ASIAN CASE RESEARCH JOURNAL, VOL.
19, ISSUE 2, 347–370 (2015)
ACRJ
This case was prepared
by Professor John Antony
Xavier of the National
University of Malaysia and
graduate student Yazmin
Islahudin of Universiti Putra
Malaysia, as a basis for class
discussion rather than to
illustrate either the effective
or ineffective handling of an
administrative or business
situation.
Please send all correspondence
to Datuk Dr. John Antony
Xavier, Professor of Manage-
ment, Graduate School of
Business, The National Uni-
versity of Malaysia.
E-mail: john@ukm.my;
johnantonyxavier@
hotmail.com
© 2015 by World Scientific Publishing Co. DOI: 10.1142/S0218927515500133
S0218927515500133.indd 347
Tenaga Nasional Bhd.
After seven years1 at the helm of the national utility
company, Dato’ Sri Che Khalib, the President and Chief Exec-
utive Officer of Tenaga Nasional Berhad (TNB), faced one of
his biggest challenges in January 2012: the last two quarters
of 2011 recorded two consecutive quarterly losses amounting
to RM440.2 million and RM453.9 million, respectively. While
the national power company managed to register a net profit
of RM499.5 million for the year ending August 2011, this was
below its 2010 achievement of RM3.2 billion.2
The main reason for the dwindling returns was TNB’s
dependence on Petronas’ supply of gas, which recently had
been inconsistent. As a result, TNB had to incur additional
costs by running its gas-fired power plants on oil and dis-
tillate which were five times more expensive per kilowatt
hour (kWh) than the price of gas. If the gas shortage were to
continue, TNB would face further losses in the coming years.
TNB was a Malaysian government-linked company
which had national and strategic importance as a national
power utility. As such, it could be expected that TNB could
rely on government support for its continued operations and
obligations. Independent power producers also produced
electricity from which TNB bought to augment its own pro-
duction. Notwithstanding, TNB retained its monopoly in the
transmission and distribution of electricity.3
The government’s golden share in TNB carried veto
power over major decisions of the company to ensure that
it did not make excess returns at the expense of society. The
company faced the challenge of obtaining timely and appro-
priate tariff increases to cover its operating costs, especially
it fuel costs.4 As it was constrained by public policy from
28/12/2015 12:08:08 PM
 348  ACRJ

increasing its tariff and as Petronas was unable to supply

gas to TNB in the quantities required, TNB felt that it should
be compensated for the losses therefrom so as to protect its
shareholders and consumers from electricity disruptions in
the future. “We need the money for our operational needs.
Our cost per month for operations and capital expenditure
is RM2.5 billion. We have to pay for the fuel to fire our elec-
tricity generation plants, pay the independent power pro-
ducers (IPPs) for their supply of electricity to TNB and cover
our operating costs,” Dato Sri Che Khalib lamented during
his address at the TNB annual general meeting on December
15, 2011. “We will record a similar kind of [quarterly] results
as before if we do not get the money,” continued Dato’ Sri
Che Khalib.5
Further, the demand for electricity was expected to
increase to meet the country’s needs, particularly, to cater
for the government’s economic transformation programme.
Mega projects planned for 2011 alone totalled RM118.4b.
These included construction projects such as the high speed
rail, Kuala Lumpur mass rapid transport system, new low-
cost carrier terminal and two coal-fired projects worth RM10
billion.6 These projects were expected to catalyse Malaysia’s
growth and ramp up electricity consumption in the country.
With cash reserves being drained by the cost of expen-
sive alternative fuels, Dato’ Sri Che Khalib considered that
TNB should find ways to contain its escalating fuel costs
while meeting the country’s rising demand for electricity.

THE POWER INDUSTRY AND TNB

The Energy Commission (EC) — a statutory body set up

to ensure a safe and reliable supply of energy at reason-
able prices — regulated the energy sector comprising the
electricity and gas supply industry. Since utility companies
were natural monopolies, tariffs could only be set by the
Ministry of Energy, Green Technology and Water after
cabinet approval.7 The Ministry was also responsible for
approving and granting licences to power producers.8

S0218927515500133.indd 348 28/12/2015 12:08:08 PM

 TENAGA NASIONAL BHD. 349

TNB was the largest Malaysian electricity utility

company. It had its beginnings as the Central Electricity
Board on September 1, 1949 and became the National
Electricity Board of the States of Malaya on June 22, 1965.
Its status as a government entity came to an end when the
national utility was privatised on September 1, 1990 with the
aim of improving its operations and the quality of its services
rendered to an increasingly consumerist public.9
As of January 2012, with over 31,000 employees and
an estimated eight million customers, TNB had assets worth
RM74.6 billion. There was war for talent in the market place.
TNB had trained experts who were serving in its subsidiaries
while others had left for greener pastures.
As the only integrated utility, TNB boasted a 100%
market share in the transmission and distribution industry,
and a 41.8% market share in the generation industry. With a
total installed generation capacity of 9,110 MW in Peninsula
Malaysia alone, TNB generated the largest amount of elec-
tricity through its six thermal stations, comprising coal and
gas-fuelled power plants, and three major hydroelectric
plants. TNB also operated the national grid, a comprehensive
transmission network that also interconnected with that of
Thailand and Singapore.10
Since its existence, TNB had earned international rep-
utation and numerous awards. It ranked 100 in the list of
250 power companies worldwide that won the 2008 “Power
Company of the Year” Platts Global Energy Award. Addition-
ally, TNB was the winner of “The Prime Minister’s Industry
Excellence Award” for 2007. In 2010, TNB received recog-
nition for good enterprise governance by the Malaysian
Business-Chartered Institute of Management Accountant
(CIMA) and was conferred the “Merit Award” at the CIMA
Enterprise Governance Awards 2010.11
While TNB was considered a monopoly and an inte-
grated utility, as of January 2012, the government had
issued 26 licenses to independent power producers (IPPs),
the largest being Segari Energy Ventures Sdn. Bhd. and YTL
Power Generation Sdn. Bhd. These IPPs were introduced to
encourage competition and create efficiencies in the power
sector. Through power purchase agreements (PPAs), IPPs

