Tuesday, October 28, 2008

Electricity tariffs: Feeling tricked

I've just paid another round of electricity bills. I can't help feeling very negative about the manner in which this issue has been handled by the government.

For the record, in the Star Online report of Thursday, June 5, the Prime Minister had announced that the electricity tariffs will rise due to, the restructuring of the fuel subsidies and the increase in coal prices, the Government had approved the new electricity tariff structure to allow Tenaga Nasional to absorb the cost for both commodities.

Recently, we are told that, Electricity tariffs will not be cut despite the massive drop in global crude oil prices.

Energy, Water and Communications Minister Datuk Shaziman Mansor said that oil did not directly affect the cost of electricity generation which was mainly sourced from gas and coal.

"We must bear in mind that 60% of electricity produced in this country is generated from gas and another 30% from coal. We cannot expect a reduction in electricity tariffs as there is no direct link here," he said at his Hari Raya open house. This was reported in the Star Online Saturday, October 25.

Read Aliran's analysis of this issue on Friday, June 6 and Saturday, August 5.

The BN government created the IPP monster (click here to see how many posts I have made on IPPs). It has an opaque structure cost structure such that the Power Purchase Agreements is not open to public scrutiny.

No matter how anyone sympathises with UMNO or any BN component parties, it is issues like this that is contributing to the downfall of UMNO and BN.

They can spin this issue all they like. But, come every month, when Malaysians examine their TNB electricity bill, they will be reminded that they are being treated with contempt by UMNO and BN.

UMNO party elections can come and go. MCA elections, MIC elections and, even, Gerakan elections can capture the headlines for as long as they can. But, unless there is proper economic management of issues like the cost of electricity, the rakyat is reminded every month that if Pakatan Rakyat can offer better economic management, then come the next general elections, their sentiments will be even more clearly expressed than on March 8, 2008.

8 comments:

myop101 said...

i don't think they can afford a drop in electricity tariff. as you should be aware, there are more coal powered plants coming online and sooner or later, the power produced will be rebalanced towards more in coal (pricing fluctates) and less in gas. as of now, gas prices are fixed hence that already account for some savings. but for coal, TNB usually hedge the coal prices forward. so if there are any savings, it would only be felt 6 months down the road. immediately dropping the tariff rates are not advisable.

instead, more cost cutting measures should be put in place and the impending 2009 tariff revision should be put off to a later date.

but all said and done, as long as we continue to irresponsibly guzzle electricity, TNB needs to built more power plants which will in the end, pass on the capex cost to us...consumers. and given the length of time to build one plant (more so coal being unpopular and it is not as simple as building it anywhere they like), i don't foresee the tariff prices being lowered.

what i do think TNB should do is impose higher tariff charges on factories. the problem is, these subsidies they get from gas artificially helped these factories to produce cheaper. i don't think that is an efficient way of distributing subsidies. if we really want to help, we should help consumers. factories afterall has to be competitive. cheap labour is already a competitive factor...

de minimis said...

myop101

The crucial first step is to let the public understand the cost-structure for electricity generation. The TNB-IPP Power Purchase Agreement may be innocuous. It may even be transparent in terms of pass-through of costs. But many people believe that the business of generating power has an unfair built-in cost that favours the IPPs. How else can IPPs earn profits while complaining about their bond arrangements and coal and gas prices?

The question is; what if we do away with IPPs via a hybrid-nationalisation exercise involving the issuance of sovereign bonds. Would the savings from removing the rent-seeking IPPs be beneficial to the public?

Price discrimination between private households and industries make economic sense to a certain extent (though we have to factor in the inflationary effect). But the starting point mst be a public examination of the TNB-IPP contractual relationship. We're all stakeholders here. We should be allowed to evaluate whether the arrangement is fair or not. Electricity is a "public good" in the economic sense.

walla said...

http://tinyurl.com/6j9hm4

Anonymous said...

