In the wake of the sharp increase in fuel cost, the Federation of Malaysian Manufacturers (FMM) reiterated its opposition to the impending hike in electricity tariffs and natural gas pricing.

The federation, an influential body representing 2,000 companies, said this week's increase in the price of petrol, diesel and liquid petroleum gas (LPG) of between 18.5 to 23.5 percent is "causing great anxiety" to all businesses.

"The industry is concerned that the increase in prices at the pump would further extend into adjustments of electricity tariffs and natural gas pricing for the manufacturing sector," said the federation in a statement today.

It said that any further increase in electricity tariffs and natural gas pricing should be a "measure of last resort", and should be done only after the government has addressed a number of "constraints" involving the two sectors.

The federation called for a review of the contract of supplies between Tenaga Nasional Berhad (TNB) and the independent power producers (IPPs), considered by many as heavily in favour of the IPPs.

"(There should also be) a review of the "40 percent reserve margin" of electricity to a more manageable level and greater efficiency in TNB operations, especially since 70 percent of its generation is gas-fired and gas is obtained at preferential rates."

Higher cost than other nations

It said that these options would help TNB to become a "truly commercial entity" in the long-term.

"For natural gas, constraints include the longstanding issue of financing for the gas reticulation infrastructure and consequently, ensuring wider availability to all industries; anomalies in gas distribution and pricing mechanisms.

"Any tariff increase must be preceded by increased efficiency and quality in transmission and distribution. Similarly, in the case of natural gas, instead of exporting energy fuel as commodities for short-term gains, the priority should be to offer clear and firm support to value-added activities like manufacturing, particularly those in the resource-based, strategic and export industry sectors."

FMM lamented that while Malaysia is rich in energy resources, its manufacturing sector is "paying higher prices for electricity, natural gas and other fuel supplies as compared to energy-importing countries like South Korea and Taiwan, which could offer lower energy prices to their industries."

The federation also stressed that manufacturers currently purchase their fuel at even higher industrial rates. While the new retail price of diesel is RM1.581 per litre, commercial users have to buy it at RM1.70 a litre.

It expressed concern over the implementation of the diesel "subsidy mechanism" proposed by the government for manufacturers and other businesses.

"The manufacturing sector is still not clear on the eligibility to receive the discount of 15 sen a litre under the fleet card scheme. Regardless, there is still an increase of 15 sen a litre in fuel price. Hence, there could still be pass-through of costs by transport companies."