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Message: <blockquote data-quote="Iqlima" data-source="post: 185979" data-attributes="member: 174">Yes, the contract biased.TNB have to take regardless demand.Quote " I hope one day, the good old Dr Ani Arope, the former chairman and chief executive of TNB who was said to have <a href="http://www.pathfinder.com/asiaweek/96/0712/biz4.html" target="_blank">resisted signing up the IPPs</a> but was unceremoniously removed after a major multi-states blackout in the early 1990s, will come out and sing. "17 August 1998The Edge  My Say - [SIZE=+1]A case for renegotiation[/SIZE] By Azam Aris.   On Aug 3, 1996, Peninsular Malaysia suffered a total power blackout for almost 14 hours. Tenaga Nasional Bhd, the public utility responsible for power generation, transmission and distribution, bore the brunt of the blame for the outage.   Tenaga got tremendous bashing from the government, the public and the business community. Tenaga, or TNB, was called "Total National Blackout" by many angry customers.   While the bashing continued, Tenaga's then executive chairman Tan Sri Ani Arope, in an interview Bernama, warned of an even bigger crisis - that this technical blackout could well turn into a financial blackout.   "I hope that the powers that be and all those involved in the healthy development of the power industry would look into the finances of Tenaga and see to it that the company does not become bankrupt," he said.   How can a company like Tenaga go bankrupt? In 1996, operating profit was RM2.3 billion and in 1997 it was RM3.1 billion. But, for a big utility like Tenaga, profit alone does not count. Ani Arope was concerned with the rising capital expenditure needed to improve the country's energy and power infrastructure and more so the power purchase agreements (PPAs) with the IPPs - both of which will, in the longer term, eat into Tenaga's profit and cashflow position.   Under the PPA, IPPs were given guaranteed earnings for over 20 years for their entire power production irrespective of demand. In short, whatever the IPPs generate, Tenaga has to buy regardless of whether it requires the electricity.   "If Tenaga were to go under financially, I think it is going to create a national financial blackout. The IPPs could only survive if we are healthy. If Tenaga defaulted on one payment, it would create a financial domino effect that would be real bad," Ani had said.   Two years on, Monday, Aug 11, current TNB executive chairman Datuk Ahmad Tajuddin Ali reminded newspaper editors, at a briefing, of the same scenario. The only difference is that, due to the economic upheaval and currency turmoil, the financial blackout for Tenaga could come sooner rather than later.   At the operating level, Tenaga will always show profit but its pre-tax profit of RM1.1 billion in 1996 had dwindled to RM144 million in 1997 after taking into account a book foreign exchange translation loss of RM1.3 billion against its foreign loans of which the bulk is in US dollars. The ringgit was at RM2.90.   Based on an exchange rate of RM4.10 to US$1, forex loss is estimated at RM4.1 billion, putting Tenaga's expected pre-tax loss at RM3.2 billion this year. At the same time, Tenaga had to pay RM3.4 billion to the IPPs based on their current power production capacity.   Even looking at this bleak figure, Tajuddin assured users that as a national company which places strong emphasis on national interest, it would not seek higher tariff at least until the end of 1999. During this recession, Tenaga will continue to provide power at competitive rates for the various sectors of the economy to help them overcome some of their difficulties. Tenaga is also committed to providing and expanding power distribution to the rural areas.   But what about the IPPs? Should they continue to protect their guaranteed income stream - even though some of their production capacity are not needed as demand had fallen with the slumping economy? Shouldn't the IPPs also be patriotic and contribute to the course of economic recovery? And why must Tenaga bear the burden alone?   Penjanabebas, the association representing the five IPPs, says it is willing to consider Tenaga's plight and discuss a mutually beneficial solution but it also reminded Tenaga that this would have to be done without renegotiating the terms of the existing PPAs. But are changes possible without the PPAs being renegotiated?   The government has given an assurance that contracts will be honoured in this country and past PPAs are not open for renegotiation, but this does not prevent the IPPs from voluntarily entering into a renegotiation with Tenaga.   The IPPs must understand that these are difficult times. No one had expected the impact of the regional economic turmoil to be so extensive and that the economy is unlikely to recover fast. Tenaga is in a negative cash position while all the IPPS are in a net cash position.   Tenaga is not asking for a radical change in the PPAs but for the IPPs to show some understanding in the name of national interest. Tajuddin had asked for flexibility in the payment period and perhaps some price discounts.   Few people know that Tenaga has to pay the IPPs weekly or fortnightly. Interest will be charged on late payments. A longer payment period will ease Tenaga's cashflow problem as it bills its customers on a monthly basis. In fact, Tenaga also faces late payment problems as customers have up to 60 days to pay before electricity supply is actually cut.   The IPPs, too, will have their own sets of problems and loans to pay, but certainly it will be wise for them to exercise flexibility in their discussions with Tenaga. It is not enough to say they are willing to listen but at the same time stress the point that the PPAs are not open for renegotiation.   All across Southeast Asia, governments, international institutions, banks and companies are trying to find amicable ways to solve their financial problems. Many banks, for example, are willing to settle for lesser repayment for every dollar they had lent to ensure that both the financier and borrower survive the crisis.   The IPPs must do their part. Listening alone is not enough. They must show flexibility if there is to be a win-win situation for all players in the power industry.   Azam Aris is associate editor of The Edge.</blockquote>

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