TNB’s financial strength benefits all

by MOHD AZLAN JAAFAR / pic Muhd Amin Naharul

TENAGA Nasional Bhd (TNB) is one of the most important companies in the country. Beginning with the establishment of the Central Electricity Board (CEB) on Sept 1, 1949, and the responsibility of developing the national grid in 1953 to the whole of Peninsular Malaysia before independence.

The need for a more comprehensive agency, reflecting greater responsibility, saw the CEB converted to the National Electricity Board (LLN) in 1965, demonstrating the importance of energy supply as a crucial component in national development.

The most dramatic transformation to the electricity generation sector saw the introduction of the Electricity Supply Act 1990 and the privatisation of LLN to TNB, thus making the company privately owned and listed on Bursa Malaysia.

TNB’s listing in 1992 made the utility company one of the most valuable counters and it remains among the companies with the largest market capitalisation in Malaysia. 

Today, TNB has a market capitalisation of RM48.1 billion and is one of the leading “blue chip” counters among investors.

To date, with approximately 9.6 million customers in Peninsular Malaysia, TNB’s objective remains “Keeping the lights on”. Its main success, despite rising operating and fuel costs, is being able to maintain one of the lowest tariff rates in the region and the world. In fact, the capacity and distribution of continuous electricity supply based on international standards is on par with developed countries.

The national utility company’s capability is assisted by 35,000 staff and 4,500 vendors who constantly ensure that the electricity supply is uninterrupted.

Malaysia’s ability to develop and record rapid growth is also attributed to TNB’s ability to ensure continuous supply, one of the prerequisites set by foreign investors.

The Importance of TNB to the Community

TNB’s role goes beyond just being a supplier of electricity to more than 25 million people in Peninsular Malaysia, comprising 9.6 million customers.

The successes and failures of TNB have had a huge impact on many stakeholders due to its strategic importance to the country.

The main priority to ensure TNB’s success is the payment of dividends from profits that benefit Malaysians, due to the 24% stake in the utility owned by sovereign wealth fund Khazanah Nasional Bhd.

The Employees Provident Fund (EPF), which has 14.89 million members as of February this year, owns 808 million shares in TNB or 14.12% based on data on TNB’s corporate website. A dividend payment of 50 sen equals a return of RM404 million to the EPF, which is eventually channelled back to its members in the form of annual dividends.

The Amanah Saham Bumiputera (ASB) scheme under Permodalan Nasional Bhd (PNB), the largest fund manager in the country, owns 557 million shares or a 9.7% stake in TNB and has received dividends worth billions of ringgit since ASB’s first investment — benefitting the current 10.2 million members of the scheme. 

Other major shareholders with public interest are the Retirement Fund (Inc), PNB, Amanah Saham Malaysia (ASM) 2, ASM and Social Security Organisation or Socso.

For its financial year 2021 (FY21), the energy company paid an overall dividend of 40 sen per share. The final dividend for FY21 is 18 sen per share, involving dividend payment of RM1.03 billion. The total dividend paid last year was about RM2.28 billion.

All these dividend returns will indirectly go back to various unit trust holders and EPF members through dividends.

In a broader scope, TNB’s existence ensures ecosystem development in the power generation sector. This year alone, the company has allocated RM11.8 billion for capital expenditure, one of the largest business reinvestment in the country.

The reinvestment is to ensure electricity supply to the whole country is not affected, especially in the national grid maintenance grid and nationwide supply system.

It is estimated that there are more than 420 substations connected with about 21,000 “circuit kilometres” of cables and lines both underground and above. The management and maintenance of this mega infrastructure requires a large expenditure to ensure the transmission of electricity from Johor to Perlis, as well as Kelantan, Terengganu and Pahang.

TNB’s success not only ensures the careers and future of its 35,000 employees, but also helps 4,500 vendors who rely on the energy company as a source of income.

The revenue and contracts distributed by TNB to thousands of vendors generate thousands of jobs and encourage the use of energy, especially in the fields of engineering and electricity.

Ensuring sustainability

Fuel prices put pressure on TNB’s electricity generation, as well as on all sectors dependent on fuel — namely gas, oil and coal.

TNB uses coal and gas to generate more than 80% of the electricity generated. The increase in the price of coal to US$200 (RM846) per tonne from about US$50 per tonne in mid-2020 puts pressure on its operations and revenue. At the end of May, the price of coal continued to soar to reach US$434 per tonne.

In Malaysia, the implementation of the Imbalance Cost Pass-Through (ICPT) mechanism helps TNB to be viable and able to coordinate the effects of rising fuel prices and electricity generation, as well as to ensure no disruption to generation operations.

Through the ICPT, if there is a reduction in fuel and generation costs, the savings are returned to the people as a rebate but if otherwise, the excess cost will be channeled to the people as an ICPT surcharge. 

ICPT enables TNB to adjust prices flexibly, contribute to development and reinvestment, as well as build a competitive and efficient industry. After its introduction under the Incentive-Based Regulation, the ICPT provided rebates to consumers amounting to RM8.6 billion and surcharges of RM5.3 billion between 2015 and 2022. 

The surcharge to cover the increase in fuel costs alone amounted to RM1.67 billion under the ICPT for the first six months of this year. A surcharge of 3.7 sen/kWh was imposed on TNB’s commercial and industrial consumers under the ICPT mechanism to cover the increase in fuel prices amounting to RM1.67 billion from July to December 2021.

The impact of rising fuel costs was seen in TNB’s financial report for the first quarter ended March 31, 2022 (1Q22), where net profit declined 6.84% to RM893.1 million from RM958.7 million a year ago. Operating costs jumped 46.9% to RM13.43 billion from RM9.15 billion previously, while receivables rose to RM14.1 billion for the 1Q22 from RM10.5 billion in the 4Q21.

The ICPT helps TNB provide a rebate when there is a drop in fuel prices and impose a surcharge when there is an increase in the costs of materials used to drive power plants nationwide.

TNB’s financial strength benefits Malaysia tremendously from consumers to vendors, fund managers and finally, the most important stakeholders — the people as a whole.