I refer to the Malaysiakini report MP: RM8 bil wasted on IPPs .

Though the member of parliament was not technically conversant with the electrical power situation, she was effectively carrying out her MP’s role in pointing out the huge power capacity surplus which has to be justified by the responsible authorities.

I was surprised by the response given by the deputy minister. Instead of admitting the huge surplus prevailing, he was trying to confusea valid question with ‘hairy fairy’ answer regarding the PPA (power purchase agreements).

The issue raised is the huge power capacity available contributed mainly by the Independent Power Producers (IPPs) under the highly-acclaimed privatisation policy.

Taking the contribution of the Jinmah IPP plant by mid-2009 then there will be a surplus of 47 percent capacity which is over and above the country’s maximun power needs.

Some reserve surplus is justifiable to account for plant outtages for maintenace etc, but 47 percent is just simply too much.

The energy, water and communications minister himself has confirmed the reserve margin of 47 percent whereas a figure of 20 to 25 percent should be sufficient. This lower reserve surplus figure can be easily checked from other similiar utilites and generally should trend down as the power system matures and is well-managed .

And the sad fact for consumers is that even when these plant are ‘on surplus’ (ie, not needed to do any power-generating) they still have to be paid and very lucratively. Otherwise, how can you explain the present scenario where very influential entrepreneurs are queuing to join the exclusive IPP league!

The reasons for the huge reserve surplus could be the attractive tariff paid to these IPPs. I remember reading an article in the 1990s by the then TNB chairperson during the first era of the IPP 1990s.

This chairperson had mentioned that a PPA tariff of 12 sen a KWh would be fair to cover the cost of plant plus a resonable return for the risk taken. The tariff finally agreed to by the EPU - as we read later - was 15.5 sen a unit.

Taking an example of a 1,000MW plant (about the average size those days for a gas turbine combined cycle plant ), it would earn an extra RM7 million per month just with 1 sen more than 12 sen a KWh.

And mind you, these were gas turbine plants with a lower capital cost, lower maintenace, less complexity and at that time US$1 = RM 2.5.

Nowadays, he tariffs agreed are around 11 to 12 sen per unit. But these are for coal-fired plants with a higher capital cost, longer lead time, are more complex, more maintenace etc.

Now it is not hard to understand why these IPPs are lobbying hard to be awarded privatisation projects under above scenario

It has been mentioned that the government needs to reduce the surplus margin but with the lowering of economic growth in the future, it will be difficult. This surplus will stay with us for sometime and under the PPAs, has to be paid for whether we need it or not.

What happened to the windfall tax that was proposed for the IPPs sometime back? Of course, the IPPs will resist whatever that will kill their golden goose

Recently, it was mentioned that the highway concession agreements will be made public.What about the PPAs?

Then we will know who is being paid ‘fair wages for fair work done’. Or who are just laughing all the way to the bank