KUALA LUMPUR (Aug 30): The government will guarantee Tenaga Nasional Bhd (TNB)’s financing of up to RM6 billion for the utility group to pay the increment in generation costs.

TNB revealed the government’s guarantee in its quarterly result release to the stock exchange. This is rare for the government to do so, said an analyst, noting that the guarantee would help TNB to save financing costs.

The effective average cost of borrowing based on exposure as on June 30 was 4.51%, according to the filing to Bursa Malaysia.

The utility group, in which Khazanah Nasional Bhd owns a 25.47% stake, has been caught between a rock and a hard place since the start of the year as fuel costs have escalated.  

Although TNB’s profit has been steady while revenue for the second quarter ended June 30 (2QFY22) hit a record high of RM19.14 billion, the group’s cash flow did not grow in tandem with its earnings.

This is simply because the electricity tariff is not rising fast enough to cope with the sharp rise in fuel costs.

It is worth noting that the utility giant's net cash generated from operation shrank substantially to RM1.88 billion in 2QFY22 compared with RM9 billion a year ago. TNB drew down borrowings of RM14.8 billion during the quarter under review.

TNB pointed out that the outstanding rebate and surcharge of RM5.8 billion by the government plus continued hike in the fuel prices have resulted in the group carrying higher receivable balances and higher borrowings balances in this quarter.

TNB’s short-term borrowings soared 71% to RM11.98 billion as of June 30, compared with RM6.99 billion on Dec 31, 2021.

In addition, the group’s receivables shot up to RM19.17 billion as on June 30, compared with RM14.06 billion three months ago and RM6.27 billion a year ago.

To keep the tariff and the surcharge at 3.7 sen/kWh for non-domestic customers and the rebate of 2 sen/kWh for domestic customers unchanged, TNB said the government has agreed to fund the rebate and surcharge totalling RM5.8 billion.

“The receivable is from the government and TNB is in discussions with the government on the timing of the full recovery of the RM5.8 billion,” it added.

Against the backdrop, some analysts expect that TNB will need to raise more debts to sustain its operation should fuel costs remain high and there is delay in the payment for the recovery of Imbalance Cost Pass-Through — a mechanism enable the utility group to pass any fuel cost increment to end-users.

The ICPT payments usually come six months later. Hence, any sudden surge in fuel costs will strain TNB’s cash flow as it will only receive the compensation for fuel cost increment half a year later.