S0218927515500133.indd 349 28/12/2015 12:08:08 PM

 350 ACRJ

generated electricity which was then sold to TNB for trans-

mission and distribution to consumers. As was common with
PPA arrangements such as those that bound TNB, TNB was
obliged to pay capacity and energy payments to the IPPs.
These costs constituted a large portion of TNB’s expenses.
Payments to IPPs alone constituted 62.5% of TNB’s total costs
in 2011.12
With cost pressures narrowing TNB’s margins, Dato’
Sri Che Khalib felt the urgency of devising a long-term solu-
tion. He had been brought in to turn the company around.
During his tenure, debt levels had reduced from RM32.5
billion to RM18.6 billion, and TNB had achieved operational
efficiency comparable to the world standard. Along with its
reduced debt levels, TNB was also able to achieve strong
investment grade credit ratings from local and foreign
agencies: AAA from Rating Agency Malaysia and MARC,
as well as Baa1 from Moody’s and BBB from Standard &
Poor’s. Foreign shareholding was also at a high of 28.4% in
May 2007, but had since declined to 10.7% in August 2011 as
a result of the global economic crisis in 2008 and TNB’s on-
going fuel issue.13 While the company had successfully imple-
mented continuous performance monitoring through headline
key performance indicators (KPIs), recent issues had not been
easy to overcome. (Table 1 details TNB’s historical KPIs for
the past eight years, illustrating the achievements as well as
problems plaguing the company.)

OPERATIONAL EFFICIENCIES

As caps on its tariffs were imposed by the government and

the price of natural gas to fuel electricity generation was ever
increasing, TNB sought to enhance its profit margin through
securing internal efficiencies and venturing into related but
non-regulated businesses. TNB’s 60-year experience was not
necessarily an indicator of future prospects. That was why
TNB outlined a vision: “To be among the leading corpora-
tions in energy and related businesses globally”. This vision
was further reiterated through its mission that stated: “We
are committed to excellence in our products and services”.

S0218927515500133.indd 350 28/12/2015 12:08:08 PM

 TENAGA NASIONAL BHD. 351

Table 1.  TNB’s Historical Headline KPIs

FY2004

FY2005

FY2006

FY2007

FY2008

FY2009

FY2010

FY2011
KPI Measures35
Return on Assets (%) 2.6 2.2 3.3 6.3 4.6 3.9 4.7 2.1
Gearing (%) 68.6 64.9 58.1 49.9 46.9 45.2 41.3 38.6
Unplanned Outage Rate (%)a 9.4 6.1 4.7 2.2 3.3 2.9 2.7 7.1
Transmission & Distribution Losses (%)b 10.8 10.5 11.0 10.0 9.5 9.7 9.5 9.0
System Minutes (mins)c 18.0 14.0 7.3 9.3 6.6 1.0 0.9 1.0
System Average Interruption Duration 152 148 102 83 78 69 87 79
Index (mins)d
Source: TNB annual reports and quarterly announcements (various issues)
aMeasures the percentage of energy not generated because of an unplanned outage. (The lower the score the better is the

performance.)
bMeasures the percentage of energy lost during transmission or distribution to consumers. (The lower the score the better

is the performance.)
cMeasures the total minutes of unsupplied electricity in a year. (The lower the score the better is the performance.)
dMeasures the total minutes, on average, that customers are without electricity in a year. (The lower the score the better is

the performance.)

The mission inspired its employees to become more account-

able for their actions at work so that TNB could produce
world-class products and services. That, in turn, would help
TNB attain its vision.14
Armed with its vision and mission, TNB worked on
improving its operational efficiencies to provide secure and
reliable electricity to the nation.15 It embarked on several ini-
tiatives to ensure its operational performance contributed to
its profitability. Seventy percent (70%) of TNB’s power plants
had actually achieved the KPI of Equivalent Unplanned
Outage Factor by Station of less than 2.4%. That achieve-
ment matched international industry standards. Apart from
the high reliability in electricity supply, TNB’s thermal plants
were also known for their efficiency. Their performance had
increased by 1.3% between 2007 and 2011. TNB’s reliability
was further emphasised by its superior performance in
having achieved zero major disturbance in electricity trans-
mission over the last six years, as well as zero tripping with

S0218927515500133.indd 351 28/12/2015 12:08:08 PM

 352 ACRJ

load loss at 500kV and 275kV levels for three consecutive

years. As a result, TNB had managed to increase its system
availability to 99.4% and reduced the number of tripping with
load loss incidents from 26 in 2008 and to 15 in 2011.
Part of TNB’s success lay in its investment in state-of-
the-art technologies to ensure reliability of supply. In 2009,
the cutting-edge Supervisory Control and Data Acquisition/
Energy Management System (SCDA/EMS), was commis-
sioned at the National Load Dispatch Centre, which moni-
tored and ensured that the country’s national grid network
was performing optimally. This SCDA/EMS was among the
best in the Asia-Pacific region and was comparable to those
used by major utilities in North America.
To complement its improving technical performance,
TNB had also taken measures to improve its customer service
to reflect its core values of integrity, customer focus, busi-
ness excellence and caring.16 The call to put customers first
was answered through TNB’s new Customer Charter that
addressed many of existing and new customers’ needs. A
“People 1st Programme” was launched to instil a culture of
service excellence. Accordingly, TNB’s existing call centres
were enhanced to meet the growing number of calls by cus-
tomers regarding TNB’s service. With the rising popularity
of internet services, TNB also developed the “e-Application”
to enhance customer experience by affording customers,
electrical contractors and developers the convenience of
applying for electricity online. By January 2012, the system
was processing an average of 11,000 applications per
month. The internet application was easy to use that it soon
became popular. As at January 31, 2012, 40.8% of the total
number of new electricity supply applications were through
e-application.
The driving force behind TNB’s technological break-
throughs and improved processes was its information and
communications technology (ICT) division. That division
continually sought to provide the best solutions and services
to the company to enhance its productivity. In keeping with
the latest innovations, the ICT division had implemented
several initiatives such as the multi-protocol label switching
system that centralised data between two separate networks

S0218927515500133.indd 352 28/12/2015 12:08:08 PM

 TENAGA NASIONAL BHD. 353

to enhance data services, improve security and increase

efficiency.
The supply chain management project was another
ICT initiative developed to support TNB’s procurement divi-
sion by automating the tendering and purchasing processes,
contract management, and supplier relationship manage-
ment. Together with the ICT division’s assistance, the pro-
curement division had achieved significant value creation,
partly through its e-bidding programme. In 2011, RM167
million savings were recorded through various procurement
initiatives, most of which were driven by the ICT division.
Also, with its move towards a paperless office, the ICT divi-
sion helped promote TNB’s company-wide green initiative
by reducing the need for countless documentation that was
normally inherent in procurement processes.
TNB has been able to maintain its level of human
capital even through its expansion and increased operations.
In the past five years (2005–2010), productivity grew at a
faster rate than the increase in employees. TNB’s productivity
had grown to 8.1% in the past five years while the increase in
employment had only grown by 2.1%.

