Friday, Jan 28, 2005
MARC has upgraded the ratings of ARL Tenaga Sdn Bhd’s (ARLT) RM177.0 million Bai’ Bithaman Ajil Islamic Secured Serial Bonds (ABBA) and RM50.0 million Islamic Medium-Term Notes (IMTN) to A+ID (A Plus, Islamic Debt). The upgrade is backed by ARLT’s commendable ability to service its obligation under the ABBA and IMTN in a timely manner backed by the stable and predictable cash flow of the company; the presence of a long-term fuel supply contract which eliminates supply disruption risk; and an issue structure which promotes the scheduled amortization of the Islamic debt. These strengths are moderated by the declining but still substantial debt level and limited financial flexibility.
ARLT owns and operates a 50 MW medium fuel oil power plant in Melawa, Sabah. The power plant’s total generating capacity and energy production are sold to Sabah Electricity Sdn Bhd (SESB) pursuant to a 21-year Power Purchase Agreement (PPA) commencing on 31 October 1995. SESB, an 80%-owned subsidiary of Tenaga Nasional Berhad, has assumed the functions of the previous Sabah Electricity Board or Lembaga Letrik Sabah.
The PPA has been structured to provide a stable and predictable revenue stream through a minimum payment provision known as the capacity payment (CP), which is dependent on the plant’s capacity and availability. For FY2004, CP contributed 60.2% of ARLT’s total revenue, allowing the company to meet its fixed operating costs and service debts even when the plant is not dispatched by SESB.
Medium fuel oil for the plant’s operation is supplied by PETRONAS Dagangan Bhd under a 15-year contract. The risk of insufficient fuel supply is mitigated by the availability of fuel storage facilities at the site and the presence of other oil companies operating within the vicinity. Any increases in fuel prices can be passed to SESB, through adjustments to the fuel component of energy payments (EPs) under the PPA, thereby preserving the company’s operating margin and insulating it from the volatility of oil prices. Nevertheless, the pass-through mechanism is only applicable if ARLT’s operational heat rate is equal to or less than the heat rate nominated in the PPA, which is 8,636 mmBtu; which ALRT, on average, has managed to achieve since commencing operations.
For FY2004, ARLT’s revenue rose by 7.3% from the previous fiscal year largely due to the increase in demand for electricity. However, a disproportionate increase in operating cost by 18.2% arising mainly from higher HFO fuel expenses of RM25.4 million (FY2003: RM20.6 million), however, pared down the operating profit margin to 28.0% from 32.0% previously. Due to the peaking nature of the plant, a higher consumption rate of fuel is required to start the engines when SESB dispatches electricity from the plant, which will cause the heat rate, at times, to be higher than the nominated heat rate in the PPA. Hence, ARLT was unable to pass through these extra fuel costs to SESB. Nonetheless, ARLT’s commendable operating margin remains adequate to absorb the additional cost.
As at November 2004, more than half of the RM177 million ABBA has been redeemed, hence the improvement in the debt leverage from 6.1 times in FY2003 to 4.1 times; despite the additional RM28 million drawndown from the new IMTN Facility in July 2004.
ARLT owns and operates a 50 MW medium fuel oil power plant in Melawa, Sabah. The power plant’s total generating capacity and energy production are sold to Sabah Electricity Sdn Bhd (SESB) pursuant to a 21-year Power Purchase Agreement (PPA) commencing on 31 October 1995. SESB, an 80%-owned subsidiary of Tenaga Nasional Berhad, has assumed the functions of the previous Sabah Electricity Board or Lembaga Letrik Sabah.
The PPA has been structured to provide a stable and predictable revenue stream through a minimum payment provision known as the capacity payment (CP), which is dependent on the plant’s capacity and availability. For FY2004, CP contributed 60.2% of ARLT’s total revenue, allowing the company to meet its fixed operating costs and service debts even when the plant is not dispatched by SESB.
Medium fuel oil for the plant’s operation is supplied by PETRONAS Dagangan Bhd under a 15-year contract. The risk of insufficient fuel supply is mitigated by the availability of fuel storage facilities at the site and the presence of other oil companies operating within the vicinity. Any increases in fuel prices can be passed to SESB, through adjustments to the fuel component of energy payments (EPs) under the PPA, thereby preserving the company’s operating margin and insulating it from the volatility of oil prices. Nevertheless, the pass-through mechanism is only applicable if ARLT’s operational heat rate is equal to or less than the heat rate nominated in the PPA, which is 8,636 mmBtu; which ALRT, on average, has managed to achieve since commencing operations.
For FY2004, ARLT’s revenue rose by 7.3% from the previous fiscal year largely due to the increase in demand for electricity. However, a disproportionate increase in operating cost by 18.2% arising mainly from higher HFO fuel expenses of RM25.4 million (FY2003: RM20.6 million), however, pared down the operating profit margin to 28.0% from 32.0% previously. Due to the peaking nature of the plant, a higher consumption rate of fuel is required to start the engines when SESB dispatches electricity from the plant, which will cause the heat rate, at times, to be higher than the nominated heat rate in the PPA. Hence, ARLT was unable to pass through these extra fuel costs to SESB. Nonetheless, ARLT’s commendable operating margin remains adequate to absorb the additional cost.
As at November 2004, more than half of the RM177 million ABBA has been redeemed, hence the improvement in the debt leverage from 6.1 times in FY2003 to 4.1 times; despite the additional RM28 million drawndown from the new IMTN Facility in July 2004.