Malaysia: Clearing the air on tariffs

Malaysia: Clearing the air on tariffs

The following is the transcription of the interview with the
Secretary-General of the Ministry of Energy, Green Technology and Water
(KETTHA) Datuk Seri Dr Zaini Ujang and Tenaga Nasional Bhd Vice-President,
Regulatory Economics and Planning Datuk Roslina Zainal, aired on Bernama
News Channel (BNC)'s Ruang Bicara programme. The interview was on "Regulated
Electricity Tariff", broadcast on July 5 on Astro 502, HyppTV 410 and MYTV
121.

Q: Sometimes, we are confused with the word "tariff" which is always
mentioned. It sometimes brings a negative perception. As we are aware, the
total Imbalance Cost Pass-Through (ICPT) rebate of RM1.303 billion
translates into a tariff of 2.54 sen kWh. As such, certainly the people want
to know how they are benefiting.

Zaini: Thank you. I would like to take this opportunity to explain several
things associated with electricity tariff.

Last week, on Friday, June 30, the honourable minister Datuk Seri Dr Maximus
Johnity Ongkili announced that there will be no increase in electricity
tariff from July 1, 2017 to Dec 31, 2017.

The tariff will not be increased, it will be maintained at an average
electricity tariff of 38.53 sen/kilowatts per hour (kWh).

In addition, the Government will give a rebate of RM1.303bil to consumers in
Peninsular Malaysia and Sabah.

Since the introduction of the new mechanism, called ICPT, on March 2015
until December 2017, consumers enjoy a rebate when there is no increase in
tariff, it is a reduction from what we have fixed.

The total rebate has been more than RM5bil since March 2015. We must
understand this figure, the Government is not just giving the rebate for the
sake of giving it. Tenaga Nasional is not just the provider of electricity
supply in Peninsular Malaysia and part of Sabah, but there is a concept or
policy in place.

Q: What does ICPT mean?

Zaini: When we fixed the new mechanism for the electricity tariff, there
were two levels. We have the base tariff of an average electricity tariff of
38.53 sen/kWh for Peninsular Malaysia. The ICPT will be added on to the base
tariff or a surcharge will be added to consumers if several factors used in
the computing of the tariff exceeds the norm. But, if it is less, we will
give the rebate back to the consumers.

We want to ensure that consumers receive quality electricity supply
continuously at a set price.

We will inform of any forecast depending on several factors.

The most import factor will be the price of fuel and that of coal and gas
which makes up a large portion of the tariff rate or energy source in
Malaysia. Oil accounts for one per cent while hydro electricity makes up the
remainder.

Q: The people want to know of the benefits they derive and the parties
affected by the charges. Among the 6.9 million users, how many per cent are
affected directly?

Roslina: There are approximately 6.9 million domestic users in Peninsular
Malaysia. Of this, a total of 4.4 million consumers are not affected. They,
in fact, use less than 300 kWh. These consumers are not charged anything and
they have not been imposed with any rebate or surcharge since 2008. They are
not affected, at all.

But the rest, about 2.5 million users are imposed the surcharge or rebate
and up till now, as mentioned by Datuk Seri, the 2.5 million users, many of
whom are our clients, have received large rebates since March 2015.

When we introduced the base tariff, as mentioned by Datuk Seri, it was only
meant for the next three years. When we made the forecast, it was based on
the market price of crude oil at that time, foreign exchange and
infrastructure required by the electricity sector.

In 2015, coal prices were forecast at US$87.5 at an exchange of RM3.1/US
dollar. Now, the exchange rate, the price of fuel and coal have risen. The
difference in coal prices was about RM100 or US$22 per tonne.

We consume about 25 million tonnes of coal, annually, but the increase in
coal prices does not really affect power operations. This is just the global
market price for coal and the foreign exchange rate.

Q: What is our position compared with other countries?

Zaini: In terms of prices, it is very competitive in Malaysia. It is hard
for me to give a detailed comparison because it involves too many countries.
For example, this is the average usage last year, the tariff in Malaysia
compared with many other countries, such as Indonesia.

Compared with our neighbours - New Delhi, Bangkok, Jakarta, Manila and
Singapore, in terms of an average of 278 kWh usage per month, we are very
competitive. This does not include those who qualify for the rebates - those
who use 300kWh and below.

Many of us use 1,000kWh. We have two large refrigerators, five
air-conditioning units, this is more or less what we have in our homes.

We will see that the tariff is quite high, because those with higher
electricity consumption level will be placed on the more expensive price
band, but they would get the rebates that I had mentioned earlier.

If our electric bill is around RM500, we would get rebates of around RM16 or
RM17. This is what we need to know in providing electricity services which
are competitive in terms of prices and quality while protecting consumers'
interests. Consumers who use RM20 and below are classified as the B40
(Bottom 40) target group, and the Government would subsidise the entire
amount.

