Tenaga Nasional Berhad (TENAGA) Earnings Call Transcript & Summary

Ladies and gentlemen, announcing the arrival of Datuk Ir. Megat Jalaluddin Megat Hassan, President and Chief Executive Officer of Tenaga Nasional Berhad. [Foreign Language] and good morning, ladies and gentlemen. Welcome to the TNB's Fourth 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 divided into 2 parts. First, our President and CEO, Datuk Ir. Megat Jalaluddin Megat Hassan will present on TNB's group strategy deployment. Following that, Mr. Nazmi Othman, our Chief Financial Officer, will delve into TNB's Financial Year 2023 full year performance. After this presentations, we will open the floor for questions before concluding at around 12 noon. To commence our session, let us watch a safety video to ensure pre partners for any potential emergencies. [Presentation]

Next, let's shift our focus to a video showcasing TNB's sustainability initiatives. [Presentation]

We hope this video offered valuable insights into our sustainability efforts. Now I am delighted to invite Datuk Ir. Megat Jalaluddin bin Megat Hassan, our President and CEO, to kick off today's session. Please welcome.

Thank you very much. First and foremost, I would like to welcome everyone to this quarterly briefing. Before that, I would like to take the opportunity to introduce myself. So my name is Megat Jalaluddin. As probably everyone is aware this is my first day on the job. And hopefully we can have a good interaction today. And I would like to also welcome the analysts in a sense that the goodness of the inventions that we have in the past will continue towards in the future. So for today's first quarterly report, that is also mark our year end of 2023 so I would like to give everyone the overview, reflections of Tenaga business in 2023. From the perspective of running the company, I think 2023 post a challenging year for Tenaga. And we believe the challenge is not only faced by Tenaga, it's faced by many of the company's in Malaysia and globally simply because the factors affect everyone, 3 main factors that we can relate to the geopolitical tensions. The supply chain disruptions that lead to high inflations. And in some markets with respect to the power or energy market. We are seeing some countries face energy crisis in some region. Against this backdrop, I must say that TNB remain resilient, and there are a number of notable achievement of milestones across the value chains of Tenaga Nasional in 2023. So let me try to summarize some of those positivities that we have added in 2023, starting at our generation business. So in generations, we can see that in 2023, we are able to secure a good and healthy pipeline of almost 5,500 megawatt comprises of, for example, the Nenggiri hydro project of 300-megawatt as well as the Sungai Perak Hydro Life Extension Program of 650 megawatts. On the division, the youngest division of Tenaga Nasional that we created only a few years ago, we see the progress is a good progress, whereby we are able to add a good capacity of 447 megawatts of RE capacity locally as well as internationally. At the same time, in terms of the pipeline, the division is still negotiating and approaching to get the best of those portfolio going forwards. The launch of the energy transition by the country also post a positive position for Tenaga, whereby we were given the opportunity to lead some of the major projects and initiatives under NETR, and that spells a good momentum for Tenaga to move forward. We are given the opportunity to lead in 3 of the flagship projects, which is RE Zone 500 megawatt of solar large-scale solar, 2,500 megawatt of floating solar as well as advancing or exploring on the new fuel technology combining hydrogen and ammonia. So that sum up the performance for Genco. Looking ahead for our next pillar, which is the energy better achievement which is actually the business of the grid and distribution network. We are happy to say that we are able to deliver 100% of the energy transition CapEx for 2023. This is demonstrating our commitment and also a good project delivery by the team. At the same time, we are able to enhance the conversation with respect to the interconnection with the countries among the Asian countries. And to show the commitment moving forward, we have signed 6 MOU across regional cross-border energy trading among our neighbors. Another notable achievement is the project delivery by our grid team with respect to giving the supply to one of the most important pillar of growth which is the data centers, and we are able to complete 9 projects last year. And also 4 of those projects are being commissioned ahead of schedule. On the data center, we are also signing another ninth energy supply agreement, with estimated maximum demand of 2,300. So that is the second player of our business. The third is actually on the customer pillar and we are looking at the foray of our subsidiary called GSPARX on the solar rooftop another good and successful year with respect to commissioning of the solar rooftop as well as acquisition of new customers. To date, GSPARX has secured 340-megawatt peak capacity amongst the industrial and commercial customers, inclusive the domestic customers to a lesser portion. We're also happy to announce that we have commissioned 3 electron stations last year. And in fact, today, we will commission another 1 in the rest area of Juru in Penang. So that provides a good momentum with respect to how we want the customer to be part of the journey of energy transition, making the customer to participate by having the second generation portfolio among the customers as well as converting into electric vehicle, which is part and parcel of the objective for the country energy transition. On top of it, we are also happy to say that this successful achievement are being recognized by third-party awards and recognitions, notably in our customer satisfaction index, we were given a rating of 88% by our customers. This momentum has been kept for the last 3 to 4 years around the region of 86% to 88%, and we are confident that this is something that we want to continue in the future. And recently also, we were given the recognition with respect to the most trusted corporation and institution, in Malaysia through the survey of independent third-party organization called Ipsos. So those are some of the awards and the recognitions that we have received throughout 2023, which actually combining the achievement that we have achieved up to that particular point. So all this achievement, financially, project execution has enabled us to consistently reward shareholders through sustainable division. And I'm pleased to highlight that the dividend that we just recently announced is a testament to this commitment to our shareholders of Tenaga Nasional. Last year also marked the significant shift of the Tenaga Nasional approach towards the business landscape. We understand that the business demarcation among the professional value chain has diminished over the years. And realizing this Tenaga in 2023 embark on what we call a strategic collaboration among the partners. We have seen that collaboration being ink bring our energy transition conference in Kuala Lumpur somewhere in August. At the same time, we continue those journey in the first quarter where we also build strategic partnership with key players during COP 28 event, which we were one of the participants from the country. Among the collaborations that provide a positive return to Tenaga is our collaboration in the Al Dhow project in Kuwait. This is a collaboration between our Remaco and Al Dhow through actually partner up in operation and maintenance of the power plant in Kuwait. And based on those collaborations, we're happy to say that we are able to win some of the biddings in Kuwait. So a positive expansion with respect to our operation and maintenance business, which is a service-based business. Less capital intensive compared to the rest in the Kuwait. And hopefully, we can expand this beyond the current collaboration that we have. Another partnership that was seen during the COP 28 is with the [indiscernible] company called Citaglobal. This is the collaboration to develop RE projects in Malaysia. The target area is around the region of Pahang, which has a lot of land, for example, to build the solar -- large-scale solar project. So this is only the beginning with respect to what we want to achieve with respect to the partnership with Citaglobal. On top of that, the memorandum of understanding is also beginning between GSPARX and some of the major customers in Malaysia, and we are able to secure 2 big projects, 2 big customers namely with AEON BIG Berhad, where we will install solar top on all of their premises for the next 2 years. And we are also having a similar journey with KPJ Healthcare Berhad, who we are given the opportunity to install the solar rooftop on their premises all over the country. We believe this is a collaboration that will create a good momentum forward for GSPARX. And this memorandum of understanding is basically a business expansion plan for GSPARX. So looking at what has happened we understand that the focus of the business growth is always be prominent. But at the same time, we can see that the commitment of the collaboration signify that our commitment towards sustainable solution coming from the power sector. So those are the points and the milestones that we have achieved in 2023. So looking for 2024, as we move forward, in the year after Dragon. We would like to further focus on our business growth while going to be fulfilling our net zero commitment. So again, I would like to share some of the plans that we have, the planned promise that we have for the year 2022. Looking at 3 of the main pillars that we have. Genco with respect to 2024. We are expecting to achieve 56% of the project progress by year end of 2024. For Sungai Perak Life Extension Program, we are finalizing the power purchase agreement and contracts for the EPCC. For the hybrid hydro floating solar, we are finalizing the potential offtake mechanism and doing the initial feasibility studies. For Remaco as I mentioned, maintenance service for Shuaiba plant in Kuwait will be starting in this quarter. Hopefully, that will give a good return to Tenaga in the immediate term. Looking ahead for Genco, we are exploring the co-firing of hydrogen and ammonia. It has both element of trying to find the new fuel for the power industry. But at the same time to ensure that we can achieve the ambition to reduce our CO2 by having this co-firing technology be part of the system. And the target is that by the year-end, we should be able to complete the front-end engineering design and study and having a conversation with our regulator how to move forward with respect to the potential co-firing for our power plants. For our new energy division, happy to note that for 2024, we would want to continue the ongoing development of the solar as well as wind asset in U.K. with the development of 102 megawatts. RE assets and expected to complete COD by the third quarter of 2024. Another important element is the -- our initial foray into another market, which is Australia, where we have made an initial investment to acquire Spark RE in Australia who has at the moment, an existing operating assets and also the rights to build new assets. So in 2024, we would like to pursue the opportunities in Australia with respect to the RE portfolio that we have today. And we are talking about 1.9 gig development pipeline that we have today, which we will pursue in 2024. The other point with respect to the new energy division is the corporate green power purchase agreement, in which Tenaga was -- has won the bid for the CGPP. And we have signed the agreement with 7 companies totaling of 90 megawatts and construction is expected to start in quarter 2 2024. At the same time, we're also looking at the projects with respect to the 500 large-scale solar, but that was awarded to Tenaga Nasional last year, and we would expect to complete the financial close for 4 project sites this year. So looking ahead, we have many exciting development projects that we can undertake for the benefit of Tenaga as well as the country. For the grid in 2024, we expect and we believe that we can utilize 100% of the available CapEx that was given to us under RP3. And at the same time, we are looking at -- for commission the new data centers, the new 9 data centers that we have signed the ESA on top of the one that we have completed. 