Tenaga Nasional Berhad (TENAGA) Earnings Call Transcript & Summary

Announcing the arrival of [indiscernible] and Baharin Din, our President and CEO of Tenaga Nasional Berhad. Thank you. Ladies and gentlemen, we will be showing you a safety video for you to take note in case of any emergency. [Presentation]

[Foreign Language] and good morning, ladies and gentlemen. Welcome to TNB's Third Quarter Financial Year 2023 Analyst Briefing. A very warm welcome to each and every one of you joining us today. Today's session will be covered in 3 parts. Our CEO, Datuk Ir. Baharin Din, will first provide an overview of TNB's group strategy. Next, our Chief Financial Officer; Mr. Nazmi Othman, will delve into the TNB's third quarter financial year 2023 performance. Lastly, our Chief Operating Officer; Datuk Ir. Megat Jalaluddin Megat Hassan, will update us on strategy deployment. Following these presentations, we will then open the floor for questions before concluding at 12:30. To start, let us share a video showcasing our vision for the grid of the future. [Presentation]

We hope the video offered invaluable insights into the grid of the future. Now I am delighted to invite Datuk Ir. Baharin Din, our President and CEO, to kick off the session. Please welcome.

Thank you. Thank you, Alia. [Foreign Language] and very good morning. Thank you again for being here, our AB session. I think the second one that we have in this beautiful hall. I think from my -- I will be doing the preliminary macro strategic views of Tenaga. And Nazmi we will follow up with performce updates. And Megat will [ brief you ] on strategy deployment. Okay. As you're aware, recently, August this year, prime minister has launched our NETR. This basically outlined the way government wants to shift Malaysia from a traditional fossil fuel-based economy to high-value green based economy. And in Tenaga's views, NETR is positive for Tenaga because this provide new opportunity of growth as well as energy industrial [indiscernible]. And as we have shared earlier, Tenaga has been entrusted to champion 3 [indiscernible] of that flagship NETR projects, namely large-scale solar parks; two, hydro-floating solar; and co-firing of hydrogen and ammonia. So these are key energy transition projects of the country, and we are glad that Tenaga has been chosen and trusted to deliver these flagship projects. This basically allows Tenaga to explore different business model on how fast some of these projects can be executed in the country. And as I've always mentioned, the economics must work. Otherwise, it's a no go. So we are glad to be given the opportunity to prove to the country that such new ET flagship project can be executed and something that is viable to pursue. And you will notice also for the government to encourage further growth in the capacity of the industry, government would also be looking at reforming -- structural reforming of some of the industry framework, namely looking at introducing cost reflective price tariffs. And this is important because this is the intention of NETR to encourage renewable energy penetration in the system. And for this to be made possible, you need to first address the cost allocation of industry tariff, yes? And this tariff-based structuring would ensure a more aggressive growth of uptick within the system as this tariff restructuring would accurately reflect the true cost of transporting energy and managing the whole system, [ renewable one ]. And with Tenaga Nasional, definitely, is very supportive of this, thus we would avoid cross cost shifting and which currently is the -- starting in the market. And recently also, government has announced the setting up of an Energy Exchange which will be managed by an independent Single Buyer. And as you are aware, Single Buyer is a [indiscernible] entity within Tenaga and with the setting up of the Energy Exchange, an independent Energy Exchange, we believe that it would help to manage certain market section of independent system. Next, as you're aware, Tenaga is actively pursuing our carbon -- decarbonization program. So to support this so-called strategic initiative, we have agreed to at least strike key collaboration with key organization. For example, our collaboration with Petronas is focusing on exploring carbon capture and storage, CCS, solution. So when you talk about carbon management, CO2 management, you either retire, reduce or you suppress your carbon dioxide production. So the CCS with Petronas, we'll look at the technology and economic perspective on how this capturing of carbon dioxide can be executed in the most economical, cost-effective manner. We are also working in partnership with Siemens Energy, looking at how we can co-fire the boilers of our coal plant. And this is for co-firing through use of hydrogen. Last, but not least, we are also collaborating with Charge+ to create an innovative cross-border roaming platform