Saturday June 30, 2012

Balancing power needs

By YAP LENG KUEN
lengkuen@thestar.com.my

DATUK Seri Che Khalib Mohd Noh, outgoing CEO of Tenaga Nasional Bhd (TNB), looks back on his eight years at the helm with pride and satisfaction.

TNB's debt, in 2004, had ballooned to RM32bil but Che Khalib was unfazed. “At my first post-Cabinet meeting, former Energy, Water and Communications Minister Tun Dr Lim Keng Yaik asked me if I could sleep at night with TNB having amassed a RM32bil debt. It was the biggest borrower in the country.''

Che khalib took it as part of the transformation going on in all major government-linked companies (GLCs).

“The Government wanted to ensure that major GLCs dealing with the public must improve their delivery systems.

“TNB deals with almost everybody in Malaysia, who are either customers or users of electricity. I heard complaints almost every week on delays, breakdowns and poor service,'' he tells StarBizWeek.

Che Khalib: ‘If we don’t spend wisely, the rakyat is going to have to pay more.’

Tackling the balance sheet

TNB's debts are now down to RM18.5bil from RM32bil eight years ago.

At one stage, it swelled to RM23bil, as it had borrowed recently for the financing of the Janamanjung power project. The money was obtained through project financing.

“The original debt from 2004 has now come down to RM18.5bil. We managed to increase the cash balance to RM8bil,'' Che Khalib says. “Initially, that was used for the supply of gas but we managed to recover two thirds of it.

“We made efforts to improve the collections; plus the RM4bil we raised for the Janamanjung power plant project, we will have enough cash to finance our project,'' he says.

Recovery efforts, which were aimed at catching electricity thieves, had helped to improve the cashflow.

In the end, value creation came up to RM3.5bil saved; including the results this year, savings will come up to RM4bil.

For big corporations, it is easy to lose sense of what they spend. In the case of TNB, the turnover is RM30bil. If they spend a few hundred thousand ringgit more, nobody will really feel the difference.

“At the end of the day, our money is the rakyat's money. If we don't spend wisely, the rakyat is going to have to pay more. To me, that is not right. The rakyat is going to suffer if we mismanage the funds,'' he says.

“We have to inculcate the culture of spending wisely and only when necessary.

“However, we do not compromise on quality and maintenance. There is no cutting of corners,'' he says.

Changing the mindset

The big challenge was to change the mindset of the people in TNB. From a Government agency that provides electricity and a bureaucracy, the plan was for TNB to become a customer-centric organisation.

A lot of emphasis was placed on how to satisfy the requirements of the public.

Preparations were under way to change the mindset of the staff and the culture at TNB.

For example, the staff have to change their tone and approach when people call up for services.

They cannot just ask What do you want?'

The attitude too had to change from thinking that people need us' to we survive because of the customer.'

“We placed a lot of emphasis on training, asking them to change and providing them with the necessary tools.

“We established a better customer call centre under 15454,'' says Che Khalib. “There used to be lot of complaints on poor service. Now, I hear of more pleasant experiences when they call 15454.''

To further ensure that there is good rapport between TNB and customers, a customer service department was set up.

“We visit the clients and set up a client manager for bigger customers called prime customers,'' he says. “There are dedicated officers looking after a few accounts.''

Procurement

A major area for improvement, Che Khalib's task was to ensure that procurement was better done in terms of pricing, quality and timely delivery while optimising costs.

Delays in the construction of transmission projects was also an issue then.

“When I first came in, there was a delay of more than 12 months; now, it is an average of less than a month,'' says Che Khalib.

“There are many good people in government agencies who want to do things that they can be proud of. We have to provide good guidance and leadership,'' he says. “I am very confident we can improve the company.''

Among the first privileges that Che Khalib cut was the food served at functions. “There is no tea lady in the CEO's office, just a vending machine,'' he remarks.

Purchases that used to be conducted through a third party now come direct from suppliers, cutting costs incurred from dealing with middlemen.

“We cut all these frills and if we have better profits, we will give higher bonuses. During my tenor, the staff acknowledge that they received the highest bonuses.

“We spend wisely and make profits. Even the board and shareholders do not mind giving higher bonuses,'' he says.

Confidence regained

With fewer breakdowns now, the System Average Interruption Duration Index (SAIDI) has improved from 148 minutes to 75.

In terms of transmission lines breakdown, the time has been reduced from 14 minutes to one.

“There will be breakdowns but we have to do more preventive maintenance,'' he says.

TNB is constructing five power plants Janamanjung of 1,000MW, two hydro projects of 500MW at Ulu Jelai and Ulu Terengganu; a combined cycle plant at Connaught Bridge of 350MW and a 10MW biomass joint venture with the Federal Land Development Authority (Felda). It is now bidding for the 1,000MW Prai project

“TNB has gained back the confidence that it can build power plants on its own,'' says Che Khalib.

Moving forward, the way to generate energy should be at the cheapest cost.

“I have nothing against the independent power producers (IPPs). They have done their part to rescue (the country from power outage) and come up with all these projects to generate power.

“There were things that could have been better done. But, it is easier to criticise on hindsight.

“At that time (when the nation was struck with a massive power outage), people would pay even though the charges were very high,'' he remarks.

“From direct negotiations to open bidding. I am quite confident the bidding process for power plant projects will be done in a transparent manner, with focus on the lowest cost and most competitive price,'' says Che Khalib.

The IPPs have become very competitive especially in overseas markets YTL is in Singapore, Malakoff in the Middle East, Powertek in Egypt and Bangladesh.

“We provide them with that platform so that they can expand their business. We want them to bring back their experiences overseas and help the country get electricity at the most competitive price,'' he says.

Competitive bidding is a big milestone and game changer.

“Even the extension of IPPs are done via competitive bidding. The shortlist will be out at the end of July and decision will be made by November. Subsequent new plantings will be by tender,'' says Che Khalib.

People thought the construction of the two major power plants Janamanjung by TNB (1,000MW by 2015) and Tanjung Bin by Malakoff (1,000MW by 2016) was through direct negotiations.

“It was based on the availability of sites,'' he says. “Tanjung Bin had put in a bid that was just as competitive as that put in by TNB for Janamanjung.

Total demand for electricity per year is 16,000MW; based on normal organic growth, demand increase is about 4% which comes up to 640MW.

Biggest challenge

Moving forward, the biggest challenge for Che Khalib's successor Datuk Azman Mohd is to address the fuel cost issue.

“People always complain when they have an increase in tariff. With the political scenario, things are not better.

“People from the steel and petrochemical industries are asking for better quality but no price increase. But in their industries, many things have gone up in price,'' remarks Che Khalib.

“The cost of generating electricity will keep going up,'' he says. “In 2004, coal was less than US$30 per tonne; the price has dropped but it had gone as high as US$120 per tonne.

“There is no way we can increase tariffs that high,'' says Che Khalib. So we have to keep costs down and try to absorb this fuel cost. We manage our costs well and have been absorbing the costs all this while.''

Addressing the talk of separating power generation, transmission and distribution, Che Khalib views that developing countries are still building more infrastructure and it is too early to talk about that.

“If TNB cannot deliver the kind of efficiency that customers expect, maybe we can consider this.

“From what I can see, what TNB has delivered so far has been commendable. I go to meetings in Asean and the region and they say they want to be like us,'' he recalls.

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Business

Saturday June 30, 2012

Balancing power needs

By YAP LENG KUEN lengkuen@thestar.com.my

By YAP LENG KUEN
lengkuen@thestar.com.my