DA for the purposes of making Issuer related MYR payments set out under the heading “Details on Utilisation of Proceeds” above and transferring between the Issuer USD DA and Issuer EUR DA only. Any credit balance remaining in the Issuer MYR DA after the COD of the last Generating Block shall be deposited into the Issuer MYR RA and the Issuer MYR DA will thereafter be closed. The Issuer MYR DA shall be jointly operated by the Security Agent and the Issuer. Issuer USD Disbursement Account (“Issuer USD DA”) The Issuer shall open a Shariah compliant USD disbursement account for the purpose of depositing USD proceeds from the Issuer MYR DA, any compensation payments and relevant insurance proceeds received which the Issuer elects at its discretion to keep in USD. The Issuer shall use the credit balances in the Issuer USD DA for the purposes of making USD payments set out under the heading “Details on Utilisation of Proceeds” above and transferring to/from the Issuer MYR DA only. Any credit balance remaining in the Issuer USD DA after the COD of the last Generating Block shall be converted and deposited into the Issuer MYR RA and the Issuer USD DA will thereafter be closed. Private & Confidential

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The Issuer USD DA shall be jointly operated by the Security Agent and the Issuer. Issuer EUR Disbursement Account (“Issuer EUR DA”) The Issuer shall open a Shariah compliant EUR disbursement account for the purpose of depositing EUR proceeds from the Issuer MYR DA, any compensation payments and relevant insurance proceeds received which the Issuer elects at its discretion to keep in EUR. The Issuer shall use the credit balances in the Issuer EUR DA for the purposes of making EUR payments set out under the heading “Details on Utilisation of Proceeds” above and transferring to/from the Issuer MYR DA only. Any credit balance remaining in the Issuer EUR DA after the COD of the last Generating Block shall be converted and deposited into the Issuer MYR RA and the Issuer EUR DA will thereafter be closed. The Issuer EUR DA shall be jointly operated by the Security Agent and the Issuer. Issuer MYR Revenue Account (“Issuer MYR RA”) The Issuer shall open a Shariah compliant MYR revenue account for the purpose of depositing the following: (i) all revenues and income received, including all payments from Project Company pursuant to the contract between Project Company and Issuer; (ii) proceeds of takaful/insurance claims in respect of takaful and insurance taken and/or maintained in connection with the Project save for payment allowed to be made directly to third parties in accordance with the provisions of the Transaction Documents; (iii) any claims received in respect of third party performance bonds/guarantees or any other compensation received by the Issuer; (iv) any remaining credit balances in the Escrow Accounts and Disbursements Accounts after the COD; and (v) any intercompany advances from Project Company and/or Sponsor’s Equity Contribution or any claims pursuant to the Private & Confidential

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Sponsor’s Rolling Guarantee. The credit balances in the Issuer MYR RA shall be applied in accordance with the "Issuer Priority of Cashflow" clause below. The Issuer MYR RA shall be jointly operated by the Security Agent and the Issuer. Issuer MYR Operating Account (“Issuer MYR OA”) The Issuer shall open a Shariah compliant MYR operating account for the purpose of depositing the amount transferred from the Disbursement Accounts (prior to COD) and the Issuer MYR RA (from COD onwards), for the payment of operating and maintenance, taxes and duties in respect of the Project. The Issuer MYR OA shall be operated by the Issuer solely. Project Company MYR Disbursement Account (“ProjCo MYR DA”) The Project Company shall open a Shariah compliant MYR disbursement account for the purpose of depositing MYR proceeds of Sponsor’s Equity Contribution, intercompany advances, compensation payments and relevant insurance proceeds received. The Project Company shall use the credit balances in the ProjCo MYR DA for the purposes of making Project Company related MYR payments set out under the heading “Details on Utilisation of Proceeds” above, liquidated damages payments under the PPA and Sponsor’s Equity Contribution to Issuer only. Any credit balance remaining in the ProjCo MYR DA after the COD of the last Generating Block shall be deposited into the ProjCo MYR RA and the ProjCo MYR DA will thereafter be closed. The ProjCo MR DA shall be jointly operated by the Security Agent and the Project Company. Project Company MYR Revenue Account (“ProjCo MYR RA”) The Project Company shall open a Shariah compliant MYR revenue account for the purpose of depositing the following: (i) all revenues and income received; Private & Confidential

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(ii) proceeds of takaful/insurance claims in respect of takaful and insurance taken and/or maintained in connection with the Project, save for payment allowed to be made directly to third parties in accordance with the provisions of the Transaction Documents; (iii) any claims received in respect of third party performance bonds/guarantees or any other compensation received by the Project Company; (iv) any remaining credit balances in the ProjCo MYR DA after the COD; (v) any Sponsor’s Equity Contribution; (vi) any claims pursuant to the Sponsor’s Rolling Guarantee); and (vii) any intercompany advances and/or shareholder’s distribution from Issuer. The credit balances in the ProjCo MYR RA shall be applied in accordance with the "ProjCo Priority of Cashflow" clause below. The ProjCo MYR RA shall be jointly operated by the Security Agent and the Project Company. Project Company MYR Account(“ProjCo MYR OA”)

Operating

The Project Company shall open a Shariah compliant MYR operating account for the purpose of depositing the amount transferred from the ProjCo MYR RA, for the payment of MYR operating and maintenance, taxes, duties, capital expenditures (recurring or otherwise) and any other Project Company’s payment obligations under the Project Documents. The ProjCo MYR OA shall be operated by the Project Company solely. Project Company EUR Operating Account (“ProjCo EUR OA”) The Project Company shall open a Shariah compliant EUR operating account for the purpose of depositing the amount transferred from the ProjCo MYR RA, for the payment of EUR operating and maintenance, taxes, duties and capital expenditures (recurring or otherwise) and any other Project Company’s payment obligations under the Project Documents. Private & Confidential

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The ProjCo EUR OA shall be operated by the Project Company solely. Maintenance Reserve Account The Project Company shall open a Shariah compliant MYR maintenance reserve account (“Maintenance Reserve Account”), for the purpose of fulfilling its obligations under the PPA. The Maintenance Reserve Account shall be built up to a sum of RM24 million over a three (3) year period, commencing on COD at the rate of RM 8 million per annum. The Project Company is allowed to draw from the Maintenance Reserve Account to pay for maintenance expenses of the Project, including any repair or replacement, however the balance must be reinstated to the minimum balance over the 3 months following the withdrawal (or such other date as may be agreed between TNB and the Project Company) in accordance with the ProjCo Priority of Cashflow. The Maintenance Reserve Account shall be operated by the Project Company solely. Distribution Account The Project Company shall open a Shariah compliant MYR Distribution Account for the purpose of depositing the amount transferred from the ProjCo MYR RA for any Restricted Payments. For avoidance of doubt, distributions from the Distribution Account are at the sole discretion of the Project Company and shall not be subject to the Negative Covenants item (j) above. The Distribution Account shall be operated by the Project Company solely. (xii) Issuer Priority Cashflow

Priority application of cash flow from the Issuer MYR RA shall be as follows: (a) for transfers to the Issuer MYR OA for payment of operating and maintenance expenses, taxes, duties and compensation payments; (b) for payment of Periodic Distribution Amount, fees, costs, expenses, commissions and other financing costs payable in connection with the Sukuk TNB NE; (c) for payment of all principal obligations under the Sukuk TNB NE;

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(d) for payment of periodic distribution amount/profit payments, fees, costs, expenses, commissions and other financing costs payable in connection with the other financing facilities as allowed under the Transaction Documents; (e) for payment of all principal obligations under the other financing facilities as allowed under the Transaction Documents; (f) for intercompany advances to ProjCo MYR RA; and (g) for all other payments to the ProjCo MYR RA to be determined at the discretion of the Issuer. With respect to costs, fees and expenses (including enforcement costs, fees and expenses in connection with the Sukuk TNB NE which in the view of the Facility Agent cannot be attributed solely to any particular Series, such costs, fees and expenses shall be allocated amongst all the Series proportionately based on the then outstanding nominal value of each Series. (xiii) ProjCo Priority of Cashflow

Priority application of cash flow from the ProjCo MYR RA shall be as follows (except where the insurance claims are not related to loss in revenue, business interruption and/or delay in start-up, item (f) of the “ProjCo Priority of Cashflow” shall not apply): (a) for transfers to the ProjCo MYR OA and/or ProjCo EUR OA for payment of operating and maintenance, taxes, duties, recurring capital expenditures in respect of the Project, including the Project Company’s compensation payments and other payment obligations under the Project Documents including payments to Issuer due under the Turnkey Contract; (b) for compliance with the requirements in connection with the Maintenance Reserve Account and the Alternative Securities; (c) for payment of periodic distribution amount/profit payment, fees, costs, expenses, commissions and other financing costs payable in connection with the other financing facilities as allowed under the Transaction Documents; (d) for payment of all principal obligations under the other financing facilities as allowed under the Transaction Documents;

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(e) for intercompany advances, claims pursuant to the Sponsor’s Rolling Guarantee and/or Sponsor’s Equity Contribution to Issuer MYR RA; and (f) for transfers to the Distribution Account, subject to compliance with Negative Covenants item (j) above. (xiv) Permitted Investments

Credit balances in the Designated Accounts may be used to invest in Permitted Investments. The Permitted Investments shall comprise investment products approved by the SC Shariah Advisory Council, BNM’s Shariah Advisory Council and/or other recognised Shariah authorities from time to time. The Permitted Investments are as follows: (a)

Mudharabah, Wadiah and other deposits under Shariah principles with licensed financial institutions;

(b)

Islamic bankers acceptances, Islamic bills and other Islamic money market instruments by licensed financial institutions with a short term rating of P1 or MARC-1 or a minimum long term rating of AA3 or AA-;

(c)

Islamic treasury bills, Islamic money market instruments, and other sukuk or sukuk issued by BNM or the Government of Malaysia;

(d)

Sukuk or sukuk issued by quasi government or government related corporations with a short term rating of P1 or MARC-1 or a minimum long term rating of AA3 or AA- or Sukuk or sukuk guaranteed by the Government of Malaysia or BNM;

(e)

Sukuk or sukuk issued by corporations with a short term rating of P1 or MARC1 or a minimum long term rating of AA3 or AA- or by financial institutions with a short term rating of P1 or MARC-1 or a minimum long term rating of AA3 or AA-; or any Islamic fund approved by the SC which invests in any of the instruments above.

