Anwar: IPP subsidy powering inflation

Anwar urged the government to relook its “lopsided” deals with the IPPs. — file pic

KUALA LUMPUR, May 23 — The multi-billion federal gas subsidy granted to independent power producers (IPPs) through “lopsided agreements” will hamper Malaysia’s ability to curb rising inflation, Datuk Seri Anwar Ibrahim has said.

The opposition leader said the subsidy has not translated into lower electricity tariffs for consumers as Tenaga Nasional Bhd (TNB) was contractually bound to purchase the power generated from IPPs at a premium.

Anwar pointed out that the reported price range of 13.7 sen to 15.5 sen per kWh charged by IPPs was higher than TNB’s own generation cost, which forced TNB to buy electricity at a “bumper price”.

The former finance minister explained that this effectively meant IPPs were shielded from potential fuel price increases at TNB’s expense, which in turn drove electricity tariffs that were “relatively disproportionate” compared to other countries in the region.

A residential consumer in Thailand pays 18 sen per kWh for the first 150 kWh used compared to Malaysia’s 22 sen per kWh for equivalent usage, while retail customers in the low voltage commercial tariff paid 48 per cent higher than Thailand’s 25 sen per kWh, Anwar said.

This was despite the fact that Thailand’s power producers buy gas at market rates while IPPs here purchase their fuel from Petroliam Nasional Bhd (Petronas) at highly discounted rates, he added.

He estimated that subsidies to IPPs would amount to RM22 billion this year, based on the RM19 billion in gas subsidies reported by the national oil firm in 2009 and adjusted for current global crude oil prices.

“It only benefited the well-connected businessmen and cronies over the years and [has] robbed the country of the financial muscle to rein in inflation and expedite the right model of industrialisation and development,” Anwar said in a statement today.

“The combined costs of higher electricity price charged by IPPs to TNB and the scheme for early repatriation of profits by IPPs had all been passed to the public — either by a direct increase in the electricity tariff or the financial loss from the gas subsidy provided to TNB/IPPs in the name of keeping the tariff low.”

Anwar urged the government to “do justice” be reviewing the rate IPPs charged TNB and dismantle fixed charge elements such a stand-by and fixed capacity charges which have significantly inflated the cost of power here.

Nanyang Online reported last Thursday that the government will likely announce an electricity tariff hike this week as it seeks to keep ballooning petroleum subsidies — set to more than double from RM8 billion in 2010 to RM18 billion this year — in check.

Sources told the Chinese daily the government may forego cutting RON95 subsidies in favour of bumping up electricity rates due to the rising cost of natural gas and coal, which are used to generate more than 90 per cent of the country’s power.

The Najib administration has embarked on its latest round of subsidy rationalisation to slash ballooning petroleum subsidies despite inflation hitting a two-year high of 3.2 per cent last month.