Malaysian govt to stop excessive energy deals worth billions

This article is more than 12 months old

Energy minister says contracts given out by previous governments were excessive and non-transparent

Putrajaya is trying to fulfil an election pledge to cut electricity prices by slamming the brakes on what the Pakatan Harapan (PH) government deems excessive and non-transparent energy generation deals worth billions handed out by the Najib Razak administration.

Ms Yeo Bee Yin, the Energy, Technology, Science, Climate Change and Environment Minister, told The Straits Times that if such contracts awarded without open tenders had not been scrapped, the country's supply would hit a whopping 46 per cent more than demand, nearly double what she considers a safe reserve margin.

Up to seven Independent Power Producer (IPP) agreements could be cancelled, as the government seeks to bring the margin down from 30 per cent to 25 per cent in a 10-year plan to be unveiled soon.

Four have already been voided without any cost incurred, said Ms Yeo, adding that out of another four under review, "I'm seeing one or two are already not possible" to scrap due to cost and legal implications.

In Malaysia's energy market, which Ms Yeo vows to reform, power producers get a guaranteed "capacity payment" whether or not the supply is used, meaning that while larger reserves cut the chance of blackouts, tariffs also increase.

"The money is just ridiculous and you don't need these plants. Normally, people have less than 20 per cent margin. If we don't cut some of the plants that are going to come up, we are going to hit 46 per cent. Who is going to pay for it?" Ms Yeo said on Friday.

Although she declined to name the IPP agreements that are under review, she said some were awarded just before the May 9 elections that saw the shock end of Barisan Nasional's (BN) six-decade rule.

Industry analysts say the projects at risk could include two power plants awarded to Edra, the energy unit of scandal-hit 1MDB that was sold to China General Nuclear Power Corporation in 2015 to pare down debt that had hit as high as RM51 billion (S$17 billion).

Ms Yeo, a first-term MP, said a reform of Malaysia's power sector was needed to reach a long-term goal of producing cheaper and cleaner energy. This will include "more opportunities for power sector players, in different parts of the power sector, not just generation".

These include transmission and distribution which are now fully controlled by state utility firms like Tenaga Nasional in Peninsular Malaysia. "I think the Energy Commission (EC) must grow more teeth in pushing up efficiencies," she said, referring to the industry regulator.

Although the government kept household electricity prices flat for the second half of this year, a hike for commercial users was criticised as it would still increase the cost of goods and services.

PH's election manifesto vowed to increase renewable energy from the current 2 to 20 per cent of supply, so cutting tariffs will be a big challenge.

Ms Yeo has already discounted nuclear power and will not factor large hydroelectric plants into the renewable energy target due to their ecological cost. This leaves solar as the main option, with current market prices at just under 40sen/kWh .

This is over 30 per cent higher than the EC's estimated generation costs of 27.05sen/kWh for this year to 2020, although Ms Yeo insists renewable energy can achieve "grid parity" with Malaysia's largely fossil fuel-based power plants.