Wednesday, April 22, 2015

Malaysians will pay more for electricity to help bailout 1MDB

During my speech at the DAP Petaling Jaya Fund-Raising Dinner in November 2014, I had told the audience that Malaysians will have to pay higher electricity prices in order to bailout 1MDB.  It was the same speech which the Prime Minister, Dato’ Seri Najib Razak has subsequently sued me for defamation.

I had then asserted that Malaysians have pay higher electricity prices because 1MDB was awarded several lucrative independent power producer (IPP) concessions without any open tender. Such direct awards went directly against the publicly stated principles of the Energy Commission to adopt open tender practices in order to promote competition in the industry.

The contracts awarded included a 2,400MW combined-cycle gas-turbine power plant in August 2014 and a 50MW solar farm in March 2014.  In addition, 1MDB was also awarded a 2,000MW coal-fired power plant in February, after the lowest tariff bid by YTL Power was controversially disqualified on a technicality.

I had argued that the tariff wil be higher for Malaysians in the future because the Government will award 1MDB will more lucrative tariffs in order to create more profits for the distressed firm to pay of its RM42 billion of monstrous debt.  Otherwise, why would the Government eschew the open tender process if 1MDB would offer the lowest possible tariff in the first place?

However, the situation is even worse than I have anticipated, because the Government has agreed to raise the tariff rates for 1MDB power plants even before their construction have even commence.

It was reported on Monday in The Edge Financial Daily that the Energy Commission has already approved an increase in tariff for the solar power plant from 41 sen per kWh to 50 sen per kWh.  That represents a whopping 22% hike in electricity tariffs within a year after the project has been awarded via direct negotiations.  The power supply will be sold to Tenaga Nasional, which will in turn transfer the cost burden to consumers.

As highlighted by my colleague, the Member of Parliament for Serdang, Dr Ong Kian Ming on Monday itself, the 50 sen tariff rate is higher the 49 sen recently awarded to smaller solar plants sized between 10MW to 30MW via competitive bidding.  As he rightly pointed out, the substantially larger 50MW solar farm will naturally enjoy higher economies of scale to offer cheaper prices.  In addition, with the rapidly plummeting global solar photovoltaic panel prices, tariffs should be declining over time, and not be increased by a whopping 22%.

Worse, The Financial Daily also reported that 1MDB is in the process of “disposing” its winning bid for the 2,000MW coal-fired power plant which it won via the controversial open tender.  This is because the debt-laden and cash-stricken 1MDB has no money to fund the project.  Furthermore no bank is willing to lend any more money to the company.

However, instead of cancelling the award due to breach of concession terms, the Energy Commission is allowing 1MDB to profit from the license award by on-selling its rights to Tenaga Nasional Bhd (TNB). To sweeten the deal for TNB to acquire the concession from 1MDB, it is understood that TNB will be allowed to renegotiate the tariff which was set earlier during the bid.  Once again, it means higher profits for 1MDB for doing absolutely nothing other than to on-sell the concession, while the rakyat will have to pay for higher electricity rates to TNB.

If the Government is truly concerned with the interest of the ordinary man, then surely the right thing to do will be to cancel all of the above recently awarded power plant concessions to 1MDB, simply because the latter has failed to produce the necessary funds to commence on their construction.  The power plants should instead be tendered out in an open and transparent fashion so that the most financial strong and experienced companies which bid at the lowest tariff rates should be awarded the contracts.

However, the Government chose to artificially improve the profitability of 1MDB in order to cover up the billions of ringgit of losses suffered by the company.  The losers are Malaysians who are forced to bear higher electricity prices on top of the recently implemented Goods and Services Tax. The above proves that I am right many times over that the men-on-the-street are being robbed with higher electricity prices in order to bailout 1MDB.