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Posted: 03 Jun 2011 06:16 PM PDT

BEIJING: The Chinese yuan's steady appreciation could come to an end after two or three years, and the central bank is more likely to use quantitative measures rather than interest rates to check inflation, a former adviser to the central bank said in remarks published yesterday.

Fang Gang, a government economist, was quoted in the Securities Times as predicting the Chinese economy faced no risk of a hard landing, adding that although economic growth rate was still at a reasonable level, it pace was moderating.

"In the past eight months, the central bank more often used quantitative tools, including central bank bills, reserve requirement ratio and credit quota limit, but it made less use of interest rate rises," Fan said.

Such a preference would likely continue, he said, since raising Chinese interest rates would widen the gap with US rates and lure more undesirable capital inflows.

Fan's comments came amid market talk that the central bank may raise interest rates as early as this weekend as annual inflation is expected to accelerate in May from 5.3% in April, which was near 32-month highs.

Fan said China's yuan had risen 5% in the past year, and considering an annual inflation rate of 4%, he said the real appreciation had reached 9%.

The semi-official newspaper paraphrased him as telling a forum in Hong Kong that he expected the yuan to stop rising after two to three years.

In the short term, however, economists expect the central bank to allow faster yuan appreciation to cool inflation, which is its top policy priority now.

China has raised interest rates four times and increased banks' reserve requirement ratio eight times since October. Such tightening steps have started to bite, as two surveys showed on Wednesday that Chinese factories expanded in May at their lowest pace in at least nine months. - Reuters

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Celcom sees higher profit

Posted: 03 Jun 2011 06:15 PM PDT

KUALA LUMPUR: Celcom Axiata Bhd expects to grow its profit after tax and minority interests (PATAMI) for the financial year ending Dec 31 (FY11) by at least RM200mil via new product launches, cost savings and smart spending initiatives.

Chief executive officer Datuk Seri Shazalli Ramly said the telecommunications company expected PATAMI to hit RM2bil in FY11 from RM1.8bil in FY10.

"If we can hit the right momentum from sales (of products) as well as cost savings and smart spending activities, we should achieve it," he said at Celcom's first-quarter results briefing yesterday.

Shazalli said Celcom typically launched five key products per quarter.

"This would translate into about 20 products per year. The products can be new or adjustments and improvements (to existing products)," he said.

"This (the products) will drive 80% of our sales," Shazalli added.

He also said Celcom was investing about RM1bil this year in capital expenditure on network modernisation, upgrades to its business intelligence solutions and improvements to its billings platform.

For its first quarter ended March 31, Celcom's revenue rose 2% to RM1.74bil compared with RM1.7bil in the previous corresponding period.

Earnings before interest, tax, depreciation and amortisation (EBITDA) grew 5% to RM811mil from RM773mil previously.

The increase in earnings marked the company's 20th consecutive quarter of growth.

PATAMI grew 13% to RM499mil, driven by continuous effective cost-control management.

Celcom's user base rose 9% to 11.3 million during the period. These additions were due to the company's acquisition drives in conjunction with its "Our Celcom, Our Sale" campaign and successful targeting of certain segments such as foreign workers, said Shazalli.

Average revenue per user (Arpu) for its postpaid customers increased to RM94 in the first quarter of 2011 compared with RM90 a year earlier, while prepaid Arpu dipped to RM37 from RM42 previously.

The telco also saw its number of broadband subscribers increase 38% to 876,000 in the first three months of 2011.

Shazalli said Celcom's performance in the first quarter was commendable, given that the period was often the "toughest" in a year.

"Seasonally, the first quarter is usually the least favourable because of the shorter number of days and the festive holidays (like Chinese New Year) where our dealers will take long breaks."

On the outlook for the second quarter, Shazalli said he expected it to be challenging.

"Earnings for this (second) quarter will be similar to that of the first. It won't be drastic. (Other) telcos will also ramp up their campaigns and advertising in the second quarter," he said.

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Finally, TNB re-energised

Posted: 03 Jun 2011 05:29 PM PDT

There is renewed interest from investors in view of the Government's decision to allow for an electricity tariff hike.

It's been a long time coming, but now, the table has turned for Tenaga Nasional Bhd (TNB).

The national power company is now back in the game with renewed interest from investors, following the long-awaited decision by the Government to raise the price of natural gas to the power sector and correspondingly allow for an electricity tariff hike.

To recap, the Government over the week announced a gas price hike to the power sector from RM10.70/mmbtu (million British thermal units) to RM13.70/mmbtu and an average electricity tariff hike of 7.12%, both of which took effect fromWednesday. The average tariff increase was composed of a 5.12% hike to reflect the new gas price and a 2% rise in base tariff for TNB to partly recover from the higher of cost of power supply since June 2006.

(The base tariff was originally due for revision in 2009, that is, three years after the last tariff review in 2006, but this had been deferred until now, even though the cost of electricity supply had been rising over the years.)

