Wednesday, Jan 02, 2002
ARL Tenaga Sdn Bhd’s (ARLT) AID rating affirmation reflects the stable and predictable cash flow which is expected to cover the company’s debt servicing requirements comfortably; the presence of a long-term fuel supply contract which eliminates supply disruption risk; the adoption of proven engine design and well-developed operating methods for its plant 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 PPA. SESB, an 80%-owned subsidiary of Tenaga Nasional Berhad, has assumed the functions of the previous Sabah Electricity Board.
The PPA has been structured to provide a stable and predictable revenue stream through a minimum payment provision [capacity payment], dependent on plant capacity and availability. The capacity payment (CP) contributes 69% on average of ARLT’s total revenue, allowing the company to meet its fixed operating costs and service debts even when the plant is not dispatched. Fiscal year 2001 saw an improvement in the plant’s net dependable capacity from 45.9 MW to 47.5 MW [Equivalent availability factor of 87%]. CPs, consequently, edged upwards to RM3.2 million per month on average from RM3.0 million previously.
Energy payments (EPs), in respect of the sale of electrical energy, are sufficient to cover fuel and variable operating costs. The average monthly EPs shrank to RM1.5 million in FY2001 (FY2000 : RM3.4 million), reflecting the effect of the fewer number of dispatches made by SESB due to the rise in fuel price. ARLT’s aggregate revenue, consequently, dropped 34% to RM51.2 million in the recent fiscal year.
The Sulzer ZAV40 diesel engines employed at the plant are backed by tested and proven technology and substantial operating experience worldwide. Operation and maintenance of the facility is carried out by ARL Janakuasa Letrik Sdn Bhd; another wholly owned subsidiary of the parent company, ARL Associates Sdn Bhd.
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 are passed to SESB, through adjustments to the fuel component of EPs under the PPA, thereby preserving the company’s operating margin.
The redemption of the BaIDs on a quarterly basis, reduces refinancing risk at the maturity of the facility. By the fifth year of the facility, over 50% of the debt securities will have been redeemed. As at September 2001, a total value of RM25.0 million had been redeemed as scheduled. ARLT’s minimum and average debt service coverage ratio (after dividend payments) over the remaining nine-year period of the facility is projected at 2.06 times and 4.66 times respectively (company’s base case projected cash flow).
An increase in share capital in FY2001 helped to moderate the increase in debt leverage to 6.4 times (FY2000 : 5.7 x) following the issuance of the BaIDS in that fiscal year. With the scheduled amortization of the Islamic debt and no major capital expenditure requirement, the company’s capital structure is expected to gradually strengthen in the intermediate term.
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 PPA. SESB, an 80%-owned subsidiary of Tenaga Nasional Berhad, has assumed the functions of the previous Sabah Electricity Board.
The PPA has been structured to provide a stable and predictable revenue stream through a minimum payment provision [capacity payment], dependent on plant capacity and availability. The capacity payment (CP) contributes 69% on average of ARLT’s total revenue, allowing the company to meet its fixed operating costs and service debts even when the plant is not dispatched. Fiscal year 2001 saw an improvement in the plant’s net dependable capacity from 45.9 MW to 47.5 MW [Equivalent availability factor of 87%]. CPs, consequently, edged upwards to RM3.2 million per month on average from RM3.0 million previously.
Energy payments (EPs), in respect of the sale of electrical energy, are sufficient to cover fuel and variable operating costs. The average monthly EPs shrank to RM1.5 million in FY2001 (FY2000 : RM3.4 million), reflecting the effect of the fewer number of dispatches made by SESB due to the rise in fuel price. ARLT’s aggregate revenue, consequently, dropped 34% to RM51.2 million in the recent fiscal year.
The Sulzer ZAV40 diesel engines employed at the plant are backed by tested and proven technology and substantial operating experience worldwide. Operation and maintenance of the facility is carried out by ARL Janakuasa Letrik Sdn Bhd; another wholly owned subsidiary of the parent company, ARL Associates Sdn Bhd.
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 are passed to SESB, through adjustments to the fuel component of EPs under the PPA, thereby preserving the company’s operating margin.
The redemption of the BaIDs on a quarterly basis, reduces refinancing risk at the maturity of the facility. By the fifth year of the facility, over 50% of the debt securities will have been redeemed. As at September 2001, a total value of RM25.0 million had been redeemed as scheduled. ARLT’s minimum and average debt service coverage ratio (after dividend payments) over the remaining nine-year period of the facility is projected at 2.06 times and 4.66 times respectively (company’s base case projected cash flow).
An increase in share capital in FY2001 helped to moderate the increase in debt leverage to 6.4 times (FY2000 : 5.7 x) following the issuance of the BaIDS in that fiscal year. With the scheduled amortization of the Islamic debt and no major capital expenditure requirement, the company’s capital structure is expected to gradually strengthen in the intermediate term.