Keppel, KIT expect proposal to extend KMC plant contract to generate up to S$1.1 billion in cash flows

Keppel and Keppel Infrastructure Trust (KIT) on Monday (Apr 1) proposed to amend and extend the capacity tolling agreement for the Keppel Merlimau Cogen (KMC) power plant by 10 years, from 2030 to 2040. 

The move is expected to generate up to nearly S$1.1 billion in long-term capacity payments for KMC, providing a stable base of contracted cash flows, said Keppel and KIT.

These cash flows will support the refinancing of KMC’s existing loan facility, unlocking value for shareholders as the asset will resume its contributions to Keppel and KIT.

Furthermore, the operations and maintenance contract between KMC and Keppel’s infrastructure division will also be amended and extended by another 10 years to 2044. This is worth up to some S$342.8 million.

Assuming the capital restructuring of KMC was effected on Jan 1, 2023, KIT’s distribution per unit would be 11 per cent higher at S$0.0428 instead of S$0.0386, based on pro forma estimates.

KIT and Keppel respectively own a 51 per cent and a 49 per cent stake in KMC – a combined cycle gas turbine power plant with a generation capacity of about 1,300 megawatts.

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The plant, located on Jurong Island in Singapore, is the first independent power project to enter the Republic’s electricity market since the National Electricity Market was implemented in 2003. It has been operational since 2007.

Janice Bong, managing director of power and renewables at Keppel’s infrastructure division, said: “KMC is a strategic component of Keppel’s asset-light integrated power business, bolstering our ability to provide customers with stable and competitive power supply through our end-to-end value chain.”

The proposed amendment and extension of the capacity tolling agreement and the operations and maintenance contract will be subject to approval from Keppel shareholders and KIT unitholders at extraordinary general meetings to be convened.

Shares of Keppel ended Thursday down S$0.07 or 0.9 per cent at S$7.34, while KIT units closed up S$0.01 or 2.1 per cent at S$0.50.