We refer to your report ‘New Year, new hope or new year, new fear?’ written by Jimmy Puah Wee Tse, the Johor assemblyperson for Bukit Batu, published in Malaysiakini , dated Dec 26, 2013.

The published report highlighted:

A. “TNB had long argued the need to adjust the electricity tariffs because of rising cost. Last year, TNB registered RM4.6 billion in profit.”

B. “On top of that, the government is paying RM8 billion in subsidies to independent power producers annually because of lopsided agreements for the production of extra power reserve electricity which brings our national electricity reserve margin closer to 50 percent while most nations set it at 5-10 percent.”

C. “If the government is indeed sincere in wanting to reduce its expenditure, the first step should be to renegotiate the lopsided agreements with all the IPPs.”

D. “If they refuse to renegotiate, the government can always pass a law on a windfall or special tax on the IPPs.”

MyPOWER wishes to state that:

1. Independent power producers (IPPs) do not receive subsidy from the government. Gas for power generation is supplied by Petronas to Tenaga Nasional Bhd (TNB) which in turns supply to IPPs for power generation. The foregone revenue from gas is borne by Petronas.

2. IPPs receive payment for capacity charge, which is the fixed amount that the government pays to IPPs to cover cost of building power plants. This capacity payment is like an instalment paid to lease a car. Capacity payments ensure that IPPs meet their financial obligations arising from loans taken from commercial banks to build their power plants.

3. The reserve margin is not 50 percent as highlighted by YB Jimmy Puah. According to the Energy Commission, the reserve margin for 2013 is 31 percent with an installed capacity of 21,749 megawatt (MW) and a peak demand in 2013 of 16,562 MW.

4. YB Jimmy Puah’s statement that reserve margins for most nations are between 5 and 10 percent is incorrect. For nations with low reserve margins, they have inter-connected electricity grids with their neighbours that enable them to tap on electricity supply when demands spike to exceed their reserve margin.

5. According to the International Energy Agency (IEA), the ideal reserve margin for developing economies straddles between 20 and 35 percent since other mature economies with flat or marginal economic growth can manage with just 5 percent reserves but would not be robust enough to match up with faster growth rates.

Yet IEA amplifies there is no standard reserve margin applicable because each nation have different socio-economic priorities. For instance, Singapore’s minimum reserve margin for system security is 30 percent. According to Singapore Business Times , Singapore’s reserve margin in 2013 is 47 percent.

6. Any country with such low reserve margins would be beset with brownouts like Thailand as well as the Philippines. With just 11 percent reserve margin this year, Thailand has had to import electricity from Myanmar and Cambodia to meet domestic demand.

7. The opposition has deliberately ignored the fact that under the Malaysian Electricity Supply Industry (MESI) transformation programme, the government has taken steps to improve transparency and efficiency so that the industry received a decent rate of return while consumers benefit from quality electricity and lower tariffs.

8. According to the Energy Commission, savings from renegotiation of first generation IPPs beginning March 2013 will bring RM1.76 billion over the next four years.

9. Since 2008 to 2010, IPPs have paid over RM500 million in windfall tax under the under Windfall Tax Levy Act 1998.

10. Additionally, IPPs are contributing 1 percent if their electricity sales to the Malaysia Electricity Supply Industry Trust Account (MESITA) that now has a total fund of RM1.12 billion since it was introduced in 1997. Since then, a number of rural supply and developmental projects have been funded to benefit the consumers.

11. Therefore, transformation of the Malaysian Electricity Supply Industry has not only delivered savings to the rakyat but also the benefit of better quality electricity supply as the current System Average Interruption Duration Index (SAIDI), the measure of interrupted supply per consumer in Peninsular Malaysia is 64 minutes, a benchmark better than many development countries, including the United Kingdom (68 minutes).

The government would therefore hope that YB Jimmy Puah would appreciate these endeavours to improve the efficiency, security and viability of the Malaysian electricity supply industry.

ABDUL RAZAK MAJID is chief executive officer, MyPOWER Corporation.