Another positive surprise announced in this latest round of electricity tariff review has been the re-introduction of a fuel cost pass-through (FCPT) mechanism, under which the fuel cost would be reviewed every six months and any changes due to variations in fuel prices be it for gas, coal or oil - would be passed through in the end-user tariff. This could certainly help ease TNB's burden of future rise in fuel costs.

Running out of gas

But more than just benefiting TNB and helping to alleviate the company's rising cost burden, the latest round of revisions in the prices of power and its related sources is widely seen as a constructive measure to address what TNB president and CEO Datuk Seri Che Khalib Mohamad Noh calls a "real" structural problem in the Malaysian electricity delivery system.

"We've been keeping our gas prices suppressed way below market prices for far too long that the price we have today is probably relevant 15 years ago, and as a result of our inaction in addressing the issue, there have been very few new investments in our country to develop new sources of energy," he tells StarBizWeek.

The market price of natural gas has already risen to around RM40/mmbtu currently, and that goes to show how severely under-priced the country's gas price to the power sector is, even with the recent revision in prices.

According to Che Khalib, the volume of gas made available to Malaysia has remained unchanged for the last 15 years at around 2,000 million cubic feet per day (mmcfd) even though demand has been steadily rising over the years and has exceeded the threshold at present. This, he says, is mainly due to the distorted gas price in the country.

"The sad part is, we have invested about RM30bil to develop gas-powered plants, which in total could generate about 12,000MW. But we cannot run them because we do not have enough gas. Based on our present gas power generation capacity, the volume we need is about 1,700 mmcfd," Che Khalib shares, pointing out that of the total volume of gas supplied to Malaysia, the power sector is entitled to 1,350 mmcfd.

However, during the gas curtailment period, TNB is only getting 850 mmcfd.

"People are just not putting in new investments into the sector because there is no incentive to do so; what we have at present are mainly investments made 30 years ago. In other words, we are using old infrastructure (which could break down anytime) to extract gas, and this has contributed to the inconsistency of the fuel supply in the country," he explains.

Addressing the problem

Nevertheless, with a clearer direction now from the Government that it will progressively realign the price of natural gas to the power sector in Malaysia, Che Khalib believes oil majors will begin to look at reinvesting in the sector aggressively.

The original plan put forth by the Performance Management and Delivery Unit, or Pemandu, under the Prime Minister's Department, is for the gas price to the power sector be raised at a fixed rate of RM3/mmbtu every six months until it becomes on par with international market price by 2015. The recent policy stance on gas and tariff adjustments reflects that Malaysia is on track with the proposal.

Such development bodes well for the industry, particularly with the establishment of the liquefied natural gas (LNG) terminal in Malacca. Slated to be ready by July 2012, with a capacity of 350 mmcfd, the terminal will cater to fully imported gas, and help alleviate a potential gas supply shortage in Peninsular Malaysia.

"If gas price in Malaysia was to continue at subsidised rates, the LNG terminal is going to be empty because no company would want to sell gas to us at such low rate when it can sell it at market rates, which are higher, elsewhere," Che Khalib says.

"We can buy from companies in the Middle East, but they are not going to sell to us based on love and affection. They are also businessmen. Any deal will be based on commercial terms," he quips.

Minimal impact?

Undoubtedly, though, the rise in electricity tariff will add to the inflationary pressure that the country is already facing now. But the impact of the recent electricity tariff hike on the country's inflation, according to economists, will likely be minimal.

April's consumer price index growth was at 3.2% year-on-year, driven mainly by rising food and fuel prices. The recent change in power tariff is expected to add only around 0.1 to 0.2 basis points to the gauge of inflationary pressure in the country.

"I think the people have to appreciate this: When the Government looks at tariff revision, the public at large has always been the prime concern, as evident in it making sure that at least 50% of the domestic consumers would not be affected every time a revision is made," Che Khalib says.

Since 1997, the rates for consumers falling into the so-called lifeline category, that is, those who consume less than 201 kilowatt-hour per month (kWh/month), have remained unchanged. This round, the Government has widened the band for consumption level that qualifies for exemption from tariff hike to 300kWh/month, so that at least 75% of total domestic consumers would not be affected.

As for industrial customers, Che Khalib reveals that only a handful, less than 300 of industrial and commercial consumers, are heavy users, with power accounting for more than 5% of their respective total operating costs. These power guzzlers, which are typically involved in heavy industries such as steel and cement and electrical and electronic companies, are still eligible for Special Industry Tariff to help minimise electricity cost.

The bulk of TNB's industrial and commercial consumers, about 90% of them, are light and moderate users, with electricity accounting for only less than 5% of their total operating costs.

Che Khalib comments: "For easy calculation, if the tariff increase is 10%, their total production costs will only increase by 0.5%, not even 1%.

"So, I don't see any justification for them to raise their product prices, when the impact on their total operating costs is so minimal," he argues, adding that he hopes all consumers in Malaysia will begin to conserve energy and move towards energy-efficiency for better allocation of resources.