for EV charging point across Malaysia and Singapore. Charge+ targets to install 30,000 chargers over 5,000 kilometer highways in the whole of Southeast Asia, including Malaysia. So our team are working very hard to pursue all these opportunities that will support our 2050 pathway. I think my COO will be covering this more in detail later. Next. As we have shared in our early session, and to date, we have secured energy supply agreement with 8 big organization, amounting to about 2,000 megawatts. These are data centers. And so far, we have completed 6 of them. Out of 6 of the projects, 2 of which were commissioned ahead of time. As you are aware, typically, such installation will require 3 years construction period. And recently, we have agreed with the government that we will expedite this from 36 to 12 months. And we have completed 6 of them within 12 months, of which 2 are delivered ahead of given time. Data center is forecasted to record a potential demand of 7,000 megawatts by 2035. This is huge, 7,000 megawatts. Malaysia -- our Peninsula Malaysia, demand currently is 20,000 megawatts. This 20,000 was achieved over 34 years. 34 years, 20,000. Now, this data center is talking about 7,000 megawatts. Not a joke. That's revenue what Tenaga [indiscernible]. And I think under EE -- sorry, ET, Energy Transition program, we are bound to see more solar being connected to the grid. And to facilitate this, the grid needs to be strengthened and resilient. And for that, it requires capital induction, capital investment to make the grid more flexible. And Tenaga -- we have declared earlier that Tenaga currently is able to accommodate additional 12 gigawatt of new solar panel energy storage on top of our existing 4 gigawatt of renewable energy. What we're seeing here is that the grid is ready, even now to [ absorb ] 12,000-megawatt or 12 gigawatt of solar panels, solar penetration into our grid. As you're aware also, the government is also pursuing rooftop solar as one of the biggest agenda of government ET program. And Tenaga will definitely strengthen our network, in a timely manner, will facilitate such aggressive program. On the ASEAN grid level, beyond our shore, we know that the regional interconnection will also be a resource that we will tap into to meet our RE mix. It is for this reason that we have put a lot of effort in the last 12 months in strengthening our connection with our neighbors. Latest in our work involves Sahara Electric National of Indonesia and SP Power, Singapore Power, where we will be looking at establishing a new interconnection between Sumatra and Malacca for Indonesia, and the second link between Singapore and Malaysia at Johor. I believe we have got the connection with Thailand, one circuit, and with Singapore, another circuit. So we are now looking at adding an another circuit for Singapore link. We are also not discounting the possibility of extending our collaboration with China. We will be looking at the possibility of leveraging on Chinese expertise on HVDC submarine cable. On the regulatory business, I would like to provide some updates on ICPT cost recovery. I think our CFO will elaborate further later. As of second half -- for our second half 2023, we have recovered 50% of ICPT costs from the government. We will be looking forward for the final payment in due time [Foreign Language]. I'm glad to say, government has again demonstrated their commitment to subsidy rationalization. And this will definitely help to relieve cash flow pressure on the regulation. As for RP4, we have submitted our RP4 proposal to government just a few weeks ago. And there will be a lot of discussion forward for the next 10 to 12 months on finalizing this RP4 [indiscernible]. Generally, our proposal fully support government net-zero commitment. I would be providing an efficient investment platform that would enable ET initiative to be implemented under NETR and RP4. Next, on the regulatory business front. I would also like to take this opportunity to update you guys on our recent final settlement of USD 20.5 million -- USD 28.5 million for our 30% equity in GMR India. So with that, we basically will cease our operation and association in India. I think the exit is in line with our international business strategy to exit India. Also, I would like to take this opportunity also to share a very positive development, where recently, we have completed our major investment into Australia. We are acquiring 100% stake in an RE platform in Australia with operational solar assets and the pipeline of solar, wind and battery project which is about 6 gigawatt -- 6.9 gigawatts, a huge -- whole investment by Tenaga. The purchase price allocation, including the determination of the provisional goodwill amount is currently in progress, and we will share more in due course. Okay. Guys, that concludes my update. I will now pass the session to our CFO, Nazmi. Thank you.

