Higher coal prices could hurt Tenaga's profit (Published: 2011/01/05) (extracted from www.btimes.com.my)

Utility giant, Tenaga Nasional Bhd's share value has been dampened on concerns that the rising coal price, could hurt earnings, says AmResearch. Coal accounts for 40 per cent of Tenaga's power generation source.

At 11.44am, Tenaga shares were down four sen to RM6.68 as the massive flood situation in Australia, is disrupting coal supply from that country and partly contributing to the rise in thermal coal prices.

AmResearch in its company report also said based on the current price that is hovering above US$100 per tonne and the US/RM exchange rate, Tenaga's net profit for financial years 2011 to 2013, could drop by between 28-29 per cent.

Tenaga purchased 17 per cent of its annual coal requirement of 18 million tonnes in financial year 2010 from Australia, 71 per cent from Indonesia and 11 per cent from South Africa, said the research house.


Coal accounted for 48 per cent of Tenaga's 2010 financial year fuel cost. Most of the coal supply is purchased under term contracts with prices being negotiated annually based on current rates.

Newcastle coal spot prices have risen by 18 per cent over the past month to US$126 a tonne currently. This is 26 per cent of AmResearch's coal assumption of US$100 per tonne for the 2011-2013 financial years.

"We estimate that a US$10 increase per tonne in coal costs above our average coal cost projection, could shave Tenaga's 2011 financial net profit by 18 per cent.

"But we also note that the US dollar has appreciated against the ringgit by three per cent to RM3.06 a dollar currently. This could partly offset the impact of higher fuel costs," AMResearch said. -- Bernama

OMG!!!,  power plant's production costs is expected to increase. MFCB is operating its coal fired power plant in China and its diesel-fuelled power plant in Tawau. The increase in coal and diesel prices may erode its bottom line. But I shall hold it for the time being.