Friday 3 June 2011

Well-connected IPPs, badly conned consumers

Kua Kia Soong
Jun 3, 11

COMMENT As a result of the 1992 energy crisis during Mahathir's term in office, Independent Power Producers (IPPs) were foisted on the country and TNB as a fait accompli. These well-connected IPPs have managed to secure a pretty good deal out of the power purchase agreements with TNB and brokered by the Economic Planning Unit.

The problems and contradictions within TNB, however, have been exacerbated as a result of the entry of these IPPs, thus affecting TNB's share market performance through the years.

I brought up the scandal at Tenaga Nasional in Parliament in November 1990, alleging that this privatised energy was riddled with corruption, cronyism and mismanagement. This and other aspects of the Malaysian energy industry can be read in my 1996 title, Malaysia's Energy Crisis: the Real Issues.
Twenty years later, we are counting the costs and still bearing the burden of the BN government's cosy relationship with these IPPs, as reflected in the power purchase agreements and the increase in electricity tariffs.

For a start, the IPPs are getting fuel supplied by TNB, who then uses the IPPs to produce electricity and sell it back to TNB. So they should be able to control prices there too. TNB is taking the risk, but not the profit of operation.

The prime minister announced recently that the Bakun tariff is 6.5-7 sen/kWh. IPPs are selling electricity in Malaysia for at least 16 sen. In the US, the hydro-electric tariff is 1.2 US cents/kWh; in China it is US 1.2-1.5 cents/kWh.

The failure of our privatised services

While the IPPs have reaped millions through Mahathir's privatisation exercises, for privatisation to be in the rakyat's interest, certain criteria must be maintained:

(i) The privatised service must be cheaper and better than that formerly provided by the state. If not, what benefit is it to the people?

(ii) The privatised service must be more efficient than that provided by the government.

(iii) The privatised industry must not have assistance from the government in order to be viable.

Here, the IPPs have been relying on their connections with the ruling elite for access to licenses and other conveniences, especially sources of funding. They have failed to get international banking sources and have instead relied on EPF, the pension funds of Malaysian workers for funding. The control over the EPF by genuine workers' representatives who invest the funds in their interests is long overdue.

In terms of unit cost, the electricity that these IPPs produce is more expensive and thus fails the first criterion set out above.

Contradiction of viability and conservation

Caught in the bind of the heavily IPP-biased power purchase agreements, TNB could only think of one way to be viable, namely, encouraging Malaysians to "use more power". Indeed in 1994, the executive chairman of TNB Tan Sri Ani Arope (right in picture) was quoted in the press as saying:

usm apex university 040908 dzulkifli abdul razak, mohamed khaled nordin and ani arope"We hope to get more people staying in condominiums to dry their clothes using electricity." (The Star, Oct 19, 1994)

This exposes the hypocrisy displayed by the government over conserving one hour's energy on Earth Day.

Among the government's panic measures since the 1992 energy crisis, when the Big Blackout happened, has been the indiscriminate granting of licenses to IPPs to build power stations. The country was told that this excess capacity is a wonderful thing and that it can be exported:

"IPPs generate, Tenaga buys. This is like buying under duress. We have excess power now. This doesn't solve stability problems. Also, the IPPs built stations at sites of their choice, not necessarily where they were needed and stable for the system, such as areas of high power consumption." (Sunday Star, Sept 1, 1996)

The total lack of planning and a total energy policy was exposed when the Energy Minister suddenly announced in late 1994 that TNB would maintain 70 percent of the power supply while the IPPs would be restricted to only 30 percent. 

The price of TNB shares dropped so drastically because economic analysts could see that "Tenaga has been royally screwed." (Malaysian Business, 16 November 1994) TNB's plunge also affected the slide in the KLSE's Composite Index at the time.

After being "royally screwed" by the IPPs, of course TNB passed the cost onto us consumers. The other method for TNB to turn around is to encourage higher consumption of electricity, which has caused a rush to build more and more hydroelectric dams all over the place. We can see why the government is in no great hurry to implement a national energy policy which encourages energy conservation.

Lack of planning and energy policy

The country is told that excess capacity can be exported. The on-off submarine cable project to transmit Bakun energy to the peninsula since it was first brought up in the '80s shows the alarming lack of planning and total energy policy. The on-off contracts with the aluminium smelters since the '70s reveal the complete absence of concrete energy demand projections.
NONEIf the highly toxic aluminium smelter projects are approved, we will no doubt see yet another protest by the people like the ones at Lynas and Bukit Merah. The hypothetical demand for Bakun energy by the Indonesians in Kalimantan likewise exposes the indiscriminate hunger for mega projects without the required feasibility studies and realistic demand projections.

The Perlis power plant was also meant to supply excess energy to the Thais. But was there a study done to see if the Thais needed this power? And if they did need power, what was there to prevent them from making use of their own IPPs to do the job? IPPs are by no means a Malaysian innovation.

Another example of wanton profligacy is the Bakun dam, with its 2400 MW generating capacity, and many more dams in the pipeline when the total demand in Sarawak is not more than 1000MW. The World bank has recommended reserve margins of not more than 10 percent, otherwise all those plants are sitting idle and costing us a lot of money.

Thus it looks as if those in power are more interested in making mega bucks out of mega projects rather than a responsible and sustainable energy policy and plan.

In Malaysia, we do not have a prudent energy policy. We do not even have a proper energy needs inventory giving us reliable data on the possible sources of renewable energy and a detailed breakdown of domestic and industrial consumption. All that we are given by the government whenever energy needs are discussed are total production and consumption patterns. This is not good enough.

A golden age of mediocrity

Disaffected by such a culture in our infrastructure ministries and exacerbated by the racialist excesses of the New Economic Policy, many of our top engineers and scientists who were responsible for building the infrastructure in the first place have left in disgust. They are now helping other countries such as China, India, South America, and Eastern Europe to develop their industries, using their skills which could help Malaysian industries.
Thus, while the rest of the world is powering ahead, with even countries like Vietnam and Cambodia aspiring to be the next tigers, we seem content to remain in what I call, "a golden age of mediocrity".

KUA KIA SOONG, a former MP, was principal of the New Era College, Kajang. He is also a director of human rights group Suaram.

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