Thank you, [ Datuk ]. So some of the -- some [indiscernible] in the financials, we have an announcement anyway, so just to verbalize some under the financial figures that we are recording, right? So for the revenue for the 9 months, the revenue this year, we reported about MYR 39.4 billion of revenue, increased by about 3.9% compared to the same period of last year. We saw good pickup of demand of 2.7% for the review. And also, we'd like to share with you that during the period under review, our investment in U.K. Vantage also contributed about MYR 490 million in terms of revenue compared to about MYR 400 million last year. So that's a good -- for our U.K. investment. In terms of our EBITDA, there is a contraction of about 12.1% compared to last year, this is about MYR 14 billion, and that's about MYR 16 billion. Namely, we got a couple of factors -- major factors. One is the negative margin that we have been recording for this year, let's say, we recorded a positive fuel margin. So this year, we have a negative fuel margin, about MYR 760 million. So that is a continuous issue -- a continuous thing that we -- until we come to the MYR 79 per tonne, but at the moment it's still, what? MYR 95 -- MYR 95 to MYR 100. So we are looking at about MYR 900 million of that value of negative fuel volume for the year. And also, we also have this, what we call non-generation costs during the year for our [ disrupted ] network. They have incurred more cost this year in terms of operation. But mind you, that's still within the IBR. They are allowed to spend to that much. Last year they don't spend that much but just coming up on [ MCO ]. But this year, they are on the fuel [indiscernible]. But still within the range allowed under IBR. Talking about GenCo, again, we are now realizing that we're seeing the impact of the step down of the PPA value, and to the order of PPAs, more of them are under gearing concept. So some of them are under the second tier, which is the lower of the PPA. So we have [indiscernible] revenue before. So not in terms of we delivering the GenCo business, some of them are under the second tier of the PPA. So that has also caused the dip into the EBITDA. With that and also because of the higher interest costs that we have incurred to cover for our fuel costs, so our profit also dipped from MYR 2.7 billion to MYR 2.0 billion. But just to add that in terms of our interest cost, though there's a line item for finance costs, we need to cover for the higher working capital that we did incur last year. But that cost also recovered in the ICPT. So there's some bit of money for the ICPT value that we have been covering. So that is paid through in the ICPT to the time [indiscernible]. Next page. In terms of performance, I will not dwell into a transmission and distribution network. They are world-class. So whatever. They are still within that threshold that we are allowed to, and this is the only world-class standard. But in terms of power plants and generation business, so far, until 9 months or 3 quarters, that [indiscernible] performance have improved compared to last year. So they have done a lot of things of them coming back into -- of their power plant. And of course, they are also very busy in managing and trying to get a new business for GenCo also. So for now, GenCo performance has improved compared to last year. Next. The CEO mentioned just now about recovery of the ICPT from the government. Yes, we have received half or the second half, about MYR 2.3 billion. The second part of that, another MYR 2.3 billion, is expected to be received in December or January, but now government taking [indiscernible], so it's easier for them to [ envision ]. Having said that, the ICPT recovery that we have been seeing now about MYR 7.3 billion, that has very much cash flow working capital requirement. And that's largely because of the fuel costs at the moment have been coming down quite drastically. Coal is now about $100 thereabout so that kind of helped us in terms of our operating cash flow in terms of managing our day-to-day operation. So that is good. That really helped us in terms of our managing also. So receivables, we saw a pickup in the sales, so we are still maintaining about 5.5 value of receivables. That's likely because of our retail people has been managing to collect more than 100% average for the month. So we get 100%, 115% of collection rate. They have managed to do that, so that really helped us in terms of managing our receivables, also in terms of our uncollectable amount. So that you can see 117% now. It was about 102%, 113%, so that is very, very commendable. ICPT outlook. As mentioned, the fuel costs now about $95 to $100. So going forward, announcement by the government in December hopefully, [Foreign Language]. For the next year's ICPT, January to June, we're looking about MYR 4 billion of ICPT recovery. So Tenaga mostly remains neutral. So recovery from the government -- from the consumer is about MYR 4 billion for next year, so that really helped us a lot in terms of major [ occasions. ] Next. Going forward, obviously, our business, our demand, as expected, I mean, a lot under 1.7%. We already saw a good pick up in terms of unit growth in terms of our revenue from our overseas investment mainly U.K. So that could -- that would be very, very positive for us. In terms of CapEx spend, we gave a guidance before, it's about MYR 12 billion thereabout in term of CapEx spend spread through all the CapEx for the year. But now, we are revising down to MYR 9.5 billion to MYR 10 billion. Regulated business must spend the capacity because that's where the earnings is, right? So that MYR 7 billion is -- expected to spend the MYR 7 billion, but the non-reg CapEx is on need basis. We need to spend as they wouldn't spend, so that is how we're managing, our government is managing. So right business management, but it was MYR 7 billion, but that is a lot under [ IVR. ] Capital management, a lot of things are very positive for us at the moment, lower -- low cost, CapEx spend we've been revising. So the working capital management is a bit easier for us. So delivering value to the shareholders is what we're always looking for. So we always maintained our dividend policy about 30% to 60% on adjusted PATAMI. And at the moment, as mentioned by CEO, we also will be very engaged with the government in terms of all people, the [ HT ] until December. That's why some of it may be in December next year. And of course, we are getting ready for our ET also. There's certain growth. So we are also preparing ourselves in terms of funding, in terms of preparing for the CapEx expenditure for our energy transition. Next. With that, I hand over to Datuk Megat.

