KUALA LUMPUR: The Energy, Green Technology and Water Ministry (Kettha) said the need to revise the current electricity tariffs does not arise for now as falling oil prices do not directly impact the tariff rate.

“The declining global oil prices do not directly impact the current electricity tariffs because of our fuel mix for electricity generation, whereby piped natural gas, as one of the major fuels, is already subsidised way below the market price,” said the ministry in a statement.

Piped natural gas and liquefied natural gas (LNG) make up the biggest contributors at about 50% to 55% of the fuel mix for generating electricity in Peninsular Malaysia, said Kettha. The other fuels are coal, hydropower and renewable energy.

Out of that 55% share of the fuel mix, 70% is contributed by piped natural gas which is currently fixed at the subsidised price of RM15.20/mmBtu compared with the current market price of RM38.00/mmBtu, it said, with the remaining 30% contributed by LNG procured at market price.

The price of LNG on Jan 1, 2014, when the tariff was last revised, was RM41.68/mmBtu compared with RM45.837/mmBtu in the last quarter of 2014, it added.

Kettha’s announcement comes amid expectations of a reduction in current electricity prices after the government has lowered the prices of diesel and RON95 this year because of falling world oil prices.

Another factor to take into account is that the market price of LNG supplied to Peninsular Malaysia is linked to the ex-Bintulu LNG price and the Japan customs-cleared crude (JCCC) price with a time lag of two to four months and five to seven months, respectively.

Hence, any decrease or increase in the world crude oil price can only be reflected in the price of LNG in the peninsula five to seven months later, said Kettha, adding that currently, coal price has dropped to around US$70 (RM252) per tonne due to a drop in global demand.

“This price is below the benchmark price set at US$87.50 per tonne to determine the current tariff rate. However, the relatively low coal price cannot compensate for the current price of LNG which has risen since the last tariff review on Jan 1, 2014. Therefore, the subsidy for piped natural gas allows the government to maintain affordable electricity tariffs for the people,” it said, noting that the current average electricity tariff in Peninsular Malaysia is 38.53sen/kWh while the real cost of electricity is about 43 sen/kWh.

Kettha noted that any tariff adjustments to reflect changes in fuel prices will be made based on the imbalance cost pass-through (ICPT) mechanism that was introduced in January 2014. It pointed out that the ICPT mechanism was adopted to promote transparency as well as enable subsidy rationalisation to take place in order for the country’s economy to be more competitive and resilient. 

In the last decision that was announced to postpone the tariff review, Kettha said the government had to absorb the related generation costs through savings from the renegotiation of power purchase agreements with first generation independent power producers.

This article first appeared in The Edge Financial Daily, on January 23, 2015.