Saturday June 30, 2012
Challenging task ahead for new CEO of TNB
By LEONG HUNG YEE
IN the corridors of corporate Malaysia, there are some personalities who will be remembered and acknowledged after they had stepped away from the helm. It could be for some affirmative action they had taken, for turning a company around or it could be for doing things differently.
After eight years at the helm, Che Khalib will be stepping aside for Datuk Azman Mohd at the helm of the utility giant.
Che Khalib was appointed president and CEO and executive director on July 1, 2004. His contract has been renewed over the years until in January when he decided to step down.
StarBiz had quoted Che Khalib as saying that leaving TNB did not mean he was ready for retirement.
“I am still young ... I have many more years to go. I can work for other people or other companies,” says Che Khalib, 47.
Indeed, Che Khalib will be starting a new chapter. And those who have worked with him, either directly or indirectly, have many praises for him.
Malakoff Corp Bhd chief executive officer Zainal Abidin Jalil says he has always regarded Che Khalib very highly. He is known “to be a strong corporate leader with a progressive vision for the future of Malaysia's power sector.
“Over the period that I have had the pleasure of working with him, (I have found Che Khalib) to be a flagbearer for the industry.”
Zainal says the outgoing utility chief has introduced “ways to lower total system cost throughout the value chain which the industry fully supports”.
“On behalf of Malakoff Corp, we would like to wish Che Khalib continued success in his future endeavours,” Zainal says in a text message.
Chris Eng, head of research at Etiqa Insurance and Takaful says that among Che Khalib's notable achievements was to pare down TNB's foreign debt significantly.
“He (Che Khalib) has been lobbying hard for the fuel cost pass-through mechanism,” he said.
Back then, TNB was not in a favourable position, carrying debts of over RM30bil while cash flows were tight. Its high operating costs ate into the company's bottom line, coupled with the fact that heavy capacity payments to independent power producers (IPPs) continued to burden the company.
But for the financial year ended Aug 31, 2011, TNB's long-term debt stood at RM17.3bil.
During the past eight years, Che Khalib made radical changes to TNB, and in the process, transformed it into a leaner TNB. The company has also reduced its gearing and total debt fell significantly. It also retired some US dollar bonds.
The implementation of the fuel cost pass-through mechanism will see tariffs change automatically as a result of changes in the fuel price.
Although the Government announced in June 2011 a new fuel cost pass-through mechanism for the power sector, it remains to be seen whether there will be a full pass-through of fuel cost increases in the end-user's tariff during subsequent semi-annual reviews.
Eng says Che Khalib's job was not an easy one.
“Last year's base tariff review was quite an achievement (by Che Khalib) as it allows TNB to move closer towards its return on equity target of 6%-7%,” he said.
Last June, the Government announced an average electricity tariff hike of 7.12%. The increase comprised a 5.12% hike to reflect the upward revision of natural gas price to the power sector, and a 2% rise in base tariff for TNB to partly recover from the higher cost of power supply since June 2006.
Industry players point out that Che Khalib has also fought for an open competitive system which will allow TNB to compete.
One of the things that investors like about TNB is its pursuit of transparency and accountability in the sector as a whole. One of the initiatives Che Khalib introduced was to make the awarding of power plants based on an open tender basis.
A Maybank IB research analyst said Che Khalib had successfully brought TNB to international standards. “We, Malaysians, have taken TNB for granted. Our power delivery reliability is better than the United States and many other European countries.”
The analyst pointed out that the transmission and distribution losses had also been reduced by a full three percentage points during Che Khalib's tenure.
“This is a structural improvement and by no means an easy feat. TNB's balance sheet is also substantially stronger with modest gearing levels relative to the power sector industry.”
“Most admirable, Che Khalib has managed to do all this despite having to report to four government ministries, a powerful and often irritated gas supplier and a less-than-friendly employees union,” he said.
The analyst added: “Any lesser human would have given up a long time ago as it is just not worth it. But he stuck it out and delivered. He is a true patriot and I pray we don't lose him to a foreign employer.”
Energy, Green Technology and Water Minister Datuk Seri Peter Chin Fah Kui was reported as saying Che Khalib's decision to leave must have been a personal one.
“If I'm not mistaken he had last year indicated that he would agree to serve TNB for a year only.”
Separately, analysts are also pleased with the appointment of Azman as he is an “insider” who has been with the company for more than three decades.
“Of course, Azman will have to maintain TNB's profitability and enhance shareholders value. At the same time, he will also inherit some of the company's problems,” an analyst says.
He says Azman will also have to deal with the new capacity from upcoming power plants.
A bank-backed analyst says one of the main challenges Azman has to tackle is to obtain a fuel cost pass-through. He adds that the uncertainty in gas supply still persists although supply has improved.
“Another challenge for him is to improve power generation in Sabah which is still insufficient.”
“Che Khalib says that TNB is uncertain if the Government will continue with the fuel-sharing mechanism or share the costs with consumers. Note that Che Khalib's position will be taken up by Azman by the end of this week,” AmResearch said.
Meanwhile, Etiqa's Eng says like Malaysia Airlines, TNB's unions are strong and Azman will need to get the unions on his side.
“He needs to convince the unions of the betterment for all, and thus increase productivity which ultimately translates into stronger profit margins.”
It has been reported that TNB workers' associations had sent letters to the Prime Minister on different occasions, to raise four trade disputes, one of which involves the outsourcing of jobs, such as street lighting and electricity supply workers.
Like any company, there have been ups and downs in TNB. But during his tenure, Che Khalib has overcome the down times and managed to grow its revenue year after year since FY04.
The previous financial year, however, was a rather frustrating one. TNB was dealt a blow when severe gas shortage resulted in it posting consecutive quarters of losses. For the financial year ended Aug 31, 2011 (FY11), TNB's net profit plunged to RM499.5mil from RM3.2bil in FY10. Revenue for the year was higher at RM32.2bil versus RM30.3mil.
The losses were mainly due to continued gas shortage resulting in an additional fuel cost of RM2.1bil from oil and distillates.
Late last year, TNB received a letter from the Government agreeing to provide for a fuel cost-sharing mechanism to address TNB's higher operational expenses due to additional cost incurred in the purchase of alternative fuel to generate power.
Under the mechanism, TNB, Petroliam Nasional Bhd and the Government will equally share the differential cost incurred by TNB from Jan 1, 2010 until Oct 31, 2011 totalling RM3.07bil due to gas shortage.