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The recent coal export ban by Indonesia could lead to higher coal prices as Tenaga Nasional Bhd (TNB) is relying more on the spot market to secure supply, said CGS CIMB on Tuesday (Jan 11).
“We gather TNB procures around 60% of its coal supply from Indonesia, followed by Australia, Russia and South Africa,” CGS CIMB said in a Tuesday note.
Citing TNB’s management, the research house said there is adequate supply for the coal plants’ operations, as they need 30 days of coal inventory under the power purchase agreement (PPA).
“The group also has the flexibility of dispatching more gas power plants to fulfill the electricity demand, in view of higher coal plant generation cost and coal export ban,” it said.
Meanwhile, CGS CIMB said TNB welcomes the introduction of carbon pricing, which is essential to prepare industry players for the more stringent implementation of carbon control mechanisms globally and to ensure the country meets the sustainable development agenda.
“In our view, the carbon pricing will likely be earnings neutral to fossil fuel power generators as the additional cost will likely be passed through,” said CGS CIMB.
CGS CIMB also noted that TNB said the delay of incentive-based regulation (IBR) regulatory period 3 (RP3, 2022-24) was due to the government’s shift in priority to the recent flood crisis.
“Hence, the government decided to continue with the current parameters of IBR RP2 extension and imbalance cost pass-through mechanism effective from Jan 1, 2022 until further notice,” CGS CIMB said.
To recap, it said the regulated return for RP2 extension (2021) was 7.3%, with an expected closing regulated asset base of RM62.4 billion.
“We gather the RP3 paper was ready and waiting for approval from the Cabinet, which will be relooked at again after the flood situation has eased; the higher fuel costs for the period of July-December 2021 will likely be borne by the government and Kumpulan Wang Industri Elektrik fund,” it added.
According to CGS CIMB, in the nine months ended Sept 30, 2021, TNB returned about RM266 million of other regulatory adjustments due to higher average selling price from the price cap entity.
The research house has an add call for the stock with a target price of RM13.60.
At noon break, TNB slipped two sen or 0.22% to RM9.08, valuing the group at RM52.11 billion.