Foreign interest may return with clarity in tariff structure, says Tenaga

Written by The Edge Financial Daily

Tuesday, 30 March 2010 23:54  KUALA LUMPUR: TENAGA NASIONAL BHD [] believes that foreign interest "may come back" to the company once clarity is seen in terms of government policy on tariff structure. Its CEO Datuk Seri Che Khalib Mohd Nor said foreign interest in Tenaga peaked at 28% but was now down to about 9%, with many investors exiting due to the lack of clarity in power tariff policy. "The announcement by the prime minister on the New Economic Model (NEM) that the subsidies will eventually be removed is a positive sign at providing more clarity to our industry," he told reporters on the sidelines of Invest Malaysia 2010 on Tuesday, March 30. Che Khalib said once there was clarity in relation to subsidy and tariff pass-through formula, Tenaga should be able to attract foreign interest. "The more transparent tariff pass-through formula and removal of subsidies have to come together, as people may question who will bear the cost once the subsidies are removed," he said. "Once the removal of the subsidy happens, the pass-through formula must be in place, if not, the industry players will have to absorb it," he added. Che Khalib was quick to add that Tenaga "is not in a position" to absorb the cost that would come with the removal of the subsidy. He said he did not know when the pass-through formula would be adopted or when the government would announce a tariff review. Nonetheless, he said the gas price in Malaysia was below the market price and would remain so even with a 10%-20% increase in tariffs. "It is still going to be below the market price. We eventually have to raise the gas price to the market price, which cannot be done overnight," he said. Che Khalib said the tariffs would have to reflect the increase in gas price, which may be raised gradually, perhaps over a period of more than five years. Meanwhile, Reuters cited Che Khalib as saying the utility giant would report a better profit in its second quarter ended Feb 28, 2010, after electricity demand bounced back strongly from a year ago. Tenaga saw a 13.8% increase in power demand in the second quarter from a contraction of 7.6% in the same period a year earlier. "Due to this, we think that we are going to far exceed our initial estimate of 3% demand growth for the full year," Che Khalib told Reuters in an interview at the Invest Malaysia conference. "My guess is that it (growth) could be 6%-7% for the full year," he said.