SWOT analysis for TNB….battle of rising cost and debt!
SWOT Analysis is a
comparison of strengths, weaknesses, opportunities, and threats that helps
executives summarize the major facts and forecasts derived from the external
and internal analyses. Successful strategic management depends on an accurate
and thorough evaluation of the environment. Analyses of the external
environment of an organization include opportunities and threats whereas
analyses of the internal environment include the strength and weaknesses of
major functional areas within the organization. According to the article
“Tenaga battle rising costs, debt” the SWOT analysis suggests that the internal
environment (strength and weakness) lies mainly in the financial analysis and
the external environment (opportunities and strength) consists of macroeconomic
conditions as well as other factors such as social analysis.
Internal analysis
provides strategic decision makers with an inventory of the organization’s
skills and resources as well as its overall and functional performance levels.
From the article it is evident that TNB is facing a massive debt problem where
the company’s debt has almost doubled from RM16.7 billion in 1997 to RM30
billion in the 2005 financial year. This was noted by their chairman Tan Sri
Leo Moggie. From the financial analysis point of view this shows that the
company weakness lies in the massive amount of debt which has doubled in a
period of 8 years.
Operations
analysis also shows that the nature of the industry is largely dependant on
resources such as fuel and metal (raw materials) for power supply equipment. Apart
from gas, prices of materials used to replace equipment parts have also soared
since 1998: Aluminum by 38 percent, copper by 112 percent and steel by 73
percent. This make a total of 75 percent of total operating cost. This further verifies that indeed the
operational weakness of TNB lays in the dependency on resources that experience
overwhelming price hikes.
From the article,
less is much written on the strength of the company compared to its weakness.
However, from the article the resources that was mentioned which was the two
coal based plants are tangible assets of TNB which serves as a resource to the
company. These resources are good examples of inputs to a system that can
enhance performance. Furthermore, I
would like to deduce the strength of TNB based on my knowledge that TNB holds a
monopoly on electricity generation, transmission and distribution in Peninsular
Malaysia. Since TNB is the sole provider of electricity in Peninsula
Malaysia
,
competitions barely exist or do not exist at all. The article wrote that ‘With
the Ninth Malaysia Plan promoting a “market-based approach” to determining
energy prices, Leo Moggie dismisses the theory that
Malaysia
would not need a
regulator. This further suggests that TNB would continue to be the sole
provider of electric generation in the future within Peninsula
Malaysia
.
Strength lies in the political and regulatory analysis of the company where
indication that the industry itself is strongly backed by the government through
the subsidy or fixed price of fuel cost and also the commissioning of coal
plants under the Eighth Malaysia Plan.
The External
environment of an organization usually consists of opportunities and threats
that are based on the important activities in an environmental analysis. In my
opinion TNB external environment is largely affected by macroeconomic conditions. Macroeconomic conditions are economic
factors that affect supply, demand, growth and profitability within the power
utility industry itself. From the article, the cost of fuel and metals used for
power supply equipment has gone through the roof since Tenaga Nasional Bhd last
raised its tariffs in 1997 by 8.3 percent indicates that even though Tenaga has
taken measures to increase thier revenue, the increase of fuel and metal is
something external that the company has no control of. Although gas accounts
for only 24.7 percent of the power sector’s fuel cost, 75 percent of total
operating costs have been hit hard by price hikes further proves that
macroeconomic conditions which Tenaga has no control of is indeed a main threat
to the organization that largely depends on global price of fuel and metals.
Apart from that,
stakeholders also affect the external environment of Tenaga Nasional. Stakeholders
are groups and individuals who affect and are affected by the achievement of
the organization’s mission, goals and strategies. When the chairman of TNB
stated that there were occasions where the gas supply was not available for
whatever reason, example due to maintenance of the Petronas pipeline it was
evident that Petronas is an organization that plays an influential stakeholder
role to them because moving further on in the article, it stated that during
those periods of maintenance TNB had to substitute medium fuel oil and
distillate – which shot up by 244 per cent and 250 percent respectively between
1997 and 2005 which cost them a substantial amount of RM90million.
Moving into the
social analysis of the external environment, the article also stated that increased
freight charges are partly due to higher insurance premiums after the September
11 2001 terrorist attacks in the
US
. This further suggests that
international terrorist group and their activities is a current and potential
social issue which makes up the social analysis that threatens TNB’s battle on
rising cost and debts.
Importantly,
opportunities are still wide for TNB when Leo Moggie, said that the government
is introducing more and more coal into the system, noting the commissioning of
two coal-based plants in the
Peninsula
during
the Eighth-Malaysia Plan. This
suggests that, the organization has a strong backing from the government to further
expand its power generating capabilities and to be less dependant on fuel based
power generation such as gas operated plants. Besides, the fixed price of
RM6.40 per mmbtu since May 1997 should be seen as an opportunity given by the
government to the organization to cushion the price hikes. However, when coal
prices have increased by 69 percent between 1998 and 2005, again macroeconomic
conditions are there to affect the opportunity itself.
“If there is no
change in revenue coming in, we will have to continue borrowing,” says the
chairman of TNB, which has submitted a proposal for higher electricity tariffs.
This statement in the article suggests that it is a threat to TNB if they
continue to borrow as it may result in more and deeper debts. However, the
opportunity is that the proposal for higher electricity tariffs may result in
the opposite. Based on TNB affiliations with the government discussed earlier,
sooner or later higher electricity tariffs will have to be imposed and although
this is bad news for most consumers, it presents an opportunity for TNB to
reduce their debt in the future.
Finally, strategy
formulation builds on SWOT analysis to utilize the strength of an organization
in order to capitalize on opportunities, counteract threats and alleviate
internal weaknesses. Since macroeconomic conditions such as price hikes in
non-renewable energy resources such as gas and coal are threatening to TNB, the
organization should consider focusing their research and development on
renewable energy sources such as hydroelectric, solar or wind powered
technology that might just provide a solution to their battle of rising costs
and debts.
