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TNB seeks to renegotiate power contracts

TNB seeks to renegotiate power contracts

Malaysia`s national power utility Tenaga Nasional Bhd (TNB) is seeking to renegotiate agreements with independent power producers. The utility says that it is struggling to meet payments and is seeking a deferment and discount approach as a way out.

TNB executive chairman Ahmad Tajuddin Ali has stated that in a worst case scenario, TNB would have to default on payments. He has called on the IPPs to consider the economic climate and to take a long term view of the situation. The Malaysian government is unlikely to intervene.

Under the current agreements, TNB makes fortnightly payments to the six IPPs and is charged interest for any delay. But the utility receives payments from its customers after 45 days, and an increase in electricity tariffs is highly unlikely. Tajuddin has stated that the company wants to defer some payments and negotiate a discount on others to ease the cash flow problems.

The IPPs involved include Powertex, YTL Power, Malakoff, PD Power and Genting Sanyen. Their cause was given a boost last month when US credit rating agency Standard and Poor`s said that TNB has adequate cash to make its payments over the near term.

TNB pays RM3.5bn ($875m) per year to the IPPs for their power supply, some of it in excess to the utility`s needs. In effect, the payments currently account for half of TNB`s operating budget for the supply of one third of its power. Since the region`s economic downturn, consumption has fallen and the country now has excess capacity.

The Indonesian government has encouraged state power utility PLN to renegotiate rather than terminate its power contracts. It is concerned that Indonesia`s credibility would be damaged if contracts were terminated, and believes that private companies are willing to renegotiate for the sake of mutual interest.

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