GLOBAL PRESENCE

As part of the Government-led initiative to push government-

linked companies (GLCs) as economic drivers through the
GLC Transformation Programme launched in May 2004,17
TNB also developed its own 20-Year Strategic Plan in 2005.
The plan outlined the company’s goals in five phases till 2026.
The immediate goal in 2005 was to reduce debt through effec-
tive cost-cutting. The second phase, which ended in 2011,
focused on improving TNB’s core operations. It sought to
place TNB as the best performing company in Malaysia by
2007 and as the regional best by 2010. These two goals were
achieved when TNB won “The Prime Minister’s Industry
Excellence Award” in 2007 and was ranked as the “Power
Company of the Year” in the 2008 Platts Global Energy
Awards.

S0218927515500133.indd 353 28/12/2015 12:08:08 PM

 354 ACRJ

Beginning 2011, TNB began its global expansion. It had

already begun to mark its presence globally by expanding its
business through its power plants in Saudi Arabia (Shuaibah
Independent Water and Power Producer) and Pakistan
(Liberty Power Limited). TNB had also solidified its exper-
tise as a repair and maintenance specialist through its sub-
sidiary TNB Repair and Maintenance Company (REMACO),
an achievement that was in line with TNB’s goal to expand
into other energy-related businesses. The last two phases of
the “20-Year Strategic Plan” entailed TNB becoming global
leaders in the power industry and expanding its overseas
investments for revenue diversification.
While REMACO was set up primarily to provide
maintenance services to TNB’s power plants, it had since
expanded its role to include project management and opera-
tion and maintenance (O&M) for other companies. Its vast
experience had enabled it to tap into the international scene.
In 2011, REMACO was awarded a contract to operate the
Laraib Energy’s hydro-power plant in Pakistan. REMACO
had also undertaken maintenance jobs in Yemen. It was also
aggressively exploring O&M and repair and maintenance
contracts in ASEAN countries, Kuwait, Saudi Arabia, United
Arab Emirates and other Middle Eastern countries.
TNB Engineering Corporation Sdn. Bhd (TNEC),
another wholly-owned subsidiary of TNB, had also begun to
set foot in the global arena. TNEC supplied district cooling
systems (DCS) in Malaysia, and played an important role in
the development of the low-cost carrier terminal — a project
listed in the 10th Malaysia Plan (2011–2015). A 20-year con-
cession was awarded to TNEC and its joint venture partner,
Malaysia Airports Holding Berhad. Its proven capabilities
and growing reputation allowed TNEC to extend its presence
abroad through its associate company, Abraj Cooling LLC,
and TNEC-Abu Dhabi in Abu Dhabi, where two DCS plants
were developed.
TNB had also ventured into Vietnam and Indo-
nesia through its subsidiary Tenaga Switchgear Sdn. Bhd.
(TSG). TSG manufactured high-voltage switchgears through
joint ventures and collaborations with business partners.
It also offered an array of turnkey services encompassing

S0218927515500133.indd 354 28/12/2015 12:08:08 PM

 TENAGA NASIONAL BHD. 355

transmission and distribution markets — the only manufac-

turer of high-voltage switchgears in Southeast Asia to do so.
See Appendix 1 for TNB’s structure and list of subsidiaries.
To complement its high-performing subsidiaries,
TNB had worked to further enhance its human capital by
creating a specialist career path scheme for technical and
professional positions. Since the launch of this scheme in
2005, TNB had developed three specialists and 32 technical
experts in their respective areas of specialisation. These initia-
tives, coupled with Its global exposure and experience in the
power industry provided TNB with a competitive edge.

RISING DEMAND

With the launch of the New Economic Model in 2011,

Malaysia was expected to grow at an annual average rate of
6.5% so that it could achieve its Vision 2020 of being a devel-
oped nation with a doubling of its per capita income to at
least USD15,000 by 2020. TNB was expected to cater for the
increasing demand for energy to meet Malaysia’s construc-
tion and infrastructure plans as detailed in the 10th Malaysia
Plan. On average, electricity peak demand had increased
by 5% annually since 2004, with the latest peak recorded at
15,476 MW in 2011 against 15,072 MW in 2010. The increasing
peak demand reflected the country’s continued growth and
requirement for electricity. The peak demand was projected to
increase 60 percent to 24,770 MV by 2030.18
In 2011, 39.2% of sales were contributed by the indus-
trial sector, 40.2% by the commercial sector, 17.7% by the
domestic/residential sector, with the remaining generated by
other sectors including agriculture and mining. The growth
from the commercial sector came mainly from mega-shopping
malls, four or five-star hotels, hospitals, airports and ports.
The mushrooming of shopping centres such as the Pavilion,
and hospitals such as the Prince Court Medical Centre, cer-
tainly had spiked national electricity consumption.
The industrial sector, on the other hand, was mostly
driven by the country’s electronics industry. Many inter-
national companies had set up factories in Malaysia due to

S0218927515500133.indd 355 28/12/2015 12:08:08 PM

 356 ACRJ

its relatively low tariff rates and its special industrial tariff
scheme. This special industrial tariff scheme was introduced
by the Government to encourage a healthy and competitive
economy which entitled industrial customers, whose total
annual electricity cost was 5% or more of the total annual cost
of its operations, to a preferential tariff scheme.
The tariff rates for each sector differed slightly; with
domestic or residential users benefitting the most as those
consuming less than 200 kWh a month continued to enjoy
a low tariff of 21.8 sen/kWh since 1997. The tariff was pro-
gressive so that those consuming more electricity were
charged higher for every extra kWh consumed.19 This was
because of the underlying philosophy that those who could
afford electrical appliances, such as a huge refrigerator or
air-conditioner, could therefore afford higher rates that were
less subsidised. The structure also allowed consumers to
understand that electricity was produced through depleting
resources and encouraged them to reduce wastage.
Tables 2 and 3 below show that sales were driven
mostly by the industrial and commercial sectors, hence devel-
opments in these areas would have the biggest impact on
TNB in the future.
With the recent rollout of the 10th Malaysia Plan,
TNB expected demand to rise further. In order to cater for

