Why Malaysian tax payers should support the Sarawak dam blockades

By Dr Kua Kia Soong, SUARAM Adviser, 
 
What have the blockades by the Sarawak indigenous people against the mega dams to do with West Malaysian tax payers?
 
Aside from solidarity with the indigenous peoples whose native customary lands have been taken over for the construction of the mega dams and the destruction of more of our rainforest heritage, there is plenty for Malaysian tax payers to worry about.

Mounting costs, higher electricity tariffs

For a start, the mounting costs of these dams will ultimately be borne by Malaysian tax payers. TNB will soon be passing their mounting costs on to Malaysian consumers through higher electricity tariffs. They have already announced the removal of energy subsidies now that the 13th general election is over and there is no longer a need to sweet talk the electorate. The government plans to cut fuel subsidies for power producers in the first quarter of 2014, to trim soaring subsidies for the energy sector which touched RM24.8 billion so far this year. Electricity could rise as much as 19%, from 33.5 sen/kWh to 40 sen sen/kWh, if all the subsidies are removed.
 
Then as contributors to the Employees Provident Fund, the “soft” EPF loans that have been given out to finance these mega dams will eventually cut into our savings which are intended for better housing, health and pension benefits of Malaysian workers. RM5.75 billion in loans from the Employees Provident Fund (EPF) and Retirement Fund Incorporated (KWAP) were used to fund the Bakun Dam project. EPF loans have also been made available to the IPPs.
 
The massive costs of these mega dams will further deepen the debt crisis the country faces at the moment.
 
Chronic excess of power equals chronic waste
Sarawak will most certainly face a chronic surplus of power. The current peak demand in Sarawak is just over 1000 MW, but Sarawak Energy wants to add another 6,200 MW until 2020 when the Bakun dam already has a 2400MW capacity. It is purely wishful thinking that Sarawak can find enough power purchasers to take up all this excess power. The global mining giants such as Rio Tinto and Alcoa have been flip flopping on their commitment to take up this energy with their energy guzzling and toxic industries ever since the 1990s. Knowing how desperate the government is in wanting to attract energy guzzlers to take up this excess power, they can afford to wait until we make them offers they can’t refuse, namely cheap power and other tax incentives like the ones we offered Lynas.
 
Completed dams include Batang Ai (108 MW), completed in the 1980s; Bakun (2,400 MW), completed in 2011. The Murum dam (944 MW) is almost completed, while Sarawak Energy’s high priority projects include Baram (1,200 MW), Baleh (1,300 MW), Pelagus (410 MW), Limbang (245MW), Lawas (87 MW), Baram 3 (300MW), Belepeh (114MW), Linau (297 MW).
 

Cut subsidies for the IPPs, not home consumers

The government has announced the removal of energy subsidies. But who benefits most from these electricity subsidies? Certainly not the average home consumers or the poorer sectors of our society.
 This is because subsidies are “blanket subsidies,” available to all consumers, regardless of their wealth. As a result, these subsidies benefit IPPs, suppliers, and wealthy households in urban areas comparatively more than they do poor households.
 
The electricity sector in Malaysia is dominated by independent power producers (IPPs) and three government-linked companies (GLCs): Tenaga Nasional Berhad (TNB), Sarawak Energy (SEB) and Sabah Electricity (SESB). The IPPs contribute around 40 per cent of national electricity supply while electricity consumption is split between consumers (13.8 per cent), transport sector (36.5 per cent) and the industry sector (42.6 per cent).
 
Electricity generation comes principally from natural gas and coal. Coal now accounts for 38.9 per cent of electricity generation and gas for 52.7 per cent.
 
Petronas, a producer and distributor of gas, is required to sell to electricity generators at a controlled price of MYR10.70 (US$3) per million metric British thermal units (mmbtu). Consequently, Petronas has lost an estimated MYR20 billion (US$6.4 billion) in foregone revenues by subsidizing the gas used by industries, including the power sector. Petronas also subsidizes gas imported from Indonesia, Thailand and Vietnam, which forms about 32 per cent of peninsular Malaysia’s demand. Apart from a guaranteed purchase at secure prices, Petronas was asked to sell natural gas to these IPPs at subsidized rates, for which the government pays subsidies of up to RM19 billion a year.
 
Electricity users are subsidized by a monthly rebate. Since 2008, the government has provided a MYR20 (USD$6.4) subsidy on monthly electricity bills to all customers of TNB. Furthermore, TNB gives its “privileged customers” (including government schools and institutions of higher learning,
places of worship and welfare homes) a 10 per cent discount on their electricity bills (TNB, 2012). This concession cost TNB MYR7.8 million (US$2.5 million) in 2012, and is due to be extended to institutions that are partly funded by the government (TNB, 2012). There is thus no reason why such a concession cannot be extended to the poor and the energy saving households.
 
