MEDIA STATEMENT
Cahya Mata Phosphates' Arbitration Process with SESCO is Ongoing
Pending the Appointment of Chairperson by AIAC
Kuching (Sarawak), Monday, 15 May 2023 - Cahya Mata Sarawak Berhad ("Cahya Mata" or "the Group") wishes to update on the development of the arbitration action between its subsidiary company, Cahya Mata Phosphates Industries Sdn.Bhd. ("Cahya Mata Phosphates") (formerly known as Malaysia Phosphate Additives Sarawak Sdn. Bhd.) and Syarikat SESCO Berhad ("SESCO").
To recap, Cahya Mata Phosphates had referred a dispute under the power purchase agreement dated 15 January 2019 ("PPA") to the Asian International Arbitration Centre ("AIAC") under the dispute resolution mechanism of the PPA pertaining to a dispute on tariff type.
Previously, Cahya Mata Phosphates had signed a power purchase agreement dated 3 February 2016 ("First Agreement") with SESCO. This First Agreement was subsequently terminated and the parties mutually agreed to enter into a new PPA governing the sale and purchase of electric power for our phosphate production facility in Sarawak.
Since the signing of the PPA, the construction of the phosphate complex has experienced significant delays particularly during FY2020 and FY2021 due to the COVID-19-related lockdowns and border restrictions. These delays were attributed to various factors which included strict border closures that restricted the entry of Chinese and other nation's technical and commissioning specialists into Malaysia.
Additionally, on-site plant pre-commissioning activities had to be suspended multiple times due to the emergence of COVID-19 clusters. Moreover, the sourcing of new raw materials was hindered by global logistics backlogs, particularly in sea freight, leading to a slower rate of procurement of the Phosphate complex. The limitations brought by the pandemic greatly impacted the milestone that was set out in the PPA vis-a-vis the project commercialization.
Due to the above factors, the completion and commissioning of Cahya Mata Phosphates' plant experienced delays. Despite attempts to resolve the dispute, SESCO remained adamant in charging Cahya Mata Phosphates a different tiered tariff which is much higher than what is supposed to be under the present condition. SESCO's continued threats to Cahya Mata Phosphates has led the management to initiate the arbitration proceedings on 17 November 2022, and, subsequent to that, through an emergency arbitrator, securing an interim injunction restraining SESCO from terminating the electricity supply until 31 January 2023. The arbitration route is in accordance with the dispute resolution requirements under the PPA, and the emergency arbitrator was appointed by AIAC to preserve the existing status of the PPA and prevent unilateral action by a single party.
Pursuant to the recent threats of termination by SESCO, Cahya Mata Phosphates again in April 2023, applied for another emergency arbitration seeking a further restrain from SESCO in terminating the power to the factory. The emergency arbitrator denied the request from Cahya Mata Phosphates to restrain SESCO on 9 May 2023.
It is acknowledged by all parties that the main arbitration remains ongoing, and both SESCO and Cahya Mata Phosphates have both appointed their respective arbitrators, and are currently awaiting the appointment of the third arbitrator by the AIAC.
The top management of Cahya Mata has been continuing to assert its claims and maintains that the PPA remains in force and is actively pursuing its claimsthrough arbitration proceedings and exploring all available legal avenues to safeguard its rights. The Group seeks a fair resolution that upholds the integrity ofthe original agreement and preserves the viability of its operations.
Cahya Mata assures stakeholders that it is actively addressing these challenges. In the FY2022 audited financial statements, a contingent liability of RM266,000,000 related to the PPA has been disclosed. However, the exact extent of the potential impact is yet to be determined pending the ongoing legal and arbitration proceedings.
Meanwhile, Cahya Mata is committed to mitigating any adverse effects and ensuring that the financial stability and continuity of Cahya Mata Phosphates' business operations remains unaffected.
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