Spike in electricity tariff justified?

 

Dr Kua Kia Soong, SUARAM Adviser

In my recent title “Damned Dams & Noxious Nukes: Questioning Malaysia’s Energy Policy” (SUARAM 2013, p.2), I had warned that the government would surely raise electricity tariffs after the 13th general election. Right on cue, TNB has just announced that there will be an upward review of the electricity tariff. They are justifying this increase by claiming that domestic consumers have been subsidised long enough. Yet who have been the main beneficiaries of the government subsidies?

Subsidising domestic consumers or private businesses?

The energy industry in Malaysia has become mega business and the government has been subsidizing private businesses handsomely for at
least two decades even as it announces attempts to remove subsidies for domestic consumers.

In the mid-Nineties when the IPPs first came into the energy production scene, the industrial sector was Tenaga’s largest consumer with 60 per cent of electricity consumption but it was paying the lowest rates averaging 15.98 sen per kilowatt hour. On the other hand, the domestic and commercial sectors were paying 21.5 sen per unit and 23.3 sen per unit respectively. (NST 17.1.96)

But any privatization exercise can only be called a success if the businessmen who bid for the projects succeed in raising financing from the banks through their own credentials. What is evident in the privatization contracts in the energy industry of Malaysia is that many of the crony capitalists (who are strictly speaking, failed businessmen) rely on the Malaysian workers’ pension funds, the EPF, through their links with the government. Thus, the Energy Minister Datuk Seri Samy Vellu justified the EPF as the single biggest source of financing for the Bakun Dam project: “Bakun, you see, they need some government help…They need government help to borrow money. About RM15 billion to generate 2,400MW of electricity, which means Ekran needs to borrow from the EPF.” (Business Times 23.2.95)

Well-Connected IPPs

TNB used to be the sole electricity provider in the country but after the blackouts and brownouts in 1992, Independent Power Producers (IPPs) were allowed into the industry. They were politically well-connected but devoid of any electric power engineering or generating experience, and the power purchase agreements they signed with TNB allowed them highly favourable terms with take-or-pay arrangements for power generation, i.e. if there was no uptake, the IPPs were paid a capacity charge to offset this. Furthermore, they could pass their cost increases such as any fuel price increase to TNB. But TNB itself does not enjoy such a cost-pass-through formula to help it recover any increases in costs.

In 1995, a single IPP made RM800 million in profits – about half of what Tenaga made with all its national plants! Furthermore, the IPPs do not have to invest in transmission or distribution – the expensive parts of the business. (Sunday Star 1.9.96)

If we compare the generation costs of TNB and the IPPs we will have an idea of TNB’s problems. In 1997, Tenaga was paying between 11.8 sen and 15.5 sen per unit of electricity to the five IPPs while Tenaga’s cost of generating electricity was less than 10 sen per unit. (Star
20.4.97)

To solve these contradictions, TNB saw the only way out was to raise electricity tariffs and to urge consumers to use more electricity, including drying their clothes with electrical appliances! Either way, Malaysian consumers lost out and the need for energy conservation was put off once again despite the pious declarations at the Rio conference.

Apart from the dice being loaded in favour of the IPPs, the latter also built power stations at sites of their own choice, not where they were needed. Thus, YTL built a station at Paka, Terengganu (where the gas supply comes in) although electric power was desperately needed in
the north and central regions.

The admission of the IPPs into the energy industry and subsequent flip-flopping policies reflect the total lack of planning and well-thought out energy policy.