2024 also, the plan is for us to resolve additional DC charge point, another 50 units throughout the country, focusing on the major highways as well as the major town roads across the country. And that will bring our electron stations up to 56 numbers in total by the year 2024. For GSPARX, with a current 340 megawatts that we have secured for 2024, the plan is for us to go up to 160 -- or minimum 160 megawatts to secure from the market. So hopefully, we can reach a total 0.5 gig for GSPARX with respect to the capacity that we want to achieve for 2024. So those are the key outlooks for the 3 main business of Tenaga in 2024. 2024 also provide us an opportunity and it is an important year for Tenaga with respect to our regulated business. As everybody understand, this is the last year of the current regulatory period of RP3, meaning that we have the opportunity to pursue the agenda of the regulated business for RP4. In that respect, we have successfully submitted the initial proposal for RP4, the regulator early of this year and the proposal take into account 6 key focus areas that we want to address with respect to the great investment grid project delivery and also the NETR objective for the country. The first objective for us is actually addressing the energy trilemma, our best we ensure that [indiscernible] supply is always on top of the objective together to ensure that more and more energy sustainability mix will be part of the system at the same time ensuring that we provide the most lease costs to our customers of all spectrum. So that is 3 main objectives with respect to the RP4 regulated period proposal. The first one, we're also looking at how best the industry be stabilized, and we understand that the RP period, the [ RPR ] mechanism has provided those certainty in the past. And for RP4, we would like that to be strengthened so that the power industry can focus what is want to achieve, with respect to the additional RP generation to the power mix. The fifth objective is about customer empowerment. We believe that energy transition will only happen when both the system transformation and the customer transformation happen in tandem. Definitely, this RP4 proposal embedded on both fronts, meaning that the system transformation with respect to investment will be the future, but we are not forgetting that the customer empowerment will be also key for us to achieve the energy transition objective for the country. On top of that, this is the ever presence objective as an industry player, we understand the role that whatever that we are taking on, it has to look into the subject of the socioeconomic development of the country both on the capital economy as well as on the people economy. So when -- the gist of the RP4 proposal? When we look at the generation part of the proposal, we are targeting that there will be 5 gig of new energy additional energy RE capacity for the next RP4 period. We are also looking at 8 gig of solar rooftop capacity. At the same time, the interaction of the flexible storage solution to the power industry. Other than that, with respect to the demand, we are anticipating that the demand will be driven by the manufacturing sector or by nondomestic sector, which is coming from data center as we have seen in the year 2023. It is also important to note is that the last year kilowatt hour growth is recorded or was recorded at 3.8% which is comparable to the GDP of Malaysia, which was declared at 3.7%. [indiscernible], this is probably the first time of a number of years that the growth of consumption has actually matched the GDP. To us, it come at no surprises because this is driven mainly by the consumption or the requirement or the demand that's coming from the data center, which is a non-service industry. So if everyone remember that Tenaga Nasional growth always packed with the GDP in the '90s and also early 2000 because there was a heavy investment with respect to the manufacturing sector. And then the country took a view that the service sector become prominent and somehow the growth rate of electricity and GGP become decoupled, and we have been registering about 60 -- [ 50% to 60% ] of GDP. But last year, we see the gap is no longer there. It is almost 1:1. So we hope that with this kind of low demand, we can maintain that kind of a GDP to growth ratio for the power sector. On the future mobility, we are embracing that we could get at least 250,000 EV vehicle by 2030. So part of the delivery will happen in RP4. And another important subject with respect to the energy transition and RP4 is actually on the customer participation on energy efficiency. So this is some of the focus area that we have proposed under IBR, RP4. On the grid investment, definitely, we will take care or we are proposing both the system security and reliability CapEx. At the same time, there is a good portion that we propose to facilitate the energy transition. So those are the gist of what our conversation with the regulator with respect to the RP4. So the next few slides that I'm going to share with everyone the detailing part of the 3 pillars, the numbers and the dates of the plans and some of the outlook that we can. It is basically a summarized page of what happened in 2023 and also how best -- what is the plan for us to move forward. So if I can share and pick 1 or 2 notable kind of achievement and what we can expect for 2024. As far as the Genco business is concerned, as I mentioned, we have a number of good pipeline with respect to Genco projects. And many of those since we are starting from now, we see COD in the year of 2026 up to 2031. So the pipeline is healthy and the position of Tenaga today with respect to those project milestones we are basically on track to achieve those targeted COD. For example, with respect to the hybrid floating solar we are finalizing the uptake mechanism and completion of feasibility study. And I would like to also note that for the first floating solar project of 30 megawatts that we are going to undertake in Chenderoh, we have also tender out for the EPCC contractors to bid in. So I think we are on the right track with respect to Genco. With respect to the new Energy division, some positivity is that we believe the investment of 102-megawatt in the solar greenfield development in U.K. will bring the COD in the year 2024, expected by the third quarter of this year, we should be able to commission the 102 megawatt. And the rest of the 2 projects, DPA will come on stream COD by the year 2025 and 2026. Again, as far as a milestone, we are very much in line with those target COD. Next, please. For the CapEx, we expect to the regulatory business, I think the target of 100% utilization remain the target. And we think we can achieve those as based on the past delivery that we have accounted. So the total CapEx is MYR 8.2 billion, and we are targeting to actually get those going comparatively for 2024. And some of the key projects that we have also delivered the smart meter solution progress. Happy to note that with respect to the project time line, we are achieving more than 100% of the target. Now we have another target of 600,000 installation in the year 2024, which basically the same target for '23, but in 2023, we were able to achieve [ 870,000 ]. So the total installed to date is actually 1.7 million smart meters. The other projects, the [indiscernible], which is a very technical project. I understand, but it is an important component with respect to trying to manage the grid, especially when we have the distributed energy resources coming in is the vote optimization. This is actually a better room project probably nobody noticed whether we are doing it or not. But I would have to stress that. This is happening, and we are happy with the progress and the target that we have set. And [Foreign Language] in 2024, we will deliver 160-megawatt target that we planned for. Our original interconnection, as I mentioned, encouraging developments with respect to the MOU. And we believe these conversations is no longer a bilateral conversations. Because of that, we have brought in the ASEAN Center for Energy as one of partner for us to deliver those objectives of ASEAN interconnection on top of the individual MOUs that we have with the respective countries neighboring to us. Next, please. On the data centers, as I mentioned, we have completed 9 projects, totaling 685 megawatt. There are another 9 projects that we have signed less supply agreement, meaning that this is a confirm project, a confirm customer and the customers are listed as above. And if you can see from the respective name of the customers, there are the international data center players or in collaboration it could be a local JV with international data center players. So this is another aspect that is -- we are mindful whereby this project is not only for Tenaga Nasional, but it's also the economic development with respect to the FDI that they bring in to the country. So we believe that 9 projects equivalent to 2,300 megawatt will be delivered in the year 2024. And looking further ahead, we're also receiving new so-called inquiries and preconcepts with many more data sets, and we will update the progress as we move along in the next series of the briefing to the analysts. Electric vehicle. This provides the so-called perspective detailing part of it. Today, we have 32 charge points installed. This is a combination of SC and DC charges that we have installed. And some of the installations are also part of [ research ] is actually happening in platinum, this building, whereby both the employees and the customers or visitors can also do the charging at this premise. So hopefully who has the EV charger, don't worry. You can attend this analyst briefing and do the charging at the same time. Definitely, there is a fee for that, I have to say, because there's no such thing as free lunch so the charging is happening and the projected numbers, as mentioned on the screen, we are going to install more. And hopefully by the year-end, we have the target of 66 numbers to be commissioned. At least 60 numbers to be commissioned. On top of that as our role to provide electricity to all the charge point operator we are also creating the so-called green lane supply connection from all the CPOs. To date, we have received 126 applications from other than Tenaga CPOs that is equivalent of 112-megawatt of capacity that is required. So meaning that we have now established a good momentum to move forward with respect to electrification of transport. By having this green lane is encouraged the CPO, it will facilitate the CPO to install the charger faster and hopefully better. So we would like to see this consumption of electricity from EV growing as we move along. Next, please. GSPARX, as I mentioned, it is a growth subsidiary for us. You can see that the performance of 32% charger for the last 4 years for GSPARX. We see a slightly dip acquisition of 99 megawatts in the year 2023. Believe me that where we will see a good figure in 2024 because some of those plans in 2023 will come in or come on stream in 2024. We are looking at registering up to 500-megawatt peak by the end of this year. And 1 notable element of discourse is actually our collaborations with Sime Darby Property. This is one of the energy projects where Sime Darby was given the [ PIC Leap ] for installation of solar rooftop at their housing development areas and Sime Darby has agreed for GSPARX to be the main partner in delivering the [indiscernible]. So far, we -- the agreement with Sime Darby, we installed 4.5 megawatt for their new development in the Elmina city of Shah Alam, city of Elmina in Shah Alam. So we hope that this also will pave the way with the collaboration with other property development. And we would like to test a new business model has been noted there exploring solar rooftop leasing management with the customers. So this is the so-called pilot of the solar rooftop leasing management. And I think if we can hit this to the market, it will explode the whole solar rooftop business for the country, wish that -- we hope that GSPARX will be one of the beneficiaries not only now, but in the future. Thank you. So probably that's the end of my session with respect to the overview of 2023 and some of the outlook for 2024. So I pass to my colleague, our CFO, to do the next step.

