This article first appeared in The Edge Malaysia Weekly on December 19, 2022 - December 25, 2022

Last Friday, Natural Resources, Environment and Climate Change Minister Nik Nazmi Nik Ahmad announced an electricity tariff surcharge of 20 sen per kilowatt-hour (kWh) starting next year for heavy non-domestic users. These are typically large manufacturers, which are energy guzzlers.

As expected, there were no upward adjustments for low-voltage non-domestic users, such as shoplots and workshops, farmers and animal breeders, who come under a specific agriculture tariff, from a 3.7 sen/kWh surcharge currently.

This is to avoid higher prices of food and agricultural products. Also, households will continue to enjoy rebates so as not to add to their financial burden.

It is good that the government is committed to addressing the rising cost of living by keeping tariffs low for certain segments of business and households.

Without the rebates, the average tariff surcharge would be 27 sen/kWh, to make up for the higher cost of fuel used to generate electricity this year alone.

Having said that, the government should consider tweaking the mechanism to ensure that those who consume less benefit more and vice versa.

Indeed, there is already a tiered tariff mechanism in place, ranging from 21.8 sen/kWh to 57.1 sen/kWh, depending on how much electricity is used.

However, the electricity tariff for households includes a blanket rebate of two sen per kWh across the board for all users. The rebate is helpful for those in the lower-income bracket. But just like petrol, it is enjoyed more by the higher-income groups.

Consequently, this group benefits from a higher amount of subsidy as they consume more electricity because they have more electrical appliances, like air conditioners and electric ovens, at home.

The tariff adjustment on the non-domestic sector is a start. But there is some way to go before the adjustment reaches the necessary level of 27/kWh.

The government is expected to further subsidise RM10.76 billion based on the current tariff regime. This will add to its fiscal burden. With prices of coal and gas continuing to hover at multi-year highs, more subsidies are likely. However, while its move as a caring government to lower the people’s high energy bills is appreciated, it should also keep its tight fiscal position in mind.

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