Q: Why is the ICPT rebate of 2.54 sen/kWh higher than before?

Roslina: ICPT is done every six months. The current revision is for the
period between January and June 2017. This time around, we can see that the
price of fuel has shot up and the foreign exchange rate has also risen to
RM4.35 per US dollar, and the price of natural gas has also increased by
RM1.50, which translates to an increase of RM280mil .

As such, the current revision is different from the previous revision. The
higher fuel and gas prices plus exchange rates led to a higher surcharge
rate of 1.02 sen/kWh.

As the Government does not want to burden the people, it chose to absorb the
1.02 sen surcharge or RM523mil in total, so that Peninsular Malaysia
consumers would not be affected.

Meanwhile, the Government decided to maintain the 1.52 sen/kWh rebate per
unit, and if it does so, about RM780 million has to be absorbed by the
Government. With the 1.02 sen surcharge and the 1.52 sen rebate, the total
is 2.54 sen.

Q: Aside from the ICPT rebates, what other assistance is provided for
consumers?

Zaini: From May 2016 to June 2017, we had given a rebate of 2.26 sen/kWh.
This is a huge amount, although it seems very little. And, the 2.54 sen/kWh
rebate for June to December 2017 is the highest that we have ever given,
amounting to RM1.30bil, and RM5.04bil in total.

We have managed to survive despite global economic uncertainties, because we
have policies in place which allow us to control the prices and tariffs of
power and other basic amenities, among other things.

This is the Government's policy, it is not to gain popularity for the
upcoming elections or anything, this is something we have been doing since
2014.

The Incentive Based Regulation was introduced in 2012, and the ICPT in 2014.
We had thought about it and we made the transformation.

Rising prices are not decided by TNB, by the Government. TNB is only one of
the many companies in the country. In the context of Peninsular Malaysia,
there are other companies such as NUR in Kulim Hi-Tech Park, with similar
functions as TNB, but in a limited area.

Q: Apart from the ICPT rebate, there are also other forms of Government
assistance extended to electricity consumers. Please elaborate.

Zaini: This is a very complex issue for us to discuss specifically, but I
would like to state that apart from what was mentioned earlier, namely the
rebate for RM20 and below as such, we also extend a number of special
schemes to the industrial and commercial sectors to enable them to undertake
a number of initiatives.

The first is the use of electricity at non-peak hours. For example, at
night, when power generation needs to be undertaken and consumers do not use
much electricity. At that time, if there is high usage by industries, they
will receive a special tariff, that is much better when compared with other
sectors to which we have also extended a special tariff.

Q: I would like to also touch on the savings fund for the Power Purchase
Agreement (PPA).

Roslina: The PPA savings fund was formulated by the Government The aim is to
provide a savings so that our customers can enjoy and it is the result of
the renegotiation with the first generation independent power producers
(IPPs).

What happened is that the Government renegotiated with the IPPs and they
agreed to reduce the contract rate to between 20% and 70% . The savings from
this reduction was placed in a fund called PPA Savings Fund. As of August,
2017, the amount in the fund should be about RM1.39bil.

Q: More importantly, will this fund be able to support any rise if there is
a surcharge?

Roslina: One of the objectives of this fund is to reduce the burden of the
people if there is any surcharge resulting from any rise in fuel prices.
With this fund, the Government can assist the people by ensuring the
electricity tariff does not burden them and this has already materialised.
For now, a rebate of RM1.30 billion has been taken from the PPA Fund.

Q: One important factor is educating the people by creating awareness.

Zaini: I wish to conclude that the Government's policy is that through this
energy saving exercise, the savings in 2030 will be an additional 15% from
the level in 2017. This is not easy. It means we have to review all
equipment at offices, plants and homes that are inefficient and consume a
lot of electricity. This impacts our companies.

I have also discussed with various agencies such as the Federation of
Malaysian Manufacturers on how they can be encouraged to start this
initiative.

The first step is to undertake an energy audit. We need to know what
equipment needs to be changed and not all. Secondly, we must change the big
items that have the biggest impact and thirdly, if we can, consider energy
sources such as solar panels that use the Net Energy Metering (NEM) and
Feed-in Tariff (FIT) mechanisms.

The FIT has been introduced in Malaysia. We also have solar energy or other
forms of renewable energy which we can sell to the national grid in the
Peninsular, (to) TNB, at a fixed rate. For example, RM1 for solar panels.

Then, when we need to use, we purchase at a tariff of 38 sen. It means we
have profited more than 50 sen as an energy producer and consumer. This is
what we call the FIT.

Under the NEM, we produce and use energy and only sell any excess.

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Link to Original Article:
http://www.thestar.com.my/news/nation/2017/07/11/clearing-the-air-on-tariffs
-zaini-the-aim-is-to-deliver-quality-electricity-supply-continuously-at-a/

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John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com