Press Statement
by Lim Guan Eng

(Petaling Jaya, Thursday): Tenaga’s net profit increase to RM 1.28 billion in the year to August as compared to RM 813.7 million the previous year shows that extra earnings can be obtained by the hard choices of reducing costs and generating higher sales, not seeking the easy way out of increasing electricity tariffs. Tenaga has even less justification for increasing electricity rates after declaring to 12 sen dividend and for the first time a 1 for 4 bonus share issue.

Tenaga identified the 57% net profit increase to improved efficiency, a fall in general expenses losses and foreign exchange (forex) of RM 141.8 million as compared to a loss of RM 571.8 millon last year. Tenaga has debts of RM 30 billion of which half are foreign-denominated loans, resulting in forex gains after the ringgit appreciated in value but exposing itself to forex market fluctuations.

DAP remains concerned at the persistent attempts of taking the easy way out to increase earnings by increasing electricity tariffs and not accept its poor and inefficient management as the underlying cause. If the government gives in to Tenaga’s demands, such increase in electricity tariffs shall have an adverse national impact on the economy, especially in fueling inflation and causing hardship to 25 million Malaysians. With inflation at a six and a half-year high of 3.7% in August 2005, any increase in electricity prices may fuel inflation past 4%.

DAP remains unconvinced that Tenaga can not further improve its performance with better management. Despite the 57% rise in net profits, Tenaga’s share prices plunged to nearly the lowest this year because its financial results was 10-15% below expectations of a higher net profit of RM1.4 to RM1.81 billion for the year.

Tenaga’s rate of return of 5.2% is amongst the lowest amongst utility companies in South-East Asia. This is caused by its high costs especially payments to Independent Power Producers(IPP) comprising 40.5% of its total costs. Staff 9.9%, fuel 19% and depreciation 17% are the other main components of costs.

Clearly the high and unreasonable payments to IPPs are the main obstacles to higher net profits for Tenaga and not increasing electricity tariffs. Forcing Tenaga to purchase power from IPPs and guaranteeing payments for power generated that Tenaga does not need has caused Tenaga’s costs to rise. Such wastage is highlighted by Tenaga’s reserve margin of 40%, amongst the highest in the world.

The time has come for the government to review such IPP agreements which were made not for the benefit of Malaysians but for the few cronies of BN. Apart from such benefits, IPPs also enjoy subsidized rates for purchase of gas from Petronas, resulting in Petronas subsidizing RM 14 billion for such IPPs. 

Since May 1997, Petronas has supplied processed gas to Tenaga and the independent power producers (IPPs) at a regulated price of RM6.40 per mmbtu (British thermal unit) as compared to the current market price of more than RM 30/-. Petronas has subsidised the power sector to the tune of RM25 billion, of which RM14 billion or 55% went to the IPPs, whilst the remaining RM 11 billion is enjoyed by Petronas. For Tenaga to seek a tariff hike when it has enjoyed direct subsidies of RM 11 billion since 1997 is unacceptable, ungrateful, irresponsible and not in the national interest.

As the IPPs are private companies enjoying special rates for generating electrical power that Tenaga is forced to purchase, there is no reason for IPPs to enjoy such huge subsidies of RM 14 billion to profit at Tenaga and Malaysian consumers’ expense. Instead of asking consumers to pay more, Tenaga should ask the government to review these unfair compulsory power purchase agreements contracted at higher than market rates.

With this RM25 billion subsidy given out to Petronas and IPPs, the people have lost out on:

o          510,000 units of low-cost houses costing RM50,000 each,

o          50 universities at RM 500 million each,

o          6,250 Chinese and national schools at RM4 million each,

o          free healthcare for  three years, and

o          denied a free Proton Savvy given out to 625,000 Malaysians. 

Why should Malaysians pay higher tariffs when we have sacrificed and lost so much when Tenaga and the IPPs have enjoyed subsidies of RM 25 billion and recorded huge profits?

Guaranteeing purchase of power produced by IPPs which Tenaga has allowed some IPPs to enjoy rates of return of more than 12% much higher than Tenaga’s 5.2%. National interest demands that the government rejects Tenaga’s request for an electricity tariff increase and conduct instead a complete review of the IPP agreements to make it fairer and more balanced to both parties.

(27/10/2005)