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Singapore's energy players to feel heat of carbon tax only marginally

The Business Times by ANITA GABRIEL

Singapore

SINGAPORE's move to tax carbon-intensive industries could hurt energy players here, albeit marginally, and analysts expect the resultant burden of higher costs to be passed on to consumers.

All the main producing plants in the power-generation sector are expected to be hit by the new carbon tax, which will be S$5 a tonne from this year till 2023, going up to S$10-S$15 a tonne by 2030.

This is because their facilities produce 25,000 tonnes or more of greenhouse gas (GHG) emissions a year, the level at which the tax kicks in.

The power-generation sector includes the city state's big players such as Singapore-listed stalwarts Sembcorp Industries (SCI) and Keppel Corp; another big power generator here, YTL PowerSeraya, the second biggest player, is owned by Malaysian-listed YTL Power International.

DBS economist Irvin Seah said: "The new carbon tax that will take effect this year could affect the bottom line of some sectors in the longer term, although this is certainly a sustainable and responsible way forward."

SCI's 2017 annual report says its utilities assets emitted 23 million tonnes of GHG that year, up from 15.4 million in 2016; the increase was mainly attributed to the inclusion of data from the second super-critical coal-fired power plant in India.

SCI does not disclose its GHG emissions in Singapore, but based on a back-of-the-envelope calculation, OCBC Investment Research analyst Low Pei Han estimates a less than S$20 million impact on the group's bottom line (based on a carbon tax of S$5 per tonne).

"This is less than 10 per cent of the group's net profit in 2017 and lower than 7 per cent of our FY18 net profit forecast. There is also the possibility that some of the impact may be passed on to consumers," she added.

UOB Kay Hian analyst Foo Zhiwei noted that SCI's Singapore-based carbon emissions make up about 10 to 15 per cent of its total GHG emissions in 2017.

Even so, he added: "Any estimate will be without the consideration of carbon credits, or the initiatives they have undertaken to reduce their carbon footprint."

Higher carbon taxes will also hit Keppel Infrastructure Trust (KIT), said DBS Group Research in a 2018 report following last year's Budget announcement.

"But we believe that this should be passed on to the offtaker in due course, that being a similar treatment to other variable costs across the KIT assets in Singapore," it said. (Keppel Corp owns Keppel Infrastructure Holdings, the sponsor of KIT).

That being the case, expect utility tariffs to tick marginally upwards. This may be easier to stomach, thanks in part to an increase in U-save rebates for eligible HDB households, which are expected to cover the increase in electricity and gas expenses arising from the new tax.

A Ministry of Finance spokesman told The Business Times that even if power generation companies pass on the full cost of the S$5/tonne carbon tax to consumers, it would be equivalent to a 0.9 per cent rise in electricity prices from the rates for the first quarter of 2019.

This is small, compared to historical quarterly electricity tariffs, which have fluctuated by up to 10 per cent between the first quarters of 2010 and 2019 due to changes in fuel prices, the spokesman said.

In the stock market, there was no so-called "carbon shock".

Shares of Keppel and SCI in the Singapore bourse gained 2.9 per cent and 3.6 per cent respectively this week, but KIT is down 0.9 per cent.

Over at Bursa Malaysia, YTL Power has risen 2.7 per cent since Monday, when news of the tax broke during the Budget speech.

Taking the tax in its stride is YTL PowerSeraya. Its chief executive John Ng told BT: "While this move aims to encourage power producers to reduce carbon emissions, it also implicitly emphasises the need for consumers to be more conscious and aware of their energy efficiency levels and conservation efforts as well as costs associated with carbon tax."