Analysts: Single-digit power tariff hike likely next week

Thestar: Saturday May 21, 2011

By LEONG HUNG YEE

PETALING JAYA: Tenaga Nasional Bhd (TNB) may be allowed to impose a “single-digit” electricity tariff hike when the Government announces a new tariff next week, sources told StarBizWeek.
“It will not be a double-digit hike but close to that,” the source said, adding that some 56% of the population would not be affected by the hike.
He said the lower income group would still be protected, given that the Government had cut some subsidies recently.
OSK Research head Chris Eng said he expected 5% to 10% tariff hike for TNB. In a report yesterday, Eng said: “We believe a tariff hike is long overdue, given the rising cost of coal and other raw materials, while the tariff has stayed stagnant since March 2009.
“Our analysis continues to show that TNB could see a 9% hike in core net profits for every 1% hike in effective electricity tariff.
“There is a potential for a 5% to 10%, or an effective 7%, hike for TNB which would see a significant jump in profits, failing which the financial year ending Aug 31, 2011 (FY11) would be TNB's worst year since FY06,” he said.
Several research houses, including Kenanga Research and AmResearch, also expect a tariff hike.
When contacted, Energy, Green Technology and Water Minister Datuk Seri Peter Chin Fah Kui, who is currently overseas, said he could not comment on the issue.
The tariff hike has long been subject to speculation among industry players. Nanyang Siang Pau has quoted sources as saying that the Government would not increase the price of RON95 petrol for the time being. However, a price hike for electricity was expected next week, the daily said.
According to sources, the Government is expected to announce the tariff hike after a cabinet meeting next week but the increment would not take place until a few days later or at least until next month.
Sources also said TNB was expected to make an announcement on Thursday on the matter.
According to Performance Management and Delivery Unit's (Pemandu) subsidy rationalisation plan, electricity tariffs will be increased by 2.4 sen/kWh initially, followed by 1.6 sen/kWh increase in every six months over the next five years until July 2014. Currently, the average electricity tariff stands at 31.3 sen/kWh.
TNB has had its base tariff hike (2% to 3% adjustment for every three years to account for inflation) frozen since 2009. Its current tariff (effectively at 31.2 sen per kWh) only covers the coal cost up to US$85 per tonne versus the current coal price estimates of US$117 per tonne.
Meanwhile, Kenanga Research said TNB had clarified that the utility giant had no timeline indications from the Government for the tariff review, other than the fact that the Government wanted to push through the subsidy rationalisation plans as proposed by Pemandu.
“TNB also mentioned that decisions are unlikely in the next couple of weeks since the Prime Minister is still overseas.
“We do not discount the possibility of a hike as TNB really needs it to cover its rising coal costs, particularly when coal usage is at an all-time high, given the severe gas supply curtailments.
“Any tariff hike will fully compensate for subsidised gas price hikes, hence, a neutral impact on TNB,” the brokerage said.
AmResearch has expected the increase in tariffs and has incorporated a 2% hike in its forecast for TNB's FY12 and FY13 earnings.
It said the current tariff assumed coal cost at a much lower price of US$85 per tonne, hence TNB's request for a tariff review.