Pua: Tariff hike will backfire on government

Stephanie Sta Maria | May 31, 2011

Tony Pua slams the government for punishing the people instead of tackling the lopsidede PPAs.
PETALING JAYA: Petaling Jaya Utara MP, Tony Pua, has predicted that the government’s decision to raise electricity tariff will backfire by fuelling further distortions in the market.


Starting tomorrow, electricity prices in Peninsular Malaysia will increase by an average of 7.12% in a government move to reduce subsidies.

Petronas’ sale of natural gas to electricity companies would rise to RM13.70 per Million Metric British Thermal unit (mmBtu ) from RM10.70, and increase by RM3 every six months until 2015.

In a statement today, Pua pointed out that the tariff hike was not matched by a corresponding restructuring of the power industry.

“The government is using the excuse of the need to reduce subsidy bills as the basis for the tariff hike in order to reduce the ‘misallocation of resources’,” said the DAP publicity chief.

“But it has ignored the fact that the source of the ‘misallocation of resources’ is the lucrative Independent Power Producers (IPPs) power purchasing agreements (PPA) with Tenaga Nasional Bhd (TNB).”
According to Pua, Malaysia and Thailand share similar power industry structures with natural gas making up about 70% of the fuel-mix for electricity generation.

Unfair PPAs

Thailand’s natural gas prices are more than double that of Malaysia’s but its commercial electricity tariff is only 0.4% higher at at RM38.01kWH compared with Malaysia’s 37.85 mmBtu.

“Electricity rates for our commercial sector will now be higher than Thailand’s despite natural gas prices for the sector in Malaysia still being 68.6% cheaper,” Pua said. “Using Thailand as a benchmark, our electricity prices should be 16.9% cheaper based on existing subsidy rates.”

“Our problem isn’t with electricity prices but with the power producing sector which charges high prices despite the lower cost of production. And the key reason for that is the unfair PPAs which have resulted in ridiculously high levels of electricity reserve margins.”

“According to TNB, our reserve margin was 54.6% in 2008 and 52.6% in 2010. This is double that of Thailand and Java, Indonesia. TNB is forced to purchase electricity that it does not need. This translates to inflated costs for TNB and inflated profits for the IPPs.”

Pua described the raised electricity tariff as an attempt by the government to right a “wrong” with another “wrong” which would inadvertently deal a huge blow to the country’s export industries.

The Najib administration has assured that the tariff hike will not affect 75% of Malaysians who use less than 300kWh or pay a monthly rate of about RM77.

But Pua predicted that industrial and commercial consumers would suffer an average increase of 8.35% in power bills which would fuel inflation and reduce the country’s competitiveness.

“The only and proper way to correct the distortions in our power sector is to restructure the lobsided PPAs,” Pua said. “By doing so it can reduce its subsidies, correct inefficiencies in the power sector and maintain existing electricity rates.”

The fact that it chooses to punish consumers and industries without laying a finger on the IPPs proves that it has no political will to implement the necessary economic reforms,” he said.