A tariff increase is seen as critical for Tenaga Nasional Bhd (TNB) given its insufficient rate of return, and some analysts are of the view that Datuk Amar Leo Moggie may be just the person to help the company present its case to the government in his capacity as TNB's new non-executive chairman.
Internally, TNB is believed to be preparing a submission on why it should be granted a tariff increase after the last revision seven years ago.
But any hike should not be across the board, an analyst said. The domestic sector, she said, should be left untouched; any increase should apply only to industrial and commercial users which account for 80% of TNB's electricity sales.
A 4%–5% increase is seen as good for TNB in the short term, but the analyst is of the view that for the longer term, the government should look into a tariff formula whereby the selling price of electricity matches any increase in the generation/transmission/distribution costs.
“TNB needs someone senior and one who understands the industry thoroughly to put its case forward to the government. TNB cannot continue to subsidise and borrow heavily to meet its capital expenditure requirements every year,’’ she noted.
Leo Moggie, when contacted by StarBiz, said: “I have just been appointed and need time to discuss with TNB officials about the way forward. However, it is an honour to be appointed to the post and I hope to do justice to that trust.’’
TNB announced on Monday the appointment of Leo Moggie as its new non-executive chairman and that of Sabah Electricity Sdn Bhd, effective April 12, for a three-year term. Many market players and analysts viewed the appointment positively given his “political affiliations in the past with the regulatory authority and the government’’.
Now no longer a politician, Leo Moggie is seen as the person who may well help TNB obtain the tariff increase it needs to match its income with its expenditure and avoid going for fresh funding since it already had a huge loan of RM31bil as at end-November 2003.
The current average electricity tariff per kilowatt-hour (KwH) is 23.5 sen, whereas TNB’s cost of producing electricity is 19.5 sen per unit. Close to half or 8.7 sen of the 19.5 sen goes out in the form of payments to independent power producers (IPPs), 2.8 sen for fuel, and 0.9 sen for repairs and maintenance. Of the balance, staff cost accounts for 1.7 sen, and other costs (including funding and financing costs), 5.4 sen.“We estimate that a slight 1% increase in average electricity rates could increase TNB's net profit by as much as 8% due to the huge projected sales base of RM17.8bil for the financial year ending Aug 31, 2005,’’ an analyst said in a research report.
TNB’s current rate of return is about 5% of revalued fixed assets, which is lower than the World Bank’s benchmark of 8%.
The government had turned down TNB's request for a tariff hike several times in the past to ensure Malaysia’s competitiveness – the local electricity selling rates are among the lowest in the region.
But an analyst pointed out that a slight increase in the electricity tariff would not hurt that much as it would only push Malaysia up a few notches to the middle range. In any case, he added, electricity cost was only one of many factors foreign investors would look at before deciding on a specific location to set up business.
Nonetheless, TNB cannot get a rise just because it needs one. It would have to look into ways of reducing costs and increasing efficiency.
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