KUALA LUMPUR: RAM Rating Services Bhd (RAM Ratings) expects Tenaga Nasional Bhd (TNB) to maintain its financial performance notwithstanding the government’s recent announcement that there will be no increase in the electricity tariff until June next year. 

RAM Ratings co-head of infrastructure and utilities ratings Chong Van Nee said TNB’s funds from operations will continue to be backed by the upward tariff adjustment that has been effective since January this year.

In view with this, Chong said TNB’s profitability margins are expected to improve for the financial year ending Aug 31, 2015, as TNB offsets the additional fuel costs against savings generated from previously renegotiated first-generation power purchase agreements. 

“This will only impact the income statement and will have no cash-flow effect on TNB,” Chong said.

While the sustainability of the incentive-based regulation (IBR) framework remains to be seen, Chong said TNB will continue to derive solid and consistent government support given its critical role as the national utility company.

“Further, we maintain our view that the IBR framework will have a positive impact on the group and should help sustain the utility giant’s long-term financial profile,” Chong added.

RAM Ratings noted that the piped gas price remained at RM15.20 per mmbtu as of Aug 31, 2014, while the market price for liquefied natural gas has gone up to an average of RM47 per mmbtu.

This article first appeared in The Edge Financial Daily, on November 13, 2014.