October 19, 2012
www.malaysiakini.com
Privatising PowerIn a Public Interest?
by Tengku Razaleigh Hamzah (10-18-12)
I have selected this theme because a privatisation of power, as an mercantile policy, is a reflection of a fundamental shift in a political manage to buy which will have a poignant stroke upon a destiny of a economy.
In a 1990s, following a lead of a Reagan as good as Margaret Thatcher policies of enlivening privatisation as an mercantile policy, it had a really poignant stroke upon Malaysia's political manage to buy (I have explained this in my discuss upon Feb 16 during a Royal Selangor Club).
It shifted a purpose of supervision as a defender of open great which has been institutionalised in assorted open bodies similar to a Tenaga Nasional Berhad, to selected (and favored) in isolation corporations.
Prior to a privatisation of power, there were a little disturbing events, which shifted a concentration of a people by a help of a media in bargain a mercantile realities as good as a needs of appetite for a purposes of a mercantile development of a country.
I have in mind, particularly, a large blackouts which preceded a privatisation. There was extensive media coverage, followed by open concern, to a reasons for this unusual happening. Unfortunately, there has never been an exploration to explain. Be which as it may, in a open mind, a privatisation of TNB as a solitary supplier of this compulsory open great was since a justification.
There has been no open discuss as to either a privatisation of a appetite needs of a republic is in a seductiveness of a people as good as nation. However, a outcome of a privatisation of power, particularly a over-abund! ance of genius of 50 percent reflects a sure coercion in rethinking a knowledge of a little of a policies with courtesy to privatisation of power.
As a matter of fact, you cruise a single needs to get a terminologies correct in bargain a stress of a privatisation of power. I'm particularly referring to a tenure 'independent appetite producers'.
The mercantile being of a privatisation is which a vernacular does not insist sufficient because a being is which they have been in isolation appetite producers rather than eccentric appetite producers. As in isolation appetite producers a bargain of their purpose in a manage to buy as good as a altogether open process becomes clearer.
Therefore, you would prefer to make make make make make use of of of of of 'private appetite producers' rather than 'independent appetite producers' by approach of explaining a shift from institutional in isolation great to in isolation appetite producers. you shall make make make make make use of of of of of both conditions interchangeably.
Revisiting a Power Deal
There were 5 successful in isolation appetite producers who benefited from a privatisation policy. None of these in isolation appetite producers had any prior knowledge in producing power. But what was usual to all a successful investors was which they were good politically connected. All a 5 successful in isolation appetite projects were gas fuel sourced from done during home healthy gas resources supplied by Petronas during subsidised rates.
The financing for a in isolation appetite prolongation was utterly domestic, with a EPF playing a key purpose in upon condition which as good as appropriation of a bonds which were issued to finance a project. It is said wh! ich a 5 consortiums in a initial wave of a investments were upon trial a return of 20 percent but which their actual returns were even higher.
The stress of this in propinquity to a altogether manage to buy as good as a outcome upon a disposable income of a people is nonetheless to be quantified to assimilate a stroke of privatisation of appetite underneath a conditions of a agreements.
The Power Purchase Agreements sealed between TNB as good as a in isolation appetite 
producers (IPPs) have been agreements which have been declared to be central secrets as good as as such have been not available for open scrutiny to assimilate a implications it will have upon a manage to buy as good as a people in a reduced tenure as good as in a prolonged term.
There have been calls for transparency of these Power Purchase Agreements but success. There have been many open process ramifications in deliberation these Power Purchase Agreements as central secrets. But there have been sure poignant factors which you can consider.
What is good known is which a agreements have been of a long-term inlet upon a "take or compensate or fix charge" basement which is imposed upon a TNB to compensate regardless of either a appetite era genius is utilised optimally.
With courtesy to this initial era agreement it appears which a fuel price risk will be borne entirely by TNB as good as a conditions of Power Purchase Agreements strongly favour a in isolation appetite producers. Its implications upon a manage to buy as good as a price of living appear to be ignored. It is reported which a unit price of physical phenomenon purchased from a in isolation appetite producers is in a little cases scarcely double TNB's own era cost.
The Power Purchase Agreements appear to be influenced by political considera! tions wh ich have been hidden by a Official Secrets Act. However, a supervision maintains a golden share in TNB. The stress of it is nonetheless to be seen in conditions of a influence in a altogether plan of a manage to buy as good as a price of living upon a public.
Bakun's story of failure
One of a IPP projects was a Bakun Hydropower dam project, approaching to beget 2,400MW as good as yield physical phenomenon supply to peninsular Malaysia from Sarawak by undersea cables. The plan was originally awarded in 1994 to a Sarawakian joist tycoon who did not have any prior knowledge in dam construction. And he blew it as good as had to be rescued.
