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Subsidies masking IPP ‘inefficiencies’, says think tank

By Lee Wei Lian
The Malaysian Insider
Jun 13, 2011

KUALA LUMPUR, June 13 — Independent Power Producers (IPPs) would have to charge much more than their Singapore counterparts if natural gas were sold to them at market rates, due to their bloated and inefficient cost structures, claimed Research for Social Advancement (Refsa) today.

The think tank estimated that local IPPs would need to raise their average prices from 25 sen/kWh to 74 sen/kWh if subsidies were removed and gas prices were allowed to rise from RM10.70/mmBTU to the present market price of RM47.42/mmBTU.

In comparison, Singapore power producers charge 41 sen/kWh.

“Put simply, if the gas subsidy in Malaysia is completely removed, the IPPs generation cost would be 80 per cent higher than that of power generators in Singapore,” said Refsa executive director Teh Chi Chang, noting that in Singapore fuel prices are market based.

“In fact, the IPPs would not be able to survive in Singapore at all, because Singaporeans pay only 52 sen/kWh for their electricity, compared to the (estimated) Malaysian IPPs cost of 74 sen/kWh.”

He added that the IPP’s cost structure appeared to be “bloated” and suffering from “substantial inefficiencies”.

Refsa’s estimates come following statements from the Association of Independent Power Producers (Penjanabebas) that savings in gas costs — the difference between international gas prices and fixed price set by the government — are passed on directly to consumers through lower tariffs.

Teh also called for the IPP contracts to be made public, pointing out that even toll concession agreements that were previously classified have been made public, following which several toll freezes and abolishments were announced.

IPPs and their perceived lopsided purchasing power agreements with Tenaga Nasional Berhad have come under renewed scrutiny following the recent government’s decision to hike electricity prices.

The Najib administration yesterday formed a Cabinet committee comprising Minister in the Prime Minister’s Department Tan Sri Nor Mohd Yakcop; Energy, Green Technology and Water Minister Datuk Seri Peter Chin; and Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah to look into IPP related issues.

11 Replies to “Subsidies masking IPP ‘inefficiencies’, says think tank”

  1. //Singaporeans pay only 52 sen/kWh for their electricity, compared to the (estimated) Malaysian IPPs cost of 74 sen/kWh.”//

    Very simple solution to the above. Remove the Malaysian directors of the IPPs and replace them with Singaporeans. But then Abraham Ali will cry foul and call for another jihad against Singapore. Why isn’t Abraham calling for jihads against Libya, Yemen, Syria for shooting at their civilians?

  4. FINALLY, someone with enough sense to point this out that TNB CEO conveniently left out of his comments about IPP cost structure. The IPP cost is bloated because the construction was bloated in the first place. The main contractors were the owners who padded the cost because they can past it to the consumers. Its also why our tolls are so high for the same reason. For the quality we get, the cost is too high because the owner/main contractor started lining their pocket from Day 1. Its the players with little capital can becomes Billionaires overnight in industries that suppose to have low returns.

  5. If our country is being attack by foreign invaders, what should we do?
    And when our country are being robbed, raped and being looted by a bunch of crooks who disguised themselves as malays, what are we gonna do?
    What’s the difference between the two anyway?
    First one, we die straight away while the second one, we “bleed” and “die” later.
    So, do we malaysians have the balls and guts to stop all these?
    Or do we’ve to sit and cry, waiting for the next generation to suffer?
    See you all at Bersih 2.0 !!!

  7. ///He added that the IPP’s cost structure appeared to be “bloated” and suffering from “substantial inefficiencies”.///

    The “bloated” cost structure has very little to do with inefficiencies but has a lot to do with plundering of public fund into Umno cronies’ pockets. That is why Umno was reluctant to release to the public the agreement signed with the IPPs.

  9. You expose more..Najib have a Donkey Kong to fight all and die…if he must.
    Yea….in the name of discrupting peace and harmony…this Donkey Kong can say anything….hoping Malaysians are scared and so vote for peace…vote for Najib…end of all problems.
    If one is as old as me….you can compare all the past PM.
    Najib do have weird ideas….making a fool of himself…with no shame.

  10. ‘He added that the IPP’s cost structure appeared to be “bloated” and suffering from “substantial inefficiencies”.’

    Everything in bolehland is inefficient. Even food.

    In 1Malaysia, food prices are already hitting RM 4.50 small, RM 5 larger portions. Even in many smaller towns, prices are creeping up sharply.

    For comparison, compare the prices in Singapore on a dollar to ringgit basis. See how cheap and affordable prices are: roti canai 0.50, mixed food 2.00 chicken rice 2.50 etc etc. See:

    http://www.soshiok.com/article/15609

    How come they can control prices and give out good deals and we can’t?

    The lower income group in 1Malaysia is suffering with prices soaring.

  11. ‘…..The think tank estimated that local IPPs would need to raise their average prices from 25 sen/kWh to 74 sen/kWh if subsidies were removed ……

    In comparison, Singapore power producers charge 41 sen/kWh.’

    In actual fact, on a dollar to ringgit basis, Singapore’s rate (at market) is only 0.17 cents and their consumers pay only 0.21 cents.

    In Malaysia the IPP’s current charge is at (an inefficient) 0.25 sens cost potentially rising to 0.74sens/kWh.

    See how inefficient we are? Our consumers are financing inefficiency.

    With the ‘usual suspects’ (Nor Mohd, Peter Chin and Husni Hanadzlah) on the cabinet committee, we can expect the usual hogwash.

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