(f)

(xv)

Project Documents

The following: (a) Power Purchase Agreement ("PPA"); (b) Gas Sales Agreement ("GSA");

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(c) Land Lease Agreement (“LLA”); (d) EPC Contract and associated bonds and guarantees from or on behalf of the EPC contractor (“EPCC”); (e) Operation (“OMA”); (f)

&

Maintenance

Agreement

Long Term Maintenance Program Contract (“LTMP”);

(g) Material Takaful/insurances relating to the Project issued in favour of or for the benefit of the Issuer; (h) Turnkey Contract;

(xvi) Transaction Documents (xvii) Mandatory Redemption

Private & Confidential

(i)

when issued, the generation license; and

(j)

Any other permit, license, agreement and/or document that is issued to the Issuer or to which the Issuer is a party which is material to the Project as may be reasonably determined by the Joint Lead Managers and agreed with the Issuer to be designated as a Project Document.

All documents relating to the Sukuk TNB NE and the Security/Collateral. The Issuer shall use the proceeds from any performance liquidated damages received from the EPC contractor to pay the Mandatory Redemption Amount (as defined below). The total amount to be applied to the mandatory redemption (the “Mandatory Redemption Amount”) will be the lower of: (i)

total proceeds relating to performance liquidated damages received from the EPC contractor; and

(ii)

such amount necessary (following the mandatory partial redemption) to restore the projected minimum Base Case FSCR at such time to 1.25x, after adjusting only assumptions regarding net electrical output of the Plant, and/or net heat rate of the Plant in the Base Case Financial Model to reflect the relevant reduced net electrical output of the Plant and/or increased net heat rate of the Plant.

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The Issuer shall apply the Mandatory Redemption Amount towards the redemption of the Sukuk TNB NE in the following manner: a)

If the projected minimum Base Case FSCR can be restored to 1.25x following such partial redemption, the Issuer shall partially redeem each Series of the Sukuk TNB NE in inverse order of maturity;

b)

If partial redemption in inverse order of maturity does not restore the projected minimum Base Case FSCR to 1.25x, the Issuer shall partially redeem all Series of the Sukuk TNB NE on a pro-rata basis. Following the payment of the Mandatory Redemption Amount, the Issuer may use the remaining proceeds from performance liquidated damages received from the EPC contractor (if any) to make distributions.

(xviii)

(xix)

Scheduled Commercial Operation Date (“Scheduled COD”) Sponsor’s Contribution

Private & Confidential

Equity

1 January 2016 or as extended in accordance with the PPA. Refers to all shareholders’ equity contribution made directly or indirectly by the Sponsor, whether in the form of ordinary share capital, preferred shares or subordinated shareholder loans, and including any equity bridge loan undertaken by the Issuer and/or Project Company but guaranteed by the Shareholder.

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Appendix 1 Diagrammatical Illustration for Sukuk TNB NE Service Agency Agreement 6 Ijarah Lease Agreement 3

TNB Prai

(Grantor, Lessee, Servicing Agent, Purchase r)

Grant of Right Agreement 1 One-off Rental equivalent to Sukuk proceeds 4&7 Lease Rental 5 Wakalah Agreement

TNB NE

(Issuer, Trustee, Grantee, Lessor, Wakeel)

Sukuk issue

Sukuk holder s

2 Sukuk proceeds 4&7 Periodic Distribution Amounts

8 Purchase Undertaking

Step 1

TNB Prai (in its capacity as grantor (“Grantor”)) shall enter into a grant of right agreement (the “Grant of Right Agreement”) with TNB NE (in its capacity as grantee (“Grantee”)) acting on behalf of subscribers of the Sukuk TNB NE(“Sukukholders”), which term shall include any holders of the Sukuk TNB NE from time to time, to grant the right over the use of the Ijarah Project Lands and to derive the benefits of the usufruct rights over the use of the Ijarah Project Lands (the “Asset”) for a duration of 24 years or such period as corresponding to the lease term in the LLA with an option to be extendable for another 24 years subject to the PPA term being extended as set out in the LLA (“Grant of Right”). The Grantee will make a single upfront rental payment (“One-off Rental”) to the Grantor, which amount shall be equivalent to the aggregate proceeds to be raised from the issuance of the Sukuk TNB NE.

Step 2

Pursuant to a Declaration of Trust, the Issuer (in its capacity as trustee) shall declare a trust over the Asset including the rights, title, interest and benefit, present and future, in and to under the Grant of Right Agreement, the Ijarah Lease Agreement (as defined below), the Service Agency Agreement and the Purchase Undertaking (the “Trust Asset”) for the benefit of the Sukukholders. The Issuer shall issue Sukuk TNB NE to the Sukukholders which shall represent the Sukukholders’ undivided proportionate beneficial ownership interest, rights and entitlements under the Trust Asset. The Sukuk TNB NE proceeds shall be utilised to pay the Grantor the One-off Rental under the Grant of Right Agreement.

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Step 3

With the Asset held by the Issuer (in its capacity as Grantee), acting on behalf of the Sukukholders, the Issuer (in its capacity as Lessor) shall enter into an Ijarah Lease Agreement (the “Ijarah Lease Agreement”) with TNB Prai (as Lessee), to lease the Asset to the Lessee, for a tenor corresponding to the maturity of the final series (“Series”) of the Sukuk TNB NE, i.e. more than 4 years and not exceeding 23 years (the “Lease Period”).

Step 4

Pursuant to the Ijarah Lease Agreement, the Lessee shall pay the ijarah rental payment (“Lease Rentals”) to the Lessor which shall be the sum equivalent to the aggregate of all Periodic Distribution Amounts (as defined below) to be channeled by the Issuer to the Sukukholders as periodic distributions (“Periodic Distribution Amounts”) in proportion to the Sukuk TNB NE they hold on each periodic distribution date.

Step 5

Pursuant to a Wakalah Agreement, TNB Prai shall appoint the Issuer as its agent (“Wakeel”) for the provision of certain services for a wakalah fee of RM100.00, for a period corresponding to the period for the construction and delivery of the Plant to TNB Prai under the Turnkey Contract. The Wakeel shall be responsible to: (i) Safe-keep the One-off Rental paid to TNB Prai as Grantor on a Wadiah basis; and (ii) To make payments including (a) payment on behalf of TNB Prai (as lessee) of the Lease Rentals to the Lessor; (b) any payments as set out paragraph 2(m)of the PTC (Details on Utilisation of Proceeds) items (1) to (3); and (c) any other payments or cost in relation to and associated with the Project comprising those set out in the said paragraph 2(m)items (4) to (6).

Step 6

Pursuant to a Service Agency Agreement, the Issuer (in its capacity as Lessor), acting on behalf of the Sukukholders, shall appoint TNB Prai as the “Servicing Agent” for a servicing agent fee of RM100.00, throughout the Lease Period to carry out certain of its obligations. The Servicing Agent shall be responsible to procure takaful/insurance in respect of the Asset that provides sufficient proceeds for the redemption of the Sukuk TNB NE under a Total Loss Event. If the takaful/insurance proceeds are insufficient to cover the redemption amount due under the Sukuk TNB NE under a Total Loss Event (the “Redemption Amount”), Service Agent shall undertake to pay shortfall amount. Thereafter any proceeds from the takaful/insurance proceeds shall be for the account of Service Agent.

Step 7

The Wakalah Agreement will cease upon the completed Plant being delivered to TNB Prai under the Turnkey Contract. Thereafter, TNB Prai as Lessee will pay the Lease Rentals directly to the Lessor, who in turn will channel to Sukukholders as Periodic Distribution Amounts.

Step 8

TNB Prai (as the “Purchaser”) will grant a purchase undertaking (the “Purchase Undertaking”) to the Issuer, whereby the Purchaser irrevocably undertakes to purchase the proportionate undivided ownership in the remaining period of the Grant of Right from the Sukukholders of the relevant series of the Sukuk TNB NE, upon declaration of a Dissolution Event (save for a Dissolution Event due to a Total Loss Event), upon the occurrence of the Mandatory Redemption event or upon the Maturity Date whichever is earlier, at the relevant Exercise Price or Mandatory Redemption Exercise Price (where relevant). The proceeds therefrom shall be utilised by the Issuer for the redemption of such relevant Sukuk TNB NE held by the Sukukholders which shall then be cancelled.

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7.

Information Memorandum

INVESTMENT CONSIDERATIONS Each issue of the Sukuk TNB NE will carry different risks and all potential investors are strongly encouraged to evaluate each issue of the Sukuk TNB NE on its own merit. Recipients of this Information Memorandum are advised to independently evaluate the risks described in this section before making an investment decision. The Sukuk TNB NE are subject to certain risk factors that could adversely affect, amongst others, the business of the Issuer and/or the Project Company. The risk factors relating to the Sukuk TNB NE and its possible mitigating factors which are summarised below do not purport to be comprehensive or exhaustive and are not intended to be a substitute or replacement for an independent assessment of the risk factors that may affect the Sukuk TNB NE. Each investor should carefully conduct his or her independent evaluation of the risks associated with investing in the Sukuk TNB NE.

7.1

Considerations Relating to the Sukuk TNB NE

7.1.1

Rating MARC has assigned a preliminary rating of AAAIS for the Sukuk TNB NE. A rating is not a recommendation to purchase, hold or sell the Sukuk TNB NE. There is no assurance that a rating will remain in effect for any given period of time or that a rating will not be downgraded, suspended or withdrawn entirely by MARC in the future, if, in its judgment, circumstances in the future so warrant. Further, such a rating is not a guarantee of repayment or that there will be no default by the Issuer under the Sukuk TNB NE. In the event that the rating initially assigned to the Sukuk TNB NE is subsequently downgraded, suspended or withdrawn for any reason, no person or entity will be obliged to provide any additional credit enhancement with respect to the Sukuk TNB NE. Any downgrading, suspension or withdrawal of a rating may have an adverse effect on the liquidity and market price of the Sukuk TNB NE. Any downgrading, suspension or withdrawal of a rating will not constitute an event of default with respect to the Sukuk TNB NE or an event by itself that warrants the Sukuk TNB NE to be immediately due and payable.

7.1.2

No Prior Market in the Sukuk TNB NE The Sukuk TNB NE comprises a new issue of securities for which there is currently no secondary market. There can be no assurance that such secondary market will develop or, if it does develop, that it will provide the Sukukholders with the liquidity of investments or will continue for the tenor of the Sukuk TNB NE. If a market develops, the market value of the Sukuk TNB NE may fluctuate. Any sale of the Sukuk TNB NE by the Sukukholders in any secondary market which may develop may be at a discount from the original issue price of the Sukuk TNB NE, depending on many factors, including the prevailing interest rates and the market for similar securities. Trading prices of the Sukuk TNB NE may also be influenced by numerous factors, including the operating results and/or financial condition of the Issuer, political, economic, financial and any other factors that can affect the capital markets, the industry or the Issuer. Adverse economic developments could have a material adverse effect on the market value of the Sukuk TNB NE.

