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Thursday, November 21, 2013

Higher power prices likely early next year

| November 8, 2013

Electricity could rise as much as 19%, from 33.5 sen/kWh to 40 sen sen/kWh, early next year when the government cuts fuel subsidies for power producers.

By P Vijian

KUALA LUMPUR: The government plans to cut fuel subsidies for power producers in the first quarter (1Q) of 2014, to trim soaring subsidies for the energy sector which touched RM24.8 billion so far this year.

Electricity could rise as much as 19%, from 33.5 sen/kWh to 40 sen sen/kWh, if all the subsidies are removed, according to estimates.

Loo Took Gee, secretary-general to the Ministry of Energy, Green Technology and Water, said the reduction in fuel subsidies for the power sector is essential to stabilise the economy.

She said the government consulted stakeholders in the energy sector and a new power tariff rate would be announced next year.

“You can expect it in the 1Q of next year, so be prepared for it. We need to stabilise our economy and this is one way,” Loo told The Malaysian Reserve in Petaling Jaya.

Loo, who participated in the “Reforms in Peninsular Malaysia’s Electricity Sector” forum organised by the Institute of Strategic and International Studies in Kuala Lumpur yesterday, said fuel subsidies had to be reduced gradually, taking cognisance of the country’s fiscal condition.

Loo did not say how much more power producers will have to pay for fuel to generate electricity with the subsidy reduction but it is inevitable that Malaysians will pay higher for electricity.

“Everybody must use energy judiciously and prepare ourselves for an increase in energy cost because we have been receiving huge subsidies all these years,” she said.

Based on estimates, Malaysians may have to pay 40 sen/kWh, compared with the current electricity price of 33.5 sen per kWh, when subsidies to power companies are cut.

The cabinet last revised electricity price in June 2011, with a 2% increase in base tariff and before that power rates were reviewed in 2006.

The government had previously signalled that it will cut the natural gas subsidy for the power sector because of rising costs. The power sector buys gas at a subsidised price of RM13.70 per mmbtu, compared with market prices that are three times higher.

The subsidy rationalisation is also the first move towards market-based prices as well as a plan to introduce a fuel-cost pass through mechanism so that consumers pay higher or lower electricity prices according to the market.

Under this plan, which is already in place for petrol and diesel, the fuel cost would be reviewed every six months.

Subsidy removal for the sensitive energy sector is part of Prime Minister Najib Razak’s fiscal consolidation agenda to trim worrying fiscal deficit and send a strong message to global rating agencies that Malaysia is firm on its budgetary reforms.

Malaysia’s fiscal deficit is at 4% of the gross domestic product (GDP) and national debt is expected to touch 54.8% of GDP or RM541.3 billion this year.

Najib reduced the fuel subsidy for petrol and diesel by 20 sen per litre in September. By reducing the subsidy, the exchequer will save about RM1.1 billion this year and RM3.3 billion annually.

This was followed by a 34-sen sugar subsidy cut in Budget 2014, announced on Oct 25, where Najib also introduced the Goods and Sales Tax (GST).

The GST, slated to begin on April 1, 2015, is expected to generate RM23.1 billion in the first nine months and RM32 billion in 2016.

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