Yes, thank you very much to the CFO. [Foreign Language] First of all, let me try to update everyone with respect to the 3 focus pillar of business of Tenaga, the business that we think will make us grow as well as meeting the sustainability and the ESG objective. The first pillar is on energy sources, which very much related to our generation business. A couple of updates, notable projects updates compared to last quarter. First is on Giri Hydro project, the 300-megawatt hydro that we are now under construction. We are progressing the project well with 32% progress and the COD date of 2027 remain intact. On our solar project at Bukit Selambau, happy to share that it is progressing very well, and it is expected the COD will happen sometime this month, which is this quarter. So we are really happy that we're able to complete the project on time, and of course, within costs. Thirdly is on our corporate green PPA program. We are awarded a sizable 90-megawatt solar for the corporate PPA, and we are now undertaking those projects. So these are the 3 main element of the project that -- the current project that we are undertaking. In the last quarter also, we see the announcement of the NETR by the government, launching of the NETR for the country. And within the announcement of the NETR, TNB given 3 flagship projects for us to champion. The first one is actually the hydro-floating solar at our existing dam amounting to 2,500 megawatts. So as far as the planning is concerned, we feel that the delivery will happen over 4 phases, and we have started the work on the Phase 1. We have ratified the Chenderoh reservoir as the first project for the hydro-floating solar, and it is called Hybrid Hydro-Floating Solar because now we have the opportunity to generate and give the customer green energy with a longer period in the sense that we have both the floating solar and hydro as part of the generation. And the timing is crucial to ensure that we provide a good green delivery. So 2,500 megawatts over a period of until 2040. So that is the plan at the moment. Second, under the NETR flagship project is the 500 solar megawatt -- 500 solar. This is actually to cater for the industrial zone across the country, giving the opportunity for the industrial customers to have access of green energy. So this is -- we are going to embark this in parallel of each 100 megawatt for each location in totality of 500 megawatts. And the COD is expected to be the year 2026. So if you look at the whole NETR flagship project, TNB is able to secure about 3,000 megawatt capacity of green generation. So this is fitting well with our strategy to get more mix of the generations from green. And today, we have a strong 7,800 megawatt pipeline of green generations, which put Tenaga in a very strong position with respect to growth and growing green growth. Next please. So in terms of the milestone of the NETR flagship project, as mentioned, for the large-scale solar pump, we are now finalizing the locations and the selection of our partners and also looking into the management for the corporate PPAs with the customer. COD is expected by 2026. Secondly is to deploy the hybrid hydro-floating solar. As mentioned, we will focus into 3 main areas: the Perak Repower scheme, the Perak Repower Hydro scheme. We have ongoing [indiscernible] and Chenderoh. The starting point, the Phase 1 will be at Chenderoh. We're also focusing on the Terengganu Scheme, the [ Kena ] hydro as well as the Kelantan Scheme, including the recently -- or under construction project, which is a Nenggiri. So we are finalizing the technical and commercial sophistication, and we have first issued RRP for the first phase of the project. This project will come in -- the first phase will come in slightly earlier, expected to be in the year 2025. So under the third flagship project by the government, this is also related to the energy sources pillar of Tenaga Nasional. Here, we are looking at finding the source, the new fuel, the future of the fuel, the fuel of the future in the form of hydrogen and ammonia. Today, we are having joint feasibility study with PETRONAS with respect to co-firing of hydrogen and ammonia together with the project that is mentioned with respect to the carbon capture. So there's a strong collaboration of the Tenaga and TNB -- of Tenaga and PETRONAS in respect to the new fuel of the future as well as the carbon capture project. We expect this co-firing of hydrogen and ammonia, we are doing some testing at the moment, to be fully operational by the year 2030. Next please. So that was about energy sources. Looking ahead is in terms of the regulatory business of Tenaga Nasional that is on our -- the so-called the network or grid of Tenaga Nasional. To date, we have utilized 67% of the CapEx for the first 9 months of the year, and we are expected to fully utilize the CapEx by December 2023. Meaning that our project and also the utilization of the CapEx are very well in line. And some of the key projects that we are focusing is actually on the smart meter installation project. So today, we are at 97% achievement. The target is to install 600,000 units of smart meters, and we have installed close to 577,000, and we do not see any problems to finish it by the year based on the target. And this is a good recovery for Tenaga Nasional with respect to the supply chain post COVID-19. The second project, which is to make the grid more efficient and reduce losses, essentially on the wood block Volt-Var Optimization. Again, for the first 9 months, we have completed 74%, and we are very much on track to complete it by the year-end. In terms of the grid performance and also enabling the energy transition, we follow or be guided by the TNB Smart Grid Index, SGI. The index is international index for power utility with a target of achieving 85% today -- by the year 2025. Today, we are actually at 71%, and we believe we can actually get close to 85% by the year 2025. With respect to the collaborations among the countries of Southeast Asia in the formation of the ASEAN Power Grid, we are working closely with PT PLN and the ASEAN Centre thinking to provide the Cross-Border Electricity Integration between Sumatra, Indonesia, and Malaysia. So this is expected to be interconnection on the submarine cable, and most likely, HVDC submarine cable is the technology that will be adopted with the feasibility study find the interconnection worthwhile for both countries, especially sharing of our resources among the ASEAN region. The second intervention that we are discussing on is with our neighbor, Singapore. Today, we have 1,000 megawatt hour of existing interconnections, and we are thinking further because the demand from Singapore is a 4 gigawatts imported green generation of power. So we are thinking that there could be a potential possibility that we can increase another link to this number. So we have started the groundwork. We do counterparts on the Singapore side whether this makes possible in the near future. The third element in the quest of our ESG adoption, we are doing the green energy island project in Pulau Perhentian. Happy to share that we have installed 120-kilowatt peak of solar generation in one of the premise in Pulau Perhentian. This Masjid in Pulau Perhentian, which is part of the objective of making the Pulau or the island a green island, so this green island project also received the top 3 awards in the recently concluded Enlit Asia in Jakarta. Overall, it is about 36% we expect through the progress that we are making. On the performance of the grid as well as the growth of electricity sales, as mentioned, we see the data center is one of the growth engine for electricity industry in the country. As mentioned by Dato' Seri Baharin, we have completed 6 projects within the 12-month time frames. That amount of energy is about 300 megawatts to 6 known data centers of the world. Locations are mostly in Johor and also in the Cyberview Cyberjaya area. So looking ahead, we have another 8 projects under construction. 