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7.1.3

Information Memorandum

Suitability of Investments Each potential investor in the Sukuk TNB NE must determine the suitability of its investment in light of its own circumstances. In particular, each potential investor should: (i)

have sufficient knowledge and experience to make a meaningful evaluation of the Sukuk TNB NE, the merits and risks of investing in the Sukuk TNB NE and the information contained in this Information Memorandum;

(ii)

have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its particular financial situation, an investment in the Sukuk TNB NE and the impact the Sukuk TNB NE will have on its overall investment portfolio;

(iii)

have sufficient financial resources and liquidity to bear all of the risks of an investment in the Sukuk TNB NE;

(iv)

understand thoroughly the terms of the Sukuk TNB NE and be familiar with the behaviour of any relevant indices and financial markets; and

be able to evaluate (either alone or with the help of a financial adviser) possible scenarios for economic and other factors that may affect its investment and its ability to bear the applicable risks. 7.1.4

Shariah Compliance Notwithstanding the approvals of the Shariah Adviser of the Sukuk TNB NE, case law in Malaysia indicates that the courts in Malaysia may still examine the issue of whether there has been compliance with Shariah and if held to be non-Shariah compliant, the recoverability of the profit element under the Sukuk TNB NE may be affected. No assurance is given that the approval(s) of the Shariah Adviser will not be subject to challenge on grounds that the Sukuk TNB NE is not Shariah compliant.

7.1.5

The Sponsor’s Completion Support and The Sponsor’s Rolling Guarantee Other than recourse to the internally generated funds of the Issuer which would primarily consist of Project cash flows, the ability of Sukukholders to recover amounts due by the Issuer on the Sukuk TNB NE will also be dependent upon the ability of TNB to fulfil its obligations under the Sponsor’s Completion Support or the Sponsor’s Rolling Guarantee as set out in Item 2(l) of the PTC. Under the Sponsor’s Completion Support, TNB shall provide an unconditional and irrevocable guarantee for the period commencing from (and including) the issue date of the Sukuk TNB NE and expiring on the date falling twelve (12) months from the Scheduled COD or the date upon the declaration of a Dissolution Event (whichever is earlier) to: (1) fund any cost overruns incurred relating to the Project for up to a cap of 10% of the Project cost as reflected in the Base Case Financial Model; and (2) fund any principal obligations and Periodic Distribution Amounts under the Transaction Documents for up to twelve (12) months post the Scheduled COD. Under the Sponsor’s Rolling Guarantee, upon cessation of the Sponsor’s Completion Support and until the final maturity date of the Sukuk TNB NE or the date upon the declaration of a Dissolution Event (whichever is earlier), the Sponsor shall provide a rolling, unconditional and irrevocable guarantee in an amount equivalent to the next

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6-month principal obligations and Periodic Distribution Amounts under the Transaction Documents. However, investors should be aware that the Sponsor’s Completion Support and the Sponsor’s Rolling Guarantee do not include any accelerated payments upon a declaration of a Dissolution Event. As such, in the event of the occurrence of a Dissolution Event, Sukukholders will effectively be compelled to choose between (a) refraining from declaring an EOD and relying on the Sponsor’s Completion Support or the Sponsor’s Rolling Guarantee (as the case may be) and the Rolling Guarantee as the source of repayment; or (b) declaring an EOD and commencing enforcement of the Transaction Documents and securities whereby the Sponsor’s Completion Support or the Sponsor’s Rolling Guarantee will not then cover the accelerated amounts due. Further to the above, the ability of TNB to meet its obligations under the Sponsor’s Completion Support or the Sponsor’s Rolling Guarantee (as the case may be) is in turn, dependent on the successful continuation of TNB’s business of generation, transmission and distribution of electricity in Peninsular Malaysia. In this regard, there is no assurance that any disruption, decline or threat to the continuation of TNB’s business will not have an adverse effect on the Issuer’s ability to meet payments due under the terms and conditions of the Sukuk TNB NE and the Transaction Documents. 7.1.6

Risk of Mandatory Redemption The provision for mandatory redemption to the Sukukholders earlier than the fixed maturity date may result in the Sukukholders incurring capital loss as this will impact the Sukukholders who purchased the Sukuk TNB NE above par. The liquidity of the remaining Sukuk TNB NE may be affected.

7.2

Risks Relating to the Issuer

7.2.1

Issuer’s Ability to Meet its Obligations Under the Sukuk TNB NE The Issuer was incorporated in Malaysia on 19 November 2012 under the Companies Act, 1965 and has a limited operating history. As at the date of this Information Memorandum, the only activities that the Issuer will engage in are the issuance of Sukuk TNB NE, the construction and operation of the Power Plant as per the Turnkey Contract and other activities incidental or related to the foregoing as required under the transaction documents. The Issuer will not engage in any other business activity. The Issuer will therefore only be able to meet its obligations to the Sukukholders in and pay amounts due under the Sukuk TNB NE (including via the Project Company pursuant to the Purchase Undertaking) from internally generated funds post COD from revenue under the PPA.

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7.3

Risks Relating to the Project

7.3.1

Construction Risks (a)

Information Memorandum

Construction Delay

The PPA specifies the Scheduled COD to be 1 January 2016. Failure to achieve COD on or before the scheduled COD due to default of Project Company or its contractors will result in the PPA Delay LDs being payable by the Project Company to TNB in an amount of RM321,429 per day per Generating Block of delay. Failure to achieve COD within six (6) months of the scheduled COD is a Project Company’s EOD. However, the following factors are to be considered as mitigating factors to the risks: (i)

the ICE confirming the construction schedule is representative of the current market for gas-fired power stations worldwide and they consider the construction schedule to be achievable by the EPC Contractor;

(ii)

the ICE opining the EPC Contractor and original equipment supplier have experience with the type of plant being specified and can deliver the Project in a timely and proficient manner;

(iii)

the EPC Contractor has a major global presence in many disciplines including engineering, procurement and construction and has been involved in the successful development of a number of large power projects. The original equipment supplier, Siemens, is one of the largest power plant engineering, procurement and construction companies and is one of the most experienced and capable organizations in successfully implementing combined cycle gas turbine projects. The ICE has opined that both organizations are suitably qualified for the Project. Siemens and Samsung have also successfully completed a number of turnkey EPC projects together, including gas-fired power plant projects in Singapore, Indonesia and the Kingdom of Saudi Arabia;

(iv)

the Sponsor is an experienced developer of greenfield and brownfield power projects in Malaysia, with several in a project financing context. All of the Sponsor’s development projects in Malaysia have been delivered on schedule, including the 3x700MW Manjung coal-fired power plant.

(v)

pursuant to the EPC Contract, the EPC Contractor is liable for Delay LDs per day per Generating Block of delay between the scheduled COD and the date COD is actually achieved. The Delay LDs are required to compensate the Project Company/ Issuer for: (A)

PPA Delay LDs payable to TNB;

(B)

unavoidable fixed costs of the Project Company and Issuer (comprising manpower costs, fixed operating costs, land lease payments and other general fixed costs); and

(C)

finance service obligations of the Project Company and Issuer.

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Delay LDs are capped at 15% of the Accepted EPC Contract Amount. The ICE has opined that the Delay LD cap will cover a period of four hundred and seventy two (472) Generating Block days and is adequate, as the period would cover the longstop date under the EPC Contract, which falls one hundred and eighty (180) days after the scheduled COD. Testing and commissioning commence at the Initial Operating Date (“IOD”), which is six (6) months prior to the scheduled COD. All performance of the testing and commissioning and verification of results will be subject to monitoring by the Sponsor and the ICE. The Sponsor has extensive prior experience in the testing and commissioning of power projects. By virtue of being both the off-taker and the Sponsor, TNB is in a position to ensure that potential delays can be identified and managed at an early stage. (b)

Output Shortfall Risks

Under the PPA, the Power Facility is required to achieve a Net Power Output of 1,071.43 MW upon completion. Failure to achieve the Guaranteed Net Power Output will result in the PPA Performance LDs payable to TNB in an amount of RM5,000.00 per kW of shortfall. Available Capacity Payment is made on the basis of the most recent tested annual available capacity. Therefore it is important EPC Contractor is able to deliver a plant of Net Power Output of no less than 1,071.43 MW. The output performance risk is primarily mitigated by the nature of selected technology and the track record and experience of Samsung as the EPC Contractor and Siemens as the original equipment supplier. On top of that, the EPC Contract will contain, amongst others, a Guaranteed Net Power Output equal to 1,071.43 MW, a minimum performance level of ninety five per cent (95%) of the guaranteed capacity, as well as performance and reliability tests, which must be successfully completed prior to Issuer taking over the Power Facility. The EPC Contractor is liable for performance liquidated damages for output shortfall (“Output Performance LDs”) per kW/Generating Block of shortfall if it fails to achieve the performance guarantees under the EPC Contract. The EPC Contractor may elect to pay Output Performance LDs at the Taking-Over Date. Alternatively, the EPC Contractor may choose to initiate steps to achieve the Guaranteed Net Power Output within a cumulative total curing period of two years. Therefore, the Output Performance LDs would be paid at the latest 2 years after Taking-Over Date if the EPC Contractor elects to return to the Power Facility to attempt to achieve the Guaranteed Net Power Output. Therefore, there is a risk that the Project Company would not recover lost revenues due to reduced capacity during the 2-year cure period. The non-compensated reduced revenue period is however limited to 2 years only and the Finance Services remains supported by the reduced revenue levels and the Sponsor’s Rolling Guarantee. Performance LDs are capped at 20% of the Accepted EPC Contract Amount. The Output Performance LDs will, together with Heat Rate Performance LDs, be supported by performance security representing twenty per cent (20%) of the Accepted EPC Contract Amount. The ICE has confirmed that the level of the Output Performance LDs is sufficient to recover lost revenues due to reduced capacity and make payments for PPA Performance LDs. However, the ICE has opined that a 5% MW output shortfall requires a total LD equal to 24% of the Accepted EPC Contract Amount, which is more than the liability cap of 20%. Nevertheless, the Output Private & Confidential

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Performance LDs up to the level of the liability cap are sufficient to meet the PPA Performance LDs payable to TNB. The ICE has also confirmed that: (i)

the LD cap and provision of the performance security is considered adequate to incentivise the EPC Contractor to complete and warrant the Power Facility.