Vast tracts of timberland were already privileged of joist as good as natives were moved from their local customary homes when a Asian monetary predicament struck, causing a plan to be shelved. Compensation reportedly in a segment of a billion ringgit was paid to a concessionaire. The plan has been subsequently revived, incurring large price overruns.
Today there is a miss of distinctness as to either a original idea of a dam to supply physical phenomenon to a peninsula will be realised, as good as if so, during what cost, both monetary as good as environmental. The Bakun dam was enclosed in Transparency International's Monuments of Corruption Global Corruption Report 2005.
As TNB is compulsory to purchase a pre-determined volume from a IPPs during bound costs, when direct falls, as was a case during a 1998 mercantile crises, TNB faced overproduction as good as had to put a stop to a own appetite generating plant, ensuing in both inefficiency as good as detriment of profitability.
Additionally, "a higher than compulsory price of appetite resulted in monetary losses to a supervision tranquil utility, higher prices! to cons umers, as good as arguably an inefficient allocation of society's resources". Against this however is a actuality which "timely expensive appetite is a far superior outcome than blackouts which discourage FDI as good as done during home investment as good as attempt mercantile growth".
Whilst this is arguably true, a type of FDI which is attracted should additionally be considered. For example, with Bakun, a appetite is approaching to be used in aluminium smelting plants. Apart from a numerous environmental concerns this poses, this arguably fails to fit in to a plans of apropos developed by 2020, a tall income republic with skilled workers. Aluminium smelting is deliberate a nightfall attention in many developed countries.
Questions to ask
In light of a enlarge in physical phenomenon price tag to a consumer (average 7 percent) ensuing from light rebate of fuel funding amidst an enlarge in tellurian fuel prices, as good as potential destiny price tag increases, it is to be studied:
a) The stroke upon a manage to buy generally in conditions of a direct as good as surreptitious inflationary pressures this presents;
b) The stroke in conditions of purchasing appetite to opposite segments of a Malaysian society;
c) Is this a appropriate time to mislay subsidies when a tellurian mercantile pressures have been already ensuing in inflationary pressures in a country, or have been there alternative concerns such as a tall physical phenomenon supply haven domain or leakages due to corruption/patronage which should be addressed initial to mislay a shortfall in finances?
d) What would be an competent haven capacity? What have been a costs/benefits of handling during a present considerably tall haven genius as good as is it possibly to go upon this in a future? Are there special resources in Malaysia which aver this tall haven genius which incurs both collateral as good as handling costs?
e) How should a additional profits w! hich Pet ronas creates with a funding dismissal be invested for a national interest?
f) Can this price tag enlarge be assuaged by a proposed Feed-in-Tariff for renewable appetite as good as if so to what extent?
g) Do a resources of this enlarge present opportunities which a republic should seize, for example, to pierce towards cleaner physical phenomenon prolongation as good as efficiency in physical phenomenon make make make make make use of of of of of as good as rebate in wasteful spending/consumption?
Is sufficient being finished to optimise this, as good as what have been a approaching certain outcomes? It is enlivening to see which Malaysia is a single of a six ASEAN countries which have concluded which member countries should make make make make make use of of of of of rise direct government measures to cope with a up-trend in regional appetite consumption.
Measures which have been employed in alternative countries embody upon condition which "subsidies to industries as good as businesses which make make make make make use of of of of of physical phenomenon during off-peak hours so as to revoke a government's large monetary weight of having to deposit in power-reserve capacities". What have been a measures which Malaysia is deliberation to manage rise physical phenomenon demand?
h) Is a price tag enlarge approaching to minister towards achieving Malaysia's aspiration of reducing CO emissions intensity of GDP by up to 40 percent of 2005 levels by 2020 as announced by YAB Prime Minister in 2009? If so, what is a expected impact?
i) How would spark prices be affected by a rise in oil as good as gas prices? There appears to have been a "sympathetic" enlarge in spark prices already, should this trend continue, would a open be subjected to serve price tag rises since a pierce towards spark creation up a greater portion of a appetite mix underneath a fuel diversification policies? Would this be in line with a country's CO glimmer rebate aspiration?
