ICPT decision to support TNB’s earnings visibility

PETALING JAYA: The government’s decision to continue with the implementation of the imbalance cost pass-through (ICPT) mechanism in the second half of 2019 (2H19) will support Tenaga Nasional Bhd’s (TNB) solid earnings visibility.

Analysts said they were not surprised by the announcement, given the high fuel costs – especially due to rising coal prices.

Since 2017, rising coal and gas prices have impacted ICPT adjustments, leading to the introduction of a surcharge for businesses in July last year.

Last Friday, the Energy Commission (EC) said the government had agreed to continue with ICPT mechanism for 2H19, whereby the average base tariff will continue to be at 39.45 sen/kWh, and domestic residential customers remain unaffected by the ICPT surcharge.

It said the current ICPT surcharge of 2.55 sen/kWh will be maintained for all non-domestic customers.

The EC added that the surcharge for domestic residential customers, amounting RM107mil, will be funded by Kumpulan Wang Industri Elektrik (KWIE) once again.

KWIE, an electricity fund, was set up in 2014 to finance the difference between the cost of supply and end-user tariffs.

The money in this stabilisation fund originated mainly from savings gained from power purchase agreement renegotiations.

Kenanga Research, in a note yesterday, said it was not “overly excited” about the impact of the ICPT surcharge for Tenaga Nasional, as it had been anticipated.

However, it said questions remain on whether TNB will be allowed to raise tariff rates in the future, should the ICPT under-recovery situation persist when the KWIE fund is fully utilised.

With the fund forking out RM308mil and RM107mil in subsidies in 1H19 and 2H19, and taking into account the RM760mil balance funds last July, the research house said the KWIE fund is likely to be at about RM345mil by the end of the year.

Should fuel costs remain high, this fund would likely be exhausted by the first half of next year.

“In any case, we still believe any extra fuel costs will be transferred to all customers under the principle or spirit of ICPT mechanism,” it said.

The research house also downgraded the stock to “market perform” from “outperform” following a recovery of about 20% in the share price over the past month.

“We keep our estimates unchanged as the tariff surcharge is a fuel cost passthrough, which is already incorporated in our model,” it said.

HLIB Research, meanwhile, said it expected the continued implementation of the ICPT to have a neutral impact on Tenaga Nasional.The research house, however, also downgraded the stock to “hold” from “buy”, following the recent surge in its share price.

“We remain positive on the ICPT implementation, as TNB will be able to recoup its higher fuel generation costs of RM1.6bil incurred in 1H19.

“The new government remains committed in the ICPT implementation, despite certain quarters complaining on the high electricity costs and urging government to review the tariff rate,” it said.

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