‘NO IMPACT ON TNB FROM SECTOR REFORM’

A third-party access like model may be adopted to facilitate new players’ access, say MIDF Research

THE power sector reform has no major implications on Tenaga Nasional Bhd (TNB) in the near term, but the group is expected to face increased competition in the long run.

MIDF Research said while transmission and distribution (T&D) asset ownership was set to remain with TNB as a natural monopoly in the mid term, a third-party access (TPA)-like model was likely to be adopted to facilitate new players’ access to the national T&D infrastructure.

One of the initiatives under the 10-year master plan for power sector reform includes the opening up of the retail market, which is one of the most likely moves.

“If the cost of sourcing electricity for new retailers is similar, TNB will be a tough competitor, given its current dominance in the retail segment and a strong balance sheet backing. If new retailers are willing to undercut TNB, this potentially means lower returns than the current 7.3 per cent TNB is getting under the regulated framework.

“On the flip side, if more value added is offered as part of the new competitive landscape and liberalised market, this could mean increased rleturns for both TNB and the new retail players,” said MIDF Research in a report yesterday.

It said TNB was estimated to generate earnings of RM19 million to RM20 million from the retail segment, accounting for just 0.4 per cent of group earnings and 0.6 per cent of regulated earnings.

The pilot opening up of the retail segment is expected in the second quarter of 2021.

On the government’s plan to do away with the existing power purchase agreement (PPA) structure, which essentially guaranteed both capacity payment and energy payment, MIDF Research said it remained unclear at this point how the new PPA structure/hybrid market would pan out for power producers.

“As it is, the returns for a power plant have already been driven down to single digits (mid-tohigh single digits) and it would be interesting to see how low players are willing to go to gain a slice of the pie, in a more volatile revenue and profit environment (essentially, in a higher risk market),” it said.

MIDF Research has downgraded the power sector to “neutral” from “positive” previously, following its recent downgrade on TNB.

It said it had maintained “neutral” call on TNB, with an unchanged target price of RM14.40 a share, following strong share price recovery in the past four months.

MIDF Research has kept its “buy” call on YTL Power International Bhd, with an unchanged target price of 88 sen a share.

“YTL Power could potentially stage a comeback in the domestic power sector, riding on New Enhanced Dispatch Arrangement platform (which allows the re-entry of expired independent power producers into the system), as well as an entry into the retail segment,” it said.