Thanks, Megat. But in terms of financials, as we have released the results on the 27th of February, a few days ago. So from there, let's have some review of that what we have released. And probably after that, we can have some discussion about that. But in terms of revenue, what we have seen for the year 2023, we saw a pickup of 3.9% of total revenue demand growth for the country. So that is a good sign for the country and something is doing well for the country, the GDP is expanding and everything. So we are recording higher and better revenue growth for the year. It's mainly coming from commercial and domestic. There's a bit of issue at Industrial. This is a bit lower than compared to last year, about 1%. But I think commercial, as Datuk Megat mentioned just now, we are moving towards the services area. So the commercial has shown a big pickup on that. But and that's -- I'm sure they will be coming back when the geopolitics, the China, everything is stabilized. I'm sure they were coming back. But for us, we saw that it's a good sign for the industry. EBITDA for the year, there's a challenge to the EBITDA. Yes, we recorded a lower EBITDA compared to financial year 2022, mainly because we have few margin variance for the generation business. Year '22, we have a good. '23 we have a loss. So there's a variance to that. But that is just a timing of the accounting and the cash flow. So of course, fuel costs were higher and during the year '22 because of the Ukraine and Russian conflict and they were [indiscernible] went up. So that's we have a margin to that. But now the price is stabilized about $100, $120 per tonne. So that is stabilizing that one. So that's why we recorded a negative but this is a vessel of reversals. Having said that, there's also a second tier of PPAs for generation business. So that's also caused the result to come down, but that is expected. That's the second year of the generation business. We also saw during the year higher repair maintenance for our distribution network. Though it's higher, but it's still within the range of whatever they are low under relative period RP3 and period 2. They are still within the range, the highest because -- the previous year is just coming up on the MCO. There were some work need to be done. But year '23, they really pick up and did some of the maintenance work, they have to complete in '22, but they completed in 2003. But we think still within the range a lot under the very regime for year '23. PAT having said all those things, we have issued a generation business where we can discuss. And then we know what the [indiscernible] that's happened in the year '23, but in December. So we are still analyzing that. and negative flow margin and the step-down on the PPAs, that has caused our profit to come down to MYR 2.6 billion. That has also been cushioned by the lower tax expense. And we all know the year '22, we have this [indiscernible] where we have to pay a solar tax and year '23, we don't have that. And during the year of '23, we managed to secure a lot of finance income from our placement of funds. We have funds that we have putting into the funds transition, the assets fund that we have. So we manage to secure the higher year '23 because the year '22, '23 the year was quite good. So we managed to secure -- become more effective in terms of money placement. So that all in all, have resulted [indiscernible] of profit after tax for the year. Next. In terms of where we are into benchmarking. So generation business, they are able to maintain -- being available collectively at 83.3% for the year, right? So during -- during the year, we also have some issues at generation, but they're still able to maintain at a high level of being available. In terms of system minutes, the EBITDA system, the interna threshold at 0.5. The internal threshold was 2 before and then we changed to 1.5 in year '24, but they're still within that. So they have done very well in terms of our grid business, the system transmission. This is very important for us in terms of system security for us. Even SAIDI, the interruption index for our distribution business where the blackout of the customer will be felt, but they are still very much within whatever we have set as a structure for them. So in terms of technical benchmark, we have done very well for year '23. Next, receivables. We will at the higher end of the receivables in the year '22 and year '21, this is a COVID, and we have lower collection rate for our receivables. But thankfully, the year '23, those things are being -- have improved. During the year '23, we managed to collect [indiscernible] collection rate. Our [indiscernible] have done a very good job in terms of collecting. They are managed at 1x 115% collectively on average. So they have managed to bring cash flow back to the normal that we had before. So managing the working capital and the cash flow of Tenaga is easier. And also managing the debt profile also be easier because we have more certainty in terms of cash flow. And government also been paying their promises that they have made in terms of the ICPT, which the government is pushing so they are paying. The year -- so now, they are also -- in terms of this year, there are about 1 month to be paid now to about 2 months, by this current year. That's quite current. So -- that is why we are able to manage our working capital and we are able to manage our cash flow better in terms of us being more predictable in terms of the future cash flow of Tenaga. ICPT outlook for the year '24, we are forecasting what the ICPT would be for year '24 is about MYR 6.5 billion for the second half. It mainly is because we have some -- I would just say, we have issues at the [indiscernible], right? That's coal. Coal is the cheapest fuel source. But to substitute that, we need to put gas or LNG. So we have to account for that also. So we are accounting for that. So -- but this is all CPT and it's just a forecast. Next,, as my CEO said just now, we are able to sustain a dividend at a higher rate. Yes, we have issues at one other segments, but the other segment managed to contribute a good return. So now we are saying is that we need to make sure that the shareholders have been protected, their interest have been protected and we are upholding the policy. In fact, for year '23, we went a bit more than wherever the policy is, policy is 30 to 60 at a group level. We are now at 66 because we want to maintain the dividend level at 46 as per last year. So that is our commitment for the shareholders. And so yes, we will have issue, but the other segments performed very well. So we are able to do that Next. Taking back to my CEO on the outlook for year '24.

