Malaysia's power giant secures tariffs, subsidy

Malaysia's power giant secures tariffs, subsidy

KUALA LUMPUR (AFP): Malaysia's power giant Tenaga Nasional Bhd. yesterday secured an earnings boost when the government approved an eight-percent rise in electricity tariffs despite consumer opposition.

Energy, Telecommunications and Post Minister Leo Moggie said power tariffs would be raised by an average of eight percent, or 1.8 sen (0.72 cents), to 23.5 sen a kilowatt/hour effective Thursday.

The government also agreed to cap the price of gas sold to Tenaga and independent power producers (IPP) at 6.40 ringgit per million British thermal unit (mmbtu) until 2000, Moggie said.

"The tariff increase is unavoidable given the high cost of power generation based on fuel, development, machinery and equipment, loans and other factors," he told reporters.

"A major portion of equipment for power supply is still imported and Tenaga is facing pressure in terms of development and operational costs. The present tariffs do not reflect the true cost borne by Tenaga," he said.

Moggie said the new rates were reasonable and dismissed suggestions that they would unduly burden consumers or affect Malaysia's competitiveness compared to other countries in the region.

"The impact on production cost is minimal as electricity makes up less than five percent of total operating cost for most industries. Most sectors would see a mere increase in cost at below one percent," he said.

On the cap on gas prices, Moggie said it was aimed at reducing fuel cost for the energy sector and avoiding higher tariff rates as the current gas cost is pegged at around seven ringgit per mmbtu.

National oil company Petroliam Nasional Bhd. would have to bear the additional costs beyond the price cap.

Moggie said Malaysia's electricity demand was expected to rise by 12 percent annually until 2000 from 13 percent last year.

Analysts said the tariff increase was in line with market projections and said the news would help boost the local bourse, which had recently been depressed by a host of negative domestic news.

Tenaga stock was 70 sen higher at 11.60 ringgit on the local bourse Wednesday following the tariff announcement.

Hike

"The eight-percent hike would add some 250 million ringgit to Tenaga's revenue this year and another 900 million ringgit next year," Elsie Lim, power analyst with South Johore Securities, told AFP.

Lim said the cap on gas charges would stabilize fuel costs and boost the earnings of Tenaga and independent power producers in the long run.

Publicly-listed Tenaga generates nearly 70 percent of electricity production and has a monopoly on power transmission and distribution across peninsular Malaysia, which contains more than 80 percent of the population.

Tenaga, which had raised US$800 million in overseas bond last week, had said an increase in power tariffs was vital for the company to remain financially viable.

It plans to invest 18 billion ringgit between now and 2002 to expand and upgrade its infrastructure in order to cope with electricity demand in the rapidly industrializing country.