TNB ready to import gas by August 2012

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BANGI: Tenaga Nasional Bhd is ready to import gas at market price to meet the shortfall of supply, once Petroliam Nasional Bhd’s (Petronas) new re-gassification terminal in Malacca comes online by August 2012, even though the price will be much higher than the subsidised price of RM13.70 per mmbtu.
Datuk Seri Che Khalib Mohammad Noh, TNB president and CEO, said the higher price will not necessarily be passed down to the consumers. TNB plans to sit down with all  parties concerned, including the government and other industry players such as the independent power producers (IPPs), to work out the best solution.
“As you have seen in the past, all parties, including the government, ministry, the Securities Commission and all the players in the industry, will sit down and try to find the best solution. That best solution doesn’t mean that everybody will get what they want. So I think the solution is not necessarily to pass the cost to the consumers; there are many ways that we can overcome the problem,” he said during a visit to Universiti Tenaga Nasional in Bangi yesterday.
Analysts contacted by The Edge Financial Daily were sceptical that the import of gas at market price by TNB will not result in an electricity tariff hike. According to Chong Lee Len with Affin Investment Bank Bhd, based on the agreement between TNB and the government, every unit of gas purchased at market price by the national utility should be reflected in the tariff.
“Theoretically, the electricity tariff will be increased if TNB uses imported gas purchased at market price to generate electricity. However, this might not happen as the government would not want to allow TNB to increase electricity tariff. But if this happens, the government will have to bear the extra cost by subsidising the gas price imported by TNB,” she said.
Che Khalib said all TNB is interested in is to ensure an uninterrupted supply of electricity to consumers. In doing so, TNB had to incur additional costs of RM3.1 billion due to the shortage of gas supplied by Petronas.
The national oil and gas company had to shut down its production platforms due to planned maintenance between April and June this year.According to RHB Research Institute, Petronas can currently supply 950 mmscfd to 1,000 mmscfd to TNB due to the shutdown of its gas producing platforms.
The government, through the Economic Planning Unit (EPU), had earlier promised that TNB will secure 1,250 mmscfd of gas between 2008 and 2011, and 1,350 mmscfd from next year onwards.Che Khalib said the government, Petronas and TNB had agreed in principle on the cost-sharing mechanism proposed by the government, which will result in TNB getting a writeback of two-thirds of the RM3.1 billion it spent due to the shortage of gas. He said the group has written a letter to the government saying that it agrees to the mechanism, as has Petronas.

Che Khalib: It is ourresponsibility to ensurewe secure imported gasat the cheapest price.

If TNB were to import gas, he added, it will look for the cheapest option to reduce the burden on consumers. He said the group is engaging a consultant to advise it on the process of importing gas. TNB has been talking with gas suppliers and traders, including Petronas, as well as multinationals such as ExxonMobil and Royal Dutch Shell, he added.“It is our responsibility to ensure we secure imported gas at the cheapest price. What we are doing now is talking to all gas suppliers and traders and [we have] asked them to give us a solution ... if they are to import gas, what would be their terms and price.
“We are looking at all potential suppliers for gas, like Esso, Shell, Petronas and a few others. We are talking to as many as possible to ensure that whatever decisions made they will be for the benefit of the consumers,” he said.
According to an analyst with an investment bank, if TNB imports gas at market price, it is highly unlikely the group will absorb the cost. Ultimately, the government would have to subsidise electricity tariff because looking at TNB’s cash flow, it is in no position to absorb the higher cost as the difference between the market price of gas and the government’s subsidised price is so large, the analyst said.
As at Aug 31, TNB’s gross cash halved to RM3.95 billion from RM8.34 billion a year ago, while its total borrowings decreased by a smaller amount from RM21.26 billion to RM19.05 billion.
For the year ended Aug 31, the group’s net earnings fell to RM499.5 million from RM3.2 billion a year ago, despite a rise in revenue to RM32.2 billion from RM30.3 billion.
“Looking at it, it seems like they are trying to get the subsidy from the government. However, importing gas at market price is still a cheaper alternative to continuing to burn oil or distillates. For TNB, it is a case of choosing the lesser of two evils,” the analyst concluded.
TNB’s share price shed three sen yesterday to RM5.47. Year-to-date, it has lost 18.72% of its value from RM6.73 on Jan 3. The stock reached its highest this year at RM7.11 on May 31 and a low of RM4.99 on Sept 26. Since then, the stock has risen by 9.62%.