Tenaga Nasional Berhad's huge debt is not accumulated over a short period of time. TNB is buying most of its electricity from independent power producers, which enjoy favourable rates whether the power generated is needed or not. At the same time TNB has to invest more capital for new clients and replace its aging assets. Everyone knows that the current electricity tariff has not increased for years and is below its generation cost.

I believe that TNB should be allowed to increase its tariffs progressively as power generation cost increases so that it can continue to invest in power transmission infrastructure and keep a reasonable profit. Electricity consumer would benefit in the long run if power supply were reliable. Incidents of power failures and shortages would have a high cost on the economy and power consumers.

Let TNB increase electricity tariffs so that it can set aside some money for sorely needed maintenance and capital expenditure. Postponing an increase in electricity prices would only increase Tenaga's debt, and we consumers would still have to pay it later at an even higher price. We cannot ask Tenaga to cut costs by slashing capital expenditure for that would leave Tenaga's capital stock in a sorry state and more expensive to maintain in the long run.

Remember California's statewide power failures a few years ago? At that time, California state legislators did not let power companies increase power prices for some time, so there was no investment in new generating capacity nor transmission infrastructure for some time. The return on investment for California's power companies were too low, so no new investments were made.

Meanwhile power demand by consumers continued to surge until there was no excess capacity left. The power failure happened on a hot summer day when almost everyone turned on his or her air conditioner to keep cool.

It's an open secret that as the country's economy grows, demand for electricity and other basic services will grow at a faster rate. This growth in demand means more investments are needed in electricity generation and power transmission infrastructure.

With that amount of outstanding loans - RM30 billion - a small rise in interest rates would negatively affect Tenaga's profitability. One percent of RM30 billion is RM300 million. If Tenaga currently makes a RM1.2 billion profit, a four percent increase in interest rates would reverse this profit to a loss, ceteris paribus. Imagine the effect of this on Tenaga's share price.

If most government-linked companies and publicly-listed companies have high gearing like this, it is a small wonder that Bank Negara is reluctant to increase interest rates to keep inflation low.

However, I expect that the amount of tariffs increase would be severely limited, whereby the projected revenue increase just covers the electricity cost with a bit of profit for the shareholders. Tenaga's RM30 billion debt would have to be repaid by refinancing either by issuing new shares or by rolling over the debt papers.

TNB could also convert some of its customers to shareholders by giving them warrants that can be converted into shares on payment of share premiums. This way TNB could increase its shareholders base and use the proceeds to pay off its borrowings.