BY CECILIA KOK
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KUALA LUMPUR: Electricity bills are likely to go up as the Government is expected to reduce subsidies for natural gas in its bid to improve Malaysia’s fiscal position.
“The subsidy bill for the power sector has been creeping up … if the Government doesn’t do anything, the subsidy bill would go higher and higher,” MyPower Corpchief executive officer Datuk Abdul Razak Majid said at a media briefing yesterday.
The last electricity tariff hike took effect in June 2011 when the subsidised gas price was raised to RM13.70 per million metric British thermal unit (mmbtu) from RM10.70 per mmbtu previously.
MyPower, a special-purpose agency set up to drive reforms in the Malaysian electricity supply industry, said subsidies for the country’s power sector alone cost the Government around RM8bil to RM12bil per year, depending on the prevailing input fuel prices.
Natural gas, which currently accounts for about 50% of the power-generation fuel mix in Peninsular Malaysia, is sold to the local power sector at a subsidised rate of RM13.70 per mmbtu, although the market price of fuel has already tripled.
“The Government’s plan is to move towards market-based prices. But it is also conscious of how this move is going to impact customers, so the key decision is whether to slow down the process or move at a faster pace,” Abdul Razak said.
He noted that higher gas prices had made subsidies unsustainable and that the prospects of having to import liquefied natural gas at market rates to alleviate the country’s energy supply challenges had only added to the woes.
According to MyPower, if fuel subsidies were to be gradually removed, then the true cost of power would exceed 40 sen per kilowatt-hour (kwh), compared with the current rate of 33.54 sen/kwh.
While gas is supplied at subsidised prices, coal, which accounts for about 40% of the power-generation fuel mix in Peninsular Malaysia, is procured at market rates. Any change in the two fuels will have a direct impact on the cost of electricity.
On that note, Abdul Razak said the principles of the fuel-cost pass through mechanism had already been worked out. Under this mechanism, fuel cost would be reviewed every six months and any changes (upward or downward) in the cost due to fluctuations in fuel prices (gas, coal and oil) would be passed through in the end-user tariff.
The fuel-cost pass through mechanism is a significant component under the proposed Incentive-Based Regulation tariff framework.
According to Abdul Razak, the framework must be implemented first before the fuel-cost pass through mechanism can take effect.
He revealed that there were plans by the Energy Commission and Tenaga Nasional Bhd (TNB) to do a pilot run for the Incentive-Based Regulation tariff framework from next month to identify issues or discrepancies that need to be ironed out.
“Hopefully, after one year of the pilot run, they can launch the programme proper,” Abdul Razak said.
Under the framework, TNB’s transmission and distribution network’s yearly performance will be benchmarked against a set of performance targets. The electricity tariffs, and hence, TNB’s returns, will then be adjusted based on achieving those performance targets.
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