IPPs face uncertainty over windfall tax

  • Business
  • Thursday, 12 Jun 2008

PETALING JAYA: The independent power producers (IPPs) are still in the dark over how the windfall tax announced by the Government last Wednesday will be administered on them.

On June 4, the Government announced that a windfall tax of 30% would be imposed on the IPPs from July 1 following an announcement that fuel prices and electricity tariff would also be raised due to the high price of crude oil.

Questions that have arisen include the return on asset (ROA) definition, the frequency of the tax, the amount to be raised from the tax and whether it would be imposed on all IPPs or only on those in the peninsula.

CIMB Research analyst Ivy Ng said in a report that “there are still a number of undefined variables that need to be spelt out before we can make an accurate assessment of the potential impact on the IPPs”.

“Our quick checks with a few IPPs revealed that they're still waiting for the official formula from the Government. According to press reports, some IPPs are even looking at the possibility of asking for an extension of their concession in return for this tax payment,” she said.

Ng said although officials at the Economic Planning Unit had intimated that earnings before interest and tax would be used to derive the ROA for the computation of the windfall tax, “it did not spell out the variable in the denominator, which some parties think could be fixed assets instead of the usual total assets”.

She said the frequency of the tax also remained unclear but clarification should come through by year-end since the companies needed to account for these taxes when finalising their financial accounts.

Based on calculations made using fixed assets, Ng said the tax would yield RM550mil to RM575mil while, if total assets were used, it would yield RM330mil to RM350mil, which would fall short of the Government's estimated RM600mil.

“We think that the shortfall could arise from several sources. For one, we have used historical financial data while the Government may have used projected numbers.

“Also the last unit of Tanjung Bin (owned by Malakoff Bhd) only came onstream in August 2007 and the full-year impact of its full commissioning will only be felt in the financial year 2008,” she said.

Ng said the Government could have included potential contributions from the upcoming 1,400MW Jimah power plant, which would only come onstream progressively in the next two years.

“Our calculation is not exhaustive as we've not accounted for about 10% of the IPPs based on capacity,” she said, adding that if these were taken into account, another RM15mil to RM30mil in revenue could be included.

Ng said there might be greater challenges for the renegotiation of the power purchase agreements between Tenaga Nasional Bhd and the IPPs if the tax were successfully implemented.

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