In it's latest report today, Moody's Investors Service has maintained its Baa1 rating with a stable outlook for TNB, as the shortage in gas -- the key component for its generation of electricity -- continues.
Moody’s said since 2Q11, Tenaga had been burning oil and distillates, which cost about five times more than gas, to replace the gas shortfall and generate its required level of electricity.
The rating agency was maintaining its current rating and outlook because it expects timely intervention by the Malaysian government, the largest shareholder of both Tenaga and its gas supplier, Petroliam Nasional Bhd.
"So far, Tenaga has absorbed the additional burden within its rating's financial parameters, which still have some headroom, but a prolonged imbalance in Malaysia's power sector and a lack of supportive measures from the government to relieve the burden could weigh on these metrics, and put pressure on the rating," it said.
In addition to continued governmental support, Moody's rating and stable outlook for Tenaga assume that (1) the gas shortage will diminish over the near term as new sources of supply become available; (2) the government will decide on an appropriate cost-sharing mechanism over the next 6-8 months to compensate Tenaga for its added costs; and (3) the negative impact on Tenaga's financial profile of having to use more-expensive oil and distillates will be temporary.
The utility giant's earnings have been severely impacted by the shortage of gas supply.
It has so far reported two consecutive quarterly losses. TNB has said that the losses stemmed from the need to replace the shortfall in the supply of gas to it, by utilising more oil and distillates which are five times more expensive than gas and this has resulted in TNB incurring an additional RM2.1bil to replace the shortfall in gas in the last financial year ended Aug 31 (FY11).
In FY11, TNB's net profit plunged to RM499.5mil from RM3.2bil in FY10. Revenue for the year was higher at RM32.2bil versus RM30.3mil.
However, such a business predicament will not likely force the utility giant to hike up its electricity tariff as mentioned in Anwar Ibrahim's blog.
TNB is also hoping to get some compensation on additional fuel bill that amounted to RM2.1 billion in FY11 that it had to incur because of a shortfall in gas supplied by Petronas.
The company indicated it expects to receive an average natural gas allocation of 1,100-1,150 million metric British thermal units (mmbtu) a day in FY12 compared with 950 mmbtu a day during the second half of FY11.
A regasification terminal in Malacca is expected to be ready by July next year, and this will help Petronas meet its commitment to supply 1,350 mmbtu a day of gas to the power sector in 2012.