(ii)

the limit on the Performance LDs is consistent with the current market conditions and is considered acceptable.

(c)

Failure to Achieve the Contracted Heat Rate Under the PPA

Under the PPA, the Fuel Payment component of the tariff paid to the Project Company is calculated based on the Applicable Heat Rate. The Applicable Heat Rate is the contracted heat rate, as set out in the PPA. Contractually, there are no margins between the weighted plant heat rate based on EPC heat rate values and PPA table of heat rates. Nevertheless, certain margins are expected to be achieved during operations (please refer to the section on Heat Rate Performance during operations below). Therefore, if the EPC Contractor fails to achieve the heat rate performance target equal to, or better than, the contracted heat rate as set out in the PPA, and/or if the heat rate achieved by the EPC Contractor degrades such that the heat rate is higher than the contracted heat rate as set out in the PPA, the Project Company is at risk of receiving fuel payments which do not fully compensate the Project Company for the fuel costs incurred. The heat rate performance risk is primarily mitigated by the nature of selected technology and the track record and experience of Siemens, the technology supplier. On top of that, the EPC Contract will contain a weighted average Heat Rate Performance Guarantee which is equivalent to the weighted average of the contracted heat rate under the PPA, a minimum performance level of one hundred and five per cent (105%) of the guaranteed heat rate as well as performance and reliability tests, which must be successfully completed prior to Issuer taking over the plant. The ICE has opined that the minimum acceptable performance level for heat rate is in line with normal practice. The EPC Contractor is liable for performance liquidated damages for heat rate (“Heat Rate Performance LDs”) if it fails to achieve the Guaranteed Net Heat Rate under the EPC Contract. The EPC Contractor may elect to pay Heat Rate Performance LDs at the Taking-Over Date. Alternatively, the EPC Contractor may choose to initiate steps to achieve the Guaranteed Net Power Output within a cumulative total curing period of two years. Therefore, the Heat Rate Performance LDs would be paid at the latest 2 years after Taking-Over Date if the EPC Contractor elects to return to the Power Facility to attempt to achieve the Guaranteed Net Heat Rate. Therefore, there is a risk that the Project Company would not recover additional fuel costs due to a higher heat rate during the 2-year cure period. The non-compensated additional fuel costs period is however limited to 2 years only and the Finance Services remains supported by the reduced revenue levels and the Sponsor’s Rolling Guarantee.

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Performance LDs are capped at 20% of the Accepted EPC Contract Amount. The Heat Rate Performance LDs will, together with Output Performance LDs, be supported by performance security representing twenty per cent (20%) of the Accepted EPC Contract Amount. The ICE has confirmed that the level of the Heat Rate Performance LDs is sufficient to recover additional fuel costs due to a higher heat rate. However, The ICE has opined that the maximum acceptable heat rate requires a total LD equal to 149% of the Accepted EPC Contract Amount, which is more than the liability cap of 20%. Hence, there is a risk that the Heat Rate Performance LDs paid up to the liability cap will not be sufficient to recover additional fuel costs due to a higher heat rate. Under the EPC contract, reaching the LD cap is an event of default, and hence negotiations will take place that could further reduce the exposure of the Owner. ICE has confirmed that: (i)

the LD cap and provision of the performance security is considered adequate to incentivise the EPC Contractor to complete and warrant the Power Facility.

(ii)

the limit on the Performance LDs is consistent with the current market conditions and is considered acceptable.

(d)

Cost Overruns and Cost Variations

The EPC Contract is on a fixed-price basis, such that cost overruns may arise from variation orders that are not compensated via the PPA change in law provisions and there is limited scope for other price increases under the EPC Contract. The Issuer retains risk in some aspects of the project which are not necessarily within the Issuer’s control. The key risks include, inter alia, additional costs and delays resulting from: (i)

fossils, coins, articles of value or antiquity and/or archeological finds;

(ii)

unforeseeable physical conditions, e.g. contamination or pollution by hazardous substances of the soil, ground, surface water or groundwater, or artificial underground objects or constructions;

(iii)

any changes in law or in the applicable codes and standards after 30 November 2012;

(iv)

the Issuer’s risks.

The risk of unforeseeable physical conditions and presence of artefacts on the Site is substantially mitigated by the extensive knowledge of the Site gained by the Sponsor from the development and operation of the previous Perai Power Station on the proposed site. Nevertheless, there is a risk of existing ground contamination, which may increase the risk of unforeseen costs. This risk is mitigated through the financing plan including a budget for site remediation costs of RM 10 million and a contingency amount equivalent to 1.5% of EPC Contract Amount (or 1.1% of total Project Cost). There is also Sponsor’s Completion Support equivalent to ten per cent (10.0%) of the total Project Cost.

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The Issuer’s risks are events outside the control of the Issuer1, but if these risks occur, generally, the Issuer will not receive any compensation from TNB or any insurance proceeds with which to reinstate such damage or loss, or to cover any lost revenue during any resultant delays (save for where an Emergency Condition which relates to the Grid System where TNB will have to compensate the Project Company pursuant to clause 20 of the PPA). The Issuer’s risks events outside the control of the Issuer relates to “political force majeure” events occurring in Malaysia and uninsured force majeure events. The risk of “political force majeure” events occurring in Malaysia would need to be assessed by the Finance Parties. The insurance package proposed to be put in place limits substantially the range of uninsured force majeure events which can have an impact on the Power Facility. The ICE has confirmed that the risk of damage to the Power Facility due to any Grid System malfunction, failure or breakdown is low. This risk is mitigated through the 180 day longstop date under the PPA, the financing plan including contingency equivalent to 1.5% of EPC Contract Amount (or 1.1% of total Project Cost) and Sponsor’s Completion Support equivalent to ten per cent (10.0%) of the total Project Cost. The level of contingency included in the financing plan, together with the Sponsor’s Completion Support is in excess of the contingency level recommended by the ICE. The ICE has confirmed that EPC Contractor’s technical proposal is considered suitable for the Project requirement. Another mitigating point to be considered is the Sponsor’s experience as a developer of green field and brown field power projects locally and internationally and the ability of the Sponsor to manage cost overrun and delay risk. (e)

Other Construction Risks

(i)

TNB Delay The PPA provides for commensurate extensions of time (“EOT”) for: (a)

Any delay to the initial operation date imposed by the GSO beyond fifteen (15) days;

(b)

Any delays caused by TNB as the offtaker (the “Offtaker”).

If the delay in COD is caused by the Offtaker failing to inspect the interconnection protective devices, the Offtaker will pay for any additional interest incurred by the IPP over the period of delay. Additionally, if COD of a Generating Block fails to occur within thirty (30) days from its scheduled date due to any delay to its initial operation date imposed by the GSO, the Offtaker will pay Available Capacity Payments to the IPP from the date that is thirty (30) days after the Scheduled COD. If TNB fails to complete the transmission facilities specified in the PPA by the stipulated date thereby delaying COD of the Generating Block, it will pay IPP the full Available Capacity Payments from the Scheduled COD.

1

Other than the Issuer's occupation of the Site, which is within the Issuer's control.

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There are a number of mismatches between the risks allocation and rights of the Project Company under the PPA and the risks allocation and the rights of the EPC Contractor under the EPC Contract, which leave the Issuer bearing a number of risks. This is particularly the case on issues relating to unforeseeable ground conditions, rights to suggest design changes, rights to delay testing or provision of services during testing and commissioning, and changes in law. These mismatches could, individually or when combined, give rise to cost increases or delays that could have a significant impact on the Project. Nevertheless, TNB can request design changes, not only to interconnection but also to the Facility. The impact of those requested changes can be limited. Although TNB has the right to review and approve the design, the approval is limited to achievement of the technical information contained within appendices to the PPA. However, this includes the Grid Code which can be amended by TNB at any time. In view of TNB’s role as both Offtaker and Sponsor, it is in a position to manage any risks relating to design changes. (ii)

EPC Contractor Performance and Termination If the Issuer chooses to terminate the EPC Contractor's engagement under the EPC Contract, it will only be entitled to receive compensation for its direct losses connected with completing the works and will not be entitled to receive any compensation for its lost revenues. This could cause potential cashflow issues for the Issuer if the Issuer is forced to terminate the EPC Contractor's engagement. Prospective investors should evaluate and consider the track record and experience of the EPC Contractor in successful delivery of thermal power plants and the risk of an event arising which leads to termination of the EPC Contract by the Issuer. This risk is mitigated by the Sponsor’s Completion Support and Rolling Guarantee. The Completion Support covers overruns of 10% of Project costs and Finance Service during the 12 month period following Scheduled COD, while the Rolling Guarantee will cover the Finance Service in each six-month period, once the Completion Support falls away. This provides the Project Company additional time to complete the Project before the project economics affect Sukukholders.

7.3.2

Technology and Operator Risk (a)

Technology Risk

The proposed gas turbine will be supplied by Siemens, which utilises Siemens’ HClass SGT5-8000H combustion turbine technology. This program concept began in October 2000. The engine basic design started in November 2001. Only one SGT58000 in single shaft combine cycle configuration (“SCC5-8000H-1S”) is currently in operation, at Irsching 4 in Germany where it was first fired in December 2007 and the testing and validation was completed in August 2009. The GT validation and tests accumulated 4,365 Equivalent Operating Hours (“EOH”) with 85 starts. The engine in Irsching has undergone 4 visual inspections and 1 combustion inspection up to February 2013. As of March 2013, the engine had achieved over 15,802 EOH in combined cycle, and more than 441 starts. SCC5-8000H-1S power plants in Turkey and Germany are due for COD in February 2015 and September 2015 respectively. Private & Confidential

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The SGT6-8000H (the smaller 60 Hz version of the SGT5-8000H) underwent 3,822 EOH and 137 starts during testing and validation. 3 SGT6-8000H are currently being commissioned and have achieved 2902 EOH and115 starts. A further 13 SGT68000H have been sold and are due to enter operation from 2013 onwards. Due to its limited track record, the SGT5-8000H can be considered as more technically and commercially risky than its proven predecessor, the SGT5-4000F and may initially result in higher unavailability compared to engines with significant operational hours. The following factors are to be considered to mitigate the aforesaid risks: (i)

The EPC Contractor and original equipment supplier having experience of engineering, procuring and constructing plants with similar operating parameters. Siemens is one of the largest power plant engineering, procurement and construction companies and is one of the most experienced and capable organizations in successfully implementing CCGT projects;

(ii)

Siemens has spent more than 10 years with significant research and development investment to create a robust 8000H gas turbine technology. The thorough testing and validation ensured a mature and proven first 8000H gas turbine on commercial operation. The performance, hardware integrity and lifetime prediction has been confirmed with the first 8000H gas turbine through 5 inspections.

