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Saturday, July 27, 2013

Spike in electricity tariff justified?


 In my recent article ‘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. 

NONERight on cue, Tenaga Nasional Bhd (TNB) has just announced that there will be an upward review of the electricity tariff. TNB is justifying this increase by claiming that domestic consumers have been subsidised long enough. 

However, who have been the main beneficiaries of the government subsidies? 

The energy industry in Malaysia has become a mega business and the government has been subsidising 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 TNB's largest consumer, with 60 percent 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. (New Straits Times, Jan 17, 1996)

But any privatisation 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 privatisation 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 fund, the EPF, through their links with the government. 

Thus, then-energy minister S 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," Samy Vellu said. (Business Times, Feb 23, 1995)

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. 

NONEFurthermore, they could pass their cost increases, such as any fuel price increases, 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, Sept 1, 1996)

If we compare the generation costs of TNB and the IPPs, we will have an idea of TNB's problems. In 1997, TNB was paying between 11.8 sen and 15.5 sen per unit of electricity to the five IPPs while its cost of generating electricity was less than 10 sen per unit. (The Star, April 20, 1997)

To solve these contradictions, TNB saw the only way out as raising 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, they 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


TNB has been keeping a reserve margin in excess of 30 percent over the nation's total demand. In fact, this reserve margin was boosted to 42 percent after the commissioning of two new power plants in 2003. With rising operational costs, including that of excess capacity maintenance, TNB was forced to cut its reserve margin to just below 25 percent. 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!" (New Straits Times, Aug 30, 2003)

NONEThere is thus no justification for the Bakun Dam which harnesses 2,400MW electricity when the demand for energy in the whole of Sarawak state was only around 400MW in 1997. The original intention was for the electricity produced to be transmitted 665km to the west coast of Sarawak and a further 670km to Peninsular Malaysia, through high-voltage undersea cables that have never been tested through this distance anywhere in the world!

The current total energy demand in the whole of Sarawak is only 1,000MW, so the government has been trying to attract the biggest energy guzzlers, such as aluminium smelters that 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 Abdul Taib Mahmud's family?

As long as the full eight-turbine capacity of the Bakun dam is not being fully utilised, 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! 

NONEThe 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 944MW 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 Bhd (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 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 of the project was already under way.

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 nuclear plants!

KUA KIA SOONG, a former MP, is adviser to human rights NGO Suaram.

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