National power supplier Tenaga Nasional Bhd (TNB) could halve its 'capacity payments' to Independent Power Producers (IPPs) to cover the RM1.5 billion increase in revenue that it would obtain through the 12 percent tariff hike.

In a memorandum to CEO Che Khalib Mohamad Noh, DAP secretary-general Lim Guan Eng said TNB paid the IPPs RM3.3 billion last year in 'capacity charge' payments.

By halving this, TNB could save RM1.6 billion and consumers would not be burdened with the tariff hike imposed from this month, he pointed out.

Under the current structure, TNB pays IPPs a 'capacity charge' and an 'energy charge'. A capacity charge is payment made for making available a certain level of capacity, while the energy charge is payment for electricity actually supplied to TNB.

Lim said TNB had a legal, ethical and corporate social responsibility to persuade IPPs to sacrifice profits for the sake of the country.

"TNB's failure to fulfill such an onerous responsibility ignores the fact that its RM60 billion in assets and RM29.8 billion in debt are held and borne by 27 million Malaysians.

"More than 56 percent of its shares are held by government institutions for the people. As at May 31, last year, the three largest shareholders were Khazanah Nasional Bhd (36.73 percent), Bank Negara (11 percent) and the Employees Provident Fund Board (8.54 percent)."

Lim also said the RM1.5 billion in additional revenue flowing from the 12 percent tariff hike would be a stop-gap measure and that it will not solve cash-flow problems.

Even after the tariff hike, he said TNB's cash deficit is expected to increase from RM759 million this year to RM2.5 billion next year; RM2.76 billion in 2008, RM2.86 billion in 2009 and a whopping RM6.18 billion in 2010.

"The principal cause is the large capacity payments to IPPs to maintain the reserve margin of 40 percent, one of the highest in the world when the international benchmarks is between 15-20 percent," Lim claimed.

Triple-win solution

He also said power purchase from IPPs made up almost half of TNB's operating costs and that it had forked out RM3.3 billion last year in capacity payments and another RM3.14 billion in energy payments to the IPPs.

Lim claimed that the RM1.5 billion earnings from the higher tariff would be used to pay RM630 million in capacity payment to Malakoff's new Tanjung Bin plant, which will rise to RM1.3 billion once the it reaches maximum capacity.

"That's not all. When two other new power plants come on stream between September and early 2009, TNB would have to pay another RM2.13 billion in capacity payments.

"It is ridiculous that revenue from the tariff hike will not be used to improve service or add shareholder value that benefits Malaysians, who are the shareholders, but to pay IPPs for power that is essentially not needed by TNB."

Therefore, it would only be logical for TNB or the government to come up with a "triple win solution for consumers, TNB and the country" by reducing both the reserve margin and the capacity payments to IPP by half without burdening the people.

"Why should consumers be asked to sacrifice, but not the IPPs who are allowed to continue to enjoy high rates of returns and hefty profits unaffected by high fuel prices?" he asked.

He further called on Petronas to stop its subsidies to the power sector, since half of the subsidy - which has accumulated to more than RM25 billion since 1997 - has gone to the IPPs.

He said the RM14 billion subsidy enjoyed by the IPPs could have been better spent on funding TNB's capital expenditure and maintenance requirements.

"TNB should join hands with Malaysians in demanding that IPPs bear some of the burden by giving back to society," he added.