4, 6, or 8 data centers amounting to 2,000 megawatt. Again, the locations are basically at the area in Johor, Cyberview, and near the Technology Park in [indiscernible]. So those are the 3 areas where data centers are centerless at the moment and the electricity supply, infrastructure are very well constructed to support those demand that is coming from data center. Looking ahead, we are also exploring another green energy sources with one of data center, which is AirTrunk. The possibility for us to install the energy storage for that data center as well as the solar generation, so there's a combination of supply that we want to have -- the data center to get from us, actually from the grid, from the solar generation as well as from the battery storage. So that is another green element investment that we are collaborating with the data centers. Next, please. So on the third pillar, which is on the prosumer consumption of electricity. Looking at the electric vehicle green generations or consumptions, the target remains 10,000 EV charging points by the year 2025. To facilitate this, Tenaga Nasional has embarked on green lane supply connection for the charge-point operators throughout the country. This is to enable the electricity supply. The EV charges will be on time and as fast as possible to the requirement of the charge-point operators. Happy to share that this single point of contact platform that we facilitate the CPO; today, we have received 113 supply connections from various CPOs totaling 111 megawatt. To date, we have basically commissioned out of the 111, 5 megawatt of supply to the EV charging infrastructure. So that is something that we are quite positive about with respect to the EV adoption for the country to have an [ SCSD ] transport sector, achieving the [ ESG-oriented. ] For Tenaga Nasional, we are also supporting by investing in the EV charging points infrastructure through our brand name, TNB Electron. As mentioned, we are also signing an MOU with Charge+ to facilitate the cross-border EV charging infrastructure. Under this MOU, what does it mean is that the Charge+ customers will be able to assess with the TNB Electron platform, which is under the GO TO-U platform. So there is a cross-sharing with respect to the platform to enable a seamless charging for customers regardless whether they are in this country or in Singapore as well as the Charge+ customers in Thailand and beyond. So that is the objective with respect to the cross-border EV charging platform partnership with Charge+. Secondly, Tenaga Nasional, as mentioned, we have commissioned 3 EV charging places at the PLUS highway, namely Ayer Keroh, Paka, and Tapah, and we are seeing a good response with respect to the utilization. So far, Ayer Keroh and Tapah has shown the utilization rate above our initial estimate comparatively. And we are seeing more and more adoption of EV to the country. We are also at the concession of making 7 at the EV charging infra across the highways and the progress is about 40% to 50% at the moment. So a good positive demand with respect to the transport sector on the EV infrastructure nationwide. Another element with respect to the green initiative on the prosumer side is the installation of the solar rooftop, and we have positioned GSPARX as a vehicle for us to provide those facilities to the customers at the same time embedding the capacity of the regeneration into Tenaga Nasional. Some of the key headlights in last quarter for GSPARX, we signed MOU with 2 important industry value chip players. The first is RHB to provide the financing solution to the customers who are -- wants to install the solar auto. In the sense, the MOU certified Tenaga will provide the technical solution, meaning the hardware of the solar PV and installation, while RHB will write the financing solutions. And the target segment is mostly towards SMB. And today, we have about 1.5 million SMB registered under TNB registry account. We believe this is the untapped market of the solar stock installations. So together with RHB, we will go to the market, and we have started this collaboration by having a roadshow in the -- the first of the roadshow is in Klang Valley, which has happened last week, attended by almost 300 SMBs in the region. So that is the latest go-to-market approach of GSPARX together with the financial institutions. The second MOU is actually together with the [ Tenaga ] Solar who is the provider of the PV with -- as a supplier to GSPARX, so we hope that with the cooperation both on the supply side and also the go-to-market side, we will capture more of the market share with respect to the solar rooftop. Another element of the pursuit for this month is the announcement of the NETR project. If everyone can refer, one of the flagship project is on the solar rooftop. It is awarded to Sime Darby Property, and we have in this NETR project, we are now partnering Sime Darby Property to install 450 homes with solar that is close to 4.5 megawatts in one of these Sime Darby Property project in Elmina. So in the sense that Sime Darby has partnered us or have selected us to be the partner to embark on this pilot project in one of the property development. So in the sense, we are the core partner for one of the NETR project together with Sime Darby. Overall, for the year 2023, GSPARX has so far achieved more than 300 megawatts of secure solar rooftop installations. We expected to commission 70 megawatts towards the end of the year. And some of the notable achievement for GSPARX is to install 2.6 megawatts of solar capacity for a customer called Shorubber in the Northern region. Second, awarded 2.9 megawatt solar rooftop by Kian Joo Can Factory in Nilai. The expected completion will be towards the end of the month. And third, we have also secured the Outright Purchase from the AIMST University of solar rooftop [ Sg Petani. ] The meaning of our Outright Purchase is that we actually sell the PV as well as the EBITDA to the customer and where we will do the installation for the customer, and the ownership belongs to the customer for the solar solutions. So that is expected to be completed by 2024. So all in all, I think in the first 3 quarters of GSPARX business, this has been growing a good year-on-year basis of almost equivalent to 23% CAGR growth. So that's about it with respect to the pillars of Tenaga and the growth perspective of Tenaga and also the ESG contribution of Tenaga Nasional. Thank you very much.