Table 2.  TNB’s Revenue Sources

Revenue (RM million) FY2007 FY2008 FY2009 FY2010 FY2011

Sales of Electricty
Peninsula Malaysia 20,696.5 22,555.0 26,388.2 28,020.5 29,273.1
Export to Thailand (EGAT) 412.4 206.6 38.2 21.4 18.6
Sabah Electricity Sdn. Bhd. 807.0 853.9 953.7 1,029.5 1,079.0
LPL (Pakistan) 468.1 574.6 703.7 522.8 503.2
Total Revenue from Electricity Sales 22,384.0 24,190.1 28,083.8 29,591.5 30,873.9
Others* 936.4 1,560.5 701.8 725.9 1,333.0
Total Revenue 23,320.4 25,750.6 28,785.6 30,317.4 32,206.9
*Includes Goods and Services and Deferred Income.

S0218927515500133.indd 356 28/12/2015 12:08:08 PM

 TENAGA NASIONAL BHD. 357

Table 3.  TNB’s Revenue Profile

FY2007 FY2008 FY2009 FY2010 FY2011

Sector GWh RM GWh RM GWh RM GWh RM GWh RM
Industrial 45.4% 41.4% 47.8% 41.6% 42.5% 39.3% 43.3% 39.4% 42.9% 39.2%
Commercial 30.4% 36.1% 31.1% 36.7% 33.4% 39.4% 33.0% 39.6% 33.6% 40.2%
Domestic 18.6% 17.6% 18.6% 17.4% 20.5% 17.5% 20.4% 18.0% 20.5% 17.7%
Others* 5.6% 4.9% 2.5% 4.3% 3.6% 3.8% 3.3% 3.0% 3.0% 2.9%
Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
*Includes agriculture, mining, public lighting, LPL and EGAT.

Source: TNB Annual reports (Various issues).

this, in 2011, TNB was awarded several power plant proj-

ects to increase its current capacity. These included the 250
MW Hulu Terengganu Hydroelectric Project in Terengganu
and the 372 MW Ulu Jelai Hydroelectric Project in Pahang.
TNB’s existing Janamanjung plant was also being extended
to include an additional coal-fired unit. This plan would
employ the latest supercritical boiler technology with a higher
efficiency level. Another 300 MW gas-fired combined-cycle
power plant was planned to be constructed in Lahad Datu,
Sabah. All these projects would achieve completion and
commission by 2016.20

INCREASING UNCONTROLLABLE COSTS

While the increase in total revenue in 2010 was RM30,317

million over that of the previous year, the corresponding
figure in 2011 (over 2010) was RM32,207 million, repre-
senting a growth of 6.2%, TNB suffered an 84% decline in
net profit from RM3.2 billion in 2010 to RM499.5 million in
2011. The decline was mainly attributed to TNB’s costs, which
had increased by 19%. Fuel, a major cost component and
an increasingly costly commodity, was mainly used to gen-
erate electricity and to fuel 79% of TNB’s power plants. The
remaining plants were hydroelectric power stations totalling
1,911 MW. Since gas-fired plants constituted 48.6% of TNB’s

S0218927515500133.indd 357 28/12/2015 12:08:08 PM

 358  ACRJ

total installed capacity, gas remained the most important fuel

source to generate electricity.
While the independent power producers could pass
the cost to TNB under the power purcjase agreements, TNB
was disallowed from passing on the high cost to consumers
through higher tariff. And to protect customers against
the increasing tariffs, gas was partially subsidised by the
Government.21 Between September 2010 to May 2011, gas
was sold at RM10.70/mmbtu to TNB. However, along with
the approved tariff hike in June 2011,22 gas sold to TNB also
increased to RM13.70/mmbtu to closer reflect rising market
prices.
While TNB was heavily reliant on gas as a fuel
source — due to its available gas-fired power plants and sub-
sidized prices — in 2011 the supply of gas from Petronas
began to deteriorate due to gas curtailments. The disruption
was caused by scheduled and unscheduled maintenance of
gas plants, as well as unforeseen incidents such as a fire on
Petronas Carigali’s Bekok C platform23. Although the power
industry’s gas allocation was 1,250 million standard cubic feet
of gas per day (mmscfd), gas supplied to TNB in 2011 aver-
aged 930 mmscfd as a result of the gas shortage — a 30%
drop from TNB’s usual gas requirement. To respond to the
shortage of gas, TNB had to fuel its gas-fired plants using
alternative fuel sources, namely, oil and diesel, thereby incur-
ring additional costs between RM300 to RM400 million a
month.

Table 4.  TNB’s Cost and Units Generated by Fuel Type36

Fuel Cost and Units Generated Fuel Cost /Unit Generated

FY2010 FY2011 FY2010 FY2011
Fuel Cost Units Fuel Cost Units
(RM mn) (GWh) (RM mn) (GWh) Sen/kWh Sen/kWh
Gas 5,433.8 54,714.2 4,974.4 46,383.8 9.93 10.72
Coal 5,270.4 40,539.9 6,546.4 45,147.7 13.00 14.50
Oil 94.5 250.8 1,567.4 2,682.7 37.68 58.43
Distillate 116.4 225.1 1,392.1 2,535.9 51.71 54.90
Source: TNB 4th Quarterly Report for Financial Year 2011.

