by Lim Guan Eng

(Petaling Jaya,Sunday): DAP leaders will be meeting TNB CEO Dato Che Khalib Mohamad Noh on Monday 11.30 am  5 June 2006 at TNB HQ in Jalan Bangasar to let him understand the impact of the 12% electricity tariff hike on the people instead of reducing the RM 3.3 Billion in unwanted capacity payments made to IPPs. BN leaders are so disconnected from the hardships of the people by insisting that the people’s standard of living will be unaffected by the 12% hike in electricity tariff because it will not significantly burden the majority of people in the country. I can show him many cases of businessmen severely affected by the 12% fuel hike and who thinks that the 12% hike is definitely not reasonable.

Many consumers do not believe that the 12% tariff hike affects only 40% of consumers as many would exceed RM 44 in monthly electricity payments. It is easy for Energy, Water and Communications Minister Datuk Seri Dr Lim Keng Yaik to say that the more you use, the more you pay because he can afford it. But for the large majority of Malaysians, they have no choice not because they want to use more but is a necessity.

At a time when ordinary Malayians are suffering high fuel and electricity prices, there is neither economic rationale nor socio-economic justice to allow the few rich IPPs to continue to profit from high rates of returns, discounted gas prices and low risks. Under the IPP agreements, the IPPs are allowed to pass inflation costs, among others, to Tenaga. It is this clause that makes it a “risk-free” business with guaranteed returns for IPPs.

Under the current structure, TNB pays IPPs a “capacity charge” and an “energy charge”. A capacity charge is payment made for making available a certain level of capacity, while the energy charge is payment for electricity actually supplied to TNB. This means TNB would have to pay for spare capacity or reserve margins, even if unused. Power purchase from IPPs makes up almost half of TNB's operating costs. For the year ended Aug 31, 2005, TNB paid RM3.3bil in capacity payments and RM3.14bil in energy payments. 

Such high capacity payments of RM 3.3 billion last year have resulted in the TNB having one of the highest reserve margin in the world of 40% by paying for energy TNB does not need. If the reserve margin were reduced from the present 40% to 20%, TNB would save more than RM1.6 billion annually, which is more than sufficient to cover the RM 1.5 billion increase in revenue from the present 12% tariff hike. Why can TNB or the government not reduce the reserve margin and reduce the capacity payments to IPP by half and there is no need to burden the people?

Petronas has subsidised the power sector more than RM25 billion since 1997, of which RM14 billion or 55% went to the IPPs, whilst the remaining RM 11 billion is enjoyed by Tenaga. For Tenaga to seek a tariff hike when it has enjoyed direct subsidies of RM 11 billion is unacceptable, ungrateful, irresponsible and not in the national interest.

Petronas’ subsidies to the IPPs of RM 14 billion since 1997 must be abolished. The RM 14 billion subsidies to the IPPs could be better spent on funding the capital expenditure and maintenance requirements of Tenaga. As the IPPs are private companies enjoying special rates for generating electrical power that Tenaga is forced to purchase, there is no reason for IPPs to enjoy such huge subsidies of RM 14 billion to profit at Tenaga and Malaysian consumers’ expense.

Consequently there would be no necessity for any tariff hike. Why should consumers be asked to sacrifice but not the IPPs who are allowed to continue to enjoy high rates of returns and hefty profits unaffected by high fuel prices?