Tariff hikes may not fully benefit utility giant Tenaga Nasional Bhd as a possible increase in the fixed natural gas price, currently set at RM10.70/mmbtu or coal price will offset it.

"We estimate that a one percentage point increase in tariff could raise TNB's 2012 earnings by eight per cent.

"But this could be fully offset by a six per cent increase in the fixed natural gas price," said a research house.

It said another factor could be the rise in coal costs, which accounted for 48 per cent of its 2010 financial year fuel expenses.

It said this in its company report, in response to news that the cabinet had agreed in principle to a revisison of electricity tariff.

Newcastle coal price has risen to US$109 per tonne currently from the US$85 tonne (US$=RM3.61) incorporated in TNB's existing tariff structure.

"We estimate that a five per cent increase in coal prices above the 2012 financial year forecast assumption of US$100 per tonne, could offset a one percentage point increase in electricity tariff," it added.

The research house said with the Melaka liquefied natural gas regassificiation plant on a fast track development by mid-2012, a new pass through electricity gas tariff regime would be required.

Looming election may stump tariff hikes

"In our view, the key obstacle to the implementation of a tariff revision is the current political climate, as the government appears to be gearing up for an election next year," it added.

As for the letter of understanding between TNB and the National Trading Company (NATCO) to cooperate on specialised activities in Yemen's power industry, the research house said:

"If the development materialises, TNB is expected to start with operation and maintenance services in Yemen.

"We are neutral on this venture, which is unlikely to generate a significant contribution to the group in the near to medium term,".

The research house reiterated its "hold" call on TNB's shares with a fair value of RM9.00.

- Bernama