Posted on 16 Jan 2009
Reduction expected by mid-February following lowering of gas price
The much-expected reduction in power tariffs will likely take place by mid-February following a reduction in the price for natural gas supplied by Petrolaim Nasional Bhd (Petronas) to the power sector.
The Economic Planning Unit (EPU) is expected to come up with a recommended revised gas price “in a matter of days,” according to a source.
“Manufacturers are facing problems paying their electricity bills. Also, the measure is needed to stimulate the economy and it needs to take effect as soon as possible,” the source said.
With that, the ball is pretty much in the court of the EPU, which is expected to come out very soon (a few days or one week at the latest) with a recommended lower gas price. Electricity tariff rates depend largely on the subsidised gas cost that is pegged at RM14.30 per mmbtu (million British thermal units) against a market rate of RM20-RM25/mmbtu. As it stands, gas is the biggest fuel component and accounts for some 60% of the country’s power generation fuel mix.
It is believed that Energy, Water and Communications Minister Datuk Shaziman Abu Mansor met with Tan Sri Amirsham Aziz, Minister in the Prime Minister’s Department in charge of EPU, late Wednesday and the latter was agreeable that the price of gas sold to the power sector would need to be cut. However, the big question is, to what extent?
Prior to June last year, gas was sold at RM6.40/mmbtu. The upward revision in gas price in June 2008 (to RM14.31/mmbtu) on the back of soaring crude prices led to about a 24% increase in power tariffs, which is scheduled for review in June again this year. Over the week, the Cabinet had agreed to the ministry’s proposal for an earlier review of the gas price.
International Trade and Industry Minister Tan Sri Muhyiddin Yassin had also, earlier in the week, called for electricity tariffs to be brought down in view of lower global fuel prices.
Most analysts concurred that a downward revision in tariffs, following a reduction in the price of natural gas Petronas charged Tenaga Nasional Bhd (TNB), would have a neutral effect on TNB’s earnings.
According to Kenanga Research, a 5% reduction in gas price to RM12.88/mmbtu required average industrial tariffs to be lowered by 3% to preserve TNB’s bottomline. Positively speaking, it added, lower tariffs could boost demand, particularly in the lacklustre industrial sector.
TNB president and chief executive officer Datuk Seri Che Khalib Mohd Noh said if the “gas price comes down, then it’s okay for tariffs to come down as well.”
“But, how much lower can the gas price go? It must be appreciated that Petronas needs to recover its operating cost, otherwise, it may not want to further invest in the development of gas supply. At current gas rates, Petronas is already providing a subsidy,” he said when contacted by StarBiz.
“The issue is that there are several components to our cost. Gas price can be reduced and coal prices can also come down. But the bigger issue is also the IPP (independent power producer) rates,” he added.
On whether there was a rise in the rate of unpaid electricity bills, particularly in the energy-intensive sectors such as manufacturing, he replied: “So far, it is not a significant issue. We are closely monitoring the situation and are in discussion with some industries that have legitimate reasons.
“We are prepared to look at it on a case by case basis but, don’t forget, we too need to make prompt payments to the IPPs.”