Okay. Thank you very much, CFO for the updates with respect to our performance -- financial performance for 2023. So looking for 2024, we try to get a good summary forward where there are opportunities for Tenaga. I think the first is we are seeing a good demand growth in 2023, and we believe -- this will continue in 2024. So we are expecting or projecting a demand growth between 2.5% to 3%, even though the demand for 2023 was recorded at 3.8%. So we take the position may be a conservative position, but we believe that a 3% growth will be good for Tenaga and also for the industry. Second, what is our plan with respect to the CapEx spending. We plan for around MYR 15 billion of CapEx spending, almost MYR 8 billion will go to our regulated business, which has [indiscernible] with respect to return. And the balance of MYR 5 billion will go to our nonregulated business mostly to support our CapEx for the development of the new RE plants that we are undertaking at the moment. So on capital management, we will continue to be proactively working so that we will identify the risk much earlier and action taken to ensure that our cash flow remained in a very good position. And we are able to spend or allocate properly with respect to the capital allocation that we are planning. And one of the important element on capital management is the fuel prices, which the CFO has explained just now, which is an important element for us to do some kind of predictive analytics to ensure that we have a good capital management. Thanks. On RP4, we are also, as I mentioned, this is an important year for us. For us to be able to propose a good regulated business proposal to the government and taking into account also -- and in conversation with the regulator, how best we look at the tariff of electricity as we move into RP4. So tariff restructuring will be quite a parcel of our conversation so that we have clarity on the privatization in RP4 starting 2025 so that is our hope. And the tariff that we believe the best for the country has to prefer an equitable post-dimension has to be in meaning that he has to reflect the cost of supply at the same time, looking at the affordability of those segments that we have for the country. To the shareholders, one of the key element of existence of Tenaga Nasional, we believe the strength of our regulated business, which as we've shown in the previous year will continue in 2024. This is where the anchor and the pace of what we want to deliver to our shareholders through sustainable dividend that is coming from the good performance of the regulated business. On the sustainable growth, we will continue the embedding of the new generation ROE assets to the mix, but at the same time, looking at how best we reduce the carbon emission from our existing power plant through technology explorations. And as we explore the technology, we can also find growth in those threats that we want to enter into. So I would like to reemphasize that the stability of our regulated business will support us, especially in 2024, and we believe this will able us to deliver the value to our shareholders as expected. I think that is how I see it with respect -- how we see it with respect to the 2024 outlook.

