TNB expected to preserve performance despite absence of tariff hike

Published on 12 November 2014

RAM Ratings expects Tenaga Nasional Berhad (TNB or the Group) to maintain its financial performance notwithstanding the government’s recent announcement that there will be no increase in the electricity tariff until June 2015. “TNB’s funds from operations will continue to be backed by the upward tariff adjustment that has been effective since 1 January 2014, despite higher fuel prices,” says Chong Van Nee, RAM’s Co-Head of Infrastructure and Utilities Ratings. As of FY Aug 2014, the piped gas price remained at RM15.20 per mmbtu while the market price for liquefied natural gas (LNG) had gone up to an average of RM47 per mmbtu. Although the price of coal has come down to USD75.40 per MT, it is still not sufficient to compensate for the increase in LNG prices, which have been escalating from RM41.68 per mmbtu – the price set during the last tariff adjustment.

That said, the Group’s profitability margins are expected to improve in FY Aug 2015 as it offsets the additional fuel costs against savings generated, from previously-renegotiated first-generation power purchase agreements. This, however, will only impact the income statement and will have no cashflow effect.

While the sustainability of the incentive-based regulation (IBR) framework remains to be seen, we believe that TNB (rated AAA/Stable) will continue to derive solid and consistent government support, given its critical role as Malaysia’s national utility company. Further, we maintain our view that the IBR framework will have a positive impact on the Group and should help sustain the utility giant’s long-term financial profile.

Media contact
Adeline Poh
(603) 7628 1021
adeline@ram.com.my