Bigger electricity bills on the way as Putrajaya restructures energy sector

It is going to be a bleak year ahead for Malaysians who have already been hit by a slew of price increases, especially those living in major cities.

After a cut in the fuel subsidy and the removal of the sugar subsidy recently, Malaysians have now been told to expect an increase in power tariff sometime next year.

MyPower Corporation, a special-purpose agency set up to drive reforms in the Malaysian electricity supply industry, said it has completed studies on several aspects of reform in the industry, including adjustments to tariff.

MyPower chief executive officer Datuk Abdul Razak Abdul Majid said if fuel subsidies were to be gradually removed, then the indicative tariff rate would be around 42 sen per kilowatt-hour (kwh), compared with the current subsidised rate of 33.5 sen/kwh.

He said the cost of generating a unit currently is about 30.9 sen (kwh).

Based on MyPower’s projections consumers are looking at an increase of about 8.5 sen for a kilowatt, which works out to about a 26% increase.

Abdul Razak said MyPower had forwarded these findings to the Minister of Energy, Green Technology and Water, Energy Commission and other relevant agencies.

“But what the actual tariff rates are going to be is up to the government,” said Abdul Razak at a media briefing yesterday.

In addition to the subsidy, the government also foots the bill for consumers whose electricity bill is RM20 or less. Last year, it spent some RM146 million on this which benefitted 1.1 million households.

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.

The subsidies for the country’s power sector alone cost Putrajaya around RM8 billion to RM12 billion per year, depending on the prevailing input fuel prices.

Gas constitutes 50% of the fuel used for electricity generation while coal provides 40% and renewable energy makes up 2% in Malaysia. The remaining 8% comes from hydropower.

Gas is currently supplied by Petronas at subsidised prices while coal is obtained at market rate.

Higher gas prices have made subsidies for electricity generation untenable. The situation is accentuated by state electricity company Tenaga Nasional having to import liquid natural gas (LNG), mainly from Australia.

Abdul Razak said under the proposed principles of the fuel-cost pass through mechanism, fuel cost would be reviewed every six months and any change (upward or downward) in the cost due to fluctuations in fuel prices (gas, coal and oil) would be passed to the consumer.

The fuel cost pass through mechanism is a significant component under the proposed Incentive-Based Regulation (IBR) tariff framework.

Abdul Razak said with the IBR framework, TNB's transmission and distribution network's annual performance will be benchmarked against a set of performance targets.

Tariffs and TNB's returns will then be adjusted based on achieving these performance targets.

He said TNB's electricity bill to consumers would also be restructured to show the breakdown in costs, in terms of generation, transmission and distribution.