Thank you, Dr. Megat and Mr. Nazmi for your presentation just now. Let us now transition to the Q&A session. We'll begin by taking questions from the attendees here in the room, followed by those joining us on Webex. [Operator Instructions] I would like to invite the first analyst to ask questions.

Daniel from Hong Leong. I have a few questions, but will start with Genco first. First thing can I have an update on what we can expect for your 2024 Genco business on any shutdowns, expiry, new commencement or any step down on [indiscernible] for this 2024 and 2025. Secondly, if we look into the fourth quarter numbers, basically the Genco made losses despite the positive fuel margin, okay? Even if you look back to 2022 numbers, we ex the fuel margin of MYR 1 billion, basically power gen is loss-making as well. So maybe we'll start off with these 2 questions first.

[indiscernible] you can add -- in terms of Genco, the expectation for FY '24. So as we have released into the press release about a month before, there's a bigger challenges that we have at the moment, it started in December. The moment where I would think is that we're still analyzing on how we want to move forward on that, and what would be the outage period would be for that. There will be a long one. We have to admit that. So there will be a sequence to that. The best case scenario is that they can come in, in October and do the start COD in November '24. But the worst case, we are looking earliness here, first quarter. So we are [indiscernible] will depend very much on how the technical perspective in terms of how they repair or is it a repairable of some of the items in the Genco components of the margin 4. So that will depend very much on that. So that is going to be a big key to Manjung entity, especially. At the moment we are [indiscernible] we cannot be coming to the market in open manner because we need to assess. We need to have some discussion with the Sukuk holders because there is a lot of sukuk orders behind that and how we can give a plan that sukuk holder or the bondholders will be able to absorb the challenges of that and also the issuance. So we need to make sure that we are covered in some of certain areas when we are covered. But Daniel, in terms of FY '24, challenges for Genco is immense, especially with the step down of some of the PPAs we have seen in '23. And going forward, I think there are not 1 or 2 more PPAs are going to be -- no, I can come back to you on that one, some [indiscernible] probably. So I can come down to that one. So in terms of the negative fuel margin, we have seen that reverse mainly in '23. By '24, if the price stabilizes at this level, so that much of not material adjustment going to be there for that. So we are management. We had a long discussion about Genco let me tell you. These are the team that we are focusing now, how we -- because our plan for Genco, we need to review and revise how we move forward [indiscernible]. And to make up for that, some of the plant that we have a new plant because the design of the period is there, of course, the first year will be quite low. So they cannot compensate for some of the losses that we have. But going forward, when they go on Tier 2, some of the plants and the new plant that we have Tier 2 is higher. So there will be better growth for debt. So we are having a long discussion about that, but that's how we see Genco in year '24 in short. [indiscernible] loss for Genco yes, mainly is because of the margin fall. And so we are -- that is a severe impact to us is down totally, and there's a big machine,1,000 megawatt. So then you can imagine the impact of that 1000-megawatt out of the system. And the time of the commercial arrangement that we have for Manjung 4 is huge for Manjung entity.

Yes. I think on the generation business as a whole, I think we can see the challenges coming from 2 aspects. One is the external challenges, basically the negative fuel margin. So as mentioned by CFO, we are seeing some -- we are seeing little minimal movement with respect to the price lately. So it is hovering I think around 120 about that. So if this persists a long way, I think we have a good chance to make those [indiscernible] less uncertain comparatively. And on the -- some of the internal challenge, as mentioned, technically, for M4, we are doing as advised by the OEM, looking at the fastest suite repair with machines that are defected. And further clarifications we will provide to the market as we see more developments to...

Next, I would like to invite the second analyst to ask your questions.

Isaac from Affin Hwang. First, congrats on the promotion, and I can see that there's a lot [indiscernible] and I have a lot of questions, but let me just ask 2. First is I see that you have mentioned that some of the ET related CapEx, energy transition related CapEx for the regular asset has been completed this year, 2023 and then you will pay MYR 3.33 billion or so. Can we just have some better understanding of what this ET CapEx is about? And going forward, when you come to RP4, would this portion of the ET be a lot bigger? That's question number one. And number 2 is that maybe can we have some better understanding on your collaboration with Citaglobal on the 2 gigawatts. In what form or shape will these come under? Will that be under the RSS, would that be under CGPP? Or would that be under some new arrangement that yet to be introduced?

