Khairy calls IPP contracts ‘unfair’ to the public

Umno Youth chief Khairy Jamaluddin has added his voice to the growing chorus against the power purchasing agreements signed with independent power producers (IPPs), calling them “unfair” and “lopsided”.

The highly-profitable IPPs have come under renewed scrutiny following the government’s decision to raise electricity prices earlier this week, prompting concerns that it would worsen inflationary pressures.

Khairy (picture) said the system of procuring power from private producers needs to be revamped and instead of the concession-type purchasing power agreements (PPAs), which have thus far remained a secret, the government needed to move towards a transparent auction-based system instead.

“Look at transparent auction systems for power in the future, not lopsided PPAs like those signed early on in the ‘90s. Those were unfair to the government and ultimately the people,” said Khairy during a chat session with the public hosted by Internet portal Yahoo! Malaysia today.

He added however that IPPs were still needed as Tenaga Nasional Berhad (TNB) “cannot be the sole generator”.

The PPAs signed by the IPPs and TNB have been criticised as “sweetheart deals” but have remained confidential thus far.

The prime minister said two days ago he would look into opening the books even as his Cabinet colleague Datuk Seri Peter Chin, who is in charge of the Energy, Green Technology and Water portfolio, said Putrajaya had no power to reveal the PPAs as the deals were between private companies.

Malaysian Bar president Lim Chee Wee said today the federal government should and could make public the controversial PPAs in the public’s interest based on the law.

In a 2006 interview with The Star, former TNB chairman Tan Sri Ani Arope gave some insight into the PPAs when he claimed that TNB was “humiliated” by the Economic Planning Unit (EPU) and directed to accept terms and conditions that were “grossly unfair.”

“There was no negotiation. Absolutely none,” Ani said. “Instead of talking directly with the IPPs, TNB was sitting down with the EPU. And we were harassed, humiliated and talked down every time we went there. After that, my team was disappointed. The EPU just gave us the terms and asked us to agree. I said no way I would.”

Ani said the national utility company was producing electricity at eight sen per kWh but was asked to buy from IPPs at up to 23 sen per kWh for a specific number of years and at a certain volume regardless of its actual requirements.

Ani claimed that one IPP had actually agreed to sell at 12 sen per kWh but was surprisingly shot down by the EPU and had to eventually sell at a more expensive price of 14 sen per kWh.

Ani also criticised the cost pass-through mechanism.

“If the price of fuel went up, the extra cost is passed through (from the IPPs) to us. And in other words, it is passed on to the consumer,” said Ani.

MCA president Datuk Seri Dr Chua Soi Lek said on May 24, however, that the government had to honour the IPP contracts in order to preserve its credibility and would re-negotiate the contracts once they lapsed.