Electricity tariff hike pending?

KUALA LUMPUR: Following price hikes for petrol and sugar, the
government is due to increase electricity tariff, according to reports.

A
report in a local Chinese daily stated that the government is due to
announce the new electricity tariff structure as early as next week,
explaining that the biggest impact would be on industrial users rather
than households.

However, according to sources, no official
announcement has been made by the ministry to national power provider
Tenaga Nasional Bhd (TNB) and that a hike could come sometime in June.

“Although
the exact quantum of the hike is still not known, it is expected that
the new tariff will take into account TNB’s coal price over the past two
quarters,” said the source.

One analyst stated that the hike could come in between 3% and 6%.

OSK
Research had stated earlier in the week that there could be a small
hike on the cards for TNB as it needed a 1% rise to cover the
government’s renewable energy feed-in-tariff scheme.

For
2QFY10 ended Feb 28, Tenaga’s coal price averaged around US$100 (RM302)
per tonne, which was similar to the price in 1Q. The current electricity
tariff has coal prices pegged at US$85 per tonne.

It should be
noted that although the bulk of the country’s power comes from gas
rather than coal, due to the price of the former being fixed, it is the
costs of the latter that have been weighing down on TNB. According to
the annual report for FY10 ended Aug 31, TNB’s generation mix comprises
53.1% gas and 34.1% coal.

However, the recent curtailment by
national oil company Petroliam Nasional Bhd (Petronas) has meant that
the national power player is using a higher amount of coal that
translates into higher operating expenses.

In comparison, for
2QFY10, Tenaga’s operating expenses came in at RM6.17 billion and in
2QFY11, operating expenses rose 14.9% to RM7.09 billion.

It is
still uncertain at this point whether the increase will come
hand-in-hand with a rise in gas prices. However, the possibility that
gas prices will also increase cannot be ruled out given Petronas’ open
stance that gas prices should also be allowed to adjust in line with
market prices.

The last adjustment was in March 2009, when the
government had brought down the electricity tariff along with the price
of gas following the plunge in oil price as a result of the global
financial crisis. Since then, the government has committed to reviewing
the electricity tariff every six months.

TNB has been lobbying
for the tariff adjustment as higher coal prices continue to bite into
the company’s bottom line. The recent floods in Australia, from which
TNB sources some of its coal, and the March earthquake in Japan have
driven coal prices up. Analysts are expecting coal prices to remain
volatile, predicting they eventually will stabilise around US$120
(RM362) per tonne.

Warrants	TENAGA-CQ
Warrants Reference Price	0.085
Warrants Last Done	0.085
Volume	2,950
Share Reference Price	6.280
Share Price	6.270
Exercise Price	6.800
Exercise Ratio (warrants per share)	8
Interest Rate(%)	2.9930
Dividend Yield(%)	2.4880
Expiration Date	27-Sep-2011
Days to Expiry	130
Implied Volatility(%)	59.5821
Gearing (X)	9.2206
Effective Gearing (X)	4.7247
Premium(%)	19.2982

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