IPP cronies the main culprit for costly electricity

The continued protection of closely-connected Independent Power Producers (IPPs) through the latest hike in electricity tariff by 7.12 percent starting June 1 has been condemned by Pakatan Rakyat leaders.

Leading the charge is outspoken member of parliament Tony Pua, who said the extra costs on the commercial users would only undermine competitiveness in goods and services.

“The industrial and commercial consumers will bear the brunt of the tariff hike with an average increase of 8.35 per cent in their power bills. This will inevitably fuel further inflation and reduce the competitiveness of our goods and services,” he said in a statement to Harakahdaily today.

Yesterday, the government announced an increase in electricity rate by 2.23 sen/kWh or 7.12 per cent to 33.54 sen/kWh from the current average rate of 31.31 sen/kWh. The hike has been attributed to its decision to review natural gas price in Peninsular Malaysia from RM10.70/mmBTU to RM13.70/mmBTU.

As a result, Petronas will be selling natural gas to power producers at the new rate, drawing an extra RM3 per month until December 2015, when market rates will then apply.

Ministry of Energy, Green Technology and Water Peter Chin claimed the new prices would affect only domestic consumers whose power usage exceeded 300kWh per month, arguing the hike would be by between RM0.07 to RM30.30 every month.

Chin also announced that the government would stop waiving electricity bills for domestic users who record less than RM20 per month, as is currently the practice.

In its reaction, PAS Youth said the hike showed the government was more interested to protect IPPs than the masses.

“Although they have received high amount of subsidies, IPPs still ask for tariff increase. The government which claims to reduce the burden of subsidies now transfers that burden to the people,” said Federal Territory PAS Youth information chief Herman Samsudeen.

He warned that the hike would have a big impact on industry players.

“How about those restaurant operators and small sellers?” he asked, and said that it was inevitable that prices of their products would have to be raised to cover the new costs.

Real source of 'misallocation of resources'

Pua meanwhile said the government's argument that it needed to revise the tariff in order to reduce subsidy bills and "misallocation of resources" was just an excuse.

“The government has at the same time conveniently ignored the fact that the source of the 'misallocation of resources' lies with the unbelievably lucrative Independent Power Producers (IPPs) power purchasing agreements (PPAs) with Tenaga Nasional Bhd (TNB),” charged Pua.

He drew comparison to neighbouring Thailand’s power tariff, which is only 0.4 percent higher than Malaysia at RM38.01 kWh despite its natural gas costing more than double that of Malaysia’s at RM23.10 mmBtu.

“It has become stark clear that electricity rates for our commercial sector will be significant higher than that in Thailand, despite the fact that natural gas prices for the sector in Malaysia will still be 68.6 percent cheaper.

"Using Thailand as a benchmark, Malaysian electricity prices should be 16.9 percent cheaper based on existing subsidy rates,” he pointed out.

According to Pua , the country's high power tariffs were due to TNB being forced to purchase electricity from IPPs.

“Our export industries which are already affected by the strong ringgit will be dealt with a bigger blow due to higher electricity prices compared to the region as a result of an inefficient and distorted power sector which profits only the IPPs,” argued Pua.

PAS's Herman proposed that the government take over the controlling stakes from IPPs through TNB to cut down production cost, while Pua, advised the government to restructure the lopsided Power Purchasing Agreements (PPAs).

“By doing so, the Government can kill two birds with one stone, reducing its subsidies and correcting the inefficiencies in the power sector as a result of our super-high reserve margins, while at the same time maintaining our existing electricity rates,” claimed Pua.

Meanwhile, Barisan Nasional leaders continued to defend the hikes as minimal and having no impact.

Deputy prime ,inister Muhyiddin Yassin said industries should not use the new tariffs as reason to increase the price of their products.

“For consumers’ goods, I think it should not be raised. Only the industry and business sectors will increase. Even that is only 7 percent only,” he reportedly told Bernama.

- Harakahdaily