KUALA LUMPUR: The government’s move to impose a one-year windfall tax payment and suspend the power purchase agreement (PPAs) is positive for the independent power producers (IPPs).
HwangDBS Vickers Research said IPPs such as YTL Power, Tanjong PLC, Gentingand MMC Corp would not be pressured to accept the less favourable terms under PPA negotiation.
On Thursday, the Cabinet said the government had discontinued the windfall profit levy on IPPs with immediate effect. IPPs would instead have to make one-off payment equivalent to the windfall profit levy payable for one year.
“The windfall tax has negatively affected IPPs’ debt servicing ability, and MMC is the hardest hit among the IPPs given its estimated windfall payment of RM250mil.
“We believe that there will still be discussion on PPA over the longer term, as the first generation PPAs will expire from year 2015 onwards. The likely outcome will be a win-win situation for both Tenaga and the IPPs,” it said
HwangDBS Research upgraded YTL Power’s FY6/10-11 net profit forecast by 4% respectively and target price to RM2.45 per share (from RM2.40 previously).
It also upgraded Tanjong’s FY1/10-11 net profit by 9% respectively, with enhanced target price of RM19.40 (RM18.25 previously).
As for Tenaga, the research house said while it was unable to share the burden of rising coal cost with the IPPs, it believed Tenaga would be compensated for the suspension of PPA negotiation with other forms of relief such as subsidy or tariff adjustments come July 1, 2009 (the date for next review of pegged gas cost).
It said there was no change in its earnings forecast for Tenaga as it had yet to factor in any potential enhancement from PPA negotiation.
As for the power sector, it said there might be a cost pass-through mechanism and/or power pooling system that allows for greater transparency and efficiency of the sector. YTLPOWR : [Stock Watch] [News] GENTING : [Stock Watch] [News] MMCCORP : [Stock Watch] [News] TENAGA : [Stock Watch] [News]