A Matter of Power

By Tracia Yeoh

AS FAR as I can tell, the economy is a matter of national significance. And in turn, anything with such far-reaching implications, impacting keenly upon the pockets of every man in the street in Malaysia, cannot be kept under a thick shroud of secrecy.

Currently, the power purchase agreements between independent power producers and Tenaga Nasional Berhad are classified under the Official Secrets Act. The Energy, Green Technology and Water Minister stated recently that the government cannot compel these agreements to be made public as “they are signed by private entities”.

The government this week announced an average 7.12% rise in electricity tariffs as part of its subsidy rationalisation exercise. Natural gas prices will also rise by RM3 per mmBtu starting now and every six months until they reach market rates in 2016, by which time prices will be fully floated.

The statement was quick to point out that domestic consumers paying less than RM77 monthly, i.e. 75% of the Malaysian population, would not be affected by the scheme in this regard.

The deputy prime minister then went on to say that traders, manufacturers and retailers should not use the electricity tariff hike as a reason to increase the prices of consumer goods, as it is “only a 7% increase”. The government has also stated that inflation would increase by only 0.27% as a result of the electricity tariff increases.

Surely it is not so ridiculous as to imagine that retailers and traders would inevitably be cracking their heads on how not to increase their prices as overheads rise steadily. After all, their businesses would thrive only when costs are minimised in order to maximise profits – is this not what Malaysia Inc. is supposed to look like?

The argument is classic – that subsidy cuts and tariff increases are necessary to plug the country’s looming budget deficit, by reducing our massive annual subsidy bill. The government has forked out RM131.3 billion in gas subsidies between 1997 and 2010, for example.

Some economists might argue similarly that subsidies present distortions of the economy that must be removed to allow principles of the free market economy to flourish.

But that is only assuming we really do operate within a free and vibrant market economy.

In reality, the anger and frustration expressed by Malaysians are directed more towards the fact that large government bailouts have occurred through the years, especially over the last three decades, where companies operating at a below-competitive level then continue to survive. Furthermore, with the numerous developmental plans (10th Malaysia Plan and so on) we are accustomed to in Malaysia, more often than not we operate under the auspices of a planned economy.

Some political parties claim that as much as RM19 billion is given as a subsidy itself to independent power producers annually, to whom Petronas sells its gas at a lower than market price. Of course, this figure would only be substantiated if and when the documents are publicly revealed.

In fact, subsidies to the IPPs accounted for more than half (58.7% or RM8.1 billion) of the total gas subsidy for the power sector (RM13.8 billion) in 2008, where IPPs consume about 60% of the natural gas in Malaysia. (Zainal Aznam Yusof, 2009).

The current stance of the government seems to be that one, the purchasing power agreements cannot be unveiled to the public, and two, these deals that were signed many years ago can be renegotiated only after the contracts lapse. If there is an understanding that some renegotiation will soon take place, does this mean that only a select few within the corridors of power are mandated to make a decision that affects all layers of society?

The Federation of Malaysian Manufacturers has also released a strongly-worded statement calling for greater transparency and predictability in energy pricing in view of “uncompetitive tariffs and inefficient supply chains”. It says that although Malaysia pays less for natural gas compared to its regional neighbours Thailand, Singapore and Indonesia, the cost of electricity following the hike is at par with Thailand.

In 2009, the government made the decision to declassify the highly-controversial highway concession agreements, the contents of which were a revelation namely that there exists an expropriation clause allowing the government to buy back the concessions at a stipulated rate. The public was then able to engage on a matter that would invariably affect them as opposed to leaving all matters to the decision of a select few. It is for this reason a Freedom of Information Act ought to be enacted at the national level, the state version of which has already been passed in Selangor.

The deputy prime minister said that the government has looked in-depth into the possible implications of the new power rate on the cost of living, inflation rate and prices of goods, implying that the tariff revision was done with the full knowledge of the potential impact on Malaysians.

As a member of the public myself, I would love to know what conclusions the government came up with. What are the economic projections on the labour market? On low-income and semi-industrial wage earners? On businesses and traders?

In all reality, unless the purchasing power agreements are declassified, nobody outside of a little secret room in Putrajaya would know.