Sunday, June 26, 2011

Peter Chin defends IPPs

Peter Chin’s open defence of the Independent Power Producers (IPPs) proves beyond doubt that the BN Government seek to protect the fat cats at the expense of the man-on-the-street

Malaysians throughout the country are taken aback by the open position taken by the Minister of Energy, Water and Green Technologies, Datuk Peter Chin in support of the current Power Purchasing Agreements (PPAs) between the Independent Power Producers (IPPs) and Tenaga Nasional Bhd (TNB).

Datuk Peter Chin has defended the country’s reserve margins of 45% as an intended policy as the Government had wanted a “bigger cushion” to prevent any sudden rise in electricity demand. In fact ever since 1997, a few years after the first IPP concessions were awarded, our reserve margins have been consistently in excess of 40%. The Chief Operating Officer of TNB Azman Mohd even added that our reserve margins are expected to fall below 20% come 2015, a “dangerous level”.

Today, the electricity reserve margin for Thailand and Java, Indonesia are only 25.4% and 26% respectively, is the Minister claiming that both these countries who have been attracting greater foreign direct investments than Malaysia consistently over the past 5 years do not have sufficient margins? Even in the United States and Canada, the North American Electric Reliability Corporation’s (“NERC”) study indicated a reserve margin of 28.6% despite being an advanced and developed country.

The Minister should perhaps enlighten Malaysians as to what makes Malaysia so special that Malaysians are forced to pay for electricity reserve margins which have been consistently close to 50% over the past decade?

In addition to defending the country’s outrageous reserve margins, Datuk Peter Chin adopted the tired excuse utilised by the IPPs that they do not benefit fuel subsidies as “the fuel cost for electricity generation by both TNB and IPPs is a pass-through component”, arguing that it’s the end-consumers who benefit from these subsidies.

While the Minister and the IPPs are absolutely right “technically” and “legally” speaking, the subsidies have allowed the IPPs to mask the high electricity prices they sell, particularly to TNB. For example, despite subsidising less in Thailand where natural gas is sold at RM23.10 per MMBTU to IPPs compared to RM13.70 per MMBTU in Malaysia, the electricity tariffs in Thailand is similar, if not cheaper than that in Malaysia. For example, average commercial tariff rate today is RM40/kWh after the recent tariff hike compared to RM38/kWh in Thailand.

Hence despite industry consensus of the fact that the IPPs enjoy highly lucrative contract terms masked by the heavy susbidies granted by the Government, the Minister has regretfully chosen to defend these IPPs and their contracts.

This goes to show that the Government is completely insincere about its recent talks of “renegotiating” the IPP contracts and that the Minister is only buying time for the first generation IPPs to complete their PPA contracts which are expected to expire starting from 2015.
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