- Putrajaya’s golden share impedes SESB revenue growth
- SESB penalised RM13 million for defaulting
- IPP contracts eat into revenue
- Pitas and Tambunan mostly in the dark
KOTA KINABALU – When Sabah Electricity Sdn Bhd (SESB) was privatised in 1998, the aim was to nurse a financially distressed state-owned utility company back to profitability with Putrajaya taking the lead.
But successive federal regimes have failed to live up to the mark. SESB has received about RM13 billion in subsidies, and development grants, according to back-of-the-envelope calculations from its 2010-2019 annual reports.
This does not include a list of loan obligations to the federal government which stood at RM2.39 billion as of last year.
While SESB has been posting stable revenue and net profits for the period under review, these figures had been propped up by aid from Putrajaya where subsidies had been recognised as company revenue with grants and loans used to finance capital and operating expenditure.
Such is the state utility company’s dependence on Putrajaya that external auditor PricewaterhouseCoopers (PwC) remarked in SESB’s latest annual report that continuing as a going concern depended on “continuing financial support from the shareholders and on the company attaining sufficient cash inflows to sustain its operations.”
National utility giant Tenaga Nasional Bhd (TNB) is SESB’s major shareholder with an 82% stake. The Sabah government owns the remainder while the Ministry of Finance Inc (MoF Inc) holds a golden share.
Fissures in SESB’s balance sheet become clearer when factoring in an RM450 million loan to parent company TNB. The latter has said in SESB’s latest filing that it would not seek full repayment until its Sabah counterpart had the financial capability to do so.
SESB’s current liabilities (RM2.11 billion) have exceeded its current assets (RM1.91 billion) for FY19, a red flag for a business to continue as a going concern.
Further, SESB defaulted on an RM304.9 million loan with Putrajaya as at December 31, therefore accruing a RM13.1 million penalty. SESB is currently negotiating with the federal government on the delay and penalty.
Systemic issues stifle reforms
Myriad reasons have put SESB on the back foot, chiefly the absence of political will, tight cash reserves and expensive power generation costs, say people with knowledge of the matter.
To begin with, the golden share empowers Putrajaya as a special shareholder where it could ensure major decisions are in line with government policy, including vetoing mergers and acquisitions, takeovers and disposal of assets.
This has created rifts in implementing large projects, said a source.
“All the big projects are done by the federal government or the relevant ministry. This includes appointments of contractors as well as budgeting. SESB would only take over after the project is completed.”
Tariff reviews are also subject to federal government approval, the source said. Putrajaya revised Sabah’s rates to 34.52 sen/kWh from 29.52 sen/kWh effective 2014. But the newer quantum is still 42% lower than actual operating costs estimated at 82.19 sen/kWh.
This is due to a heavy reliance on gas and diesel. Sabah’s fuel mix consists of 86% gas, 7% hydro, 4% diesel/medium fuel oil, 2% biomass/biogas and less than 1% solar, according to the Energy Commission’s (EC) latest data.
Power generation in the west coast is highly dependent on gas while the less populous east coast mainly relies on diesel. But the state has been plagued with frequent disruptions due to theft in the east coast with losses estimated up to RM4 million between 2017 and 2019, ageing grid network (20 years or more) that is fast approaching its design load limits, and inefficient combined cycle gas plants.
This has led customers in the state to experience power disruptions four times greater than in the peninsula, according to the system average interruption duration index (Saidi), a commonly used reliability indicator by power utilities.
Sabah’s Saidi stood at 267 minutes/year/customer compared to 50 m/y/c and 112 m/y/c in Peninsular Malaysia and Sarawak respectively, according to EC data. Interruptions are its worst in the remote corners of Sabah, such as Pitas and Tambunan, which happen to be among the poorest areas, with a Saidi of 302.63 m/y/c.
But SESB is also heavily dependent on independent power producers (IPPs) to meet supply, said a source.
“About 80% of SESB’s power is supplied by IPPs and this eats into SESB’s revenue. This in turn stymies any plans to expand capacity.”
Based on reviewed financials, SESB does not have sufficient cash or assets to fund its short-term debt. SESB held RM285.99 million of dry powder at the end of December last year, which is insufficient to even cover operating expenses at RM1.79 billion.
The company’s shallow reserves, a fund manager says, would make it difficult for the company to raise cash and expand or diversify as “banks might be wary of lending to a potentially financially distressed entity, even though it has the backing of the federal government”.
Greater transparency
Politicians from previous Barisan Nasional (BN) and Pakatan Harapan (PH) regimes have tried to untangle the mess that has come to define Sabah. PH tried to push for a divestment of SESB from TNB to place it entirely in the hands of the Sabah government.
A due diligence study was completed last year under the guidance of then energy, science, technology, environment and climate change Yeo Bee Yin and Sabah caretaker chief minister Datuk Seri Mohd Shafie Apdal. But that report has not been made public.
People familiar with the report say that it dealt with the commercial viability of SESB. “But because it’s government-to-government, that report has yet to be made public.”
But something concrete has to be announced soon, said an energy market analyst, who estimates that it will take another 20 years to put SESB on a stronger and profitable footing.
“This is ensuring that such initiatives are done properly. It makes no sense to hand over the entity to the Sabah government without a gradual weaning off of subsidies and grants, for instance.
“Also, that due diligence report has to be made public so that independent studies can be done to ascertain possible ways of turning around SESB. Until then, households are going to continue experiencing blackouts and brownouts.” –The Vibes, September 19, 2020
