Tenaga Nasional deserves a long-overdue break

By P Gunasegaram, The Star

Poor Tenaga Nasional! Despite being majority owned by the Government it continues to be given the stepchild treatment.

PARADOXICALLY, those who have signed concession agreements with the Government or with Tenaga Nasional for things such as toll roads, water, and provision of electricity have wonderful, almost riskless deals.

Thus despite being a major utility which has almost complete monopoly for the provision of power to the Malaysian public, the share price behaviour is totally unlike that of a utility and subject to the vagaries of the marketplace with respect to input costs.

The solution to bring about a vibrant, vital Tenaga Nasional that will see it hold its share price easily and have continuous capital appreciation is very simple actually, simply allow it to pass on all unavoidable costs the way it is done for independent power producers (IPPs) and the way toll road operators get guaranteed toll increases.

And this does not necessarily have to mean that electricity rates have to increase. If the Government so chooses, it can still subsidise electricity rates to the consumer and keep Tenaga Nasional insulated from cost vagaries. It is actually to the Government’s advantage to do this as we shall explain.

Tenaga Nasional used to be the sole producer of electricity at one time, a job which it did pretty well for a long time. By some accounts, it was not allowed to expand its electricity output resulting in an electricity blackout in the nineties and the advent of the IPPs.

The first of these IPPs actually erected its plant on land which Tenaga Nasional had earmarked for a power plant. Not only that, this first IPP got extremely favourable terms and a take-or-pay arrangement for power generation, opening the floodgates for other similar if slightly less lucrative deals.

The key thing about these early IPP deals was that uptake was more or less guaranteed and if there was no uptake there was a huge capacity charge paid to the IPPs to offset these.

Not just that, there was an express provision for the IPPs to pass through all their cost increases of inputs such as fuel to Tenaga Nasional. Through such deals Tenaga Nasional suffered and eventually the IPPs combined became more valuable than Tenaga Nasional.

The reason Tenaga Nasional suffered was because the Government dismantled the original cost-pass-through formula that the utility had proposed before its listing in the nineties. That formula would have ensured that Tenaga Nasional not only recovered all increases in fuel price, but also got an increase in tariffs based on inflation.

If it had been given what the IPPs have in terms of recovery of increases in cost inputs, Tenaga Nasional would have been sitting pretty. But it has not and it suffers from this neglect by the Government of its predicament.

Recently, this situation has been exacerbated. Because Petronas gas supplies are not fully available at the moment, it has had to source gas at considerably higher market prices. That would translate to an additional RM3bil this year alone, with no sign of relief anywhere.

That is already straining Tenaga Nasional’s financial resources while its share price has continued to weaken, bringing down the value of the Government’s investment in the utility day by day.

All the Government has to do to put Tenaga Nasional out of its misery is to implement the cost-pass-through formula and let the national electricity utility recover its costs just like what the IPPs are entitled to under contract.

If the Government does not want the tariff to rise, then all it has to do is to pay Tenaga Nasional directly for the difference. That way, the Government will see an immediate increase in the value of its investments in Tenaga Nasional by several billions of ringgit.

Then, by selling down its investments in the utility, it can get back some revenue to subsidise the electricity rates. That will also increase the free float and liquidity of Tenaga Nasional which will help to increase further the value of the utility.

It is high time that the Government treat its own corporations at least as well as it does privately owned companies, especially when it stands to gain billions of ringgit by doing so.

It’s a wonder beyond understanding that it does not.