By Lee Wei Lian | May 19, 2011
The Malaysian Insider
KUALA LUMPUR, May 19 — The controversial gas subsidies for independent power producers (IPPs) are under review but no decision has been made yet, said Second Finance Minister Datuk Seri Ahmad Husni Mohamad Hanadzlah today.
“We have done a discussion and study under the Ministry of Energy, Green Technology and Water, EPU (Economic Planning Unit) and myself,” Husni told reporters at the sidelines of the 15th Malaysia Banking Summit today when asked if the subsidies will be relooked at. “We have to wait for the decision.”
The issue of gas subsidies is also a controversial one as the prime beneficiaries are seen to be the IPPs, many of which are highly profitable and perceived to be controlled by politically-favoured parties.
DAP recently urged the Najib administration to first cut billion-ringgit subsidies for IPPs rather than burden the people with subsidy cuts on essential items
“Remove the big opium of gas subsidies that can save tens of billions of ringgit annually before dealing with the opiate for the masses that only save hundreds of millions of ringgit,” said DAP secretary general Lim Guan Eng in a statement recently.
“Why should the masses and the ordinary 27 million Malaysians be made to bear these price rises when the few big corporate giants in the IPPs do not suffer a single cent in gas subsidies cuts?”
DAP publicity chief Tony Pua added that the government must take action against “fat crony companies” like IPPs if it wished to reduce subsidy burden, as last year’s five-in-one subsidy cut would only save RM750 million while a 20 per cent cut in subsidies to IPPs would save RM3.6 billion.
The Petaling Jaya MP said while there was no doubt that the cost would be passed on to consumers, unfair contracts signed between the government the IPPs meant that electricity tariffs should be at least 26 per cent cheaper based on comparison to international rates
He said that based on Petronas annual reports, gas subsidies granted to IPPs amounted to RM8.1 billion in 2008.
I think it’s time we put the record straight. PKR and DAP leadership please take note:
1. The fuel subsidies do NOT benefit the IPPs because under their power purchase agreements with TNB or SESCO in Sabah, the gas price is a full pass-through. This means when the gas price is low, TNB or SESCO gets a corresponding low fuel tariff, and if the gas price goes up, this is also passed through to TNB or SESCO.
2. Thus the artificially low gas price charged by Petronas to the IPPs actually benefit TNB and this allows us to have one of the lowest electricity tariffs in the region.
3. When Petronas says it subsidised RM 8.1 billion in gas to IPPs, it means that it could have received RM 8.1 billion more if it were allowed to sell this gas at market prices in the open market e.g. to Thailand or Singapore.
4. Some gas from the Malaysia-Thai joint-development area is diverted to fuel TTPC, the gas-fired plant in Perlis, but the bulk of that gas is sold to Thai users at current world gas prices. As a comparison, Petronas is compelled by the government to sell gas to TTPC at RM 10.70 per million BTU, while it gets more than US$10 per million BTU if it sells to Thailand.
5. Petronas has been putting pressure on the government to “free” domestic gas prices, and they have even curtailed their supply to IPPs. The government is slowly increasing the gas price to IPPs. It started at RM 6.40 per million BTU in 1994 and it is now at RM 10.70, still far short of real market prices.
6. The implications of moving to a true market pricing for gas means only one thing – TNB will have to dramatically increase it’s tariff rates to the consumers, and that will be a major election setback for BN.
SO PLEASE ALL PAKATAN MEMBERS, DO NOT MISS THE WOOD FROM THE TREES. IPPS DO NOT BENEFIT FROM THE ARTIFICIALLY DEPRESSED GAS PRICE – TNB DOES, AND THAT IS REFLECTED IN THE LOW ELECTRICITY TARIFF TO YOU AND I.