Anyone who paid our electricity bill will realised that TNB is the only ultilities company that charge interest on any arrears!

Sometimes those arrears r caused by the formula used by the TNB in arriving on the estimated current bill, as the occupants r not in the house when the meter reader come calling!

Moreover, TNB has a tendency to charge additional deposit if the monthly charge is above certain amount, bearing in mind that that month's charge is estimate at best.

Just image the additional 'incomes' contribute by these charges over the millions household that pay electricity bills!

This is day-light robbery at best!

gwlnet

de minimis said...

walla

Thanks for the link. It certainly adds to the puny database of mine. The report naturally focused on the investment issues and the policy perspectives from an investment standpoint.

The interesting alternative may be to take a holistic view about whether a small economy like Malaysia would be better-off with re-nationalising the business of electricity generation.

Given the global soul-searching that is threatening to take place in the wake of the financial and market turmoil, a regulated and nationalised set of "public goods" such as public utilities in the form of electricity generation and water supply and, even toll roads, is something to re-visit.

walla said...

The IPPs were the result of a knee-jerk reaction to one nationwide blackout that happened in the throes of the malaysia inc. scheme. Same can be said for the TNB and TMB GLCs, indahwater, alam flora, and those bond-protected toll operators.

We are all suffering from the old disease of third-world myopia, greed and stupidity. For us, this disease has everything to do with the type of politics which continue to put clueless people into positions bereft of checks-and-balances who make the stunted decisions for which generations later have to suffer in silence.

And they want to talk about glocalization? They can't even localize properly the very basics - the utilities - that go into how our enterprises can start to compete.

Not satisfied with shooting everyone in the foot on education, they have also shot up the economy, the industries, the international reputation, the public service delivery, the infrastructure maintenance, and the environment.

So, macam mana? Pay each rakyat a heartache allowance? They can't afford it and that's because they have been taking short-cuts all along and not focused on paving the fundamentals which must be done.

As for such reports, just gleam the numbers for insights.

myop101 said...

the fuel cost past through is based on the performance of these IPPs. the first gens of course are in far better position to command "certainty" in generating income compared to those of 3rd gen.

as for IPP profits, i presume you are complaining about the likes of genting and YTL. those are from the 1st gen and most if not all these PPAs would be expiring by 2013-2014.

i don't think TNB would give them the same contracts as previously since they learn to be smarter along the way.

i agree with you on public revelation of these contracts. but sadly, our Govt is paranoid of every form of criticism whether it is constructive or not.

as for nationalisation of these projects via sovereign bonds, it is merely asking bondholders to exchange papers with some profits made upfront. but is it economical to take out the existing shareholders? nationalisation has wide negative implication if handled improperly more so with the investing community.

as it is, why TNB and the govt continuously "fail" to renegotiate the PPAs is precisely because these shareholders aren't nobody and threatening them with a stick like the windfall tax obviously "almost killed" the bond market. that is just the bond market...

to me, it is not as simple as merely nationalising it for the benefit of the people because there are other stakeholders (which are also citizens and form industries which employs a number of people in this country).

also, observe venezuela which nationalised the petroleum industry. are they truly in a better economic shape today?

on the soul searching and nationalising aspect, the telecommunication industry is a good example where privatisation actually helped to reform the industry rather than leaving it in public hands. of course, many still complain about the services of these telcos but overall, owning a handset and making calls out of convenience would not have emerged if it is controlled by 1 public utility as they would have set the phone calls prohibitively high. the same goes for international call rates which was reduced thanks to competition and deregulation.

de minimis said...

myop101

Maybe my latest post may make you less sanguine about the structure of TNB-IPPs in delivering electricity to Malaysians. The basis for IPPs should be re-visited. The financial burden of inefficient privatised entities that deliver "public goods" should not be placed on Malaysian consumers.

The job of the government economic managers must be to ensure economic fairness to all Malaysian consumers instead of favouring the few.