MARC Ratings has affirmed its AAAIS rating on TNB Northern Energy Berhad’s outstanding sukuk of RM1.22 billion with a stable outlook.
TNB Northern is the funding vehicle for TNB Prai Sdn Bhd (TNB Prai), which operates a 1,071.43MW combined-cycle gas turbine power plant (comprising two power generation units — Unit 10 and Unit 20 — with an installed capacity of 535.715MW each) in Seberang Perai Tengah, Penang. TNB Prai is a 100% indirectly-owned subsidiary of Tenaga Nasional Berhad (TNB), with which it also has a 21-year power purchase agreement (PPA).
The rating and outlook are equalised with TNB’s corporate credit rating of AAA/stable. The unconditional and irrevocable rolling guarantee extended by TNB to fund shortfalls in the finance service account, as well as its undertaking to maintain full ownership of TNB Northern through TNB Prai, support MARC Ratings’ equalisation. Furthermore, the strength of the operational and financial linkages between TNB Prai and TNB underpin our assessment. The rolling guarantee is likely to be required from 2024 onwards as TNB Prai’s operating cash flow generation during the period may be insufficient to meet its financial obligations. Designated account balances stood at RM73.8 million as at end-May 2023.
Plant performance in 2022 was affected by two months of unplanned outages at Unit 10 between September and November 2022 due to some technical issues with its synchro-self-shifting clutch. This resulted in an unplanned outage rate (UOR) of 19.39% for Unit 10 as at end-November 2022, substantially higher than the 4% specified under the PPA. Positively, the UOR has started to improve since December 2022 and is expected to return to within the PPA allowance by end-October 2023, barring any unforeseen circumstances. TNB Prai had also underperformed in its contracted average availability target for both Unit 10 and Unit 20 in contract year block 2 (2019-2021). As a result, capacity payments came 14.6% below budget at RM172.5 million for 2022. Aside from the availability underperformance, the plant’s heat rate has also continued to exceed the PPA threshold due to heat rate degradation and the lack of margin between actual and PPA heat rate values. As in previous years, TNB Prai was not able to fully pass through its fuel costs to TNB.