Gas price hike a concern

Tenaga Nasional Bhd released a set of results that showedthe improvements brought about by ongoing cost-cuttingmeasures and a tariff hike received in June. At a media conferenceto announce the results, TNB chairman Tan Sri LeoMoggie and president and CEO Datuk Che Khalib MohamadNoh answered questions posed by the media. Below areexcerpts of the question-and-answer session. 

Can you tell us a bit about your KPI (key performance indicators) for 2007? 

Che Khalib: All the KPIs for vice-president and senior general manager, including the chief financial officer as well as chief executive officer, have been progressing according to timeline. It is a just a matter of tabling them to the board and, hopefully, we can have them endorsed by year-end. We plan to send them for approval by end-November. 


Looking at your results, would it be fair to say that you have achieved your desired results with the tariff hike? 

Che Khalib: The tariff hike only came into effect in June. During these three months, the effective contribution from the tariff hike was RM400mil. In addition, the initiatives carried out by management as well as the company recorded savings and value creation of RM823mil. Basically, every combination for value creation, as well as the RM400mil contribution from the tariff hike, are showing an upswing in profitability.  

For our initiatives, we managed to get RM893.7mil. We got that by recovering RM38.5mil from debts and bad billing and an additional RM131.7mil has been billed but yet to be recovered. 

There is also a reduction in general expenses of RM74.8mil and we made RM51.5mil from the disposal of our land. The subsidy we received from Sabah is close to RM600mil.  

Unfortunately, we recorded an increase in TNB losses that translated into additional cost of RM38.9mil, but we managed to recover from our delinquent customers. We have five main delinquent customers and four have already paid their outstanding amounts. We only have Perwaja now and the company has only just started paying and we have not recognised its payment yet for this financial year.  

By next year, the whole amount from delinquent customers will be fully recovered. We also managed to reduce a bit of our overtime but there is a slight increase of RM17.6mil in medical claims.  

In total, that translated into RM893.7mil value creation. The combination of value creation as well as additional revenue that we received from tariff increase helped to cushion the increase in fuel costs. The balance is translated into additional profits that we made. The tariff hike did not contribute much this year but we expect more significant contributions next year onwards. 


You mentioned you have five delinquent customers but you did not mention the total value. 

Che Khalib: We have recovered from four out of the five. The last one is Perwaja and it has started paying us. The total (owing) is RM200mil and we will be recovering the whole amount during the next financial year.  

The minister had hinted that there could be an increase in gas price. What will this mean to TNB? Are you preparing for another round of tariff hikes? 

Che Khalib: Gas price in Malaysia is heavily subsidised by the Government. Obviously there will be some revision but, as has been clarified, the Government is working on how to adjust the gas price. TNB has not made any provision for any gas price hike in our recent tariff revision. We have to discuss with the Government on any gas price hike.  

Our concern is a revision in gas price and I think the Government is looking at the impact before making a decision. 

Leo Moggie: I think the Government is quite aware that any increase that might affect the cost of electricity is something that cannot be decided too easily and must be discussed in a good way. Some of you may remember there are discussions between the ministry, TNB and IPPs. It is conceivable that these discussions with regard to gas price will form the background to any of the discussions. The net effect on us from our planning perspective is neutral. 


What do you mean by neutral? 

Che Khalib: TNB does not have to fork out additional cost for gas.  

Leo Moggie: As far as we are concerned, price of gas may go up, but who will pay for that additional gas price is something the Government is looking at. 


How long do you think Petronas will subsidise the gas price? 

Leo Moggie: Well, I do not think it's fair for Petronas to subsidise all the time. Petronas had given a huge subsidy on gas pricing to gas users. The consumers find it very difficult to accept any increase in gas pricing. It's a matter of balancing the timing and how do you make sure any increase is not going to transfer totally to the consumers?  

The Government is very sensitive to the fact that the cost of living has to be managed and the position of consumers has to be looked after. We do not anticipate a gas price increase without being aware of the total implication. 


Are you confident that you will be able to hit your KPI target for next year? 

Leo Moggie: We have achieved better KPI this year and we will be tightening the KPI targets. We are confident of achieving our target. 


What is your reserve margin? 

Che Khalib: Before the introduction of the Tanjung Bin power plant, our reserve margin effectively went down to 36%, but because of Tanjong Bin, the margin went up again to slightly above 40%.  

We believe that the growth in demand for FY07 will be higher than FY06 as the Ninth Malaysia Plan will be kicking in by year-end or early next year. Our target by 2010 is to reduce the reserve margin to below 30% and I think we are on track to achieve that. 


You mentioned that the unit growth of electricity demand will be higher next year. What kind of growth are we looking at? 

Che Khalib: This year we grew by 4.2%. Our average growth the past five years was between 7% and 8% and we hope we can go back to that level again. 

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