The need for higher tariffs is not new. A rate increase was proposed in 1997, but was scrapped after the Asian Crisis hit. But Tenaga also has more than 20 billion ringgit in debt, much of it denominated in foreign currency. The demands on the company's financial resources stretch beyond interest payments. Under arrangements with eight independent power producers, Tenaga is required to pay by capacity, not usage.
Further pressure is on the horizon.
December will bring the expiry of an agreement with Petronas, the national oil company, that was signed when oil prices were low. Under the contract, Petronas supplies gas to Tenaga at almost half the present market cost. A new contract factoring in current oil prices would push Tenaga's costs up by at least 500 million ringgit. During his five years in office, Tajudin pulled Tenaga out of the red by slashing costs, refinancing U.S.-dollar borrowings in yen and cutting capital expenditures. Still, without a tariff increase, there is little the new chairman can do to jump-start profits.