JIT News - TNB,Linear ...

Tenaga: The absence of Petornas from a high level meetings to discuss a proposed stabilization fund seems to suggest that the establishment of a mechanism to compensate Tenaga for purchasing gas at market rates is not likely to be put in place soon. And without the stabilization fund, industry observers point out that it would delay the import of LNG that is needed to make up for the shortfall in local supply.

According to Petronas, it was not invited to a meeting held by the EC on Sept 24, 2012.

The capital provision with respect to the stabilization fund is the issue of paramount importance. The government is looking at different form of funding and not looking at Petronas. The delays in the subsidy rationalization scheme that the government has wanted to implement. A key objective of the reform is reduce the subsidy on gas supplied by Petronas to TNB. A critical step in implementing the measure is to allow TNB to pass on the increased cost of generating electricity to consumers which is a political issue.

The objective of the rm5 billion stabilization fund is to compensate TNB for the additional cost incurred to buy gas at the international price to generate electricity. There is a gap of at least 50% between the subsidized gas price and the international market price.

However in March 2012 Petronas is committed to supply only 950 mmscfd of gas to the power generation industry. This 950 mmscfd is infact 42% short of the 1350 mmscfd that the independent producers and TNB collectively need.

In 2011, both the government and Petronas compensated TNB rm2 billion cash for the sharp jump in fuel costs as a result of the severe gas shortage, mainly because the electricity group was not able to pass the additional cost to consumers through a tariff hike.

To cope with the growing demand for LNG, Petronas has built a regasification plant at cost of rm3 billion. The facility which has been completed, was initially poised to start operations in Aug 2012. It has now (Oct 2012) been delay to Nov 2012 due to delay in the decision on the pricing mechanism for imported gas.

The objective of the regasification terminal is to import LNG at market price for those wanting more gas. The import of LNG will enable Petronas to build up a buffer to meet demand in case of a disruption of supply from the local fields.

But the pricing of the LNG could depend on whether TNB gets compensated through the stabilization fund, since power producers are the biggest gas consumers. TNB will be one of the bigger customers of Petronas’ LNG plant. But it will not buy gas at market price if it cannot pass on the cost to consumers.

AS long as the stabilization fund issue is not resolved, there is little incentive for Petronas to start operations of the regasification terminal. If Petronas would be required to inject capital into the stabilization fundm which indirectly would mean subsidizing the gas burned by TNB, Petronas might as well continue with the current arrangement of providing subsidized gas.

Linear: It is on the verge of being delisted as Bursa Malaysiahas rejected its regularization plan. Linear will be delisted from Bursa on Nov 7, 2012 unless an appeal against the rejection and delisting is submitted to the authorities by Nov 3, 2012.