Will Tenaga Nasional be split up?

By Fintan Ng, The STar

Speculation resurfaces as the utility faces additional RM3bil in costs

PETALING JAYA: Speculation of splitting Tenaga Nasional Bhd (TNB) up has resurfaced as the utility company faces an additional RM3bil in costs from having to look for alternative sources of fuel for power generation due to a shortage in gas supply.

However, TNB president and chief executive officer Datuk Seri Che Khalib Mohd Noh did not respond to StarBiz query on the matter.

Analysts said there were a number of obstacles that would make any break-up of the company unlikely at the moment.

They pointed out that fixed energy prices and power-purchase agreements signed with the independent power producers were among the main reasons why there would not be any imminent split-up.

“This was mooted 10 years ago as part of a power-pooling structure where prices would have been deregulated and left to the markets,” an analyst pointed out.

TNB has three divisions, transmission, distribution and generation, of which the first two are the most profitable.

The analyst said any break-up of TNB was highly unlikely as the political costs would be too high. “Due to the high costs of energy, letting prices gyrate may not be a good idea,” he said.

Furthermore, he said energy subsidies would only be entirely removed in 13 years (based on recommendations by the Performance Management and Delivery Unit that subsidies be gradually removed) while the power purchase agreements (PPAs) signed with the independent power producers complicated any move to restructure prices.

“The Government will have to wait at least until 2016 when the first of the first generation PPAs expire,” he said.

Meanwhile, another analyst added that the idea of breaking up TNB was not feasible as long as the company’s generation division did not have a cost pass-through mechanism.

“It’s difficult to see earnings visibility especially if there’s more disruption to gas supply,” he said, adding that there was also the question of whether the Government would allow the company to pass on the costs to consumers.

HLIB Research analyst Daniel Wong, in a report, downgraded TNB shares to “hold” with a target price of RM5.10, based on discounted cash-flow estimates on continued disruption in gas supply and delay in tariff hikes.

TNB closed 8 sen up at RM5.09 yesterday.

“In the near term, TNB’s margin will be eroded by higher fuel cost due to gas shortage (even if Petroliam Nasional Bhd maintenance is completed) as power demand increases while coal and hydro power capacity utilisation has been maximised,” Wong said.

He said the decision to implement a fuel cost-pass-through mechanism lay with the Government and was influenced by political, economic and social factors.

Wong added that the proposal for fuel cost sharing during gas curtailment period was also pending Government approval.