Okay. First on the ET CapEx. As you can see in RP3, the journey of energy transition has started. And Tenaga Nasional, when we look at the CapEx, we have 2 lenses so meaning out of the MYR 7 billion and MYR 8 billion a year kind of CapEx, a portion is actually related to ET CapEx. So in this case, most of the ET CapEx is coming from the smart meter project as well as some improvement enhancement that we made to our grid with respect to the control system. So if you can see that the percent is probably about 20% to 25% of whole CapEx -- actually ET CapEx under this [ RTE ]. So moving forward, what we plan or what we proposed to the regulator based on the objective of the energy transition. So we are putting a proposal of higher CapEx allocation for ET. So meaning that there will be a higher allocated CapEx being proposed for before. So since the -- we have just submitted this to a regulator. So at the moment, I'm probably not ready to share those numbers yet. The major non-ET CapEx is the normal CapEx that we normally do, meaning that to secure the so-called replacement of the existing substation was ample. So that is considered a BAU that is that we have to do to ensure the security and reliability of the system regardless of whether there is energy transition or not. So this is basically the base CapEx that will happen or will need to happen. We need to be [ smart ] to ensure that we keep the system units, for example, below 1 minute, the SID is actually 50% -- 50 million, sorry. For Citaglobal, I think the -- it is a collaboration intention that we have signed during the COP 28. At the moment, we are working on the so-called details with Citaglobal, how best they would be with respect to the initiative moving forward. So there is basically -- there is no direction with respect to whether it's going to be part of anything yet. So because it is very much in the preliminary stages. And this is, I think, the stage that -- it is very much in the MOU stage better than the MOA stage. So we hope that it can move from MOU to MOA sometime in the future.

All right. I would like to invite one final question from the floor before we move on to Webex. Any takers? No. So I think while waiting for...

[ Maxum Macquarie ] Just from the slide, I noticed that you have completed about 600 over megawatts for data center demand last year. And I think you also guided another 9 projects to be completed this year, right? Can you get a bit of clarity of what's the time line? How soon will this be completed? And also maybe where is this vision? Is it largely centered in Johor or is it from other parts of Malaysia as well?

For the supply to the data center, we have established what we call a green lean delivery for data center. Why is green, because the demand for data center, they want the supply to be fast. So what we have syndicated with the players. What do you mean by fast, okay? So I think we have come to the point that understanding the customer expectation. And we have created the green lean track that the delivery of the power supply upon signing of ESA will be within 12 months. So the 12 months are the definition of the fast. So for this year, the lines that already signed, they are signed at the various months of last year. So the clock starts when we sign the ESA. So over the period of this year, that's why we can actually project within this year. The line project is supposed to be completed by this year, meaning all the ESA is signed before December or in December. So over the months, you will see the data center being commissioned. And in fact, I think ESA there will be one new data center coming that we will commission. So it's going to happen throughout the year within the 3-month -- 12-month ESA period that we have agreed upon. So that is the data center. I think the second question where I think we are seeing a triangle of areas for data centers. And this is also related to where the power and telecommunication facility are available. So the 3 most vibrant destination of the data centers players are in Johor, either 1 or 2 places in Johor. Second is actually Cyberview, Cyberjaya area and the third one is the Technology Park near [indiscernible], so it is somewhere there. So I think this is the 3 so-called area that is vibrant, and they become vibrant because of the 2 elements that is required for data center, power and ability of communication. Of course, there is a third element that the data center is always seek, security -- physical security. So those are the 3 fingers that we are seeing.

All right. Let's proceed with the next question from those attendees on Webex. The first question is coming from [ Azam ], EPF. The question is, is there any comments on the recent expectation for RP4?

Yes. This is a very interesting question. return expectation. If you look from Tenaga perspective, our expectation, of course, expectation is expectation. We want it to be better than the current one. And that is also demonstrated with respect to when we move from RP2 to RP3. So expectation, yes, we want it to be better. And we are -- they expects that we are working for the better expectation. So probably that's the best answer that I can give at this very moment.

So for the next question, I would like to invite Mayank from Morgan Stanley.

A couple of questions from my side. Firstly, I think the big picture view on demand. I think you are guiding for 2% to 3% demand growth for the country for electricity demand. Can you just talk through what gives you the confidence to kind of see that growth, whether it's the industrial demand improvement or the commercial side, what's driving that confidence and demand growth apart from data centers?

So looking at the demand forecast, as I mentioned, we are seeing a good momentum in 2023, 3.8% demand growth. For 2024, we have projecting between 2% to 3%. What are the underlying factors with respect to this one. As I mentioned, one is actually the demand of data centers. If you look at the data centers that we are going to commission with an estimated 2,300 megawatts. And the interesting part of this data center operation is that they require this megawatt 24 hours a day. So it is not only the megawatt that increase. It is also the consumption time is actually almost 100% throughout the day and throughout the year. So that provides us a good momentum. Second -- and by the way, by the way, in our tariff structure, I'm just sharing an information. I hope no question on this after this, I'm sharing information because we look at the growth respect to the segment. And we see last year, the commercial segment has the highest growth, I think, about 7.6% if I call collect. And why it is -- commercial has the highest growth because under the tariff structure, the data centers are group under commercial. So that's number one. Second, when we look, there are 2 segments because you're talking about growth. So we are projecting the growth of the commercial sector for 2024 to be better because we'll have more of this data center coming in. And second, on the commercial sector, we are also seeing because the post coverage trajectory. We're also seeing that, yes, COVID has both effect. Some of the commercial sector that has not able to come back has actually left the sector. But once that are remaining, we are seeing it a good momentum moving forward. As we can see, for example, the commercial sector. Now we are seeing the consumption increase with respect to the malls, for example, which is another important commercial sector. And I think many of us now start visiting malls, I believe. That's why it goes up. So we are positive with respect to the commercial. On the industrial, yes, I think 2023, there is a slight dip with respect to the growth compared to the previous year. I think if we look at the industrial production index of the country, it also has a 0.7% if I remember correctly, is a dip. So we are also thinking that in 2024 with the projected FDI coming in, these indexes that will actually recover better than 2023. So those are the 2 elements that we say, okay, commercial is going to be good, moving or running and we feel that the industrial will also recover because of the projected FDI that was announced in 2023 that will be coming in 2024.

