RAM Ratings: Sarawak Energy’s financial position intact even after further tariff reduction

Published on 06 May 2015

RAM Ratings expects Sarawak Energy Berhad’s (Sarawak Energy or the Group) financials to remain intact after taking into account the State Government’s recently announced reductions in electricity tariffs for the commercial and industrial segments – effective 1 June 2015. Sarawak Energy’s rating continues to be anchored by strong support from the state and federal governments, given its position as the State’s sole electricity utility company, which also highlights its pivotal role in the Sarawak Corridor of Renewable Energy (SCORE).

The AA1/Stable rating of Sarawak Energy’s RM15 billion Sukuk Musyarakah Programme (2011/2036) also considers the Group’s weak balance sheet and cashflow coverage in the immediate term. “With further plant-ups on the cards, it is even more crucial for Sarawak Energy to seek new sources of cashflow by enlarging its customer base under the SCORE development,” highlights Chong Van Nee, RAM’s Co-Head of Infrastructure and Utilities Ratings. 

The tariff revision follows a similar move in November last year when electricity rates payable by domestic customers were reduced, effective 1 January 2015. The tariff cuts in the 3 segments – domestic, commercial and industrial – which comprised about 54% of total electricity sales, will result in the Group’s average organic tariff decreasing around 6% to 28 sen/kWh. However, we envisage only a less than 5% reduction in the Group’s operating cashflow. This is in line with the gradual fall in Sarawak Energy’s generation cost against the backdrop of an increasing proportion of hydro-power capacity, as evinced by the recently commissioned 944-MW Murum hydro-power plant this year.

Media contact
Chin Wynn
(603) 7628 1170
chinwynn@ram.com.my