|Laman Webantu KM2A1: 2888 File Size: 5.9 Kb *|
FEER: TNB Electrical Fault
By Kapal Berita
27/9/2000 12:41 pm Wed
By S. Jayasankaran
Issue cover-dated September 28, 2000
The road to hell is paved with good intentions. That might
just about sum up the recent debacle at Tenaga Nasional.
The Malaysian government, which owns 53% of the giant
power utility, has long wanted to separate the posts of chief
executive and chairman in hopes of improving corporate
governance. It has already made similar moves at state oil
giant Petronas and state phone company Telekom
Malaysia. So when Ahmad Tajudin Ali's contract for the two
top jobs at Tenaga ended on August 31, it wasn't renewed
and a new chairman was appointed the next day.
So far so good. But in naming Jamaluddin Jarjis, a member
of the Supreme Council of the ruling United Malays National
Organization, to the chairman's job, the government said
nothing about a new CEO.
Worried that Tenaga was falling under political influence,
the markets recoiled and the company's share price
plunged. And as the largest-capitalization stock on the
Kuala Lumpur Stock Exchange, it took the entire Malaysian
bourse with it. Between the end of August and September
18, the KLSE composite index fell 7% and Tenaga's stock
price was down 13% at 11.10 ringgit ($2.90).
Fuad Jaafar, the company's senior vice-president, is now
acting CEO. Jamaluddin, who holds a doctorate in power
engineering, told reporters that the price falls had nothing to
do with his "political" position and that the company's
operations were in "experienced hands."
On the first point, at least, some observers disagree,
suggesting that Jamaluddin's ties to the ruling party
reinforce concerns over rising politicization of state
companies. "In an environment where we need more
professionalism and less politics, this sends the wrong
signal to the market," says the chairman of an investment
advisory firm in Kuala Lumpur.
Tenaga's trials are just the latest in a series of events
pointing to growing policy unpredictability in Malaysia.
Flip-flops on issues ranging from exchange controls and
foreign buyouts of companies in strategic industries to
reform of the banking and broking industries have spooked
foreign portfolio investors since the start of the Asian Crisis
"A lot of foreigners had bought Tenaga simply because it
was the one monopoly not faced with intense competition,"
says Edmund Cheah, the chief executive of Kuala Lumpur
Mutual Funds, the country's biggest private pension plan.
"Now there is a question on whether decision making will
be political." Despite the government's controlling stake in
Tenaga, it has long been seen as professionally managed.
At the core of investors' concern is the question of
electricity tariffs. Tenaga desperately needs to raise prices
by 6%-8% to maintain earnings. Any move would, of
course, hit millions of Malaysians' pocketbooks and do little
to help the government's popularity. But analysts say
Tenaga's management had indicated in private briefings
early this year that it would push for an increase. That led a
number of brokerages to upgrade their earnings forecasts
for the company and call it a "buy."
Asked whether he will request a tariff increase, new
Chairman Jamaluddin told the Review: "We're ruling nothing
out. Our priority is protecting shareholder value." But in
early September, investors took their cue from Energy
Minister Leo Moggie, who said Tajudin hadn't requested a
tariff increase. Several analysts slashed their earnings
forecasts by 15%-20%, feeding the sell-off.
The need for higher tariffs is not new. A rate increase was
proposed in 1997, but was scrapped after the Asian Crisis
hit. In the year to August 31, 1999, Tenaga recorded net
profit of 773 million ringgit ($203 million) on more than 12
billion ringgit in sales, a strong turnaround from a 3.2 billion
ringgit loss the year before. But Tenaga also has more than
20 billion ringgit in debt, much of it denominated in foreign
The demands on the company's financial resources stretch
beyond interest payments. Under arrangements with eight
independent power producers, Tenaga is required to pay
by capacity, not usage. So even if supply outstrips
demand, Tenaga has to pay for full capacity--bills that
account for 35% of the company's overall costs.
Further pressure is on the horizon. December will bring the
expiry of an agreement with Petronas, the national oil
company, that was signed when oil prices were low. Under
the contract, Petronas supplies gas to Tenaga at almost half
the present market cost. A new contract factoring in current
oil prices would push Tenaga's costs up by at least 500
During his five years in office, Tajudin pulled Tenaga out of
the red by slashing costs, refinancing U.S.-dollar
borrowings in yen and cutting capital expenditures. He won
praise from analysts for plans to sell stakes in six generation
plants--plans Jamaluddin is expected to carry out.
Still, without a tariff increase, there is little the new chairman
can do to jump-start profits. "I suppose it's nice when
company shareholders care more for customers than
earnings," says Amar Gill of CLSA Global Emerging
Markets in Kuala Lumpur. "But it's not good business."