I think the other question was related to Manjung and costs for, I think, the fourth quarter that we have seen on the SG&A side. Can you just walk us through the impact of Manjung shutdown for, let's take a year on the capacity payment that you received? And also on the cost side, can you just walk us through of how you're thinking for '24 in terms of SG&A costs, which have gone up in the fourth quarter specifically?

Yes. So on Manjung, as I said, just now in December, we already incurred losses for that. But going forward, what we are doing is that we are still assessing the cost of debt and how to repay cost and how the CP loss will be impacted. At the moment, we are forecasting for the year of '24, the capacity payment losses is standing about MYR 400 million to MYR 450 million. So of course, we come back to the view in terms of how we are progressing on that. And Datuk Megat if we can go on that one. So we come back and we'll brief once we have better information and better grip of where we are heading with the Manjung 4 in terms of where the trend of repack would be. So I think that is only fair for the market to understand how we're going to progress in terms of Manjung 4. At the moment, we are forecasting about MYR 400 million capacity payment loss for FY '24, Manjung 4. Want to add anything?

Yes. I just want to add that we are also looking at various angles with respect to -- one is the technical repair. And of course, we are looking at the commercial aspect as well. I think CFO has mentioned some indicative numbers with respect to capital impairment. We are also looking at the other aspect on commercial with respect to recovery of those potential losses that we will incur. So as mentioned, I think we'll -- it's only good that we update when we have more information as we move forward.

Anything on SG&A, if we can comment on that?

What is that again Mayank, sorry?

The SG&A costs and how are you thinking on the cost side of the SG&A side that has gone up in the fourth quarter?

What's is that, SG&A?

SG&A, can you repeat your questions again, Mayank?

The SG&A OpEx in your P&L?

In the fourth quarter, yes. In the fourth quarter, not only we do have some higher expenses as normal because some of the expenses will lump in fourth quarter. And of course, we also have some issues with the insurance premium for our power plant also. We have seen a market hardening an increase in the insurance premium. So that also we have cost because the timing of the insurance in -- towards the end of the year. So they have cost increase in there also. And also, we also -- as I said, just now, some of the repay maintenance of our DN and our grid also normally, they are towards the end of the year, of course, the process is stairway. So we're at the start of the year, they will start all the processes and the cost will be realized in the third quarter [ MYR 1 million ] in the fourth quarter of the year.

So for the next question, I would like to invite Sumedh from JPMorgan. Please share your question, Sumedh.

Can you hear me?

Yes.

I have a couple of questions. Firstly, on the Australian renewable -- Spark Renewables. What are your time lines in terms of the capacity additions. We have 6.1 in pipeline. So how much -- how are we looking at from a time line perspective? And how is going to be the funding structure? Can you please elaborate on that? And my second question is, again, going back to the data centers, 2.3 gigawatts that are being added, I understand that many of the data centers will require green energy. I just want to understand, is there any -- is there any bottleneck with respect to the renewable energy that we have on the grid? And just as an additional question on top of that is if the CGPP continues to progress aggressively, is that going to be a threat for the great demand? I mean I just want to understand the mechanism better.

Yes. Probably I'll just do the first one, the Australian Spark Renewables. So we are looking at time line for the year '24, there's a 6.9 gig LTV for the Spark but we're taking it phase by phase. First phase is about 1.9 gig in year '24 or '25, right -- 2025, '26? Okay. So that's the plan. We are looking at 1.9 gig at the end of '23. So we're starting '24, and we will develop that. So there's a phase development because the investment required will be quite heavy. So what we're doing is that in terms of funding for the investment is all coming from the SPV itself. So we will secure the funding and investment required in terms of developing those assets in the country that we are developing the asset. So we are managing debt at the moment in terms of us facing the funding for the megawatt acquired. So that's why we are talking about that in the open regularly about how we can develop 1.9 and how we're going to fund that, not on Tenaga, but from the SPV itself.

So on the data center and the demand for clean energy, Yes, I think we are seeing and receiving those demand for the data center, how fast the energy -- clean energy be delivered to them. So I think at the moment, as you were aware, the data center get the energy from the grid, which is actually a mix of those. And what the plan is actually we want to introduce more of the mix of the generation that goes into the grid with the green energy. And the intent is very clear. I think the regulator intent is also very clear. Last month, I think we see the announcement by the -- another announcement by the government of the Large Scale Solar 5 bidding of 2 gig sources, solar sources that will come in, in the near future, hopefully, in the next 2 years. That will actually give the grid more of the mix of green. So since there is a mix of the green in the pipeline itself and electron actually -- we cannot differentiate electron whether it is green or not because it's a colorless. So the scheme of the REC come into the picture -- the RE Certificate come into the picture. So meaning that the data center players or any players who are willing to pay or willing to have the energy clean, they can actually subscribe to the green certificate, which is a guaranteed certificate that the source is actually green, even though it is mix coming to the grid. So there is a scheme. So the idea is that we create more generation sources, and we actually use our EC as the mechanics so that it can be delivered to the respective customer. So that is the great play. So at the same time, there's also opportunity for the players [indiscernible] to actually put up the green generation at their premises. Maybe there is a limited amount of grid that can be generated at the dose premises, especially on the solar rooftop. I must admit it is limited, but there is also an opportunity to actually get more green for the data testers or the customers like -- that like green generation.

The following question is coming from Yu Shen, our HP Asset Management. The question is with regards to the MYR 531 million maintenance cost for distribution network, is it an ad hoc cost? Or it will be the new cost base?

It's not -- as mentioned, it's not an ad hoc cost. It's a planned cost that we need to do just that coming in this year into last year. So every year, we do a planning in terms of how much maintenance cost you're going to do for the grid and for our disruption network, right? But this year, we saw a pickup compared to last year mainly because most of the major maintenance is done this year compared to last year because last year, as I said, is now picking up time for the MCO. So they managed to complete job in '23, but within the budgeted that they are allowed for. And also in that cost, we have this no item, what we call new employment act issue. So we are seeing some of the costs being escalated or increased because of the new employment act issue been faced in year '23. But even with that, they are still riding the a lot and these are all the planned cost it has to do. So there's not the new cost base as mentioned is now, as mentioned by Datuk Megat, it is now -- in this business, there are certain maintenance that we have to do to maintain the SID and grid system. So these are all normal that they have to do.

