PETALING JAYA: An economist has warned Putrajaya against creating independent power producers (IPPs) with lopsided agreements if it decides to end the monopoly of Tenaga Nasional Bhd (TNB), amid news that the government is studying a proposal to liberalise the country’s electricity sector.
Independent economist Hoo Ke Ping said it would be difficult for new companies to compete with TNB.
“The national grid, cable to the main station and substation supply to houses are owned by TNB,” he told FMT.
“For new companies, it will be too costly to own land to run power grids and set up cable lines.”
If the government goes ahead with the plan, Hoo added, it would also be too expensive for new companies to generate power from coal.
He asked if TNB would sell its national grid or allow new companies to use its assets.
“TNB owns dams to generate electricity, which is cheaper than coal. How will it work for new companies?”
He predicted that new companies would take at least 20 years to make just 10% in profits if they are to provide electricity to new housing areas.
In July last year, Energy, Technology, Science, Climate Change and Environment Minister Yeo Bee Yin said the government would end opaque power supply contracts as part of its election pledge to lower costs for consumers.
Malaysia’s IPP deals regularly contain clauses that guarantee the independent producers payment for energy generated, even if it is never used. This adds overhead costs to TNB and increases pressure to raise tariffs.
Should the government plan to end TNB’s monopoly by creating more IPPs, Hoo said, the agreement should not in any way result in a hike in power charges.
“The government should create good competition by giving IPP tenders to whoever is capable. Let them compete,” he said.
Nazari Ismail from the Business and Accounts faculty of Universiti Malaya agreed that there should be competition in the energy sector.
“But it has to be done properly to make sure it benefits the consumers,” he told FMT, adding that experts in the industry would have to study which aspects of the energy sector could accommodate more than one player.
He said sometimes it made no sense to have excess infrastructure such as high voltage power lines and substations or dams.
“So maybe only some aspects may be opened up where competition would be effective and efficient,” he said.
Nazari also asked how new companies would be financed as financing from banks might increase the supply of money that would result in a higher cost of living for consumers in the long run.
“Moreover, a highly indebted private sector is financially vulnerable when there are economic downturns,” he said.
He said the most ideal type of financing would be equity-type investments to finance the competitors.
“In the case of equity investments, the investors will be more cautious. Plus, without debt, the players will never go bankrupt during downturns in the economy.”