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July Gas Price Hike

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PETALING JAYA: Tenaga Nasional Bhd (TNB) will have to pay more for the supply of gas from Petroliam Nasional Bhd (Petronas) from July 1 onwards.

But the electricity tariff will remain unchanged until end-December because TNB is able to absorb the higher cost of gas from savings amounting to RM1.1bil between January and June this year from the lower energy cost and benefits from the restructuring of the power purchase agreements (PPAs) amounting to RM300mil.

“The savings came about mainly from the reduction in the use of liquefied natural gas (LNG) for electricity generation supported by the high performance of coal power plants, as well as the downward trend of coal prices,” TNB said in a statement.

The hike in the gas price by Petronas is allowed for under the Government’s scheme to rationalise the heavily subsidised electricity sector, and it has been implemented since Jan 1, 2014.

Under the scheme, called the imbalance cost past-through (ICPT) mechanism, there is a review of Petronas’ gas price supplied to TNB every six months, whereby the rates are increased gradually.

In the latest review for the period from July 1 to end-December this year, the Government has allowed Petronas to charge an extra RM1.50 per million metric British thermal units (mmBtu) for gas supplied to TNB, hence raising the price to RM16.70 per/mmBtu from RM15.20 per/mmBtu.

TNB said the impact of the ICPT implementation was neutral on its business operations and financial position.

Analysts said although TNB would incur a higher fuel cost with the upward revision in gas prices, the amount was still acceptable, although TNB’s topline would not look as nice.

Etiqa Insurance and Takaful head of research Chris Eng said maintaining the tariff despite raising the price of piped gas was acceptable due to the cost over recovery for TNB.

He said combined with the reduction in the price of LNG, the effect should be neutral to slightly positive for TNB.

Nonetheless, Eng said the Government should continue to be committed to the ICPT regime and be prepared to raise tariffs if necessary when fuel costs eventually rise.

Fortress Capital chief executive officer Thomas Yong said the gas price increase was already expected.

“For the first half to Feb 28, 2015, due to lower fuel prices, TNB had over-recovered RM1.5bil. It is expected that the next tariff change on July 1 will be adjusted downward, they call it ‘rebate’ back.

“So, it does not matter what the cost of coal and gas is. The tariff will be adjusted, although there is a lag,” he said.

As for the current low fuel cost environment, the Government is taking the opportunity to reduce the gas subsidy.

“With this increase in the gas price, tariffs will be adjusted less downward and the impact to TNB will be close to nil,” he said, adding that TNB is expected to have a return on assets of 7.5%.

In an e-mail to StarBiz prior to the announcement, the Energy Commission (EC) said the increase in the piped gas price would be offset with savings from other costs such as lower coal prices, reduced consumption of LNG and other fuels, and penalties and savings from PPAs.

“The Government is still able to maintain a rebate of 2.25 sen per kWh to be passed on to consumers from July 1-Dec 31, 2015,” the EC explained.

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