Thank you, Dato' Seri, Dato' Megat, and Mr. Nazmi for your presentations just now. Let us now continue with our Q&A session. We will address questions from the floor first before we move on to attendees who are on Webex. With that, I open the floor for questions. [Operator Instructions] Please introduce yourself and state your questions. Thank you.

It is Isaac from [indiscernible]. I have just one question. Maybe you have some more colors on a single buyer instead of its balance sheet? What kind of -- like how much is asset liability that we are looking at? And if it was to be [ cap out, ] what are the changes to your net gearing position be from the EV EBITDA on the net gearing level?

About the single buyer. So at the moment, a single buyer is an entity in Tenaga, in the department. So when they are taken out from Tenaga, it becomes [indiscernible] into a bit of in their own. So as far as single buyer is concerned, they are just an operation in company cost pass through, it's part of that. So when the metric or the parameters for them to be coming out now yet to be sorted out, the ownership and what would be the asset value of that, they'll be more of a cost center because they are not -- they don't carry meaning a lot of assets because they just partly will do a settlement for the energy [indiscernible]. So that's all. But the issue is -- you're referring -- if you are referring to the PPA value with at least in accounting of debt value, okay. At the moment, we have no guidance yet about that. But the current PPA is all signed in with Tenaga. So the new entity of single buyer is [indiscernible]. We don't have any obligation to those PPA. They are still being carried by Tenaga. And legally, to give more legally, but until it's been innovated or been transferred to them. So they will carry that value. So they will need balance sheet to carry that. So at the moment, as I said, it's now -- the form and the parameters of the single buyer has been not been finalized yet. There's still been discussed -- lot of discussion going there.

Maybe just to add to what Nazmi has said, I mentioned that it -- but I think what is also of importance is the other tangible benefit that Tenaga can reap from the so-called carving out [indiscernible] from Tenaga. One, I think it is very important when you talk about the partnership, people would like to see independent entity running the bouquet. Even though SEBs now being green-fenced is already independent, but carving up will be a step forward, step up, which I think will go very well with the sentiment of wanting to see an independent neutral entity managing the market. So that is a step in the right direction. It not only provides an independent perception, they will be operating independently. And we see also the need -- I think the government has more or less agreed in principle in this carving out of the Tenaga Nasional SB, the new entity will be carrying the liability of future PPA. While the current PPA that Tenaga is carrying now, we will be working on time certain journey, we're working on a journey for eventual handing over innovation of these PPAs to the new entity. So what we're seeing here is not only that the SB will be independent, they will be also very much financially on their own, that will relieve Tenaga on their liability obligation. So all in all, we see this as something very positive to the industry, to the players of the industry as well as Tenaga.

Just to address your gearing issue. At the moment, our calculation on gearing does not include the [ activities ] of the leasing. So it's net of net. [indiscernible]

Whatever we see in the balance sheet, and we see when you say your net gearing ratio orders is excluding...

[indiscernible].

So it's not in that number?

No, we have taken out.

Two questions. On the regulated return that you had achieved in the 9 months of 2023, that works about MYR 3.5 something billion, which is lower than the normalized net profit for the 9 months. So can I summarize the difference is largely due to the negative net fuel margin? Is that how I should put it?

Yes. More or less, yes.

As a second question, on the energy exchange set up, I just want to get a more clearer picture here. Who will be the participants, the buyer and the seller? I mean, from the way I see it, it's only one single buyer, which is the single buyer entity, right? Yes, so how do you create liquidity with minimal participation for the energy exchange? And then also on top of that, currently, most of the generated electricity are already locked in through long-term power purchase agreement. So my question is, how do you create the liquidity in the exchange then, once set up?

Okay. I think detailing this energy [indiscernible] very much well in progress. I think that Mr. Nazmi is a leader, he was looking at it before at the -- he did have an idea we want to start operationalizing the exchange, but there will be a need for them to have certain laws to be amended, et cetera. There's a lot of things that needs to be done. But in general, the principal objective is still that is they want to encourage trading external and instead, domestic as well as export market. That's number one. Number two, they will like this trading to be as transparent as possible. Transparent could also mean that they want to address the uptake of independent operating entity that I mentioned earlier. So trading, they wanted to be transparent, independent, and they want this trading to be a two-ways. Number three, one of the primary objective of this is to encourage and open electricity market formulation. But you must imagine that we are very much a regulated industry market. And for us to transit to something very open, you need to be very cautious. You want to be making sure that it is a responsible transition. We do not want to do that for the sake of just the market at the expense of, for example, the security of supply of the country. So it has to be done in the most responsible, just, and balanced transition. So we want to make sure the affordability, the sustainability as well as the security of supply of the country is not jeopardized. So it's very much work in progress. I would suggest that keep the follows closely, progress is announced by the government with time to time. At least they can get some bit of the opening up of the market during 2024. For example, an export market can be encouraged by nature, for example. While the domestic decision will take quite a while to attract because there is also this question of costs, fair cost allocation. As you are aware, the industry is very much distorted. The market is very much distorted by a lot of cross subsidy. The market is not efficient. When the market is not efficient, then you want to [ floor in. ] You can end up having a cost allocation of the system. You may end up having the rich who owns -- who can afford solar, getting a subsidy from the system. And that mean eventually that the public will end up paying for this subsidy for the rich. So because of that, this allocation of costs, the opening of the market can be very tricky. That's why there's certain prerequisite that has to happen, the legal mandate, the proper cross allocation, removal of cross subsidies, all that must happen first before you open the market. So that the market will be a fair and equal market. Otherwise, no point of opening [indiscernible] market and end up getting a very distorted cross subsidy system within one. That's why, in our view, it will take quite a while. It may be slow, but we want something fair, independent and transparent. It's easier to do cross-border first, but it's cleaner. Domestically, there's a lot of cross subsidies like that, you need to sort that up first, then only you open. They have not decided on that yet. Yes, there are many ways and models on how they can -- you want to manage this, but that will allow the government to look at it deeper and announce properly later.

My name is Daniel from Hong Leong. My main question is on this negative fuel margin thing. We know that you are guiding for MYR 900 million, so will this actually prolong into FY '24?