S0218927515500133.indd 358 28/12/2015 12:08:08 PM

 TENAGA NASIONAL BHD. 359

With limited gas, TNB also needed to burn an addi-

tional 1.1 million metric tonne (MT) of coal amounting to
RM0.4 billion to meet demand. Thirty-four (34) percent of
TNB’s plants ran on coal, which was imported and pro-
cured in US dollars. In contrast to gas, which was partially
subsidised, coal was purchased at market prices and, there-
fore, was sensitive to market volatility. The cost of coal had
increased significantly in the past eight (8) years, fluctuating
between USD34/MT in 2004 to USD107/MT in 2011. With
increasing demand, the consumption of coal had also risen
from 7.6 million MT in 2004 to 18.9 million MT in 2011. The
cost pressures on coal were further exacerbated by China’s
demand for coal. In 2011, China consumed 48.2% of the
world’s total coal consumption, with the United States of
America (“USA”) trailing second at only 14.8%24. With China
commanding the market, other countries were unable to
move prices in their favour.
While foreign exchange rates remained a risk factor,
the 2007/8 economic instability in the USA had caused the
greenback to weaken against the ringgit, thus cushioning the
impact on coal.
Apart from rising fuel costs, TNB’s margins were
further squeezed by existing payments to IPPs and rigidity of
electricity tariffs which were highly dependent on the Gov-
ernment’s approval. As such, TNB’s tariff structure could
not be automatically adjusted to reflect higher costs incurred.
While the Government had reviewed the tariff upwards three
times in the past five years, the quantum had not been suffi-
cient to cover all costs, as shown in Tables 5 and 6.
Many cost-cutting initiatives were put in place to
keep operations efficient. Among the earlier measures taken
by TNB were to sell off its idle assets and the launching of
a more aggressive collection method from bad debtors and
delinquent accounts. Energy losses resulting from electricity
theft were also reduced through frequent raids as well as
improved technology such as Remote Meter Reading. The
latter enabled TNB to monitor its high-risk customers more
closely. These initiatives allowed TNB to recover revenue
worth RM100 million a year.

S0218927515500133.indd 359 28/12/2015 12:08:08 PM

 360 ACRJ

Table 5.  TNB’s Tariff Reviews37

Tariff Review June 2006 July 2008 March 2009 June 2011
Tariff (sen/kWh) 26.2 32.5 31.3 33.5
(12% increase) (23–24% increase) (3.7% reduction) (7.1% increase)
Rationale Reflect inflationary Reflect increase Reflect reduction Reflect increase
costs of gas price from in gas price from of gas price from
RM6.40/mmbtu to RM14.31/mmbtu to RM10.70/mmbtu to
RM14.31/mmbtu RM10.70/mmbtu RM13.70/mmbtu

Table 6.  TNB’s Cost Breakdown38

Cost Per Unit (sen/kWh) FY2010 FY2011

Average Selling Price 31.3 31.7*
Cost Per Unit
  Payments to IPPs 17.7 20.8
  Fuel Cost 1.9 2.8
  Repair and Maintenance 1.2 1.5
  Staff Cost 2.5 2.7
  Depreciation 3.7 3.7
  General Expenses 1.3 1.2
Total Cost Per Unit 29.1 32.7
Margin 3.0 (1.0)
*The discrepancy between Average Selling Price of 31.7 sen/kWh in 2011 and tariff

rates of 33.5 sen/kWh shown in Table 5 is due to the fact that the tariff increase was
effective June 2011 and was only accounted for the last two months of the financial year
that ended on August 31, 2011.

SABAH ELECTRICITY SDN. BHD. (SESB)

TNB’s wholly-owned subsidiary, Sabah Electricity Sdn. Bhd.,

while being the sole integrated electricity provider to the
Sabah state, had been facing public scrutiny over the years
due to its operational performance. It owned 46 power plants
of which 66% was run on diesel. SESB generated 4,964.3
GWh in 2011 compared to 4,821.5 GWh in 2010, representing
a 3% increase in electricity generation. Meanwhile, Sabah’s
12 IPPs constituted 76% of the electricity market in the state.

S0218927515500133.indd 360 28/12/2015 12:08:08 PM

 TENAGA NASIONAL BHD. 361

Domestic customers consumed 83% of SESB’s electricity. In

contrast to TNB’s customer profile, the commercial sector
contributed 16% while the industrial sector contributed 1%.
The gap between the domestic and industrial sectors showed
the potential growth that could be unlocked in Sabah, more
so as Sabah was fast becoming an industrial hub and an
internationally-renowned tourist spot.
In 2009, SESB’s under-performance came to light as
maintenance of its plants, and those of the IPPs, were not
being carried out due to funding problems.25 In addition
to the shortfall in installed capacity, electricity supply was
also unreliable as constant maintenance led to power cuts
resulting in load shedding. The problem reached a point
where SESB needed to rely on companies that owned private
generators to help produce energy to meet the demand.
A major contributor to SESB’s lack of funds was that its
tariff had not been revised in over 25 years despite escalating
cost of electricity generation. Tariffs were fixed to prevent
such costs being passed on to the consumers. Despite the
government’s subsidy in the form of diesel and tariff prices,
SESB’s financial position kept deteriorating to the extent that
it could not conduct its normal maintenance. In 2010, SESB
sparked national outrage against its blackouts. Its System
Average Interruption Duration Index (SAIDI) — which indi-
cated the number of minutes of interruption that is experi-
enced by a consumer — had reached 2,870 minutes/consumer
(compared to TNB’s SAIDI which was only 87 minutes/
consumer in 2010).
While the then Minister of Energy, Green Technology
and Water, Dato’ Sri Peter Chin Fah Kui acknowledged the
need for a tariff increase, the Prime Minister Datuk Seri Najib
Tun Razak thought otherwise. The latter felt that SESB would
need to prove it had the will and capability to improve its
operations before it could earn a tariff hike. As such, the
Prime Minister had set the goal that SESB would need to
decrease its SAIDI to 600 minutes/consumer by the end of
2010.
Taking up the challenge, not only did SESB manage
to meet the target at 687/minutes/consumer in 2010, it also
managed to halve that achievement to reach a lower SAIDI of

S0218927515500133.indd 361 28/12/2015 12:08:08 PM

 362 ACRJ

366 minutes/consumer in 2011. As a result, SESB’s tariff was

increased by 3.1 sen/kWh from 25.5 sen/kWh to 28.6 sen/
kWh, as promised earlier by the Prime Minister. The increase
was expected to boost SESB’s revenue by about RM150
million, allowing it to invest in its assets to further improve
operations. Figure 2 shows the forecasted installed capacity of
SESB till 2030.
With current electrification of approximately 90% in
Sabah, SESB had the potential to grow and install new infra-
structure to provide power to another 10% of its population.
Power demand was also projected to increase by an average
8% to reach 1,500 MW by 2020,26 as shown in Table 7.
However, even with its growth prospects and recent tariff
hike, SESB’s cost per unit of 31.19 sen/kWh still exceeded
its average tariff of 28.6 sen/kWh, thus eroding its margin,
albeit at a slower pace than before. With its costs growing at
a faster pace than its revenue, which was further constrained
by the need for government approval over tariff rises, SESB
still faced an uncertain future. In addition, SESB’s finan-
cial strain could also burden its parent company TNB into
injecting funds to SESB in order to sustain its operations.
The preparation to meet Sabah’s imminent need for
power began with talks of a 300 MW power plant to be
built in Lahad Datu back in 2005. As gas was limited, SESB
decided on building a coal-fired plant. TNB’s Chairman,

Table 7.  SESB’s Forecasted Installed Capacity

MW
3,500

3,000

2,500

2,000

1,500

1,000

500

-
2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

Source: The Sabah Electricity Sdn. Bhd corporate website at http://www.sesb.com.my/).

