Malaysia: Local IPPs to raise RM13bil more to finance new plants

Malaysia: Local IPPs to raise RM13bil more to finance new plants

Local independent power producers (IPPs) are expected to raise an additional
RM13.3bil in debt to finance their upcoming plants, according to RAM
Ratings.

In a report on the power sector, the rating agency pointed out that since
2014, Malaysian IPPs have already raised RM17bil for new plants.

This is backed by capacity-expansion prospects which are still favourable
for the sector and the Government's drive to implement large-scale solar
plants.

"Approximately 10,000MW of capacity will be added to Malaysia's grid by 2021
based on the Energy Commission's data as well as our expectation of capacity
plant-up in Sabah and Sarawak.

"Fossil-fuel plants remain the core of our electricity generation, despite
the push for renewable energy," RAM noted.

Keeping a stable outlook on the Malaysian power sector in 2017, RAM's view
was underpinned by the industry's sound regulatory framework.

Against this backdrop, national and Sarawak state-controlled, vertically
integrated utility companies - Tenaga Nasional Bhd (TNB) and Sarawak Energy
Bhd (SEB) - remained healthy, both operationally and financially.

All of RAM's rated sukuk from IPPs have a stable outlook, except Jati
Cakerawala Sdn Bhd, which was placed on negative outlook, on RAM's concern
that if Jati continued its generous dividend payout, it would weaken its
cash balances.

On the other hand, TNB was rated AAA/stable and SEB AA1/stable.

It continued to rate independent power utility company, NUR Power Sdn Bhd,
AAA/stable.

It is learnt that the company is licensed to generate, distribute and sell
electricity (220MW) to tenants in Kulim Hi-Tech Park, Kedah.

RAM noted that demand for power increased 5.6% year-on-year (y-o-y) to
135,584 GWh in 2016, driven by electricity sales to the commercial sector
and partly due to higher electricity consumption amid warming effects of the
El Nino phenomenon in the middle of the year.

"The El Nino had also contributed to the increase; peak demand hit a high of
17,788MW last April in Peninsular Malaysia, while that in Sabah and Sarawak
came up to a respective 914MW and 3,010MW.

"We expect demand to keep rising by 2%-3% per annum in this region, in
tandem with Malaysia's resilient economic growth of 5.4% in 2017," RAM said.

Essentially, subsidy rationalisation remained a focal point, with regulated
gas prices rising every six months reaching RM22.70 per mmbtu in Peninsular
Malaysia from July to December 2017.

But, TNB has remained neutral to fuel-cost changes as any fluctuation would
be passed through to consumers under the incentive-based regulation (IBR)
framework, according to RAM's report.

It expected upward pressure on electricity tariffs, given the persistent
increase in fuel costs.

Despite the Government's decision to raise the regulated price of piped gas
to RM22.70/mmBtu, TNB's average net tariff has maintained at 37.01 sen/kWh,
with a 2.54 sen/kWh rebate for July-December 2017.

The IBR mechanism was implemented in Sabah in 2016 and currently on trial
run, with a possible extension till 2018.

After that, the first regulatory period will begin from 2019 to 2021.

For Sabah Electricity Sdn Bhd (SESB), which has been getting support from
the Government, it would likely experience an upward tariff revision should
Sabah fully adopt the IBR mechanism.

"We believe the rollout plans for the IBR may be challenging because SESB
will still require the Government's financial assistance to sustain its
day-to-day operations," RAM said.

Unlike Sabah, Sarawak's electricity tariffs were controlled by the state
government and it has effected tariff reductions for the domestic,
commercial and industrial segments since 2015, with an average tariff of
19.63 sen/kWh as at end-December 2016.

Given the upcoming plants and assuming a 3% annual growth in electricity
demand along with an average peak demand increase of 2% per annum, RAM
pointed out that Peninsular Malaysia's reserve margin is expected to peak at
38% by 2021 versus the Government's targeted optimum of 30%-35%.

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Link to Original Article:
http://www.thestar.com.my/business/business-news/2017/09/04/local-ipps-to-ra
ise-rm13bil-more-to-finance-new-plants/#QzJ32Eus2HJkoAJm.99

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John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com