Depends where the fuel price would be. At the moment, it's hovering about [indiscernible] between $95 to $100, [indiscernible] per tonne, right? So as we said, as long as it maintained that way and we have taken the bulk of that in this year about MYR 900 million, so going forward, assuming the product stabilizes where we are today, so any impact means this cannot be quite not mature, assuming [indiscernible].

So we are not -- if you assume that coal price is maintained at this level, so we are not expecting a negative fuel margin to flow into 2024?

Assuming it stays where we are today for the whole year of next year, so no impact. No material impact to Tenaga because we've already taken the loss this year, MYR 900 million.

Okay. Second question is about your financial numbers. Okay. If you go back just now, you show that your EBITDA decreased by MYR 2 billion, your revenue increased by MYR 2 billion, and then you guided your negative fuel margin was about MYR 700-plus million. So -- and then you also are guided that the cost of maintenance actually went up year-on-year basis. But if you use the MYR 2 billion minus of the MYR 700-plus million, there is a difference of about MYR 1.3 billion. And then we use the maintenance and repair maintenance increased by MYR 300 million, still differ about MYR 1 billion.

Okay. When you compare the EBITDA, it is compared against, you said, last year, right? So the movement of the fuel margin is MYR 1.7 billion.

MYR 1.7 billion.

Yes. Last year was a gain number. So this year, it's a loss. So the movement about MYR 1.69 billion, MYR 1.68 billion, MYR 1.7 billion. So that is materially impacting our comparative figures. Okay. The end maintenance is maintained, but as I said, it's within the [indiscernible] involved, so there are a lot to do that.

So is it fair to say that last year, your numbers was actually bumped up by MYR 1 billion?

Yes, last year was a gain.

Yes. I mean, the gain of -- it was about MYR 1 billion?

Yes, close.

So I want to ask about earlier in the slides, Dato'’ Seri Baharin actually made a great point. The economics of transition should be attainable and feasible, right? And you have guided that the previous -- the Part 3 flagship to [indiscernible] will contribute around MYR 550 million EBIT. So can you actually give us some guidance on what kind of tariff levels when you guys are after those numbers? Because at MYR 0.20 solar [indiscernible] I don't think those economics will be feasible, especially when we're talking about co-firing ammonia hydrogen.

Co-firing hydrogen. I mean I was told that the CapEx will come to about from MYR 0.5 billion to MYR 1 billion. I was at this meeting attended by [ Rafiq ] yesterday, and the principle of this NETR generally is they were not going to involve any government funding, that's rule number one. And from our perspective, from the developer, in our case, we already are developer there. We would not want to proceed if this is not being done with clear cost recovery model. We are talking about the government who says that no money from me, developer decide they will not put any money [indiscernible]. What was agreed mainly on this NETR is for there will be some kind of funding provided, not by government, but by the market. If that is going to be the case, I think the answer is very obvious. The market will not put a single dollar unless they are very convinced that there is return today. So the answer to this, the economy was worried that there will be some kind of cost recovery model that will be developed progressively to make all these NETR projects viable. That can include cheap funding from international funder, from what we call international green fund. They are -- actually international green fund available. Actually I inform this type of project, green-based project. What I am saying here, we will be a product that will be undertaken, fully aware that the cost recovery model will be agreed upon.

Internally, when you guys do your project projection, what kind of hurdles are you looking at?

Okay. So let me -- so when you look at the EBIT, and we quoted on the page, it talks about ammonia alone, it's about the [ 500 ] and 2,500 of megawatt, right? So to get that project done mentioned by [indiscernible]. So having said that, the return that we're looking at is always on the robotic metrics that we have, for this is more of the high single digit there. So that is why we work out that way. And based on the prevailing market condition that we have today, so we are projecting that our earnings or economic return for us, right, should be around that level.

Thank you. Secondly for me is that, for the past few months, your new stores on Tenaga and guidance from the company, it says that around any NETR, which is also because it's a big catalyst domestically speaking. How about your overseas ventures? Because are you still keen on spending overseas ambitiously or you need to prioritize CapEx moving forward?

Okay. How we see that because we already have these pillars that we want to do [indiscernible] overseas. And mind you, our local investment is also the important pillar that we have. We will never neglect proper investment. That's important to us. In terms of us going overseas mainly is for us to expand our earnings capacity. And of course, it's number of megawatt installed, right? And we are, at the moment, do have [indiscernible] overseas, right? So that's why we're investing in the U.K. and mentioned by the [indiscernible] now that it was venturing into Australia [indiscernible]. So this will keep us busy for quite a while. And how we allocate capital is that all these overseas investment, the investment will prompt the [ consequences. ] So we have limited capacity in Tenaga and we have an EBITDA of gearing and how the application will be. But in terms of funding those investments, there will always be from the company concept. So the investment must ensure that it can be for itself, for the asset and for the growth commitment, and anything that's within. So EBITDA -- we are very much into the local. We are doing -- that's #1 priority. And also to increase our shortness value and earnings capacity, you have to go beyond. For local, it's quite limited, right? So we have to go beyond. Of course, there will be calculate risk and investment [indiscernible].

Because judging by the headline these days, Tenaga invest billions there, billions there, I wonder if you guys have more money to get all this investment.