Po or planning
In sequence to answer during slightest a little if not all these questions comprehensively, a pure research of what has occurred in a past in conditions of a IPP agreements is required. Such an research is approaching to show:
a) If there was an incremental price to TNB as a outcome of a IPP agreements as good as if this was in accord with or excessive. If excessive, what suit of this price was upheld upon to a consumers? In alternative words, could a republic have enjoyed a same tariffs with gas subsidies being reduce if TNB was not impeded with these excessive incremental costs?
b) If there was an incremental cost, was it justified? For example, was this an appropriate price to compensate for appetite supply confidence as good as as a outcome reasonable?
c) What was a research conducted to aver a tall haven domain of about 40 percent as good as what research in conditions of unfolding formulation as good as cost/benefit research was undertaken to clear this tall reserve? In alternative words, was such a tall haven planned for, in which case what is a justification?
Or, could better planning, have enabled TNB to reduce operational costs as good as as a outcome physical phenomenon tariffs? It is interesting to note which beside countries similar to Thailand work during pot of around 22 percent which is already deliberate relatively tall .
In alternative words, how most assets would TNB have done but being encumbered with payments for this tall haven margin? Would it have done a disproportion if TNB was not obligated with contractual payments to IPPs, partly as a outcome of this tall haven capacity, or would a costs of potential physical phenomenon supply doubt outweighed any such savings?
d) What was a actual price of enlivening consumers to make make make make make use of of of of of some-more physi! cal phen omenon (to absorb a additional which TNB was obliged to compensate for regardless of a rebate in demand) as was reported during a tumble in direct during a Asian monetary crisis? Subsidised gas would have been in a manner of vocalization "wasted" to encounter this synthetic demand.
A associated issue is to examine to what border this oversupply of physical phenomenon as good as TNB's remuneration obligations to a IPPs resulted in disincentives to foster physical phenomenon savings/efficiency even after a monetary predicament ended, which in spin consumed some-more subsidised gas than necessary. Did this again give an inaccurate design of physical phenomenon direct for a destiny which was then met by some-more collateral costs being expended in office building appetite plants?
e) To what border did a IPPs, generally a initial era producers, good from a decision to concede IPPs in to a commercial operation of appetite generation? What was a cost/benefit to a republic of handling upon a sealed in isolation negotiations basis? Are accounts which despite being in isolation sector players, a IPPs operations have been not optimal as good as rely upon a fuel price funding to mask their inefficiency justified?
f) What is a loyal cost/benefit of a Bakun dam plan to a public? Who were a gainers, who were a losers, as good as what have been a monetary as good as alternative costs such as environmental, detriment of local cultural rights, stroke upon ecological services? What have been a benefits of this project?
g) Did you furnish poor appetite for a right reasons? Have you formulated cohesive policies to ensure this? Were a benefits distributed equitably, particularly to good a reduce income groups or did a rich embrace a jagged distance of a benefit?
Did you attract "good quality" FDI which brought rise in local income, technology as good as lifted peculiarity of hold up opposite opposite 'income stratas or "bad quality" FDI which increasing inconsistency in income, shop-wor! n a envi ronment as good as peculiarity of hold up as good as trapped us in a resource curse.
Keeping open in a loop
Taking an honest demeanour during these issues will concede Malaysia to clarity from a earlier knowledge in destiny undertakings as good as guide destiny decision creation in managing as good as meeting physical phenomenon demand. Making a commentary open will instill a most preferred clarity of confidence in a ability of a system to be under obligation to a electorate.
This is generally so during a time when managing energy/electricity confidence is compulsory to not only be met in a price fit manner, but additionally to effectively encounter a challenge of exhausting resources as good as limiting CO emissions to address tellurian warming.
In meeting a destiny physical phenomenon demands, an open as good as pure proposal process for destiny IPP arrangements is imperative. This will concede for some-more competitive pricing of physical phenomenon whilst additionally meeting requirements for clean, secure as good as sustainable appetite sources.
Additionally, destiny arrangements with existent IPPs, generally those of a initial era should take in to account a actuality which they would have entirely amortised their collateral price as good as already enjoyed considerably tall profits. A relatively reduce profit domain should thus be negotiated with these IPPs in a seductiveness of a nation, which could interpret to unit price assets for consumers.
Overall, Malaysia should take a holistic as good as integrated approach in formulation for destiny physical phenomenon supply which includes not only confidence of supply during affordable costs, but additionally issues which affect development such as income distribution as good as sustainability as good as issues of flourishing regard such as environmental degradation as good as CO emissions.
In achieving a robust horizon ins! ide of w hich this can be done, you contingency clarity from a successes as good as mistakes of a past. Transparency as good as openness have been critical elements in enabling us to do so.
*This was a discuss by TENGKU RAZALEIGH HAMZAH patrician 'Privatisation of Power as good as Public Policy' in conjunction with a Datuk Seri Utama (Tun) Dr Lim Chong Eu Lecture Series organized by a Penang Club upon Oct 17, 2012.
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Brahman: