Minister of Energy, Water and Telecommunications Datuk Seri Lim Keng Yaik has on yesterday hinted that there could probably a tariff hike next year and that he can only guarantee that tariff will remain unchanged only until the end of this year.
Though Lim Keng Yaik has raised the issue of tariff hike which will create an adverse impact on the country’s economic, fariff hike for Tenaga is not justifiable as the root cause of the problem is the high payment given by Tenaga to Independent Power Producers (IPPs) which lowers the profit margin of Tenaga.
Currently, Tenaga’s payments to Independent Power Producers (IPP) comprising 40.5% of its total costs. Besides, staff (9.9%), fuel (19%) and depreciation (17%) are the other main components of costs.
It is clear that the high and unreasonable payments to IPPs are the main obstacles to higher net profits for Tenaga.
The government should review agreements between IPPs and Tenaga which were made not for the benefit of Malaysians but for the few cronies of BN, in which Tenaga has to purchase power from IPPs and guarantee payments for power generated that Tenaga does not need, which is proven by Tenaga’s reserve margin of 40%, amongst the highest in the world.
IPPs also enjoy subsidized rates for purchase of gas from Petronas, resulting in Petronas subsidizing RM 14 billion for such IPPs. Since May 1997, Petronas has supplied processed gas to Tenaga and the independent power producers (IPPs) at a regulated price of RM6.40 per mmbtu (British thermal unit) as compared to the current market price of more than RM 30.
As IPPs are private companies enjoying special rates for generating electricity 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 Malaysians’ expense. All these have even allowed some IPPs to enjoy rates of return of more than 12% much higher than Tenaga’s 5.2%.
Therefore, tariff hike for Tenaga is not justifiable as the root cause of the problem is the high payment given by Tenaga to Independent Power Producers (IPPs) which lowers the profit margin of Tenaga.
Instead of asking consumers to pay more, Tenaga should ask the government to review these unfair compulsory power purchase agreements contracted at higher than market rates to make it fairer and more balanced to both parties.
(7th November 2005)
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