Malaysia's Increase In Piped-Gas Tariff For 2h16 Positive For Petronas: Fitch

KUALA LUMPUR, July 1 (Bernama) -- Malaysia's increase in the piped-gas tariff for the second half of 2016 (2H16) would be positive for Malaysian oil and gas producer Petroliam Nasional Bhd's (Petronas) cash generation, while the impact on power utility Tenaga Nasional Bhd (TNB) is likely to be neutral, says Fitch Ratings. In a statement, Fitch Ratings said in line with its subsidy rationalisation programme, the government would increase the piped-gas tariff in 2H16 to the power sector to US$4.92 (RM19.7) per million British thermal unit (mmbtu) from US$4.54 (RM18.2)/mmbtu in 1H16, and commercial and industrial users to US$6.76 (RM27.05)/mmbtu (1H16: RM25.53/mmbtu) in Peninsular Malaysia. (US$1 = RM4) It said Petronas would benefit from a more uniform application of the reforms addressing gas pricing in Malaysia. "Petronas's foregone gas sales revenue, as a result of regulated prices, from the power and non-power sector is significant, averaging around 20 per cent of Fitch-adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) in the past three years. "Since the Malaysian government restarted the Fuel Cost Pass Through (FCPT) mechanism in January 2014, Petronas's piped-gas tariff to the power sector has increased by about 44 per cent over four revisions. "Its gas tariff to commercial and industrial customers also increased about 68 per cent over five revisions," said the rating agency. Since July 2015, the price revisions under the FCPT mechanism have taken place consistently once every six months. "Petronas continues to maintain a strong standalone credit profile, which we assesses at 'AA-'. "However, the rating headroom for the company has shrunk due to pressure on operating cash generation from sustained low oil prices," it said. Petronas has cut its dividend payout, but with oil prices likely to recover only slowly, operating cash flow is likely to continue being under pressure. Fitch also said it does not expect the higher gas prices to have an adverse impact on TNB's credit profile. "The government allows TNB to adjust its regulated tariffs every six months to reflect the difference between actual fuel costs and the amounts stipulated in the FCPT framework, subject to its approval. "Moreover, TNB's over-recovery of fuel costs in 1H16 -- driven by improved utilisation of coal-fired plants, lower purchases of liquefied natural gas (LNG) as a result, and lower coal and LNG costs -- more than offsets the announced increase in the piped-gas tariff to the power sector," it said. Consequently, Fitch said the regulator would maintain rebates and blended effective electricity tariffs in Peninsular Malaysia at RM1.52/kWh and 37.01 sen/kWh, respectively, for 2H16. Fitch also assesses TNB's financial profile to be stronger than its standalone rating of 'BBB' in the absence of any major debt-funded acquisitions. However, a rating upgrade would be contingent on a record of the government consistently implementing the FCPT mechanism, especially in an environment of rising fuel costs, said the rating agency. --BERNAMA