The Costs of Excess Capacity

Tenaga has been keeping a reserve margin in excess of 30 per cent over the nation’s total demand. In fact, this reserve margin was boosted to 42 per cent after the commissioning of two new power plants in 2003. With rising operational costs, including that of excess capacity
maintenance, Tenaga was forced to cut its reserve margin to just below 25 per cent. This move was estimated to save the corporation RM1
billion in maintenance cost a year:

“Tenaga has to bear the cost of managing excess capacity on its own. It pays independent power producers about RM500,000 for every megawatt a year and normally draws less than four-fifths of that power…Imagine how much Tenaga spends to manage about 1,500MW of excess capacity from the IPPs!” (NST 30.8.2003)

There is thus no justification for the Bakun dam which harnesses 2400 MW electricity when the demand for energy in the whole of Sarawak
state was only around 400 MW in 1997.  The original intention was for the electricity produced to be transmitted 665 km to the West coast of
Sarawak and a further 670 km to Peninsula Malaysia through high-voltage undersea cables which have never been tested through this distance anywhere in the world!

The current total energy demand in the whole of Sarawak is only 1000MW so the government has been trying to attract the biggest energy
guzzlers such as aluminium smelters which happen to be the most toxic as well. These environmentally polluting industries are then touted as
part of the Sarawak Corridor of Renewable Energy (SCORE). In fact, hydro-electric power dams and toxic aluminium smelters are all industries rejected by developed countries. None of these countries, especially Australia, wants to have toxic industries in their own
backyard. Lynas is but the most recent example.

But the Sarawak State Government is willing to have these mega projects for rather dubious purposes. The desperate chase for investments to take up the excess Bakun energy AFTER the dam has been built shows a total lack of economic feasibility studies which should have been done long before the dam was built. Is it surprising therefore that many SCORE contracts have been given to companies owned by members of Chief Minister Taib’s family?

As long as the full eight turbine capacity of the Bakun dam is not being fully utilized, it will not be economical as the same amount of water is required to run one or all the turbines. It is comical to see the same vacillating suggestion being made every time the government is faced with this conundrum, namely, to resurrect the submarine cables to transmit the surplus power to the peninsula! The recent blackout throughout Sarawak has been attributed to a glitch at the Bakun dam which triggered the state-wide blackout. Has the cost of the blackout been worked out yet?

The Bakun dam project cost has ballooned to well over RM8 billion. At the end of the day, the project will be a yoke around Malaysian consumers’ necks and we will have to pay high tariffs to cover the losses incurred by the developer and/or TNB.

More Mega Dams for us to subsidise
But the monstrous Bakun dam is not all that has been dreamed up by the Sarawak state government. The 944 MW Murum dam is soon to be
impounded. Like Bakun, this latter dam project is in violation of international standards on indigenous rights as guaranteed in the UN Declaration on the Rights of Indigenous Peoples (UNDRIP), of which Malaysia is a signatory. As with the Bakun dam, none of the studies
related to the projects have been transparent. The affected Penan and Kenyah have stated that they have never been asked for their consent,
as demanded by the UNDRIP. The project developer, Sarawak’s state-owned electricity generating company, Sarawak Energy Berhad (SEB) has not provided indigenous communities with an opportunity to grant or withhold their “free, prior and informed consent” for the project as required by UNDRIP. Even in cases where there was agreement, the resettlement plan was not made known to the indigenous peoples PRIOR to the start of the construction, and they were not INFORMED by access to information about the project’s impacts.

The social and environmental impact assessment (SEIA) for the Murum project is seriously flawed.  International standards—including the
World Bank IFC Performance Standards—universally require that the SEIA must be completed during the design phase, before the government approves the project and before construction begins. This was not the case with the Murum Dam Project. The SEIA process only began after construction on the project was already underway.

When the 944MW Murum Dam costing RM3.5 billion comes on stream, the total installed capacity of the two dams will be 3,344MW. The combined cost of the two dams is RM10.8 billion. There are also plans to build more dams – 1,400MW in Balleh, 1,000MW in Baram, 150MW in Limbang and 300MW in Metjawah, among others.

Sarawak’s existing capacity to generate electricity (viz. 1,300MW) without the Bakun dam already exceeds the peak demand of 1,100MW.
Electricity generated cannot be stored. Unused power will be wasted. The government hopes that energy guzzling industries such as aluminium smelters will come and take up this surplus of energy…

In such a state of affairs, who is subsidising whom? Don’t even mention building noxious nukes!