No, no. It's capital management.

[indiscernible] project?

They bought the rights for the 6.9%, so it's in the pipeline. You saw it's for 120. So we have the rights for that. So as I said, it's a bigger and a longer-term plan. Absolutely.

[indiscernible] seems to have secure capacity for the energy exports into Singapore. Is Malaysia looking to participate? And more importantly, is Tenaga looking to participate in the energy exports into Singapore? 4 gigawatts, I understand the books close by end of this year, but we have yet to hear anything on that. And the second question is really on the data centers. That 7,000 megawatts. Do these players require green energy? Or are they okay with brown for now and gradually over time, that mix change as they hit, I guess, 2030, 2035?

For the first question was on the Singapore offer. Yes, we are participating, and we will be going through the proper bidding process. So we are interested, we are -- and as far as data center, 7,000 megawatts. At the moment, they are okay with the current way of getting supply, which is the normal nongreen power. But as you're aware, most of them about international recognized organization, wish for more green very much in the agenda. While they recognize the fact that we are able to provide good reliable power currently, they also recognize the fact that Tenaga is growing quite aggressively on green agenda. So though they don't get the green power now, they are quite confident come the right time when the system is ready, they are confident that Tenaga will be in the better position to provide them with a clean energy. That's what they're saying. So they are okay with whatever that they are getting. What they want now is a reliable power. Reliable green power is much better. The green power will come in time.

Sorry, Datuk, just a quick one. The data center, the numbers that you just mentioned, pipeline 4 or 3, does that include the recent one that Microsoft secured a land bank from Crescendo? This is part of the pipeline?

Yes.

Okay. All right. And then also, there is an area of concern for these data centers generally probably out of the domain is the shortage of water. How do you see this issue sorted out because I understand they need a lot of water for the cooling, for the processors and all. And probably, there may be a shortage of water to cater for the Johor data center market. Probably if you have any insights on that?

I think there's a press release by Johor, this morning, you can check. We also have a -- if the water is about cooling, there's a product called District Cooling. Tenaga can offer probably to a certain extent address the one type of such a mix of such installation. We have -- there's this technology called District Cooling. You talk about data center, their main consumption is [indiscernible].

Okay. Last question, back on the data center. There was one -- I think you mentioned that 3 -- 2 actually was completed ahead of time. So far, how much has been invested into these data center projects in terms of the power supply and connecting? And how much has been invested so far, specifically in Johor in July area around there?

We don't have EBITDA. It's part of CapEx spending, so it's part of relative business. So wherever we spend, it's part of that. There were millions we're spending for the year, so it's just another industry that we are connecting to.

This is one industry, whichever example you have taken [indiscernible] the activity of widening the road is BAU. I said that this will need to be contracted [indiscernible] because the consumption is -- for example, you take your road in, company, the peak hours is from 8 to 10, then mark down from 6 to 8. We're building the same road, but this time around, we're going to use the road 24 hours.

I was guessing that because I think the [ Bermuda ] is probably the biggest nationwide, right? So probably it will cost a lot more. So yes.

Due to time constraint, we will now be taking questions from those who are joining us virtually. We have one from Justin from KSC. How much do you think your CapEx will be next year? And of that, how much will your regulated entities CapEx be for next year?

Okay. So our CapEx for regulated business next year will be about MYR 7 billion. That's to have 7, 7, 7, so that's more billion for the 3-year period. So next year, we are expecting to spend at the MYR 7 billion. The non-reg CapEx would be about MYR 5 billion to MYR 6 billion, mainly is because we are building our GenCo business, some of the projects that we have, namely Nenggiri. Nenggiri will become -- be under construction fully, very [indiscernible]. And then we're also looking at the life extension of some of the hydro plants. So mainly for generation business, those are the 2 major things that we have on top of the solar project that we have, I think, in the pipeline. So it's about 7 -- about MYR 5 billion to MYR 6 billion non-reg.

Okay. That is all the time that we have for our questions. I would like to thank you all for your questions. I will now pass to Dato' Seri Ir. Baharin Din, President and CEO of TNB, for his closing remarks.

Yes. [indiscernible] heard about challenges we face. Looking forward, opportunity forward that Tenaga is actually capitalizing on. We're looking at potential coming from data center, EV, even some of this GSPARX. And Tenaga earning, yes, has been impacted by the negative fuel margin. But the trend forward [indiscernible] information just now, we will be tapping now. We hope the so-called stabilizing of this fuel price will go into easing our cash book and definitely put Tenaga in the better position. And as far as dividend is concerned, the last few years, we have been consistent rewarding our shareholders, and we very much appreciate your support, and looking forward for the remaining year of prosperous year for Tenaga Nasional. Okay, once again, thank you very much. Have a good day.

Thank you, Dato' Seri. Ladies and gentlemen, we have now come to the end of our session today. On behalf of Tenaga Nasional Berhad, we would like to thank you for your time and participation. And if you have any other questions that you want to ask our Investor Relations officers, you can contact their number on the screen or e-mail us at [email protected]. For everyone who are joining us here physically, we would like to invite you to our networking lunch in the Seminar Hall 1. It's the room to my right. And to all joining us virtually, thank you very much. Stay safe and see you in our upcoming session. Thank you.