For TNB, in general, all costs have gone up substantially. It's not only in terms of its fuel requirements, but also for other components, such as copper, aluminium and steel, which are used in its power transmission systems in the country.

It's only reasonable, therefore, for TNB to have its tariff rates adjusted to achieve a reasonable return to ensure the sustainability and viability of its business in providing reliable electricity supply for the country.

"The more we delay the price adjustments, the more we will compound the problem," Che Khalib says.

"It's better to have a small increase now so that the industry and consumers can have time to adjust, than to have to face a sudden, big and painful adjustment later," he adds.

The constant battle

Moving forward, fuel security and fuel price volatility are expected to be a constant challenge for utility companies like TNB.

According to the company's annual report for financial year ended Aug 31, 2010, TNB's total generation mix was made up of 53.1% gas and 34.1% coal.

Besides the continuous rise in the prices of fossil fuel (in TNB's case, coal) inflicting pain on the company's bottom line, TNB is also concerned about the availability of fuel supply.

For one, the increasingly frequent weather problems such as the recent flooding in Indonesia and Australia could continue to disrupt fuel supply, especially that of coal.

And with some countries turning away from nuclear power due to the increasingly negative perception towards the technology, global demand for fossil fuel is set to increase, as those countries return to the conventional way of generating electricity.

"Already, we have price, inclement weather and supply problems. The policy of not using nuclear power as adopted by some governments will further compound the existing problems," Che Khalib explains.

As for TNB, the key is to be as efficient as possible in managing its operations and to save costs.

The company is currently absorbing the bulk of the cost increases in its operations without passing it on to consumers. For example the increase in coal prices. The recently revised electricity tariff is still based on a coal price of US$85 per tonne, even though the actual coal price has already risen to around US$120 per tonne.

The reintroduction of FCPT mechanism could be a form of relief for TNB in the future. Such mechanism, which was once applied in Malaysia before 1980, is a common feature in many countries such as Singapore, Thailand, the Philippines, Japan, the United States and Europe and it is to minimise the impact of fuel price volatility on utility companies.

But the FCPT mechanism in Malaysia will only be effective for gas prices at the moment. Other fuels such as oil and coal have yet to be included in the scheme, so TNB will still have to absorb the difference in the fuel prices until the revision comes.

"We are lucky because we have some leftover (of coal supply) from last year's contract. That helps to cap our average coal price at US$110 per tonne for FY2011," Che Khalib says.

"But next year is going to be a very big challenge for TNB," he adds.

Power security

With energy security becoming an increasingly pressing issue for Malaysia, Che Khalib points out the urgency to formulate a new energy policy for the country.

"The last time we formulated an energy policy was almost 30 years ago. Since then, no one has actually looked at it again, even though world circumstances have changed and the power sector is facing new challenges now," Che Khalib says, adding that he is currently involved in the process of formulating a new energy policy for Malaysia.

"In many industrialised countries, energy policy is second after national security," he adds.

Last year, the Energy Commission warned that Peninsular Malaysia could face a power shortage by 2015, with reserve margin falling below 20% from the present 42%. This was based on an annual electricity demand growth of 5% to 8% to correspond with the country's targeted economic growth rate of 6% per year for the next five years, and assuming there was no new additional capacity.

The other pertinent issue that requires urgent decision, according to Che Khalib, is the first-generation power-purchasing agreements (PPAs) that will be expiring in 2016. These PPAs involve independent power producers (IPPs) like YTL Power International Bhd, Malakoff Corp Bhd, Tanjong plc, and Genting Sanyen Power Sdn Bhd. They collectively account for around 4,115MW of the generation capacity in Malaysia.

The negotiation is currently led by the Ministry of Energy, Green Technology and Water, with the assistance of TNB.

"We definitely need to address this issue urgently and see how we could do better moving forward," Che Khalib says, adding that he thinks the industry should be open to inviting new players who could be more competitive and efficient in terms of their generation capacity and pricing.

As for seeking alternative sources, such as renewables and nuclear, to generate electricity, Che Khalib thinks that the pursuit of renewable energy is no longer a choice, but a necessity.

Over the week, the Government has announced that it would begin collection of an additional 1% from the monthly electricity bill of users of more than 300kWh from Sept 1 this year to be channelled to the Renewable Energy Fund. The fund, managed by Sustainable Energy Development Authority under the ministry, will be used for the promotion and development of renewable energy projects and initiatives in the country.

Under the National Renewable Energy Policy and Action Plan, the goal is to increase renewable sources' contribution to electricity generation mix from less than 1% currently to 5.5% by 2015.

As for the pursuit of nuclear energy, Che Khalib says, there's probably still time for Malaysia to decide on that. Nevertheless, he thinks that the country should waste no time equipping its people with the necessary knowledge and skills to develop the technology.

"Should we decide to pursue the technology two three years down the road, we will be ready and equipped to do so," he explains, pointing out that nuclear plants take many years to build.

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Kredit: www.thestar.com.my

Jumaat, 3 Jun 2011

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