Introduce regionalised electricity tariffs for industries to close development gaps

The Central Region made up of Selangor, Kuala Lumpur and Putrajaya has area of about 8,400km2 and contains around 25% of Malaysia population, but represents 40% of the national Gross Domestic Product (GDP). The ongoing Covid-19 health crisis has exposed the vulnerability of Malaysia due to overconcentration of population, economy, and development in the Central Region.

Overreliance on the Central Region

Barisan Nasional (BN) had failed to spread out development by over-emphasising development within the Central Region. The Central Region experienced exponential population growth by attracting millions of new residents. This over-concentration of population is causing problems such as traffic congestion, potable water shortages, hospital overcrowding, and environmental degradation. The high population density has also contributed to the high rate of Covid-19 cases in theCentral Region.

Since March 2020, government had repetitively imposed full or partial operational restriction onto the manufacturing and commercial activities within the Central Region. The national GDP has experienced a recession of -5.6% worth contraction worth RM80.4 billion. The Central Region had contributed to nearly half of the national recession value.

Industry Vital For Localised Economic Growth

The presence of industries will kick-start small town boom is indisputable. Industries offer double benefit by providing direct employment and stimulating growth of supply chain development. Industries would require plenty of smaller business activities such as machinery repair, legal services, packaging, and logistics to sustain their operations.

This will boost the purchasing power of the local population leading to increase in sales for local restaurants and retailers. The increase of local purchasing power will attract new commercial activities such as franchise eateries, bowling alleys, cinemas, and automobile showrooms. This will create demand for new commercial centres.

The increase in industrial and commercial presence will improve tax revenue for the respective state and local councils. Subsequently, the state and local councils could undertake infrastructure projects such as road widening, streetlights installations and building parks. The arrival of new residents for employment will increase demand for new houses. The increase demand for housing, commercial centres and public infrastructure will trigger a localised construction boom.

Maximum Electricity Demand of Industries

Energy supply, particularly electricity is the third most important input for industries after labour force and raw materials. In 2019, industries represent 0.3% of TNB’s customers but consume nearly 40% of the total electricity sales in Semenanjung. The Central Region is home to just 1/3 of the entire Semenanjung’s population but accounts for 43% of the electricity demand.

The demand in the Central Region is met by power plants in Perak and Southern Region are reflecting the overconcentration and inequality within Malaysia. This inequality gap could be closed by incentivising relocating of industries to other parts of Malaysia by introducing a regional maximum demand charges for the industrial consumers.

Maximum Demand (MD) is the peak electrical demand within the monthly billing cycle. The Maximum Demand charge is an additional payment on top of the electricity consumption tariffs. In Semenanjung, the Maximum Demand charges varies according to voltage but are fixed in terms of the location. The estimated maximum demand charges paid by the industrial consumers is about RM4 billion per year.

Tariff (Code)Voltage RatingMaximum Demand (RM/kW)
E1Medium Voltage GeneralRM29.60
E2Medium Voltage Peak/Off PeakRM37.00
E3High Voltage Peak/Off PeakRM35.50
Source: Tenaga Nasional Berhad (2021)

Putrajaya should introduce a regionalised Maximum Demand charge for the industries’ electricity tariffs. In Semenanjung, the industries in the Eastern region should have the lowest Maximum Demand charges and the Central Region would have the highest. This motivates industries to establish, expand and relocate outside the Central Region.

However, the lowest maximum demand charges must remain above RM30 per kW to avoid attracting industries away from Borneo-Malaysia into Semenanjung. The Maximum Demand charges in Borneo Malaysia ranges between RM16 to RM28 per kW. This is crucial to allow equalisation of development between East and West Malaysia.

Moving Forward

Putrajaya needs to prioritise socio-economic development outside the Central Region. Industrial activities outside the Central Region can be promoted by manipulating the Maximum Demand charges for industries under the electricity tariffs. The increase in industrial activities outside the Central Region will reduce the widening development inequality among different regions within Malaysia.

Central Committee
Parti Sosialis Malaysia (PSM)

State Secretary
Parti Sosialis Malaysia Negeri Melaka (PSM Melaka)

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