Petronas could emerge with rival bids
KUALA LUMPUR: Fitch Ratings expects Petroliam Nasional Bhd (Petronas, A/Stable) to benefit from the government’s move to raise the tariff for piped-gas in the second half of 2016.
It said on Friday the move is positive for the national oil and gas company’s cash generation, while the impact on Tenaga Nasional Berhad
(Tenaga, BBB+/Stable) is likely to be neutral.
The move to increase the tariff is in line with the government’s subsidy rationalisation programme. The tariff for the power sector will be raised to RM19.7 per million British thermal unit (mmbtu) (1H16: RM18.2/mmbtu).
As for commercial and industrial users in Peninsular Malaysia, it will be raised to RM27.05/mmbtu (1H16: RM25.53/mmbtu).
“Petronas will benefit from a more uniform application of the reforms addressing gas pricing in Malaysia.
“Petronas's foregone gas sales revenue, as a result of regulated prices, from the power and non-power sector is significant, averaging around 20% of Fitch-adjusted EBITDA in the past three years,” said the ratings agency.
Fitch said since the Malaysian government restarted the Fuel Cost Pass Through (FCPT) mechanism in January 2014, Petronas's piped-gas tariff to the power sector has increased by about 44% over four revisions, and its gas tariff to commercial and industrial customers has increased by about 68% over five revisions.
Since July 2015, the price revisions under the FCPT mechanism have taken place consistently once every six months.
Petronas continues to maintain a strong standalone credit profile, which Fitch assesses at 'AA-', however, the rating headroom for the company has shrunk due to pressure on operating cash generation from sustained low oil prices.
Petronas has cut its dividend payout, but with oil prices likely to recover only slowly, operating cash flow is likely to continue being under pressure.
“Fitch does not expect the higher gas prices to have an adverse impact on Tenaga's credit profile. The government allows Tenaga to adjust its regulated tariffs every six months to reflect the difference between actual fuel costs and the amounts stipulated in the FCPT framework, subject to its approval.
“Moreover, Tenaga's over-recovery of fuel costs in 1H16 - driven by improved utilisation of coal-fired plants, lower purchases of liquefied natural gas (LNG) as a result, and lower coal and LNG costs - more than offsets the announced increase in the piped-gas tariff to the power sector,” it said.
Consequently, the regulator will maintain rebates and blended effective electricity tariffs in Peninsular Malaysia at 1.52 sen/kWh and 37.01 sen/kWh, respectively, for 2H16.
“Fitch assesses Tenaga's financial profile to be stronger than its standalone rating of 'BBB' in the absence of any major debt-funded acquisitions.
“However, a ratings upgrade would be contingent on a record of the government consistently implementing the FCPT mechanism, especially in an environment of rising fuel costs,” it said.
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