SESB also receives substantial diesel and fuel oil subsidies from the government to lower the cost of electricity generation, amounting to MYR543.4 million (US$173.3 million) in 2012.
 
A system of power purchase agreements (PPAs) signed with the IPPs means that the costs of gas shortages have also been borne by the government and Petronas. IPPs have been able to sign rigid PPAs with their respective GLCs since 1990, enabling them to monopolize local transmission and distribution systems.
 
In addition, IPPs can pass on the cost of burning more expensive distillates when there are gas shortages to TNB, which is then compensated by the government and Petronas. Thus, when there was a prolonged gas shortage caused by maintenance activities at Petronas, TNB had to burn oil and distillates, resulting in a MYR3.1 billion (US$1 billion) cost between January 2010 and October 2011. But TNB was compensated to the tune of MYR2.02 billion (US$648 million), half of which came from Petronas.
 
A recent study by the International Monetary Fund (IMF) revealed that the bottom 20 per cent of households received on average only 7 per cent of the total subsidy, whereas the top 20 per cent received 43 per cent. (The International Institute for Sustainable Development, 2013)
 
Energy producers which have made so much profits and received so much subsidies since the 1990s must not be allowed to pass on any cost increases to the consumers as a result of the removal of fuel subsidies.
 

Why should consumers pay for blunders in energy privatisation?

When the IPPs first came into the energy picture in the 1990s, Tenaga Nasional was compelled by the government to buy electricity from these IPPs at prices higher than if Tenaga were to produce it. This made Tenaga Nasional’s operating cost soar disastrously and led to the resignation of then Executive Chairman of Tenaga Nasional, Tan Sri Ani Arope. As a result, consumers have had to pay higher electricity tariffs because of this crisis of profitability that Tenaga Nasional faced. Tenaga Nasional’s (TNB) own facilities had to be shut down in order to utilize all the IPP power that it had been obliged to purchase under the “take-or-pay” clauses in the power purchase agreements.
 
Thus, even without the mega dams in Sarawak, the entry of these IPPs had already created a crisis of overcapacity – by end 1993, the Independent Power Producers (IPPs) commissioned 5 projects totalling 4,157 MW and by 1997, Peninsular Malaysia had almost 50% surplus capacity. Even today, this excessive surplus capacity of more than 50% has persisted.
 
There is no reason why household consumers should be forced to pay for the hefty prices of electricity caused by such blunders in energy privatisation, when TNB was able to produce it at 8.0 sen a unit (kWh), but it had to buy from the IPPs at 23 sen per unit, which was 300% higher.
 
Clearly, neo-liberal arguments for privatisation and competition do not hold water in the case of the Malaysian energy sector. With so many IPPs in the energy scene, the market should be more competitive and power producers forced to be more efficient. Instead, through crony capitalism and state support for these IPPs, we see the price of electricity going up and up through the years.
 

Malaysian taxpayers pay for cost overruns

Dam construction is famous for cost overruns. The Auditor-General’s annual report has revealed that the government has had to pay RM430 million in compensation to two foreign contractors for losses incurred in the problem-plagued Bakun Dam. The two contractors, Alstom and Impsa had suffered delays of up to four years in civil engineering works, causing their costs to spike. We must not forget that close to RM1 billion was paid as ‘compensation’ to Ekran when it was forced to give up the contract in the late 1990s.
 
Transparency International once described the Bakun dam as a “Monument to Corruption”. Companies linked to Chief Minister Taib Mahmud are the main beneficiaries of the cheap energy and contracts related to dam construction. Cahya Mata Sarawak, the family of Chief Minister Taib Mahmud is the largest shareholder of Kenanga Investment Bank (25%), one of the lenders behind the Murum Dam.
 
Malaysian tax payers also carry the risks for these mega dam projects. If the income generated by the dam is below what is predicted, we will have to step in and pay back the loans that were provided to Sarawak Energy. If the examples of MAS, MISC, Perwaja and other gargantuan bailouts are anything to go by, these EPF and KWAP loans to support the mega dam projects will be quietly written off and Malaysian tax payers will have to bear the consequences.
 
And while we will be paying higher and higher electricity tariffs in the near future, ethnocide is being committed in our name against the indigenous peoples of Sarawak who are being displaced from their centuries-old ancestral homes into glorified reservations. It is for all these reasons that West Malaysians should support the blockades by the indigenous peoples of Sarawak against the construction of the mega dams which are socially disruptive, environmentally destructive and economically disastrous.