Southeast Asia power utility reform essential: Consultant

Southeast Asia power utility reform essential: Consultant

SINGAPORE (Dow Jones): Policy-makers in Indonesia, Thailand and Malaysia should put restructuring of their state-owned power utilities at the top of their agendas to address their severe payment crises, an industry consultant said on Tuesday.

"Managing commercially unattractive power purchase agreements and excess capacity from existing and committed expansions are major issues facing the national power companies and regulators in Asian markets," said Ullrich Waeltken, leader of the energy practice for the Boston Consulting Group.

Waeltken said the countries' power sectors face a financial "Catch-22" following their national currency depreciations against the U.S. dollar, which results from five factors: power purchase agreements in dollars; fuel contracts in dollars; unhedged borrowing in dollars; electricity prices in local currency, often at subsidized rates; and a decline in power demand.

As a result, Perusahaan Listrik Negara of Indonesia, Electricity Generating Authority of Thailand and Tenaga Nasional Bhd. of Malaysia urgently need to be restructured, he said.

In Indonesia, the Power Sector Restructuring Policy launched Aug. 25 is a significant step forward for PLN, which this week recorded a first-half 1998 loss wider than twice its first-half revenue. But the policy is untested and needs to be coupled with fuel subsidy reductions and a master plan for development of the country's natural gas resources, Waeltken said. In particular, subsidized diesel burned in power plants should be replaced with gas.

In Thailand, EGAT is overcoming union opposition to raise cash through asset sales, including the recent $240 million sale of 15 percent in its Electricity Generating Co. affiliate.

In Malaysia, Tenaga is likely to sell up to a 30 percent stake to an overseas buyer to meet cash-flow requirements, Waeltken said.

In all countries, when power purchase agreements aren't viable any more, they will have to be renegotiated as the governments lack the funds to fund payment gaps.

Waeltken was in Bangkok to meet with senior officials from EGAT and Petroleum Authority of Thailand.