Power utilities’ performance
The Southeast Asian countries (comprising Cambodia, Indonesia, Laos, the Philippines, Malaysia, Myanmar, Singapore, Thailand, Timor Leste, and Vietnam) account for a significant share in electricity consumption in the Asian and global economy. The latest estimates of the International Energy Agency (IEA) indicate that the major economies in the region accounted for 35 per cent of the overall electricity consumption inAsiaand 3 per cent of the global usage in 2010. Going forward, the region’s electricity consumption is expected to increase annually by 6.4 per cent till 2030, according to the ASEAN Centre for Energy.
Therefore, there is a tremendous need for the region to invest in boosting its power generation capacity and augmenting its power infrastructure. As S. Somani, Head of Power and Utilities at KPMG Asia Pacific, states, “The power sector is key to supporting the growth of Asian economies. Given the power intensity of the regional countries in ASEAN, a minimum growth rate of 12–15 per cent per annum is necessary to meet the demand.”
Under the current policy framework, the power sector is dominated by state-owned utilities and their subsidiaries. The combined generation capacity in five of the biggest countries in the region –Indonesia,Thailand,Malaysia,Vietnam, and thePhilippines– is over 67,000 MW. This constitutes more than 44 per cent of the installed capacity of the region. These utilities collectively generated more than 331 billion kWh in 2011. While they have a majority share in the installed capacities and generation of their respective regions, some of these entities have vertically integrated structures; thus, they also provide power transmission and distribution services to their respective areas.
However, in markets like Singapore, the power sector has been liberalised. In the Philippines, the government, under the Electric Power Industry Reform Act of 2001, is undertaking steps to privatise the power sector by transferring the power assets of the state-owned utility to the private sector.
Even though the region has been actively encouraging private investments to meet the expected future power demand, state-owned utilities are likely to continue to play a strategic role in the power infrastructure. R. Krishnaswamy, Vice-President of the Energy and Power Systems Group at Frost & Sullivan, comments, “The way the current market is structured, private sector participation in the region is happening in bits and pieces, that too mostly on the power generation side, except for markets like the Philippines and Singapore. Public or government-linked utilities are expected to continue to dominate the power sector in the region.”
Utility performance: Capacity addition and generation
The generation and capacity addition performance of five of the largest public utilities in the region have shown a mixed trend over the last four to five years. The Vietnamese power company, EVN, which is responsible for power generation, transmission, and distribution, has been a strong performer in the region. It owns more than 60 per cent of the country’s installed capacity. EVN has increased its capacity at more than 9 per cent annually between 2007 and 2011. The power generated by the utility has risen by almost 6 per cent annually during the same period.
The Indonesian utility, PT Perusahaan Listrik Negara (PLN), has also performed well. PLN owns four-fifths of the country’s installed capacity and also the sole entity responsible for power transmission and distribution. Between 2007 and 2011, the company expanded its generation capacity by 4 per cent annually and power generation by more than 6 per cent annually.
Despite these achievements, both utilities face a considerable number of challenges. In Vietnam, one of the biggest obstacles is to mobilise investments to meet the country’s future demand. Sector experts have noted that the utility cannot come up with the necessary investments for this expansion, as current power tariffs are lower than the costs of production. Thus, the utility has proposed that it be split into shareholding companies comprising local and foreign private investors. Though the restructuring was expected to begin by 2010, due to the delay in finalising the road map, it has been postponed.
In Indonesia, PLN has been experiencing delays in the upcoming capacities due to a host of factors including equipment availability and funding challenges. In 2011, the company commissioned projects aggregating 1,600 MWas part of Stage 1 of the government’s 10,000 MW accelerated programme for capacity addition, which was announced in 2006. Under the programme, the government has mandated that the company build coal-fired plants at 42 locations in Indonesia. The remaining projects are expected to be operational between 2012 and 2014.
Meanwhile, the endeavours of state-owned utilities of Malaysia and Thailand to expand their respective capacities have also been moving at a slow pace. Malaysia’s Tenaga Nasional Berhad (TNB) and Thailand’s Electricity Generating Authority of Thailand (EGAT) have not added significant capacities in recent years (see Table 1). Their power generation capacities have only risen by 1.76 per cent and 1.29 per cent respectively. The shortage in gas availability has impacted TNB’s performance, while for EGAT, the severe floods in 2011 hampered operations.
