Tuesday, November 8, 2011

Moody's maintains Baa1 rating for Tenaga

KUALA LUMPUR (Nov 8): Moody's Investors Service has maintained its Baa1 rating with a stable outlook for TENAGA NASIONAL BHD [], as the shortage in gas -- the key component for its generation of electricity -- continues.

In a statement Nov 8, Moody's said since 2Q11, Tenaga had been burning oil and distillates, which cost about five times more than gas, to replace the gas shortfall and generate its required level of electricity.

Alvin Tan, a Moody's analyst said the rating agency was maintaining its current rating and outlook because it expects timely intervention by the Malaysian government, the largest shareholder of both Tenaga and its gas supplier, Petroliam Nasional Bhd.

Tan was speaking on the release of a Moody's special comment on the impact of the shortage on Tenaga.

The report entitled 'Tenaga Burns Oil -- And Cash -- As Gas Shortages Continue' was authored by Tan and Ivy Poon, a Moody's Associate Analyst.

"So far, Tenaga has absorbed the additional burden within its rating's financial parameters, which still have some headroom, but a prolonged imbalance in Malaysia's power sector and a lack of supportive measures from the government to relieve the burden could weigh on these metrics, and put pressure on the rating," said Tan.

In addition to continued governmental support, Moody's rating and stable outlook for Tenaga assume that (1) the gas shortage will diminish over the near term as new sources of supply become available; (2) the government will decide on an appropriate cost-sharing mechanism over the next 6-8 months to compensate Tenaga for its added costs; and (3) the negative impact on Tenaga's financial profile of having to use more-expensive oil and distillates will be temporary.

Tan said the shortage had been caused by an increased number of planned and unplanned maintenance outages at Petronas facilities and the shutdown of one of its gas plants since December 2010 due to a fire.

Tenaga, approximately 84.08% directly and indirectly owned by the Malaysian government, is the only vertically-integrated electric utility in the country.

With an installed capacity of 21,817MW as of August 2011, Tenaga accounts for approximately 47.4% of electricity generation in Peninsular Malaysia.

It is also the monopoly operator for the transmission and distribution of electricity in the country.

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