Tuesday, November 29, 2005

TNB huge debt

Title: TNB huge debt and the increase electricity tariff.
TNB’s huge debt is not accumulated over a short period of time. TNB is buying most of its electricity from IPP, which enjoyed favourable rates whether the power generated is needed or not. At the same time it has to invest more capital for new clients and replace its aging assets. Everyone knows that the current electricity tariff has not increased for years and below its generation cost.
I believe that TNB should be allowed to increase tariff progressively as the power generation cost increases, so that it can continue to invest in power transmission infrastructure and keep a reasonable profit. Electricity consumer would benefit in the long run if power supply were reliable. Incidents of power failures and shortages would have a high cost to the economy and power consumers. Let TNB increase electricity tariff, so that it can set aside some money for the sorely needed maintenance and capital expenditure. Postponing the increase of electricity price would only increase Tenaga’s debt, and we consumers would still have to pay it later – at even higher price. We cannot ask Tenaga to cut cost by slashing capital expenditure, that would leave Tenaga’s capital stock in a sorry state and more expensive to maintain in the long run.
Remember California’s statewide power failures a few years ago? At that time, California state legislators did not let power companies increase power prices to consumers for some time, so there was no investment in new generating capacity nor transmission infrastructure for some time. Simply the return on investment of California’s power companies were to low, so no new investment was made. Meanwhile power demand by consumers continues to surge until there is no excess capacity left. The power failure happened on a hot summer day when almost everyone turned on his or her air conditioner to keep cool.
Its open secret that as the country’s economy grow, demand for electricity and other basic services also expected to grow at a faster rate. This growth in demand means more investments needed in electricity generation and power transmission infrastructure.
With that amount of outstanding loan, RM30 billion, a small rise in interest rate would negatively affect Tenaga’s profitability. One percent of RM30 billion is RM300 millions. If Tenaga currently makes RM1.2 billion profit, a 4 percent increase in interest rate would reverse this profit to a loss, ceteris paribus. Imagine the effect of this on Tenaga’s share price. If most GLC and publicly listed companies have high gearing like this, small wonder that BNM is reluctant to increase interest rate to keep inflation low.
However, I expect that the amount of tariff increase would be severely limited, whereby the projected revenue increase just cover the electricity cost and a bit of profit for the shareholders. Tenaga’s RM30 billion debt would have to be repaid by refinancing – either by issuing new shares or by rolling the debt papers. TNB could also convert some of its customers to shareholders by giving them warrants that can be converted into shares on payment of share premiums. This way TNB could increase its shareholders base and use the proceeds to pay off its borrowings.

Noor Yahaya Hamzah


Anonymous said...

En Yahaya Oi...On the surface memanglah betul yang awak tulis tu...tapi kajian mendalam harus dibuat sebelum buat all those analysis and conclusion......Contoh soalan yang perlu ditanya ialah:

1. Did IPP made profit?...How much?
2. Sapa pemilik IPP?
3. Check all those project by the IPP
4. Whose the blood sucker?
5. Did TNB professionals ever made costing?.
6. How much the cost if TNB produce their own electricity?
7. How much price that these blood sucker forced TNB to buy from them?.
8. Ade banyak why lagi.....

I think the best reason for TNB to increase tariff if because the increase in petrol prices and all these blood sucker costs makin naik tak boleh tahan, untung makin kecik, mintak naik lagi harga.

I maybe wrong...

Anonymous said...

Dear All,

I think it is inevitable that the tariff of electricity is going up. For one thing we depends too much on oil and coal a form of non-renewal energy sources. We should have focused on renewable source such as hydro-electric power.

The Bakun dam should have been inanced and finished in the mid 90's to its original plan. We are now paying the price for this hesitations. However all its not too late... we can still finish this job and the investment made today, we will reap tomorrow.

To the nay sayers and sceptics I put it to you... imagine if we didnt have the PLUS highway or the Penang Bridge?

These investments are a vision for the prosperity of our country and to ensure that our children live a quality of life better than ours.

You see why our electricity is sooo cheap ? because people like Tun Razak envisioned the buildings of Dams in the early 70's and generation of a renewable energy.

My 2 sen worth...


Anonymous said...

In UAE, locals or citizens or nationals pay only 3 sen per kwh, water is free, while expats like me pay 15 sen and water as well, my villa expenditure is from min RM500 in winter to RM1,500 in summer per month (fortunately borne by company until this dec, next year a flat allowance)....expats are subsidising for locals.

I saw a beautiful sight from masterton to palmerston north recently on kipas angin on top of hills....