(iii)

The provision of a latent defect period of five years where the contractor is required to make good any defects identified during the term of the warranty;

(iv)

Gas turbine and compressor spare parts are kept by Siemens for delivery to site within 48 hours. Siemens spare parts inventory is installed and established in Berlin to support the global 8000H fleet. Other strategic spares i.e. for HRSG and Steam Turbine will be purchased by the Operator and kept at site. Siemens will maintain their maintenance support specialists based in the region, who will work with the Operator;

(v)

The plant control system is supplied with the required hardware and/or software to allow the control system to be interfaced to third party applications for the purpose of real time extraction of process data.

(b)

Reliability Risk

Pursuant to the PPA, the Project Company is granted an unplanned outage allowances of four per cent (4%) to six per cent (6%) per annum in addition to the scheduled outages. If the Project Company breaches the four per cent (4%) allowance, a reduced Available Capacity Payment is payable to the Project Company. If the Project Company breaches the six per cent (6%) allowance, a further reduction to Available Capacity Payment and an additional penalty would apply. In addition, the Available Capacity Payment is made on the basis of the most recent tested annual available capacity. Therefore, it is critical that the Power Facility is able to achieve tested annual available capacity equal to the Nominal Capacity over the long-term as well as daily actual available capacity being at least equal to the daily planned available capacity on an ongoing basis. The following factors are to be considered to mitigate the aforesaid risks: Private & Confidential

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(i)

The EPC Contract will provide for tests on completion including a reliability run, with failure to pass such tests resulting in the right of the Issuer to order a retest or reject Power Facility.

(ii)

The responsibilities of the Project Company are passed through to the Operator via the inclusion of the PPA and the GSA obligations in the schedules of OMA.

(iii)

The Operator provides guarantees and the OMA provides for a payment and incentive mechanism on the Operator which are formulated to align with the performance targets of the Project Company under the PPA. These include penalties on the Operator where, inter alia: (1)

the Power Facility suffers unplanned outages at a rate exceeding four per cent (4%);

(2)

the Power Facility suffers unplanned outages at a rate exceeding six per cent (6%);

(3)

the Tested Annual Available Capacity of each Generating Block is lower than the Guaranteed Capacity2;

(4)

the Power Facility fails to achieve the Contracted Average Availability Target of 94%, as set out in the PPA;

(5)

the Power Facility fails to fulfil a Despatch Instruction.

(iv)

Whilst the payment and incentive mechanism under the OMA is not designed to achieve a direct pass-through of the revenue loss suffered by the Project Company, the ICE has confirmed that performance guarantees under the OMA and the performance targets under the PPA are aligned from a technical perspective. Therefore, the Operator is incentivised to ensure ongoing compliance of the Power Facility with the performance targets under the PPA.

(v)

The Operator is the largest operation and maintenance service provider to the power generation sector in Malaysia and is highly experienced in operating and maintaining power plants, including gas fired combined cycle power plants.

(vi)

The Sponsor’s Rolling Guarantee in an amount equivalent to the next semiannual scheduled Finance Service, until the final maturity date of the Sukuk TNB NE.

In addition, the ICE has estimated that the expected Net Power Output could be less than the Net Power Output of 1,071.43 MW required under the PPA, based on the proposed design and technical solution. The potential output shortfall arises from the expected auxiliary system losses and would occur following the Taking-Over Date, which means that Output Performance LDs would not be payable by the EPC

2 “Guaranteed Capacity” is defined as the lower of (i) Contractual Available Capacity and (ii) 535.715 MW. Contractual Available Capacity is the capacity achieved by the EPC Contractor.

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Contractor. Investors should note that this is based on estimates by the ICE and should consider it in the context of the mitigating factors stated below. The Project Company has also assumed that there will be no capacity degradation, as based on their previous experience, it is expected that new turbine models generally see an improvement in performance as it undergoes more operating hours. As the SCC5-8000H-1S is the newest model in Siemen’s stable, the Project Company expects to see improvements in its performance on or after COD. The ICE has opined that it is common that turbines experience a capacity degradation of around 2.5% over the life of the asset. The following factors are to be considered to mitigate the aforesaid risks: (i)

As noted above, the Operator provides guarantees and the OMA provides for a payment and incentive mechanism on the Operator which are formulated to align with the performance targets of the Project Company under the PPA;

(ii)

There are margins expected in the Net Power Output, as reference conditions for corrected output during testing are more severe than actual site conditions. The ICE has confirmed that, based on historical trends, this assumption is not unreasonable;

(iii) The Sponsor’s Rolling Guarantee in an amount equivalent to the next semiannual scheduled Finance Service, until the final maturity date of the Sukuk TNB NE. (c)

Heat Rate Performance

Under the PPA, the Fuel Payment component of the tariff paid to the Project Company is calculated based on the Applicable Heat Rate. The Applicable Heat Rate is the lower of the contracted heat rate, as set out in the PPA. The Project Company therefore needs to ensure it is able to maintain in the long term a heat rate at the Power Facility that is at least equal to the contracted heat rate, otherwise the fuel payment component of the tariff may not fully compensate the Project Company for the actual cost of fuel incurred. The PPA does not include adjustments for heat rate degradation, though this will be expected to occur in practice. Contractually, there are no margins between the weighted plant heat rate based on EPC heat rate values and PPA table of heat rates. Nevertheless, there are margins expected in the actual heat rate during operations, as site conditions for heat rate during testing are more severe than actual site conditions. The ICE has confirmed that, based on historical trends, this assumption is not unreasonable. The following factors are also considered to mitigate the said risks: (i)

Under the OMA, the Operator has accepted the same performance values stipulated under the PPA and takes on the heat rate performance risk, guaranteeing the Power Facility will meet the Applicable Heat Rate, with no adjustments for heat rate degradation. Failure to meet the guaranteed heat rate will result in LDs payable by the Operator, equal to thirty per cent (30%) of the increased costs of fuel payable by the Project Company. Nevertheless, the ICE has opined the LD cap provided under the OMA covers heat rate degradation of only 0.4%, which is below the expected actual heat rate

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degradation of the plant, which ICE estimates to be 2% to 2.5% on average, over the Term. (ii)

Whilst the payment and incentive mechanism under the OMA is not designed to achieve a full pass-through of the increased costs suffered by the Project Company as a result of Operator failure to meet the heat rate guarantee, the heat rate performance guarantees under the OMA and the heat rate performance targets under the PPA are the same. The Operator is incentivised to ensure ongoing compliance of the Power Facility with the heat rate performance target under the PPA due to the LDs applicable under the OMA and the profit sharing with the Operator on actual cost savings on fuel. However it should be noted that the performance LDs under the OMA will not cover the expected heat rate degradation.

(iii)

Under the LTMP, LDs relating to heat rate degradation are payable by Siemens, covering about 5% of the actual loss incurred. There is also a profit sharing mechanism with Siemens under the LTMP, if the gas turbine heat rate improvement is beyond 1% of the guaranteed heat rate after a major inspection.

(iv)

The Sponsor’s Rolling Guarantee in an amount equivalent to the next semiannual scheduled Finance Service, until the final maturity date of the Sukuk TNB NE.

(d)

Operation and Maintenance Costs

O&M Costs will be largely covered by the FOR and VOR components of the tariff. Under the PPA, FOR and VOR are pre-agreed fixed values in Ringgit Malaysia and indexed at four per cent (4%) every four (4) years. The Project Company will engage the Operator as the operation and maintenance contractor for the Project. The Operator does not provide any security for the performance of its obligations under the OMA. This is due to the quasi-owneroperator approach of the project structure and in view of the Operator being a whollyowned subsidiary of the Sponsor. Further, the Operator is an experienced provider of operation and maintenance services to power plants and is the largest of such provider in Malaysia. The Project Company retains risk in some aspects of the project which are not necessarily within the Project Company’s control. The key risks include, inter alia: (i)

The Project Company’s cash flows may be negatively affected by operating expenses of the Project Company being higher than initially budgeted, e.g. escalation of payments under the LTMP at higher rates than assumed in the Base Case Financial Model;

(ii)

The OMA provides for reimbursement by the Project Company to the Operator for any costs incurred relating to emergency conditions, including when scheduled outages are delayed etc. This is contrary to PPA where the Project Company is not compensated for this.

(iii)

Change in circumstances as defined in the OMA, including: (1)

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(2)

a change in quality of the Nominated Fuel against the quality stipulated in the OMA;

(3)

any material change in the EPC Contract which has a material impact on the operation and maintenance of the Power Facility;

(4)

when more than an aggregate of 300 hours of operation of all the gas turbines on distillate fuel per year have been reached, except to the extent that such change is compensated under the LTMP.

The following factors are to be considered to mitigate the said risks:(i)

The ICE has opined that the O&M budget is acceptable and that, via its other projects, the Sponsor and Operator have the capability and resource to implement a suitable O&M plan

(ii)

The Project Company will also set aside a Maintenance Reserve Account, with a minimum balance of RM24m, consistent with the PPA requirements.

(iii)

The Sponsor’s Rolling Guarantee in an amount equivalent to the next semiannual scheduled Finance Service, until the final maturity date of the Sukuk TNB NE.

(e)

Offtake and/or Despatch Risks

Under the PPA, the Project Company does not take despatch risk as the Available Capacity Payment component of the tariff is paid regardless of actual despatch level of the Power Facility, provided that the Power Facility does not exceed unplanned outage limits provided under the PPA and meets the PPA availability targets. Available Capacity Payment is set at a level intended to be sufficient to cover fixed costs, finance service, taxes and to provide sufficient return to the Sponsor. Furthermore, the Power Facility is expected to be despatched as a base load power plant, as the coal plants are expected to be despatched first as base load plants and the next cheapest and efficient gas-fired plant will follow. This is expected to be the Power Facility, in view of the improved efficiencies, vis-à-vis the existing gas-fired plants in Malaysia. TNB has successfully weathered two periods of significant macroeconomic stress during the 1998 Asian crisis and the 2008 global financial crisis. TNB is rated BBB+ by Standard & Poor’s, one notch down from Malaysia’s sovereign rating of A-. The Government of Malaysia indirectly holds seventy nine point four per cent (79.4%) as at 30 November 2012 in TNB in addition to veto rights with respect to all major corporate decisions. Although the Government of Malaysia is not involved in the dayto-day running of TNB, it has a strong influence as it has a representative on the board of TNB. This, together with TNB’s systemic importance to the stability of the Malaysian economy ensures a high likelihood that the Malaysian government will provide timely support to TNB should the latter experience financial difficulties.

