Windfall profit levy on IPPs cancelled

The Star Online reported that, The Cabinet has discontinued the windfall profit levy on independent power producers (IPPs) with immediate effect.

The Finance Ministry said the Cabinet had in its meeting on Thursday decided that IPPs would instead have to make one-off payment.

“The amount will be equivalent to the windfall profit levy payable for one year,” it said.

“The Cabinet has also decided to suspend power purchase agreement (PPA) renegotiations, pending a comprehensive study into restructuring of the electricity supply industry.”

The effect of the Cabinet decision seems to be that a one-year deadline has been fixed for the comprehensive to be conducted. This can be called a standstill agreement where the status quo is maintained. A one-year advance payment totalling RM37.16mil has been paid (call it ex gratia?) has been made by the IPPs. Negotiations on the PPA will be suspended for the one-year period.

Positive impact on the moribund bond market

The Cabinet decision is expected to have a positive impact on the bond market since the IPPs and other infrastructure companies issued a significant number of bonds in the market. The bond market is an alternative investment base for foreign investors who had been exiting the market due to the uncertainties. This has added downward pressure to a weakened ringgit.

Make the study and its terms of reference public

It would be good if the terms of reference for the proposed comprehensive study is made available to the general public, who ultimately, are the major stakeholders in this issue. Anyone who has recently paid their electricity bills will be aware that the July electricity tariff hikes has added another burden to household expenses.

Such a study must also consider whether the principle of having privatised power production causes the cost of electrical power generation to be higher than leaving it in the hands of a public body or semi-government body or government-linked entity.