Electricity tariff rebates may be lower in 2H17

PETALING JAYA: Analysts believe that a combination of the weakening ringgit and increase in piped gas and coal prices may lead to potentially lower tariff rebates or even a surcharge imposed on electricity tariffs in the second half of 2017.
Hong Leong Investment Bank (HLIB) Research, which is neutral on the tariff rebate announced by the government on Wednesday, said ongoing hikes in piped gas price every six months and recent surge in imported coal prices (further exacerbated by ringgit depreciation against the US dollar) is expected to see Tenaga Nasional Bhd (TNB) incur higher generation costs in 1H17, which would be passed through under in the second half of the year.
On Wednesday, the government announced the continuation of tariff rebate of 1.52 sen/kWh for 1H17 in Peninsular Malaysia under the ICPT mechanism.
The tariff rebate applies to commercial, industrial and domestic consuming more than 300kWh per month. It also takes into account the hikes in natural gas price to RM21.20/mmBTU from RM19.70/mmBTU effective Jan 1, 2017.
PublicInvest Research, however, opined that the government may even impose a surcharge in 2H17 due to higher costs.
“Our concern remains on the recent spike in coal prices and the weakening ringgit. The coal price base tariff is currently set at US$87.50/MT (RM3.14/USD).”
It said based on TNB’s annual anticipated coal consumption, the situation could lead to higher costs of about RM4.2 billion.
HLIB maintained its forecasts and “buy” call on TNB with an unchanged target price of RM17.50.
It expects TNB’s earnings and cash flow to be stable and remain positive on its long term growth and strong cash flow.