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The transformation of Malaysia's power sector [17-10-2012]  
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GIVEN its size and importance in the country's economy, Malaysia's power sector does not command the respect it deserves.

For years, consumers have been complaining about its efficiencies, while commercial and industry players have been in doubt over its ability to support the country's growth engine.

While consumers in Malaysia currently enjoy lower tariff rates than that in many countries in the region, many believe that the current tariff structure is not sustainable.

The level of subsidy paid to maintain lower tariffs has cost the government several billions of ringgit in opportunity cost, and this could seriously dent the country's fund if the issue is not addressed soon.

To make matters worse, the industry also has its legacy problem in the form of lopsided power purchase agreements (PPAs) between Tenaga Nasional Bhd (TNB) and first-generation independent power producers (IPPs), which has directly left little flexibility to the utility group and the government to vary the tariff.

Adding to the woes is the recent incident where Petronas, the main supplier of gas to power plants in the country, was unable to supply gas to the IPPs and TNB due to the problems with its pipeline and production curtailment.

With gas in short supply, it would mean IPPs and TNB have to burn more expensive distillates.

While the IPPs could pass the cost to TNB under the PPAs, TNB could not transfer the high cost to consumers through higher tariff.

This represents a catch-22 situation to TNB and could threaten its long-term sustainability.

This was the reason why the government set up MyPOWER Corporation last year, with the sole purpose to look into the industry's structure and make recommendations.

It is understood that MyPOWER, who is headed by Datuk Abdul Razak Majid, has successfully come up with several recommendations.

As a special purpose agency, MyPOWER is tasked with detailing out key reform initiatives for the Malaysia's electricity supply industry that are aligned with the government's Economic Transformation Programmes.

Industry sources say some of the key reforms suggested by MyPOWER have already started to show results.

These included making the Energy Commission the main regulatory body responsible to decide on future planting-ups and make sure that industry players, IPPs and TNB, comply with the sector's requirements.

The commission recently conducted its first competitive bidding process for the new power plant in Prai, which was won by TNB, and the extension of PPAs for some of the first-generation IPPs.

The success of such exercise bode well for the power industry.

The competitive bidding has certainly left a positive mark, in terms of ensuring transparency.

It allows the commission and the government to choose the most competitive rates for generating electricity and eventually pass on the savings to consumers.

There has also been talk among industry players that the government would soon set up a tariff stabilisation mechanism to ensure that Malaysians can still enjoy competitive electricity rates, without having to increase subsidies.

Some of these changes would not have been possible if the industry structure remained status quo, with decision-making fragmented among various government departments and ministries.

With the Energy Commission now calling the shots over the county's future energy requirements, better decision can be made, which would mean less cost of producing electricity and more savings for consumers.

Other recommendations made by MyPOWER include putting in place ring-fencing rules within TNB to ensure it plays its role as a single buyer and system operator of the country's electricity effectively.

The move will require accounting of TNB's three divisions - generation, transmission and distribution - be separated. For consumers, it will mean that the cost of the three components be included in the monthly bills.

Like many consumers in Malaysia, I really hope that the current transformation efforts can progress unhindered to ensure that the industry remains sustainable.

If the authority like the Energy Commission remains true to these objectives, I am sure that the electricity tariff in Malaysia can be kept at a competitive rate, even without much subsidy from the government.

If this happens, the main beneficiaries will be the end-users, like myself.

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