We refer to the Malaysiakini article Review power purchase pacts .

With respect to the differing views presented by the Consumer Association of Penang’s President, SM Mohamed Idris, in the abovementioned article, Penjanabebas, the Association of Independent Power Producers in Malaysia, wishes to respond and rebut allegations targeted at the association.

Importantly, the association would like to reiterate that our stand with regard to the various issues raised by CAP, particularly the urgent need for a holistic review of the Malaysian energy sector, remains unchanged.

Penjanabebas has previously stated that the private generation sector has - through its contribution to the one-year of windfall profit levy - demonstrated the industry’s commitment to a thorough review of the industry as announced by the government in September last year. At that time the ministry of finance announced:

‘The cabinet has decided to suspend PPA renegotiation, pending a comprehensive study into the restructuring of the electricity supply industry.’

We, therefore, take specific issue with CAP’s attempt to disparage our members by alleging that:

‘The IPPs’ call for a complicated and time-consuming holistic review’is merely a delaying tactic’.

The undertaking of such a comprehensive study of this nature must necessarily involve the participation of all major stakeholders within the industry. CAP’s insistence of taking such a partisan perspective only serves to demonstrate the magnitude of the challenges faced.

The association and our members have been briefed by the regulator – the Energy Commission - on their proposed comprehensive solution that would address many of the issues facing the power industry today.

Penjanabebas takes the view that all industry stakeholders must be prepared to accept these proposals as a whole and not be allowed to ‘cherry pick’ only those parts that are convenient. Failure to demonstrate the necessary courage to accept the cardinal part of these solutions can only result in the postponement of industry problems to a future time.

The association would also like to state categorically that nowhere in our earlier statements have we taken the stand that we are against or opposed to a ‘revision’ of the power purchase agreements (PPAs). While we respect the right of CAP to interpret our stand, we wish to state this is a mere interpretation by CAP.

In fact, in an interview undertaken in July of last year, we had stated that the majority of first generation IPPs had expressed to what extent each IPP could accommodate restatements to their respective PPAs to the then water, energy and communications minister Dr Lim Keng Yaik, and the Energy Commission Chairman, Pian Sukro.

Profitability

With respects to CAP’s accusation that our members have chosen to ‘remain silent’ on issues of returns and profitability, the association regrets CAP’s unwillingness to accept the data provided and published by the sssociation publicly and to the authorities.

Extracting from our previous correspondence with CAP last year and to re-emphasise the repeated efforts made by the association to reach out to CAP, I reproduce part of our earlier correspondence with SM Mohamed Idris following CAP’s call for an independent audit of our members:

‘I do not wish to go into a prolonged debate over the profit figures of our members. Suffice to say that the figures are collated from the respective companies and we have clarified the matter with the authorities and media. The figures that were provided can be easily verified with the Companies Commission of Malaysia (CCM).

‘In addition, many of our members are public-listed or subsidiaries of listed companies. Their financial figures are audited to meet compliance regulations. Relevant filings are made annually to the industry regulator, the Energy Commission and in the case of listed entities, to the Securities Commission and Bursa Malaysia.’

It had been previously clarified to CAP that of the 11 peninsula-based IPPs, which excludes TNB-owned IPPs, the actual combined profit before tax stood at RM2.01 billion while the combined profit after tax was RM1.53 billion for the financial year ending 2006/2007.

Recent statements by the national utility suggesting that ‘if (PPAs) were to be examined now, the IRR would be much higher’, appear to be aimed at the profitability and returns of the first generation IPPs.

To provide perspective on the basis of this suggestion, if we examine the net profit for just the first generation IPPs during the period discussed above, which amounts to RM 966.77 million, and if this were applied against the total reported electricity sales in 2008, first generation IPPs’ profitability would only represent 1.1 sen/kWh of the overall average tariff.

The association had in August last year, demonstrated through media statements, that the decision to revise the price for gas then to the generation sector from RM6.40/mmBtu to RM14.31/mmBtu, would result in an increase in fuel costs for gas turbine-based generation from 5.16 sen/kWh to 11.54 sen/kWh .

While the fuel costs for conventional coal fired-based generation at that time based upon TNB’s declared fuel supply cost in the third quarter, averaged at approximately 12.62 sen/kWh.

Excess capacity and power planning

CAP’s interpretation of our stance that we should not be held responsible for the nation’s excess capacity, as an attempt to ‘side-step the real issue about excess capacity’ should perhaps be best viewed from the perspective of the national utility which recently commented:

‘….investments in energy and power development take a long time, the authorities, once they have made a commitment, should resist any temptation to get diverted and change direction because this will ultimately waste funds and planning.’

Penjanabebas restates that the IPPs should not be held responsible for the nation’s excess capacity as the planning and licensing of new power plants are a function of the relevant authorities.

Pass through

The association wishes to voice our support to the calls by the government, the industry regulator, Tenaga Nasional Berhad and the majority of industry observers that the one the key challenges presently faced in ensuring the long-term sustainability of Malaysia’s energy sector lies in the full implementation of the ‘fuel pass through’ mechanism.

Any efforts to restructure the industry without fully addressing this key mechanism can only result in the implementation of further stop-gap measures that will continue to threaten the industry’s long term sustainability.

Contribution to society

Our members, individually and collectively, contribute back to society year after year without the glare of media publicity. Members contribute significantly to the Akaun Amanah Industri Bekalan Elektrik (Cess Fund) with the majority of these funds being used in rural electrification projects.

Additionally our members also individually grant scholarships to young Malaysians, participate and organise a wide range of community-related projects and make donations to a wide range of institutions and individuals in need.

The association has always been willing to partake in discussions based upon facts rather than on conjecture and innuendo, to enable all concerned parties to contribute to a meaningful dialogue for the benefit of consumers, the industry and the nation.

Whilst we acknowledge that not all allegations raised by CAP in their article have been addressed directly in this rebuttal, many having been explained in previous correspondence, particularly commercial risk exposure to our members under the Malaysian IPP model.

Penjanabebas, once again, would wish to extend to CAP our willingness to engage with SM Mohamed Idris on matters relating to the industry, the role of independent power producers and the need for a national long-term comprehensive policy which addresses energy security, energy efficiency and future trends.

The writer is president, Penjanabebas.