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Electricity tariff hike inevitable, consider targeted subsidies -- Economists

22/06/2022 01:32 PM


KUALA LUMPUR, June 21 (Bernama) -- An increase in electricity tariff is inevitable as the cost of generating electricity has increased sharply and quickly, but the needs of certain groups must be considered, economists said.

Rising tariffs are unavoidable due to a combination of surging energy demand, fuel supply disruptions, and the growing shortages of oil, gas, and coal globally have caused global energy prices to skyrocket.

Regionally, Singapore, Indonesia, India, and Australia have revised their tariffs in response to the perfect storm in the power market, in which the Ukraine war, ageing coal power plants, COVID-19 restrictions, and winter have all combined to result in a higher demand for energy, and Malaysia is not immune from the ripple effects arising from this ongoing situation.

But measured or gradual action must be put in place to ensure that the low-income groups and micro, small, and medium-sized businesses, already feeling the pinch from rising costs, will not be hit with another price shock should the local electricity tariff be revised.

Putra Business School economic analyst Dr Ahmed Razman Abdul Latiff said the tariff rate is going to be higher for household since Tenaga Nasional Bhd (TNB) is currently facing higher energy production costs due to rising gas and coal prices.

At the end of last year, the price of coal surged to US$200 (RM846) per tonne, up from around US$50 per tonne in mid-2020; by the end-May 2022, coal prices had risen to US$434 per tonne, with coal accounting for 59 per cent of Malaysia's key source of electricity generation.

"(TNB) has to make sure the business is sustainable (as a corporate entity), but I hope there will be some form of targeted subsidies for the bottom 40 (B40) group with regards electricity tariff," Ahmed Razman said, suggesting that the government should intervene and provide subsidies for TNB over the short term to ensure end customers are not burdened.

He also said that TNB should continue to diversify its gas and coal sources and, over the long run, focus on renewable energy sources such as solar, hydro, and biofuel.

TNB Fuel Services sources coal from Indonesia, Australia, South Africa, and Russia, but Indonesia accounts for approximately 65 percent of TNB's coal requirements.

According to Malaysia University of Science and Technology (MUST) provost for research and Innovation Professor Geoffrey Williams, the proposed tariff increases are unavoidable due to international market factors beyond Malaysia's control.

 "Tariff increases will lead to higher inflation because they affect all prices. The last time this happened earlier this year, it added more than 0.5 per cent to inflation. This will disproportionately affect low-income individuals and large families," he said.

He rejected the idea of (instilling) good electricity practices because rationing and consumer behaviour are difficult (to manage) when large families are involved.

Sunway University Business School Professor of Economics Dr Yeah Kim Leng proposed the government step in with a subsidy to alleviate the burden on consumers.

"Furthermore, the tariff structure could be adjusted so that the burden of higher fuel prices is borne by firms and households that can afford higher tariffs.

“It is critical that low-income groups and micro, small, and medium-sized businesses, already under pressure from rising costs, are not subject to another price shock. Tariff increases should be phased in,” added Yeah.




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