7.3.3

Gas Supply Risks

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Price

As long as the Government Directive is in place, the Project Company shall pay Petronas for the committed gas quantities based on the regulated gas price. Under the PPA, fuel cost that will be passed through to TNB will be based on the weighted average fuel price derived by dividing the amount paid by the Project Company to Petronas for gas consumed by the aggregate GJ of such natural gas consumed. In periods where the Plant is not available on natural gas, the Project Company can changeover to Distillate Fuel Oil and TNB will make Energy Payments based on the cost of Distillate Fuel Oil consumed during such period. ICE has confirmed that fuel price variations do not impact the Project from a technical perspective as fuel costs are passed through to TNB under the PPA, subject to the Project Company achieving the Guaranteed Net Heat Rate under the PPA. (b)

Security of Supply

Petronas has an obligation to make available gas to the Project Company up to the Daily Quantity (“DQ”). The ICE has confirmed that the DQ nominated in the GSA is adequate to meet the requirements of the Power Facility at 100% load, taking into account degradation. Petronas has the right to revise the DQ downwards for the remaining Contract Years if the consumption of gas for any two consecutive Contract Years is less than the TOP Quantity, save that the Seller shall not revise the DQ downwards in the event the Delivered Quantity to the Power Sector for the same two Contract Years is equal to or exceeds the TOP Quantity for the Power Sector for the same period. If the DQ is revised to a level below what is required to operate the Power Facility at 100% load, the Project may face reduced revenues due to reduced gas availability. The risk of such downward revision is considered minimal, as the majority of the gas-fired power plants in Malaysia have historically been despatched as base load plants which will enable all such plants to meet the TOP levels on aggregate. The Sponsor expects this to continue to hold true, even with the additional gas-fired capacity that are expected to be tendered, given the increasing electricity demand in the country. Furthermore, certain existing combined cycle gasfired power plants will be expiring between 2015 and 2017 and the fuel mix strategy in daily operation will remain. The delivery of Commissioning Gas will be subject to Petronas and the Project Company, in good faith, discussing and agreeing on the quantities of Commissioning Gas that the Project Company would require, the timing for delivery and the terms for delivery and acceptance. The Project Company has no recourse to Petronas for any delays in commissioning and will be liable for delays under the PPA if Commissioning Gas is unavailable or agreement cannot be reached. The Sponsor views this to be acceptable as given the history of cooperation with Petronas on other gas-fired plants. Under the PPA, the Project Company has the right to declare availability on Distillate Fuel Oil if the Project Company and TNB agree that gas is not available and it is not resulting from a breach by the Project Company. Disruptions in gas supply due to a force majeure event would constitute a Force Majeure Event under the PPA, which in turn allows the Project Company to switch over to and be available based on Distillate Fuel Oil as well. Once the Project Company declares availability based on Distillate Fuel Oil, it will be obligated to despatch based on Distillate Fuel Oil if so instructed by the GSO. Under the O&M agreement, distillate firing is limited to 300 hrs in aggregate over any one year (total for both Generating Blocks). Distillate firing carries a penalty in terms of Private & Confidential

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EBH of 1.3, ie every three hours firing on Distillate Fuel Oil is equivalent to four hours running on gas. Substantial distillate running will hence mean shorter intervals between overhauls. If the Project Company despatches based on Distillate Fuel Oil over a prolonged period, it may face lower availability due to distillate firing triggers reductions set out in PPA. However, the Sponsor believes that, looking at the plan for scheduled maintenance outage supplied by the OEM there is ample margin for the Project Company to achieve the 94% Availability Target in a 3-year block if it is instructed to run on Distillate Fuel Oil despite the accelerated interval between overhauls. It is to be noted that the GSO will exercise great prudence when dispatching any power plant on Distillate Fuel Oil as this cost is absorbed by TNB and not passed to the consumer at large. It is envisaged that any disruption in gas supply is likely to be temporary in nature, and the risks of a material increase in maintenance costs or reduction in capacity payments is therefore small. The ICE has opined that the likelihood of failed gas supply occurring together with the failure of the various back-up fuel sources is considered highly unlikely. Additional pipeline facilities are needed for the supply of gas by Petronas to the Project and Petronas will be appointing a contractor for the development of these additional facilities. Under the GSA, the cost of these additional facilities are the responsibility of the Project Company and the financing plan includes a provision of RM 160 million for these costs. A delay in completion of these facilities could result in a failure to achieve first energisation of the Power Facility and consequently, a failure to meet Scheduled COD and a need to pay PPA Delay LDs. The following factors are to be considered to mitigate the said risks: (i)

A history of cooperation between TNB and Petronas on fuel supply to gas-fired plants.

(ii)

The Sponsor’s Rolling Guarantee in an amount equivalent to the next semiannual scheduled Finance Service, until the final maturity date of the Sukuk TNB NE.

(c)

Take-or-Pay Risk

Petronas has an obligation to make available gas to the Project Company, pursuant to a TOP. The TOP quantity is 80% of the Net Annual Contract Quantity (“Net ACQ”) for the first ten (10) Contract Years and 85% of Net ACQ thereafter. The Net ACQ is calculated as the DQ, multiplied by the number of days in the Contract Year, less the excused quantity. Failure to take the TOP Quantity in any Contract Year would mean that the Project Company has to pay for the quantity of gas not taken, up to the TOP Quantity. For any gas paid for but not taken, the Project Company has up to three (3) years to nominate Make-Up Gas based on the difference between the prevailing gas price at the point of delivery and the price already paid. Notwithstanding the TOP obligations, IPP will be able to fully pass through the cost of TOP gas under the PPA.

(d)

Quality

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Pursuant to the GSA, Petronas undertakes to supply natural gas of a certain quality. Petronas shall use its best endeavours to ensure that the gas delivered to the Project Company conforms to the specifications set out in the GSA. Petronas has the right to discontinue delivery of Off-Spec Gas if, in its reasonable opinion, such delivery may cause damage to the Petronas’ facilities. The Project Company shall use best endeavours to take receipt of Off-Spec Gas, but it, too, has the right to reject OffSpec Gas from the Seller if, in its reasonable opinion, such receipt may cause damage to the Power Facility. The risk of delivery of Off-Spec gas is seen to be relatively low risk to the Project, based on the Sponsor’s experience on other gas-fired plants in its portfolio. 7.3.4

Force Majeure Force majeure provisions are found in the PPA, GSA, EPC Contract, LTMP, OMA, LLA and Turnkey Contract (“the Agreements”). A force majeure event is an event, condition, or circumstance, which is beyond the reasonable control of the parties and occurs without fault or negligence on the part of the party claiming it. Such an event would result in delay or disruption in the performance of obligation under the affected Agreements despite all reasonable efforts of the party claiming it to prevent it or mitigate its effects. There is a risk that the Project Company and the Issuer may be adversely affected by a force majeure event either directly or indirectly if the other project counterparties to the affected Agreements are relieved of their contractual obligations thereunder.

7.3.5

PPA Termination There is a risk that the Sukukholders may not receive all of their outstanding debt and related costs on the termination of the PPA due to an EOD of the Project Company, where TNB elects to acquire the Power Facility. If the PPA is terminated by TNB due to the Project Company’s EOD, TNB has the option, but not the obligation, to purchase the Project for a purchase price equal to: (a)

all of the outstanding indebtedness if the Sponsor's gross equity contribution amounts to twenty percent (20%) or more of the Total Project Costs, and ninety-five percent (95%) of the outstanding indebtedness if the Sponsor's gross equity contribution is less than twenty percent (20%) of the Total Project Costs; plus

(b)

RM10.00; plus

(c)

reasonable costs and expenses of Project Company which are incurred or suffered as a result of purchase of the Project by TNB; minus

(d)

cash balances at bank and in hand and liquid securities held by the Project Company.

Sukukholders are at risk in the event TNB elects not to purchase the Project upon termination of the Project Company’s EOD and as such, TNB would be under no obligation to pay any termination sums. Potential investors must evaluate the performance risk of the Project Company with respect to its obligations under the PPA and the ability of the Project Company to carry out those obligations in Private & Confidential

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accordance with the requirements under the PPA and the resulting risk of the Project Company’s EOD leading to termination. If TNB elects to purchase the Project upon termination of the Project Company’s EOD, the purchase price may comprise of ninety-five per cent (95%) of the outstanding indebtedness only, in the case where the Sponsor’s gross equity contribution is less than twenty percent of the Total Project Costs. This is considered to be low risk, since the Sponsor’s gross equity contribution in the Base Case Financial Model is in excess of twenty percent. TNB has a number of rights to set-off amounts owing to it from the Project Company, including all liquidated damages payable by the Project Company. This creates a risk to the Financing Parties that TNB may set-off amounts owing to it at termination and reduce the termination payments that may be payable. This risk is mitigated by the strength of the Sponsor’s operational experience, the likelihood of any operational failure leading to termination and the fact that TNB is both the Off-taker and the Sponsor for the Project. 7.3.6

GSA Termination Under the GSA, Petronas is entitled to give fourteen (14) days written notice to the Project Company to terminate the GSA in certain circumstances, including: (a)

if the Project Company fails to take gas after a lapse of ninety (90) days continuously from the last day of offtake, other than due to a Force Majeure event or a failure by Petronas to deliver gas;

(b)

if the Project Company is unable to take or receive gas continuously for a period of two (2) months at any time during the supply period, other than due to a Force Majeure event, Maintenance Shutdown, Operational Shutdown or a failure by Petronas to deliver gas.

The Project Company expects to meet its electricity generation obligations under the PPA by using natural gas as the main source of fuel and the Power Facility is not expected to run on Distillate Fuel Oil on a long term basis. The ICE has opined that it is unlikely for the above to occur, as it would need both Generating Blocks to be unavailable at the same time and for a minimum period of two (2) months, not excused by Force Majeure. The ICE has further opined that during the operations period, to facilitate resource scheduling, the intention will be to schedule the maintenance of the turbines at separate periods. Nevertheless, the Project Company will not receive any compensation if the GSA is terminated. Prospective investors should evaluate and consider the risk of an event arising which leads to termination of the GSA. 7.3.7

Adequacy of Insurance The Issuer and the Project Company maintain insurance policies to mitigate certain risks in accordance with the provisions of the PPA. The conditions precedent for the issuance of Sukuk TNB NE include a written report from the Insurance Adviser in form and substance satisfactory to the Joint Lead Arrangers. In particular, Investors should take note that the DSU section of CEAR and Marine Cargo Open Cover policies do not cover principal repayment obligations.

