By LIM GUAN ENG
TENAGA Nasional Bhd (TNB) plans to borrow up to RM700mil to fund its operational expenses for the current financial year (FY) ending August 2006 is insufficient reason to approve the electricity tariff increase.
TNB Chief financial officer Izzaddin Idris said two days ago that without a tariff hike, TNB's financial position beyond August 2006 may be untenable as it has to meet RM200mil in debt repayment. TNB has debts of RM 29.9 billion and claim to require RM 4.5 billion in capital expenditure next year.
DAP hopes that Energy, Water and Communications Minister Datuk Seri Lim Keng Yaik will not be tricked by Tenaga into giving an electricity tariff increase when he reviews this month the electricity tariff rates for next year. There are 7 reasons why Lim Keng Yaik should say "No" to Tenaga and look after the national interests of 25 million Malaysians who expect him to stand up for their right to enjoy reasonable rates.
One , Tenaga saved hundreds of millions of ringgit when Lim Keng Yaik failed to perform his duty as a Minister by breaking his promise to make Tenaga pay compensation to the public for losses caused by the 3-hour blackout on 13 January 2005.
Two , Keng Yaik had rejected earlier Tenaga's demands for a tariff hike saying that it depended on the company's efficiency and the price of oil. Keng Yaik even said that a petrol price increase is not a ground, and most of the fuels like gas have fixed prices and are subsidized. Clearly Keng Yaik has shown that he is not a reliable, trustworthy and a responsible Minister.
It is true the average price paid by Tenaga for coal jumped 46 per cent in the three months to May 31 this year, to US$49.80 (RM189) per tonne from US$ 33 per tonne over the same period a year earlier. However, most of Malaysia's power plants run on natural gas. Since May 1997, Petronas has supplied processed gas to Tenaga and the independent power producers (IPPs) at a regulated price of RM6.40 per mmbtu (British thermal unit) as compared to the current market price of more than RM 30/-.
Noting that 70% of power plants were gas-fuelled, Lim Keng Yaik had said the market demand for natural gas of 2,500 million metric British thermal units (mmBtu) was above Petronas' production capacity of 2,000 mmBtu. Petronas imports the additional 500 mmBtu from Indonesia and Thailand at RM30 per mmBtu but sells it to Tenaga Nasional Bhd (TNB) at RM6.40 per mmBtu. As long as Tenaga enjoys such subsidies there is no reason why such savings can not be passed on to consumers.
Three , Petronas has subsidised the power sector more than RM25 billion since 1997, of which RM14 billion or 55% went to the IPPs, whilst the remaining RM 11 billion is enjoyed by Tenaga. For Tenaga to seek a tariff hike when it has enjoyed direct subsidies of RM 11 billion is unacceptable, ungrateful, irresponsible and not in the national interest.
Four , Petronas' subsidies to the IPPs of RM 14 billion since 1997 must be abolished. The RM 14 billion subsidies to the IPPs could be better spent on funding the capital expenditure and maintenance requirements of Tenaga. As the IPPs are private companies enjoying special rates for generating electrical power that Tenaga is forced to purchase, there is no reason for IPPs to enjoy such huge subsidies of RM 14 billion to profit at Tenaga and Malaysian consumers' expense..
Fifth, Tenaga has no justification for increasing electricity tariffs when it has increased its profits why should Malaysians pay higher tariffs when we have sacrificed and lost so much when Tenaga and the IPPs have made huge profits from the Petronas gas subsidy of RM 25 billion. DAP strongly opposes electricity tariff increase by Tenaga Nasional Bhd as unfair when Tenaga recorded a 57% net profit increase to RM 1.28 billion in the year to August as compared to RM 813.7 million the previous year. Tenaga has even less justification for increasing electricity rates after declaring to 12 sen dividend and for the first time a 1 for 4 bonus share issue.
Tenaga identified the 57% net profit increase to improved efficiency, a fall in general expenses losses and foreign exchange (forex) gains of RM 141.8 million as compared to a loss of RM 571.8 millon last year. Clearly Tenaga can reap profits by improving its efficiency and not by increasing tariffs.
DAP remains concerned at the persistent attempts of taking the easy way out to increase earnings by increasing electricity tariffs and not accept its poor and inefficient management as the underlying cause. If the government gives in to Tenaga's demands, such increase in electricity tariffs shall have an adverse national impact on the economy, especially in fueling inflation and causing hardship to 25 million Malaysians. With inflation at a six and a half-year high of 3.7% in August 2005, any increase in electricity prices may fuel inflation past 4%.
Six , why should Tenaga get a tariff hike when it is not required to subsidise SESB (Sabah Electricity Sdn Bhd). Every year, TNB gave more than RM200mil to SESB. Now the Government has agreed to subsidise the diesel cost amounting to RM339mil, which have already been billed to the government. Such savings should be passed on to consumers.
Seven, reducing the Tenaga's high reserve margin of 40% by reviewing unfair compulsory power purchase agreements of power generated by IPPs to Tenaga contracted at higher than market rates. Such IPP agreements which were made not for the benefit of Malaysians but for the few cronies of BN.
Tenaga's rate of return of 5.2% is amongst the lowest amongst utility companies in South-East Asia. TNB's net profit of RM1.28 billion for 2005 was only 2% of return on assets (ROA) of RM60 billion in assets. This is caused by its high costs especially payments to Independent Power Producers (IPP) comprising 40.5% of its total costs. Staff 9.9%, fuel 19% and depreciation 17% are the other main components of costs.
Clearly the high and unreasonable payments to IPPs are the main obstacles to higher net profits for Tenaga and not increasing electricity tariffs. Forcing Tenaga to purchase power from IPPs and guaranteeing payments for power generated that Tenaga does not need has caused Tenaga's costs to rise. Guaranteeing purchase of power produced by IPPs which Tenaga has allowed some IPPs to enjoy rates of return of more than 12% as compared to Tenaga's 5.2%.