Malaysia's TNB to get more profits under govt reform initiatives

Malaysia's Tenaga Nasional Bhd could add up to 30% in core net profits in fiscal period ending Aug 31, 2013 due to government reform initiatives.

The Malaysian government wants to create an electricity supply value chain that is more transparent and driven by market economics.

According to CIMB Research, one of the criteria for the extension of the first-generation power purchase agreements is for the independent power producers to reduce capacity payments they get from TNB from now till the end of their current agreements.

The old PPAs will expire between 2015 and 2017.

CIMB Research, which upgraded TNB from “neutral” to “trading buy”, said that under the Government's reform initiatives, one proposal being reviewed was shifting the gas subsidy from Petroliam Nasional Bhd to the Government.

This will enable Petronas to save RM23bil per year in subsidies, increase oil and gas investments, and enhance the upkeep of Malaysia's gas transport infrastructure.

“Collectively, we think this will improve Malaysia's fuel-source security and reduce the long-term probability of future gas supply shocks,” it said.

The research house added that this was positive for TNB, which had borne the brunt of recent gas supply shortfalls through the use of expensive alternate fuels.

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