In the Philippines, the state-owned utility, National Power Corporation (NPC), posted a decline in its generation with its output declining year on year by more than 36 per cent during the 2007–10 period. This situation has arisen from the government’s privatisation policy as part of which generation assets of the utility are being sold to private players with a view to encourage competition and efficiency in the country’s power sector.
Transmission and distribution performance
The performance of transmission and distribution networks and their penetration within each country has also been mixed. Singapore, Malaysia, Thailand, and Vietnam have managed to achieve electrification levels of more than 95 per cent. However, in the economies where state-owned monopolies are responsible for transmission and distribution, a significant number of households still do not have access to the grid.
For instance, in Indonesia, the electrification ratio is around 74 per cent. Nonetheless, Indonesia’s PLN that caters to the largest customer base in the region of around 45.9 million consumers has been able to achieve steady improvement in its level of service reliability, based on the system average interruption frequency index (SAIFI) and the system average interruption duration index (SAIDI). SAIFI and SAIDI stood at 4.9 times per customer per year and 4.71 hours per customer per year in 2011, compared to 12.77 and 28.9 in 2007, respectively.
Even in the markets with high electrification levels, grid-related challenges remain. EVN, for example, possesses an old transmission network that causes a high percentage (over 10 per cent) of power loss during transmission. Though the transmission system availability of EGAT’s network is over 99 per cent in Thailand, the level of service reliability has not improved significantly. Its SAIFI and SAIDI indices stood at around 0.32 (number of occurrences per delivery point) and 14.42 minutes per delivery point in 2011, compared to 0.35 and 8.25, respectively, in 2008.
Malaysia’s TNB that serves a customer base of more than 8 million consumers also has a similar performance. According to the company’s report, its SAIDI improved from 83 minutes per customer per year in 2007 to 69 minutes in 2008; however,the figure rose to 78.9 in 2011. Nonetheless, the utility has achieved a high level of transmission system availability of more than 99 per cent.
Financial performance
In the past year, while all utilities have reported a jump in their revenues during the previous year, they have also experienced significant deterioration in their net profit. TNB reported the biggest drop in profits: for the year that ended August 2011, the company’s operating profits declined by 75.72 per cent due to higher operational expenses that stemmed from increased fuel costs.
EVN (based on the latest available estimates for 2010) also reported a sharp drop of 71 per cent in its profits after tax in 2010 (compared to 2009). This has been largely due to the low electricity tariffs that do not match costs of production. Both utilities have, however, reported a jump in their electricity sales for the period.
Meanwhile, PLN’s decline in net profits was close to 29 per cent in 2011 (compared to 2010), due to higher operating costs that stem from its use of costly oil to run its power plants. The utility’s dependence on oil is in turn a result of the delays in the development of its coal-based capacity under the power development programme. Nonetheless, PLN recorded a significant jump of 28 per cent in its revenues during the period because of higher electricity sales during the year.
The net income of Thailand’s EGAT declined by 14 per cent in 2011, though its revenues increased by 3.2 per cent. The fall in electricity sales due to decreased electricity demand in the country accounted for the decline.
NPC reported a net operating loss of PHP 2.4 billion in 2010, lower than its net loss of PHP 2.89 billion in 2009, on account of the expenditure incurred under the rural electrification programme of the utility in 2010. However, the company’s revenues increased by 35 per cent compared to the previous year.
Robust economic outlook heightens pressure on sector reforms
For the past few years, the ASEAN region has experienced strong growth in power demand. According to Krishnaswamy, “Huge economic and population growth have been driving power demand for the region. The region as a whole has been far more resilient than even China and India.’’ Between 2009 and 2010, while the global population grew by less than 1 per cent, the rate of growth in the major Southeast Asian economies was 1.8 per cent. Growth of the combined gross domestic product of these economies was close to 27.6 per cent during the same period, compared to the world’s 28.4 per cent. The region is expected to remain one of the strongest centres of growth, amidst the global slowdown. The Southeast Asian region has experienced the lowest declines in growth forecasts of around 0.2 percentage points or so, compared to China and India whose drops have exceeded 1–1.5 per cent.
Robust economic growth will continue to drive electricity demand in the region and place pressure on the sector to implement reforms that would attract the much-needed investment. While some countries have started their restructuring processes, the playing field remains skewed towards public utilities. As Somani puts it, “There will be a need for an investor-friendly regulatory environment and more instruments for accessing local financing and capital markets. The financial status of utilities impacts the bankability of projects and needs to be healthy in order to pursue growth in projects and investments.” The next few years will determine whether the steps being taken by the policymakers will be able to address industry concerns and generate the required investment momentum.