S0218927515500133.indd 362 28/12/2015 12:08:08 PM

 TENAGA NASIONAL BHD. 363

Tan Sri Leo Moggie, explained the choice of having a coal-

fired plant: “[I]n the east coast of Sabah, gas is not available.
Hydropower [is] also [not available]. Biomass is still a very
marginal way of power supply. So coal is the most practical
fuel source and that’s why we decided on it.”27 However,
while the project was seen to be necessary, it became one of
the controversial projects TNB had undertaken. The project
was met with opposition from environmentalists as the site
was near Darvel Bay, an environmental haven that had been
described by the scientific world as the “Cradle of Coral
Evolution”. It was a location that served as the starting point
of coral reefs running from the Sulawesi Sea to the Great
Barrier Reef in Australia.
After an extended disapproval from various non-
government organisations (NGOs) and the unfavourable
environmental impact assessment report that was conducted
to assess the viability of the project, the RM1.3 billion plant
was scrapped by the Government in 2008. Nevertheless, the
decision was overturned within a month with the Cabinet
deciding that the plant should be relocated instead. The deci-
sion evidenced that Sabah was in need of electricity, particu-
larly, with the planned Sabah Development Corridor (SDC)
already set in motion. However, opposition by environmen-
talists remained strong. So, in 2011, the Government finally
approved a gas-fired plant to be built in Lahad Datu to
replace the original coal-fired plant.
The three-year campaign by environmentalists and
NGOs surfaced new threats to TNB and its subsidiaries.
While it made economic sense for a coal plant to be built
due to the limitations of gas supply in East Malaysia, the
opposition to such a plant caused the Cabinet to change
tack. The gas plant was the alternative choice to appease an
increasingly environmental-conscious public.
In response to the changing landscape of the electricity
industry that saw consumers having more bargaining power,
SESB reviewed its business plan to improve its operations
and financial standing. Among its initiatives were to iden-
tify gaps between actual business and operational achieve-
ments and taking corrective measures, developing strategies
that were aligned to those of its parent company, TNB, and

S0218927515500133.indd 363 28/12/2015 12:08:08 PM

 364 ACRJ

creating a 20-year Strategic Transformation Action Roadmap

2026 or STAR 2026. With these initiatives, SESB hoped to
sustain its business in a bid to serve the state and meet its
rising needs.

REFORMATION OF THE MALAYSIAN ELECTRICITY

SUPPLY INDUSTRY

The New Energy Policy, which was outlined in the 10th

Malaysia Plan, was the Government’s plan to chart a more
effective way of sourcing and delivering energy. Among
other things, the policy aimed to encourage more eco-friendly
energy through renewable energy as well as to move towards
market-based energy pricing. To this end and as the country
became more mindful of environmental issues, in 2011, the
Government introduced the Renewable Energy (RE) Act 2011.
The move was one of many that marked the beginning of a
new energy supply landscape.28
In response to the Government’s initiative, TNB
launched the Green Renewable Energy and Energy Efficiency
Roundtable (GREENER TNB) to spearhead its green energy
programmes. Among GREENER TNB’s activities were to
develop low carbon generation technologies and signing
renewable energy power purchase agreements with renew-
able energy developers under the Small Renewable Energy
Programme. TNB had so far succeeded in gaining trac-
tion in the green energy market and was awarded the “Best
Utility in Clean Energy Initiative” at the 2nd Asia Power &
Electricity Awards 2011.29
Its commitment to becoming an eco-friendly power
provider was also evident by its efforts to implement the
Environmental Management System MS ISO 14001:2004 to
all its power plants and achieve certification by SIRIM QAS
International Sdn. Bhd. Through its subsidiary TNB Research,
TNB had also developed a suitable methodology to determine
the carbon dioxide (CO2) emission of TNB’s power plants,
help monitor its plants and reduce CO2 levels by upgrading
its systems, processes and facilities. The initiative had borne
some fruit. In addition to TNB’s higher utilization of hydro

S0218927515500133.indd 364 28/12/2015 12:08:08 PM

 TENAGA NASIONAL BHD. 365

plants, CO2/MWh registered a decrease of 3.6% between 2010

and 2011. TNB had also ventured with Felda Palm Industries
Sdn. Bhd. to develop a 10MW Jengka Biomass Power Plant
in Pahang as an effort to promote renewable energy. Instead
of using fossil fuel, the plant would be fuelled by palm oil
empty fruit bunches. Such utilisation was expected to con-
tribute to a reduction in CO2 emission of about 45,000 tonnes.
The push towards a more market-driven energy supply
industry was also reinforced when the Government set up
the Subsidy Rationalisation Lab in efforts to reduce subsidies
gradually and allow the industry to compete in a healthier
environment. This initiative also aimed at preventing over-
consumption and abuse of subsidies by those that could
afford to pay market prices. The impact to TNB would be
huge. It would involve the consideration of a Fuel Cost Pass-
Through mechanism that disassociated tariff setting from the
Government, and instead allowed tariffs to move in tandem
with market price fluctuations. While no decision has been
made to date, numerous labs have been set up to look into
the matter in order to seek the best method that would
benefit all parties involved — consumers, industry players
such as TNB, and the country as a whole.
In light of all the recent activities promoting a more
competitive and efficient market, one initiative stood out
as being a threat to TNB’s existence. A special purpose unit
named MyPower Corp. was set up to review the existing
PPAs and make necessary recommendations on the struc-
ture of the PPAs that had in the past affected TNB’s finances
due to the payments made to IPPs. While this task was one
that was long-awaited by TNB, MyPower Corp.’s other role
included studying the possible restructuring of the country’s
electricity supply industry by unbundling consumers’ bills to
reflect charges related to generation, distribution and trans-
mission.30 This could eventually lead to the breaking up of
TNB’s divisions to increase transparency and cost efficiency.
A deregulation of the power industry would mean more com-
petition to TNB which had dominated the market by being
the only transmitter and distributer of electricity to con-
sumers, albeit its generation and distribution business might
not have to compete with new players.31

