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Granting 12% Average Tarriff Hike For Tenaga Nasional Bhd (TNB) Will Make Inflation Worse And 2.54 Million TNB Users Suffer Merely To Protect The High And Guaranteed Profits Of Independent Power Producers (IPPs)

Media statement
by Lim Guan Eng

(Petaling Jaya, Wednesady): DAP strongly criticizes Cabinet for agreeing to Energy, Water and Communications Minister Datuk Seri Dr Lim Keng Yaik’s request to grant a 12.5% tariff hike for TNB as not in the national and consumer interest because it will worsen inflation affecting 41% of TNB’s 6.2 million consumers just to protect the exorbitant profits of IPPs. Inflation was the highest in 7 years at 4.8% in April 2006 as a result of the fuel hike resulting in Bank Negara increasing interest rates to 3.5% recently.

Such a hike in interest rates would definitely affect economic growth and place serious doubts whether the 9MP’s objectives of 6% economic growth from 2006-2010 can be achieved. 6% economic growth over the 9MP is crucial to help Malaysia to achieve the 6.5% economic growth from 2010-2020 necessary to be a developed nation.


The International Monetary Fund (IMF) had recently cut its 2006 economic growth forecast for Malaysia to 5.5 percent from 6 percent, citing increasing inflationary pressure. The 5.5% economic growth is in line with estimates by both the by the Malaysian Institute of Economic Research and a Reuters quarterly poll of economists.


Datuk Seri Dr Lim Keng Yaik has once again betrayed the interests of consumers he swore to protect by announcing his agreement to TNB’s tariff hike which will be enforced by 1 June 2006. Under Tenaga's latest proposal to the Government, users will be subjected to the new rates only if they rack up monthly bills exceeding RM200 (or usage of 200 kilowatts per hour). 2.54 million of Tenaga's 6.2 million domestic users rack up monthly bills of more than  RM44 each month and will be affected by the new rates.


Another important factor that such tariff hikes by TNB is not in the national interest because the high, unfair and guaranteed profits of IPPs continue to be protected. TNB is forced to purchase power generated by IPPs whether TNB requires it or not resulting in a reserve margin of 40% one of the highest in the world.


Efforts should be made to reduce the power reserve margin to 15-20% in line with developed countries and the only way to do so is to review the contract arrangements with the IPPs. The national utility company would also have to pay more to IPPs in the near future as two new power plants come on stream between September and early 2009.  TNB pays about RM4bil a year to existing IPPs and the new power plants would add another RM2.13bil in cost for the company.


Much higher cost reductions can be achieved by reviewing the RM 4 billion in yearly payments to IPPs for power purchased that TNB does not need. It is economically irrational and financially foolish to continue to buy power that you do not need. Until and unless such unfair contracts with IPPs are reviewed, any increase in electricity tariffs is unfair and would only benefit the rich IPPs at the expense of Malaysians. TNB can save much more by reviewing such contracts with IPPs than from the revenue derived by increasing electricity tariffs.


Instead of helping ordinary Malaysians, the government appears to be more interested in protecting its cronies. DAP regrets Cabinet’s failure members to look after the interests and welfare of  2.54 million TNB consumers as highly irresponsible, economically unfair, not in the national interests and an added financial burden to Malaysians which will only increase inflation and slow economic growth.


* Lim Guan Eng,  DAP Secretary General

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