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However, there can be no assurance that there will be sufficient coverage to fully protect against interruption to business, generation of revenue, increased expenditure or any other liabilities associated with the business of the Issuer and the Project Company. In addition, the creditworthiness of the reinsurers (the ultimate parties who bear the insurance risk) may impact the ability of the Issuer and/ or the Project Company to receive amounts payable as a result of insured events in full. 7.3.8

Financial Considerations (a)

Equity Contribution Risks

The Sponsor will contribute at least more than thirty per cent (30.0%) of Project Costs in the form of equity and RPS prior to COD. The risk of the Sponsor failing to contribute the required equity to the Project is mitigated by the financial strength of the Sponsor. The Sponsor has been able to consistently obtain AAA ratings for its senior corporate debt facilities and non-recourse debt facilities at subsidiary project level from the Rating Agency. (b)

Exposure to Foreign Currency Fluctuations

Exposure to the risk of foreign currency fluctuations during the construction phase arises mainly from EPC costs denominated in USD and EUR, which will be actively managed by the Sponsor. This risk is mitigated by the Sponsor’s significant experience as a power developer and in managing foreign currency exposures across its portfolio, as well as the Sponsor’s Completion Support equivalent to ten per cent (10%) of project costs. Exposure to foreign currency fluctuations during the operations phase arises mainly from the EUR-denominated payments under the LTMP and will also be actively managed by the Sponsor. This risk is similar mitigated by the Sponsor’s experience in managing foreign currency exposures across its portfolio, as well as the Sponsor’s Rolling Guarantee in an amount equivalent to the next semi-annual scheduled Finance Service, until the final maturity date of the Sukuk TNB NE. The following steps will be taken by the Sponsor on behalf of the Project Company and Issuer to mitigate the foreign exchange risk: (i)

Forward exchange contracts The Sponsor purchases currencies more than two (2) days before settlement date provided firm amount and value date are known earlier to avoid speculative hedging as stipulated under BNM rules and regulations. This mechanism will enable the Sponsor to lock-in the forward rates upfront to protect the Project Company and Issuer from adverse currency fluctuation.

(ii)

Floats in USD and EUR The Sponsor will carry out an opportunistic spot buying of USD and EUR whenever MYR strengthens against the currencies. The floats will act as natural hedge and any USD and EUR payments will be settled via foreign currency accounts. Whenever necessary, the Sponsor may purchase the additional amount of USD and EUR to top up the floats should the amounts decrease due to utilisation.

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Inflation

The Project Company enjoys some protection against Malaysian inflation risk as the fixed operating rate and variable operating rate components of the tariff are escalated at a rate of four per cent (4%) every four years. (d)

Exposure to Interest Rate Fluctuations

The Issuer is not exposed to interest rate risk for the Sukuk TNB NE, as the periodic distribution rates for the Sukuk TNB NE are fixed over the term of the Sukuk TNB NE. 7.3.9

Regulatory and Environmental Risks (a)

Change in Law

A change in law resulting in the Project Company being required to make capital improvements in excess of RM10,000,000.00 will result in TNB and Project Company renegotiating the CRF component of the tariff. If the parties cannot agree the dispute resolution process applies. Pursuant to the PPA, if an industry restructuring event occurs (defined as the revamping of the electricity industry with a view to set up a power pool or other market system), the Project Company and TNB will negotiate amendments to the PPA. If agreement is not reached within six (6) months, TNB may terminate the PPA and pay to the Project Company a termination sum covering outstanding financing amounts and a portion of the Sponsor’s return. (b)

Political, Economic and Regulatory Risks

Like all businesses, adverse developments in political, economic and regulatory conditions in the country could materially affect the financial and operational condition as well as the overall profitability of the Issuer and the Project Company. Other political and economic uncertainties include the risk of war, expropriation, nationalisation, renegotiation or nullification of existing contracts, changes in rates of interest and methods of taxation. (c)

Construction Industry Development Board (“CIDB”) Licence

Under the Lembaga Pembangunan Industri Pembinaan Malaysia Act, 1994 (“Act 520”), no person shall undertake to carry out and complete any construction works unless he is registered with the CIDB and holds a valid certificate of registration issued by the CIDB. While the construction of the Works will be sub-contracted to the EPC Contractor pursuant to the EPC Contract, TNB NE will nevertheless be required to procure CIDB Licence in order to perform its obligations under the Turnkey Contract and as a condition subsequent to the issuance of the Sukuk TNB NE, to be fulfilled no later than six (6) months after the issuance of the Sukuk TNB NE. Investors should therefore consider the regulatory and legal implications should there be a delay in obtaining the CIDB Licence, in view of the above. (d)

Generation Licence

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of the first Generating Block under the PPA and constitutes a condition subsequent to issuance of the Sukuk TNB NE, which condition subsequent is to be fulfilled within nine (9) months after the issuance of the Sukuk TNB NE. A delay in obtaining the Generation Licence could delay the commissioning of the Power Facility, which, if the delay results in Scheduled COD not being met, would reduce the revenues and cashflow of the Project Company post-COD. Unless and until such Generation Licence is obtained, the Project Company would not be able to commence generation of electricity. The Energy Commission, in issuing such licence, may also impose such conditions as may appear to be requisite or expedient in accordance with the provisions of the ESA. There is no certainty as to the nature of such conditions that may be imposed. Pursuant to the ESA, in the event of a breach of any of such conditions imposed, the Generation Licence may be suspended or revoked by the Energy Commission. Under the PPA, TNB is entitled to terminate the PPA in accordance with its terms in the event the Generation Licence is suspended or revoked or terminated due to the Project Company’s default and the Project Company has not caused the same to be reinstated or renewed within the stipulated remedy period. (e)

Renewal of Licence/Permit Risks

The Project Company and the Issuer will require various approvals, licences, permits and certificates to operate their business and the Power Facility and will be required to renew these approvals, licences, permits and certificates or to obtain new approvals, licences, permits and certificates. Whilst the Project Company and the Issuer may not have experienced any significant difficulty in renewing and maintaining the approvals, licences, permits and certificates granted, there will not be any assurance that in the future the relevant authorities will issue or renew any required approvals, licences, permits or certificates in a timely manner or at all. Failure to renew, maintain or obtain the required approvals, licences, permits and certificates may interrupt the operations or delay or prevent the implementation of any capacity expansion or other new projects and may have a material adverse effect on the Project Company and the Issuer’s business, financial condition and results of operations. (f)

Project Lands

The Project Company will occupy the Project Lands for purposes of the construction of the Power Facility. However, the Ijarah Project Lands contain restrictions over, amongst others, lease and charge of the Ijarah Project Lands without the prior consent of the state authorities. Whilst consent of the state authority for the lease of the Ijarah Project Lands by TNB has been obtained, consent for creation of the charge over the Ijarah Project Lands to secure the Sukuk TNB NE has not been applied, hence the charge over the Ijarah Project Lands cannot be created at Financial Close. As for the Additional Land, it has not been alienated to TNB. Further, pending alienation of the Additional Land in favour of TNB, the lease of the Additional Land by TNB to the Project Company and the receipt of the consent of the State Authorities for the lease and creation of the charge respectively, the creation of the charge over the Additional Lands to secure the Sukuk cannot be created at Financial Close. Private & Confidential

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In view of that, the following are conditions subsequent to the issuance of the Sukuk: (i)

presentation for registration in the name of the Project Company of the lease of the Ijarah Project Lands;

(ii)

presentation for registration of a charge over the lease of the Ijarah Project Lands;

(iii)

alienation in favour of TNB of the Additional Land and delivery of a lease agreement between TNB and the Project Company in respect of the Additional Land; and

(iv)

presentation for registration of the lease over the Additional Land in favour of the Project Company and the charge over such lease.

The risk lies in that the state authorities may not approve the registration of the lease and charge to be entered in respect of the Project Lands or that it will not grant its consent to the creation of the charge over the Project Lands respectively. In addition to the above, there is further risk that the relevant authorities may delay or not complete the relevant administrative procedures or that alienation may result in the land being subject to conditions (a) which are unfavourable for its intended usage by the parties; or (b) which restrict or otherwise prohibit the creation of security in the manner contemplated by the terms and conditions of the Sukuk TNB NE. Notwithstanding the above, the Lease Agreement for the lease of the Ijarah Project Lands by TNB to the Project Company has been entered into on 30 November 2012 and receipt of the consent of the state authorities for the lease of the Ijarah Project Lands by TNB to the Project Company has been obtained on 1 April 2013. “Project Lands” means collectively, the Additional Land and the Ijarah Project Lands. “Additional Land” means lands to be identified in the relevant transaction document. “Financial Close” means the date upon which the Financing Documents providing the total debt requirements implementing the Project shall have been signed and are in full force and effect and funds are committed and available to be drawn. (g)

Environmental and Social Risks

The Project is located within an existing power plant site and as such, impact on the surrounding environment is expected to be limited. The Project is classified as a Prescribed Activity under the Malaysian Environmental Quality Order 1987, which requires a PEIA but not a DEIA. The Department of Energy required a PEIA to be carried out, including additional studies on economic valuation and public engagement. The revised PEIA was submitted to the Department of Energy on 6 February 2013 and the Project Company received the approval on 14 March 2013. The Project, as with all other IPPs, is subject to environmental legislations, policies and regulations. These include meeting air, water and noise emission standards. There can be no assurance that the standards imposed by the environmental legislations and regulations will not change or otherwise result in the increase in costs or losses of or reductions in revenue to the Project Company and the Issuer. Private & Confidential

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Non-compliance could also result in the suspension or revocation of the Generation License and/or the imposition of fines. (h)

Industry Restructuring Risks

If industry restructuring (such as the introduction of a power pool or other market system) is implemented, and TNB and the Project Company are unable to reach agreement on amendments to the PPA to reflect such industry restructuring within a period of six (6) months, then TNB is entitled to terminate the PPA immediately. There can be no assurance that any industry restructuring will not have an adverse effect on the Project Company’s business and operations. Nevertheless, the risk to Sukukholders is considered low, as the purchase price to be paid by TNB in a termination scenario includes: (a)

all of the outstanding indebtedness; plus

(b)

an agreed level of shareholders’ return; plus

(c)

reasonable costs and expenses of Project Company which are incurred or suffered as a result of purchase of the Project by TNB; minus

(d)

cash balances at bank and in hand and liquid securities held by the Project Company.

