Six key reasons have been outlined as to why the government should reject Tenaga Nasional Bhd's proposed tariff increase though any one of them by themselves would be good enough grounds not to go ahead with the hike.

The six are:

  • an electricity tariff increase would only fuel inflation further;

  • TNB is already generating healthy profits so why an increase;

  • TNB has already secured a massive loan thus less financial pressure on it;

  • TNB enjoys considerable savings on natural gas bought from Petronas for its plants;

  • TNB saved millions when it was not forced to pay compensation for previous blackouts and

  • TNB should instead review its one-sided agreements with all the Independent Power Producers.

    • Elaborating on these six reasons, DAP Secretary-General Lim Guan Eng stressed that a tariff increase by TNB would only have an adverse impact on the national economy and cause hardship to the general public who are already facing an increasingly high inflation rate.

    "We are concerned at the persistent attempts by TNB in taking the easy way to increase earnings by increasing tariffs and not accepting that it first has to improve its poor and inefficient management.

    "With inflation at a seven-year high of three percent for 2005, any increase in electricity prices may fuel inflation past four percent for 2006," he said in a statement today.

    Industry analysts over the second half of last year have speculated that the government is expected to allow TNB to approve an electricity tariff hike of between 10 and 15 percent. The new tariff could be enforced as early as next month.

    Reasons for rejection

    Guan Eng also pointed out that TNB had enjoyed a 70-fold rise in net profits from RM8.5 million the previous year to RM595.6 million for the first quarter Nov 30, 2005.

    "This increase proves that it can generate revenue from efficiency gains through proper financial planning, fund matching and cutting costs as well as by increasing market share, not by increasing electricity tariffs."

    "Despite total cost savings of RM169.9 million in the first quarter and the RM600 million in value creation this year, TNB chairperson Leo Moggie insists that Tenaga is justified in looking for tariff hike.

    'But there is clearly no justification for TNB to increase electricity tariffs with lower costs, higher revenue and efficiency gains and especially reduced debt.

    Explaining the point on reduced debt, Guan Eng said TNB's success yesterday in securing a RM1 billion fixed-rate term loan facility from Maybank Berhad to finance its capital expenditure was also a reason why a tariff hike was unjustified.

    "With the loan, there is less financial pressure on TNB as it debts were reduced to RM28.88 billion as at Nov 30, 2005 from RM29.98 billion on Aug 31, 2005."

    Unreliable minister?

    Guan Eng also said Energy, Water and Communication Minister Dr Lim Keng Yaik had rejected TNB's earlier demands for tariff hike saying that it depended on the company's efficiency and the price of oil.

    "Keng Yaik had even said that an oil price increase is not a good reason as most of the fuels like gas have fixed prices and are subsidised. But if he approves the hike, he clearly shows that he is unreliable, untrustworthy and irresponsible minister."

    Guan Eng said while it is true that TNB expenses for the purchase of coal has jumped 46 percent from US$33 per tonne in May 31 last year to US$ 49.80 this year, most of Malaysia's power plants ran on natural gas.

    He said since May 1997, Petronas had supplied gas to TNB and the independent power producers (IPPs) at a regulated price of RM6.40 per mm Btu (British thermal unit) as compared to the current market price of more than RM30.

    "Petronas imports the additional 500mm Btu from Indonesia and Thailand at RM30mm Btu but sells it to TNB at RM6.40 per mmBtu. As long as TNB enjoys such subsidies there is no reason why such savings can not be passed on to consumers," he said.

    Guan Eng also reminded that TNB saved millions when it managed to avoid paying consumers compensation for a massive three-hour blackout on Jan 13, 2005.

    Cronies gain

    "Besides, a tariff hike now is totally unacceptable and irresponsible as TNB has enjoyed direct subsidies from Petronas who has subsidised the power section for more than RM25 billion since 1997 out of which RM14 billion went to IPPs whilst the remaining RM11 billion is enjoyed by TNB.

    "Petronas' subsidies to the IPPs must be abolished as these funds could instead be spent to fund TNB's other capital expenditures and maintenance requirements. As the IPPs are private companies enjoying special rates for generating electrical power that TNB is forced to purchase, there is no reason for the IPPs to enjoy such huge subsidies at Malaysian consumers' expense'" he said.

    Guan Eng also noted that reducing TNB's high reserve margin of 40 percent by reviewing unfair compulsory power purchase agreements between IPPs and TNB would make redundant any need for a power tariff hike.

    "Such agreements were made for the benefit a few cronies of the government and not Malaysians," he said.