Mixed reviews from maintained base tariff
KUALA LUMPUR: The government’s approval for the base tariff to be maintained for 2018 to 2020 has garnered mixed views from analysts.
In a filing on Bursa Malaysia, Tenaga Nasional Bhd (TNB) announced that the government approved for the electricity tariff in the current tariff schedule for Peninsular Malaysia to be maintained for the period of January 1, 2018 until December 31, 2020.
TNB noted that the same electricity tariff schedule has been used since January 1, 2014.
“The government has further agreed to fund RM929.37 million for the subsidy and rebate of 1.80 sen per kilowatt hour (kWh) for the period of January 1, 2018 until June 30, 2018.
“This includes 0.28 sen per kWh of surcharge from additional cost of generation and 1.52 sen per kWh to continue the current Imbalance Cost Past Through (ICPT) rebate for the electricity customers.
“In total, the government has approved RM6.332 billion of total rebate to the electricity customers in Peninsular Malaysia over the period of March 2015 until June 2018.”
According to the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research), the development on base tariff is positive, pending further details of actual components making up TNB’s required revenue for Regulatory Period 2 (RP2) running from January 2018 till December 2020.
This was consistent with MIDF Research’s previous views on TNB’s share price overhang on concerns that the RP2 entails a risk of lower regulatory returns for TNB’s transmission and distribution (T&D) assets.
However, in a report on TNB, the research arm of Hong Leong Investment Bank Bhd (HLIB Research) was neutral on the tariff rebate announcement, as the group will get compensation of RM0.9 billion from the government in order to cover its higher energy fuel costs under the ICPT mechanism.
HLIB Research had already assumed lower return on assets (RoA) for TNB for the coming period of 2018 to 2020.
Despite the neutral reaction, the research arm noted that the announcement will allay investors’ concerns on government’s commitment in honouring incentive based regulation (IBR) and ICPT mechanisms even in the event of high fuel costs.
“The actual tariff rate is supposed to be 38.81sen per kWh due to the higher fuel costs,” it said.
“However, the government has decided to maintain the tariff at 37.01sen per kWh and bear the differential of 1.80sen per kWh, amounting to RM0.9 billion in total costs.
“At current juncture, coal price is relatively high at US$75 to US$80 per metric tonne (mt) while the ringgit has appreciated to RM4.10 per US dollar, from a peak of RM4.50 per US dollar in January 2017.