7.4

Risks Relating to the Guarantor

7.4.1

TNB requires significant capital for its business TNB incurs substantial capital expenditure relating to new projects as well as the replacement of operating assets and infrastructure. The capital expenditures are expected to be funded through a combination of internally generated cash flow and other external financing sources. If TNB is unable to fund capital expenditures from internally generated cash flow or obtain funds from external sources on acceptable terms or in timely manner, or at all, the capital expenditures would have to be deferred. This may restrict TNB’s ability to grow and, over time, may reduce the quality and reliability of the service it provides as well as adversely affect future profitability.

7.4.2

Future restructuring of the electricity industry in Malaysia may have an adverse effect on TNB’s business and operations The Government may consider a reform of the Malaysian Electricity Supply Industry in the future in order to enhance transparency and efficiency of the industry. There is no assurance that can be made as to the form and scope of any final restructuring plan that will be adopted by the Government, if any. Nevertheless any efforts on industry restructuring must ensure that all the prerequisites such as fuel subsidy, fuel cost pass through, tariff cross subsidy etc must be addressed and resolved before moving ahead. There can be no assurance that any industry restructuring will not have an adverse effect on TNB’s business and operations.

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7.4.3

Information Memorandum

The business of electricity generation, transmission and distribution involves many operating risks The operation of electricity generation, transmission and distribution facilities involves many operating risks. TNB has experienced or may experience breakdown or failure of electricity generation equipment, transmission lines, distribution lines or drops, pipelines or other equipment or processes, inability to obtain adequate fuel supplies and performance below expected levels of output or efficiency (whether due to misuse, unexpected degradation or design or manufacturing defects), failure to keep on hand adequate supplies of spare parts, operation error, labour disputes, thefts, catastrophic events such as fires, floods, earthquakes and other similar events and the need to comply with the directions of relevant government authorities. The occurrence of any of these events could increase the cost of operating TNB’s facilities or otherwise materially and adversely affect TNB’s financial condition and results of operations. Although insurance is maintained by TNB to protect against certain of these operating risks, the proceeds of such insurance may not be adequate to cover lost revenues or increased expenses.

7.4.4

Fluctuations in the supply of certain energy sources could have a negative impact on TNB’s operational performance and profitability Fluctuations in the fuel supply to the electricity industry may require TNB to rely to a greater extent on other more expensive fuel sources for generating electricity. Furthermore, under the existing power purchase agreements between TNB and the IPPs, any increase in fuel costs to those IPPs may be passed through to TNB. The gas allocation to the power sector has decreased significantly since January 2010, below the requirement level of 1,250 mmscfd. The situation has deteriorated further in December 2010 when one of the gas facilities caught fire and has to be on long outages for repair works. Since then, the average gas supply to power sector has consistently been below 1,250 mmscfd. Although existing coal plants have been maximised during this period, the shortfall in gas volume has also been replaced by utilising more oil and distillates, which are more expensive. There can be no assurance that such shortages or fluctuations in the supply of energy sources will not continue in the future, which may adversely affect TNB’s performance and profitability.

7.4.5

TNB is subject to many environmental laws TNB’s operations are subject to various environmental laws relating to water, air and noise pollution and the disposal of hazardous materials. Although TNB believes that it is in compliance in all material aspects of these environmental laws, some risk of environmental costs and liabilities is inherent in their operations and there can be no assurance that material costs and liabilities will not be incurred in the future in this regard. Compliance with environmental laws and regulations may also result in delays in the expansion and development of TNB’s generation plants, transmission and distribution systems.

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8.

OTHER INFORMATION – THE ISSUER

8.1

Contingent Liabilities

Information Memorandum

The Issuer is a newly incorporated special purpose vehicle and therefore does not have any contingent liabilities. 8.2

Material Litigation As at 31 March 2013, there are no legal claims, demands, lawsuits or litigation (including those pending or threatened) by or against the Issuer or any proceedings pending or threatened which might materially and adversely affect the position or business of the Issuer, and in particular, any injunctions, winding up orders, any orders relating to the enforcement of judgments or other remedies which may if granted by the court, effectively cause the Issuer to have to cease all or parts of the Issuer’s business.

8.3

Related Party Transactions As at 31 March 2013, the Issuer confirms that there are no related party transactions. (The rest of this page has been intentionally left blank)

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9.

OTHER INFORMATION – THE PROJECT COMPANY

9.1

Contingent Liabilities

Information Memorandum

As at 31 August 2012, the directors of the Project Company are not aware of any material contingent liabilities other than as disclosed in the audited financial statements. 9.2

Material Litigation As at 31 March 2013, there are no legal claims, demands, lawsuits or litigation (including those pending or threatened) by or against the Project Company or any proceedings pending or threatened which might materially and adversely affect the position or business of the Project Company, and in particular, any injunctions, winding up orders, any orders relating to the enforcement of judgments or other remedies which may if granted by the court, effectively cause the Project Company to have to cease all or parts of the Project Company’s business.

9.3

Related Party Transactions As at 31 March 2013, the Project Company confirms that there are no related party transactions to disclose.

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Information Memorandum

10.

OTHER INFORMATION – THE GUARANTOR

10.1

Contingent Liabilities As at 31 August 2012, the directors of the Guarantor are not aware of any material contingent liabilities other than as disclosed in the audited financial statements.

10.2

Material Litigation As at 31 March 2013, material litigation in respect of the Guarantor is as follows: Case No. Court of Appeal No.W-02-(NCC)(W)-2339-10/2012 Appellant

Tenaga Nasional Berhad (TNB)

Respondent

Irham Niaga Sdn Bhd (INSB) & Irham Niaga Logistics Sdn Bhd (INLSB)

Case No.

W-02-(NCC)(W)-2339-10/2012

Nature of claim

The suit filed by INSB & INLSB against TNB at the Kuala Lumpur High Court to enforce an arbitration award obtained against TNB Transmission Network Sdn Bhd (a TNB subsidiary). Full hearing was conducted and on 20 September 2012 the High Court allowed INSB & INLSB’s claim as pleaded in paragraph 58 of the Statement of Claim, the details of which are as follows: (i)

the Final Award due to the 1st Plaintiff for the sum of RM106,888,499.34

(ii)

the Final Award due to the 2nd Plaintiff for the sum of RM6,102,922.50

(iii)

interest at the rate of 5% per annum from 19.4.2004 on the amounts due in (a) and (b) respectively to the date of full payment

(iv) costs of the arbitration amounting to RM75,095.50 (v)

costs awarded by the High Court in Originating Motions No R4-25-336-2007 and R2(R4)-24-80-2007 and the cost arising from the appeal thereto; and

(vi) costs of these RM150,000.00 Status

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proceedings

for

the

sum

of

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Information Memorandum

The Guarantor is of the opinion that this case has no material adverse impact on the Guarantor’s business. 10.3

Related Party Transactions There are two (2) related party transactions entered into by the Guarantor or its subsidiaries with the major shareholders during the last 3 years as follows: (i)

Execution of Concession Agreement on 27 October 2011 between Airport Cooling Energy Supply Sdn. Bhd., a wholly owned subsidiary of TNB Engineering Corporation Sdn. Bhd. which is a wholly owned subsidiary of TNB and Malaysia Airports Holdings Berhad (MAHB) for the privatization of the development of a 132kV sub-station and a district cooling plant for the supply of chilled water and electricity and associated works at the new low cost carrier terminal at Kuala Lumpur International Airport, Sepang, Selangor.

(ii)

Execution of Sale and Purchase Agreement on 24 December 2010 with Magic Coast Sdn. Bhd (MCSB) to acquire the Property from MCSB. MCSB, is a wholly-owned subsidiary of Amanahraya Hartanah Sdn. Bhd., a whollyowned subsidiary of Amanah Raya Berhad (which in turn is a wholly-owned subsidiary of the Minister of Finance, Incorporated (“MOF Inc”), whilst Khazanah Nasional Berhad is a major shareholder of TNB (which in turn is a wholly owned subsidiary of MOF Inc).

To the best of the Guarantor’s knowledge, there are no related party transactions that were not at arms’ length and for full value.

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11.

Information Memorandum

POTENTIAL CONFLICT OF INTEREST SITUATIONS A.

HSBC As at the date hereof and after making enquiries as were reasonable in the circumstances, HSBC confirms that, to the best of its knowledge and belief, there is no existing or potential conflict of interest in its capacity as, amongst others, one of the Joint Principal Advisers, Joint Lead Arrangers, Joint Lead Managers and Joint Bookrunners as well as the Shariah Advisor in respect of the proposed issue of the Sukuk TNB NE.

B.

KAF As at the date hereof and after making enquiries as were reasonable in the circumstances, KAF confirms that, to the best of its knowledge and belief, there is no existing or potential conflict of interest in its capacity as, amongst others, one of the Joint Principal Advisers, Joint Lead Arrangers, Joint Lead Managers and Joint Bookrunners as well as Facility Agent / Security Agent in respect of the proposed issue of the Sukuk TNB NE.

C.

AmTrustees Berhad As at the date hereof and after making enquiries as were reasonable in the circumstances, AmTrustees Berhad confirms that, to the best of its knowledge and belief, it is not aware of any circumstances which would give rise to a potential conflict of interest in its capacity as the Trustee in respect of the proposed issue of the Sukuk TNB NE.

D.

Messrs Zaid Ibrahim & Co. As at the date hereof and after making enquiries as were reasonable in the circumstances, Messrs Zaid Ibrahim & Co. is not aware of any circumstance that would give rise to a conflict of interest in its capacity as the legal counsel to the Issuer and the Project Company in respect of the proposed issue of the Sukuk TNB NE.

E.

Messrs Adnan Sundra & Low As at the date hereof and after making enquiries as were reasonable in the circumstances, Messrs Adnan Sundra & Low is not aware of any circumstance that would give rise to a conflict of interest in its capacity as the legal counsel to the Joint Principal Advisers and Joint Lead Arrangers in respect of the proposed issue of the Sukuk TNB NE.

F.

PricewaterhouseCoopers, Malaysia As at the date hereof and after making enquiries as were reasonable in the circumstances, PricewaterhouseCoopers, Malaysia, is not aware of any circumstance that would give rise to a conflict of interest in its capacity as the reporting accountants in respect of the proposed issue of the Sukuk TNB NE.

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Information Memorandum

APPENDIX 1 AUDITED FINANCIAL STATEMENTS OF THE PROJECT COMPANY FOR THE FINANCIAL YEARS ENDED 31 AUGUST 2011 AND 31 AUGUST 2012

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Information Memorandum

APPENDIX 2 AUDITED FINANCIAL STATEMENTS OF THE GUARANTOR FOR THE FINANCIAL YEARS ENDED 31 AUGUST 2011 AND 31 AUGUST 2012

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