Renegotiate IPP contracts to reduce electricity prices

Peninsular Malaysia will receive new electricity tariff rates from 1st January 2022 until 31st December 2024 as Tenaga Nasional Berhad (TNB) has submitted its proposal to the government under Regulatory Period 3 (2022-2024).

The Semenanjung was supposed to receive new tariff rates on 1st January 2021, but this was postponed due to the economic and health crisis. There is plenty of room to reduce electricity tariffs by renegotiating all the 25 long-term contracts granted to Independent Power Producers (IPPs). The duration of IPP contracts are 21 years and 25 years for gas power stations and coal power stations respectively.

Source: Suruhanjaya Tenaga (2021)

The cost of producing one unit of electricity for Peninsular Malaysia is 39.45sen/kWh for the period of 2018 to 2020. Generation cost represents nearly 2/3 of the cost to produce one unit of electricity. The other 1/3 is the cost of building and operating the electricity grid to transport the electricity from the power stations to the consumers.

Generation Cost (2020)Cost (RM ’billion)Portion (%)
Non-TNB IPPs CostRM 8.271bil47%
Fuel CostRM 9.314bil53%
Total Cost of GenerationRM 17.585bil100%
Source: Tenaga Nasional Berhad

For the year 2020, payment for non-TNB IPPs represented about half of the total generation cost. Thus, payment to non-TNB IPPs makes up nearly 1/3 of the cost of producing and transporting 1 unit of electricity.

Since 2011, the government had capped the internal rate of return of IPPs at 8.5% per year which is extraordinarily high for a risk-free guaranteed-profit business. This risk-free guaranteed profit for a handful of crony capitalists leads to high electricity tariffs hurting small businesses and ordinary people.

Government must also stop building unnecessary new power stations as Malaysia has excessive numbers of power plants. New power plants would just increase electricity tariffs. The government must cancel the Pulau Indah Power Plant which has yet to start construction. The Pulau Indah Power Plant belongs to the Selangor state government. Permission to build it was granted during the Pakatan Harapan (PH) administration.

The government is urged to renegotiate all the lopsided agreements with the IPPs to reduce the cost of electricity for the people.

SHARAN RAJ
Central Committee
Parti Sosialis Malaysia (PSM)
&

State Secretary
Parti Sosialis Malaysia Negeri Melaka (PSM Melaka)

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