S0218927515500133.indd 365 28/12/2015 12:08:09 PM

 366 ACRJ

EPILOGUE

Dato Sri Che Khalib had to decide what to do to ensure the

continued sustainability of TNB. Peninsular Malaysia was
highly reliant on fossil fuel, particularly natural gas (45%)
and imported coal (44%). Local gas fields were depleting and
TNB had not built any new gas plant since 2003 in Peninsula
Malaysia. Coal would cost more in the future. The combina-
tion of solar, biomass, hydro and other renewable energy
sources was insufficient to cater to Malaysia’s rising power
demand. These energy sources had their own limitations:
solar farms required huge amounts of land and high instal-
lation costs. The wind in Malaysia was not as strong as Euro-
pean countries. Peninsula Malaysia had also exhausted its
hydro-electric potential.32 He had to contend with accusations
that, as a monopoly, TNB had grown inefficient in electricity
generation.33 And he had to contend with the environmental-
ists and NGOs.
In May 2010, Malaysia had announced plans to build
two 1 GW nuclear power plants. Was going nuclear an
attractive option? He felt so, especially, as it would miti-
gate global warming. But that would also raise the ire of
environmentalists.34
It was best that he table a report to the Government on
electricity generation in the future and the continued sustain-
ability of TNB as the premier power company in the country.

REFERENCES

1 . Dato’ Sri Che Khalib was appointed Chief Executive Officer
of Tenaga Nasional Berhad on July 1, 2004. His contract of
appointment expired in June 2012.
2. TNB Annual Report 2012.
3. TNB signs deals with three independent power producers
(February 26, 2013). Available at http://biz.thestar.com.my/news/
story.asp?file=/2013/2/26/business/12759954&sec=business.
(Accessed on 26 February 2013).
4. Marc Affirms Tenaga Nasional Berhad’s Issuer and Long-Term
Debt Ratings of AAA and AAAID Respectively; Outlook Stable,

S0218927515500133.indd 366 28/12/2015 12:08:09 PM

 TENAGA NASIONAL BHD. 367

Apr 18, 2012. Available at http://www.marc.com.my/ratbase/

pub.press.detail.php?aid=4206 (accessed on 25 February 2013).
5. Quote by Dato’ Sri Che Khalib at TNB’s 2011 Annual General
Meeting held on December 15, 2011, extracted from The Star’s
article, Without Govt Compensation TNB Will Continue to Post
Losses, Says CEO, dated December 16, 2011.
6 . Economic Planning Unit (2010), 10th Malaysia Plan, Putrajaya:
Economic Planning Unit.
7. Laws of Malaysia, Act 447, Electricity Supply Act 1990, Section 26.
8 . Laws of Malaysia, Act 447, Electricity Supply Act 1990, Section 9.
9 . Sovacool, B. K. and Drupadi, I. M., 2011. Untapped Potential:
Difficulties of the Small Renewable Energy Power Programme
in Malaysia. Centre on Asia and Globalisation, Lee Kuan Yew
School of Public Policy Available at http://www.spp.nus.edu.sg/
docs/energy-case/%2310-Malaysia.pdf. (Accessed on 25 April
2012).
10 . Thairah, S. J. and Bodger, P., 2009. National Energy Policies
and the Electricity Sector in Malaysia. In Proceedings of ICEE
3rd International Conference on Energy and Environment, 7–8
December 2009, Malacca, Malaysia. Available at &bav=on.2,or.r_
cp.r_qf.&bvm=bv.45512109,d.bmk&biw=1034&bih=592&
emsg=NCSR&noj=1&ei=A6p0UZWLJIenrAej04AY (Accessed on
22 April 2012).
11 . TNB Awarded the Merit Award — CIMA Enterprise
Governance Awards 2010. Available at http://www.tnb.com.
my/highlights/2010/10/tnb-awarded-the-merit-award-cima-
enterprise-governance-awards-2010.html (Accessed on 25 February
2012).
12 . TNB 4QFY2011 Analyst Briefing, announced on October 28 2011.
13. TNB 3QFY2007 Analyst Briefing, announced on July 13 2007.
14. TNB Website. About TNB (Corporate Profile). Available at http://
www.tnb.com.my/about-tnb/corporate-profile.html (Accessed on
25 April 2012).
15 . TNB (2007). Electricity Supply Application Handbook. Available
at www.tnb.com.my/application/uploads/uploaded/ESAHv3.pdfShare
(Accessed on 15 April 2012).
16. TNB Website. About TNB (Corporate Profile). Available at http://
www.tnb.com.my/about-tnb/corporate-profile.html (Accessed on
25 April 2012).
17. Putrajaya Committee on GLC High Performance, Catalysing GLC
Transformation to Advance Malaysia’s Development, published in
July 2005.
18. Going nuclear an option? Insight, February 24–26, 2012.

