IT is difficult at this stage to ascertain which option would be better for independent power producers (IPPs) – paying the windfall tax or renegotiating power purchase agreements (PPAs).
If the terms and conditions of the PPAs are not favourable and would affect their earnings, the only option IPPs have is to bite the bullet – the windfall levy.
Fund managers said the levy could negatively impact the local investment landscape.
Many feel the Government should defer the levy and conduct a detailed study first as such a tax would affect the confidence of local as well as foreign investors.
Apex Investment Services Bhd chief executive officer Tan Keah Huat said: “It is a tricky and difficult situation for the Government. If it does not impose the tax, the Government may miss out on one potential source of revenue, but if the tax is hefty, then investors like us may decide to look at other companies that offer better returns.
“The move will also to an extent affect the local bond market as IPPs are relatively big bond issuers. This will result in the bonds being downgraded and affect these IPPs’ credit ratings, hence dampening investors’ confidence.”
Quoting sources, StarBiz yesterday reported that Tenaga Nasional Bhd
(TNB) had sent letters to IPPs inviting them for a fresh round of talks in the wake of recent developments related to rising costs and the IPPs’ unwillingness to pay windfall taxes.
The IPPs were reportedly given a few weeks to come up with their list of demands that would indicate several key points to kick-start the talks.
Kumpulan Sentiasa Cemerlang director of research Choong Khuat Hock said the windfall tax had created uncertainty in the country and resulted in higher cost of borrowings for infrastructure projects.
A fund manager said the levy may cause “investors to be jittery” over the possibility that the Government would impose other form of taxes on companies with similar strengths in earnings and dividend yields as the IPPs.
Fortress Capital Asset Management (M) Sdn Bhd CEO Thomas Yong said the tax would add to the uncertainty towards IPPs as investment assets.
“Uncertainty surrounding the details of computation of the tax, and the possible impact on cash flow and debt servicing capacity is clouding the fundamentals of IPPs at the moment.
“This has increased the risk premium on IPPS which are usually looked upon and valued by investors as regulated assets that have a reasonable level of certainty with regards to cash flow and profitability. As such, the windfall tax has, in the short term, changed the investment characteristic of IPPs,” he added.
The IPPs and TNB should meet to resolve the terms and conditions of the PPAs as soon as possible, he said.
So whatever option the IPPs decide, one thing for sure is that the Government should re-look at the levy to ensure investor confidence is not compromised.
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