(Petaling Jaya, Wednesday): The announcement by Energy Water and Communications Minister Datuk Dr Lim Keng Yaik of electricity tariff increase is both irresponsible and unfair, which will only worsen inflation and cause hardship to the poor. Inflation at 3.2% in June 2005 is already the worse in 6 years. Following the latest fuel price increase on 1 August 2005, any additional increases in electricity rates is economically irresponsible as it will push inflation beyond the critical 4%, which may lead to interest rate hikes.

DAP strongly opposes electricity tariff increase by Tenaga Nasional Bhd as unfair when Tenaga recorded a 70% rise in profits in the third quarter ending 31 May 2005 from RM 336.6 million to RM 572.8 million. So far Tenaga has earned RM 876.4 million for the 9-month period compared with only RM 367.3 million a year earlier. Tenaga is expected to report a full-year net profit of RM 1.47 billion in 2005 ending 31 August as compared to RM 814 million the previous year. Operating surplus increased from RM 2.3 to RM 2.6 billion, sufficient to finance development expenditure.

With such huge profits there is no reason for Tenaga to demand for an electricity tariff increase. If Tenaga is short of money, it is due to its own management failures to control costs and stop making dubious investment decisions. One such bad investment decision is Tenaga’s purchase of RM 1 billion of insolvent companies that supply electricity to the Kulim Hi-Tech Park in Kedah.

Lim Keng Yaik Must Explain Whether TNB’s RM 1 Billion Bailout of Northern Utility Resources Bhd (NUR) In Kulim Is A Favour For An Increase In Electricity Tariffs.

Lim Keng Yaik must explain whether Tenaga’s RM 1 billion bailout of NUR in Kulim is a favour for an increase in electricity tariffs. On 5 July, Tenaga had announced the bailout of the companies under receivership that generates 220 megawatts of power, distribution and transmission to 1,500 customers in Kulim Hi-tech Park. 

Tenaga’s financial rationale for spending RM 1 billion to bail out NUR and two other related companies is questionable for 5 reasons:

• NUR was given the project to build a 450 megawatt gas-fired power generation plant for RM 1.8 billion but the project collapsed even though the project was scaled down by half to 220 megawatt;
   

• In 1997 NUR took a RM 1.4 billion loan to finance the construction of the RM 1.8 billion 450MW facility but NUR went into receivership;
   

• NUR generates a monthly revenue of only RM 6 million and based on present sales of 60 megawatt Tenaga is expected to lose RM 57 million per annum.Tenaga would need to generate sales of 133 megawatt to break even and this is not likely in a place like Kulim;
   

• Tenaga’s reserve margin is already 40% and the purchase of 220 megawatts of power generation is unnecessary burden and will increase the reserve margin by 1.5%;
   

• The Kulim plant would cost about RM 2.7 million per megawatt as compared to another gas power plant that cost RM 1.9 million per megawatt.

NUR is already under receivership and there is no reason why Tenaga has to pay such a high price as RM 1 billion when no other company can afford to buy. If other companies require only a cost of RM 1.9 million per megawatt, why should Tenaga pay 50% higher price of RM 2.7 million per megawatt. To spend RM 1 billion to buy over NUR that will lose RM 57 million yearly is not financially logical.

DAP fears that Tenaga is spending RM 1 billion to bail out the plant and lose RM 57 million annually in exchange for the government to agree to an increase in electricity rates. As Malaysians are the shareholders of Tenaga, public interest requires a full explanation for spending RM 1 billion to rescue nearly bankrupt companies. And whether Tenaga’s bailout of insolvent companies that will only benefit the few in NUR, at the expense of Malaysians in the form of higher electricity tariffs, is in the national interest

(03/08/2005)