Yes. I think one the spillover effect of COVID where the maintenance cycle was disrupted them. So now we are going to the cycle that we have to ensure the supply ability, meaning that we will have to continue -- or we want to continue the best engineering practices. That's why the spend now is actually now rather than previously. But what is important for this regulated business that after taking into account this so-called increase based on the budgeted figure the overall return with respect to the cost that we spend is still intact. We are spending within the expected return for the regulated business, even though it is higher comparatively to last year. I think that the discipline that we want to maintain, meaning that in the 3-year period of regulatory period, we will be -- we want to discipline ourselves so that we maintain the cost not beyond what has been agreed for to ensure the return is in time.

For the final question today, I would like to invite Somesh Agarwal from UBS. Somesh, you may address your questions.

Am I audible?

Yes, we can hear you.

Just wanted to ask a broader question on your renewable strategy, particularly overseas. As per the recent plans, you do have plans of installing new 3 to 3.5 gigawatt of renewables overseas outside of Malaysia. Could you throw some light on that? Where do you plan to deploy that capital in which countries, in particular? And what is the strategy there?

Maybe I took half of the question with respect to the strategy and CFO can add later on the other half. So for Tenaga National, as you understand that we are a public listed company, meaning that we have to put the objective of growth. And today, we have the objective of sustainability. So with respect to the RE strategy, I think the question why we actually invest overseas? I think there are 2 fundamental reasons or strategy that we want to put in. One is actually because in the whole portfolio of Tenaga National, we want to actually get more of the RE mix into our portfolio. And we understand that Malaysia as a market, yes, it is a growing market. But still, we believe that we want to inject faster than those opportunities that is available in the country. And you know that in the country, the opportunities available and some opportunities are through the bidding process and Tenaga has to make sure that we participate and win. So part of our strategy that we cannot only solely depend on the availability of the RE capacity in the country to boost up the energy mix that we have today. So that is one of the fundamental reason we actually invest overseas. And that is the reason why the focus is actually RE capacities overseas. So that's number one. Second, we also found out because the second objective is also [ met. ] We find a good growth potential overseas. And again, this is where we identify a good market, a stable market that will provide us some kind of certainty, not the full certainty but a better certainty that we will get the return for our business expansion. So that's why we have started investing in the U.K. in 2016. And now we have find another good location. We believe it is a good location, a good base, which is the Australian market. And as market has been -- as we studied, has been providing that certainty to many investors that has come to invest earlier than us. So we are actually excited to correct those opportunities as well. So it is the strategy. If I can sum up in 2 words, it's grain and growth or growth and green. So those our strategy moving forward. So the second part, maybe CFO can...

On the second point in term of the capital rising strategy, just to follow the investment strategy, so what our strategy is that we will raise the capital in the country concerned where we are -- we have our investment. For one reason is that is, of course, the country that we have is quite matured, and they are quite stable. So it is easier for us to raise the capital there before the asset that we have and the projection that we have. And also because we don't want to raise capital in Malaysia but the revenue is somewhere in the U.K. or Australia, there's mismatch in terms of ringgit and the ForEx, right? So when we issue -- when we do that, there's a mismatch to that. So if we do raise capital in the country concerned and the revenue is in that country, so there's a natural hedging. So we will not be impacted by all these ForEx issues that we're seeing today. So those are the major strategies that we have in terms of us raising capital, where the asset will be developed. So that's how we're going to move forward.

Ladies and gentlemen, that is all the time that we have for the Q&A, I would like to thank you all for your questions. Now I will pass to Datuk Engineer Megat Jalaluddin Bin Megat Hassan, President and CEO of TNB for his closing remarks.

Thank you very much for the questions given. We always appreciate the -- those questions so that we can embed it as part of our strategy moving forward. And it is pass that we know the expectation of the shareholders and analysts as we go along. So as I would like to recap a couple of things. Again, looking at 2023. A I would like to emphasize that we have submitted our RP4 proposal to Energy Commission, #1 for our regulator business. And we're also seeing some good play for Tenaga Nasional with respect to the NETR based on over that project to Tenaga Nasional. So we will continue to invest in our grid prudently to ensure that the demand is there, meeting the customer demand with respect to data centers NAV. For '23 also, we embarked on the strategic partnership with many prominent players. As we understand, as we move along, we have to go together with the partners. There is saying that if you want to go fast, you go alone, if you want to go far, we want -- we go together. So I think that the spirit that we are taking, we want to go far together but at the same time, we want to go together fast. So I think that's the challenge. So we want to have both far and fast. So looking at the earnings for 2023, I think it is mostly impacted by our negative fuel margin and some of the unexpected problem that arises from our GenCo business but Tenaga Nasional maintained a stable performance and a better performance across the other pillars of our operations. And we are able to provide those dividend to our shareholders based on the good performance of our pillars. So we hope that we can resolve those issues with respect that we have on the GenCo performance. Nevertheless, I think we mindful of the challenges ahead, and we will continue to seek the best [indiscernible] solutions, technology proposal and so forth to ensure that the group aspiration will be met as we move into the year 2024. So on behalf of the company. I would like to thank all the management team and the whole employees of Tenaga for their hard word in 2023 and the Board for their continued support throughout the year. And definitely, in conclusion, we would like to also thank our stakeholders for the belief that we have -- that you have in the company. And we will pursue the initiative that will maximize value to you, the stakeholders of the company and rewarding our shareholders remain a priority, and we appreciate the continued support and looking forward to an exciting year ahead. So thank you very much, ladies and gentlemen, and have a good day.

Ladies and gentlemen, we have now come to the end of our session. On behalf of Tenaga National Berhad, we thank you for your participation in today's briefing. If you require further clarification or inquiries, feel free to contact our Investor Relations Officer, so e-mail as a [email protected]. For those here in person, please join us for a networking lunch at Seminar Hall 1 located to my right. To all attendees where they present physically or virtually, we appreciate your time and engagement. Stay safe, and we look forward to seeing you in our future sessions. Thank you, and have a wonderful day.