TNB needs to boost efficiency

  • Business
  • Monday, 23 Jun 2003


Tenaga Nasional Bhd (TNB), at the moment, does not look very appealing to many investors as well as analysts.  

There are worries that TNB's profit margin will be squeezed by higher purchase cost as independent power producers (IPP) are selling additional electricity to the utility giant when new generation capacities come on stream.  

Furthermore, a tariff hike is hardly in sight although there is continuous speculation that TNB is seeking one. 

Total installed power generation capacity in west Malaysia will increase to 17,000 megawatts (MW) by the end of the year, with some 3,000 MW new capacity coming onstream, including 700 MW from TNB's Janamanjung power plant, 650 MW from Tenaga Teknologi Perlis and 350 MW from the Prai power plant. 

Power consumption is rising but not substantial enough to prevent the reserve margin from surging beyond the comfortable level of 30%. 

The country's daily power consumption reached a new record of 11,329 MW on June 9, after hitting 11,251 MW a month ago. 

The new peak in daily consumption comes as no surprise as it always occurs around this time of the year when the weather is hot. 

“The growth in power consumption is very much within expectation,'' said OSK Research assistant general manager Pankaj Kumar, who forecasts daily power consumption to climb to 11,500MW by August. 

He expects a 6.2% growth in electricity demand this year compared with 4.5% last year. 

Meanwhile, analysts expect the reserve margin in the country to reach as high as 47% this year.  

Such wide reserve margin may imply more security in power supply in the country. But it also means a heavier cost burden to TNB. 

“Isn't there something that TNB can do to improve the situation?'' its shareholders may wonder now. 

TNB, the monopoly of power transmission and distribution, can bank on increasing efficiency to drive down costs and enhance profitability.  

“Profit margin squeeze caused by higher purchase cost is already a reality. Nothing much could be done to change that.  

“But one thing that TNB can always do within its own capacity is to work hard on efficiency, for example, by reducing lost load,'' an analyst said. 

In the power business, system stability (or reliability) is essential to ensure profitability.  

Blackouts that happen daily are costing TNB money as revenue lost from power interruption is counted by seconds, according to analysts. 

According to TNB, its overall distribution and reliability performance shows an improvement of 49.5% in the System Average Interruption Duration Index (SAIDI).  

The index stood at 129.72 customer-minutes for the financial year ended Aug 31 last year compared with 257.06 in the previous financial year. 

Looking ahead, analysts concur that TNB should now shift its focus on improving efficiency in power transmission and distribution, which it currently monopolises.  

Over the past decade, TNB has been focusing on power planting, that is, expanding power generation capacity to ensure there is always sufficient electricity in the grid to meet any surge in demand. 

Huge sums of money have been poured into building new power generation capacity in the country. 

With the ongoing power planting programme, the country should have sufficient capacity to meet the demand for the decade, analysts said. 

Some analysts, however, find that concerns over widening reserve margins in the power sector are over-rated because this will narrow when economic activities pick up.  

TNB chairman Datuk Dr Awang Adek said that higher power de- mand would enable TNB to absorb excess generation capacity to meet the rising electricity demand in the future. 

In a statement on the high level of daily power consumption, he said, TNB should achieve a minimum growth of 7% in sales, given the uptrend in the Industrial Production Index (IPI). 

A high reserve margin is costly to TNB. Nonetheless, excess capacity and slower electricity consumption may help to strengthen the utility’s footing in the industry in terms of negotiating with the IPPs for better terms in the power purchase agreements.  

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