TNB to undergo internal restructuring ahead of electricity reforms

by MARK RAO/ pic by BLOOMBERG

TENAGA Nasional Bhd (TNB) plans to place its domestic power generation and electricity retail businesses under the purview of newly incorporated wholly owned subsidiaries to prepare for pending reforms in Malaysia’s electricity market.

The exercise will involve the transfer of the assets, liabilities and business undertakings of both segments to the new companies via share and asset purchase agreements.

The country’s largest power utility said this is part of a proposed internal restructuring to reorganise its domestic power generation and electricity retail businesses under new holding companies.

“Each business entity shall be under the purview of a separate board and management team,” TNB told Bursa Malaysia on Monday.

“This is in line with TNB’s strategic transformation plan, ‘Reimagining TNB’, which aims to prepare TNB for the upcoming reforms in the electricity supply industry in Malaysia.”

It was reported earlier this month that the Malaysian government is considering opening up its electricity retail market to allow new energy suppliers to come into the domestic market, which could see the introduction of a wholesale electricity market.

This will allow consumers to either buy electricity from TNB at a regulated tariff or from the wholesale electricity market, similar to what Singapore does via its Open Electricity Market.

“The proposed internal reorganisation is expected to allow TNB to place itself in an advantageous position to compete ahead of the expected market changes to the electricity supply industry in Malaysia,” TNB said.

The separation of regulated and major unregulated businesses through the creation of (the two companies) provides the shareholders of TNB with greater transparency over the business operations and financial performance of each subsidiary, the company added.

Under the proposed restructuring, domestic power generation and electricity retail will operate as standalone business entities under the purview of a separate board and management team.

This is geared at improving operational efficiency as both businesses have different objectives and strategies, while allowing each entity to raise capital directly as opposed to being limited to capital allocation by the group, TNB noted.

It said the proposed consideration for the assets and liabilities of its domestic power generation business will be based on its net carrying value on the date of the transfer.

The net carrying value of the assets and liabilities for this segment amounted to RM12.14 billion on Dec 31, 2018.

This includes 100% stakes in Integrax Bhd, TNB Pasir Gudang Energy Sdn Bhd, TNB Connaught Bridge Sdn Bhd, TNB Manjung Five Sdn Bhd, TNB Janamanjung Sdn Bhd, TNB Prai Sdn Bhd, TNB Sepang Solar Sdn Bhd, TNB Renewables Sdn Bhd and TNB Repair and Maintenance Sdn Bhd.

TNB will also transfer its respective interests in Kapar Energy Ventures Sdn Bhd, Southern Power Generation Sdn Bhd and Jimah East Power Sdn Bhd to the new holding company.

TNB’s two hydropower plants in Ulu Jelai and Hulu Terengganu will be transferred to the new company at a later date to avail the latter of financial benefits, which may not apply if the transfers were undertaken immediately. Upon completion of the transfer, the newly incorporated company will own, manage and operate TNB’s domestic power plants, as well as its renewable energy generation, power plant operation, and maintenance and dry bulk terminal operations businesses.

For the electricity retail business, TNB will transfer its 100% stakes in TNBX Sdn Bhd and GSPARX Sdn Bhd, as well as other assets, liabilities and business undertakings related to the retail business to a new holding company.

The net carrying value for these assets and liabilities amounted to RM1.84 billion on Dec 31, 2018.

Following the completion of the transfers which are inter-conditional, TNB’s principal activities will be operating the high voltage national grid and distributing electricity to customers, international power generation, and providing corporate and shared services to the two new holding companies.

The proposed internal reorganisation is subject to shareholders’ approval, the High Court sanction, consent from TNB’s creditors and financiers, and approval from the Energy, Science, Technology, Environment and Climate Change Ministry, Energy Commission and the Finance Ministry.

Barring unforeseen circumstances, the restructuring is expected to be completed by the third quarter of next year, TNB stated.