S0218927515500133.indd 367 28/12/2015 12:08:09 PM

 368  ACRJ

19. TNB Tariff Book, Electricity Tariff Schedule, effective June 1,

2011.
20. Economic Planning Unit Malaysia (EPU) (2011). Tenth Malaysia
Plan (2011–2015). Putrajaya: EPU.
21. Business Times (2012), The transformation of Malaysia’s power
sector, 15 October 2012. Available at http://www.btimes.com.my/
Current_News/BTIMES/articles/POWVIEW/POWVIEW.pdf.
Accessed on 5 December 2012.
22. Based on TNB’s announcement on the Increase in Electricity Tariff
in Peninsular Malaysia Due to the Revision of Natural Gas Price,
Revision of Base Tariff & Implementation of Feed-In-Tariff (FiT) for
Renewable Energy (RE), dated May 30, 2011.
23. As reported by TNB during its FY2011 3rd Quarter announcement
on October 28, 2011, with information available on its website
http://www.tnb.com.my.
24. BP Statistical Review of World Energy June 2011, pp. 33.
25. The Star, Sabah Electricity grapples with Repairs of Generator Sets,
July 11, 2009.
26. Sabah Electricity Sdn. Bhd.
27. Quote by Tan Sri Leo Moggie at SESB’s Hari Raya Open House
held on November 20, 2006 extracted from The Star’s article,
Interview with Tenaga Nasional Berhad Chairman Tan Sri Leo Moggie,
dated November 21, 2006.
28 . Ministry of Energy, Green Technology and Water (2008).
National Energy Policy. Malaysia.
29 . TNB (2011). Annual Report. Available at
http://www.tnb.com.my/tnb/application/uploads/annualreports/
e5dcad80d1621d1b705519b7041f598c.pdf.
30. The Star, MyPower to Review PPAs, July 13, 2011. The Edge
Financial Daily, TNB: Breaking Up is Hard to Do?, September 27,
2011.
31. The Star, Tough Challenge for MyPower, July 18, 2011.
32 . Gan, P. L., 2012. Going Nuclear: An Option? Selangor Times,
24 February 2012. Available at http://peilinggan.com/tag/tnb/
(Accessed on 25 June 2012).
33. The Star, Finally, a Relief for TNB, December 2, 2011. Also Business
Times (2012), The transformation of Malaysia’s power sector,
15 October 2012. Available at http://www.btimes.com.my/
Current_News/BTIMES/articles/POWVIEW/POWVIEW.pdf.
Accessed on 5 December 2012.
34. Che Khalib’s address at a forum on nuclear energy at the Institute
of Diplomacy and Foreign Relations, Kuala Lumpur, 16/2/12, as
reported in Going Nuclear: An Option”, Insight, February 24–26,
2012, p. 12.

S0218927515500133.indd 368 28/12/2015 12:08:09 PM

 TENAGA NASIONAL BHD. 369

35. The information was compiled from TNB’s annual reports and
quarterly announcements.
36. TNB 4QFY2011 Analyst Briefing presentation, pp. 25.
37. TNB’s CLSA 18th Investors’ Forum 2011 Presentation, presented
on September 26, 2011, available on TNB’s website at http://
www.tnb.com.my. (Accessed on 12 April 2012).
38. TNB 4QFY2011 Analyst Briefing presentation, pp. 23.

S0218927515500133.indd 369 28/12/2015 12:08:09 PM

 370 ACRJ

Appendix 1

Group Corporate Structure

3RZHU (QHUJ\,
QDO ,QGHSHQGHQW3RZHU 0DOD\VLD6KRDLED 6DXGL0DOD\VLD:DWHU
0DXULWLXV/WG ,QWHUQDWLRQDO/WG &RQVRUWLXP6GQ%KG (OHFWULFLW\&R/WG

71%3RZHU'DKDUNL
71%/LEHUW\3RZHU/WG
/WG

71%-DQDPDQMXQJ $VVRFLDWH ,QYHVWPHQW&RPSDQ\

6GQ%KG 7HNQRORJL7HQDJD3HUOLV&RQVRUWLXP6GQ%KG
32:(5

*%6GQ%KG
2ULRQ0LVVLRQ6GQ /DKDG'DWX+OG6GQ /DKDG'DWX(QHUJ\ -LPDK(QHUJ\9HQWXUHV+OG
%KG %KG 6GQ%KG )7-%LR3RZHU6GQ%KG
%DNXQ+\GURHOHFWULF&RUS
6($75$&6GQ%KG
6DEDK(OHFWULFLW\6GQ (DVWHUQ6DEDK3RZHU
%KG &RQVRUWLXP

.DSDU(QHUJ\
9HQWXUHV6GQ%KG

71%(QHUJ\6HUYLFHV -DQD/DQGILOO6GQ
6GQ%KG %KG

71%,QWHJUDWHG $VVRFLDWH ,QYHVWPHQW&RPSDQ\

/HDUQLQJ6ROXWLRQ )LEUHFRPP1HWZRUN06GQ%KG
/DEXDQ5HLQVXUDQFH//WG
7HQDJD1DVLRQDO%HUKDG

71%5HVHDUFK6GQ ,17(*5$;%HUKDG
%KG
7UXVW)RXQGDWLRQ
71%)XHO6HUYLFHV6GQ 71%5HPDFR3DNLVWDQ <D\DVDQ7HQDJD1DVLRQDO
%KG /WG 5HWLUHPHQW%HQHILW7UXVW)XQG
6(59,&(6

<D\DVDQ&DQVHORU8QLYHUVLWL7HQDJD1DVLRQDO

7ULFK\(QHUJ\/WG
71%5HSDLU 
0DLQWHQDQFH6GQ

7ULFK\3RZHU/WG

71%&DSLWDO//WG
71%2SHUDWLRQV  2DVLV3DUDGH6GQ 6DXGL0DOD\VLD2 0 $OLPWLD]2SHUDWLRQ 
0DLQWHQDQFH,
QDO %KG 6HUYLFHV&R/WG 0DLQWHQDQFH&R/WG

8QLYHUVLWL7HQDJD
81,7(15 '6GQ%KG
1DVLRQDO6GQ%KG

0DOD\VLD7UDQVIRUPHU
0DQXIDFWXULQJ 7HQDJD&DEOH
,QGXVWULHV
71%9HQWXUHV6GQ
%KG
1RUWKHUQ8WLOLW\
5HVRXUFHV6GQ%KG
$VVRFLDWH ,QYHVWPHQW&RPSDQ\
)HGHUDO3RZHU6GQ%KG
0$18)$&785,1*

71(&&RVWUXFWLRQ
3HUXVDKDDQ2WRPRELO(OHNWULN0DOD\VLD6GQ
6GQ%KG
%KG

71%(QJLQHHULQJ $LUSRUW&RROLQJ
&RUS6GQ%KG (QHUJ\6XSSO\

7HQDJD6ZLWFKJHDU %DQJVDU(QHUJ\ 6HOHVD(QHUJ\6\VWHPV

6GQ%KG 6\VWHPV6GQ%KG 6GQ%KG

71(&2SHUDWLRQV  7RPHVW(QHUJ\
0DLQWHQDQFH 0DQDJHPHQW

$EUDM&RROLQJ//&

*The complete list of companies under TNB is set out in Note 14, page 251 of the Annual Report

2011.

S0218927515500133.indd 370 28/12/2015 12:08:09 PM