Manufacturers concern over energy price predictability

By ISHUN P AHMAD

Short notice on changes in energy tariffs is a major concern for manu-facturers in Malaysia, the bulk of whom export their products.

Talk to manufacturers and this is one of the concerns that they express. The issues have been raised on a number of occasions by the Federation of Malaysian Manufacturers (FMM) in their engagements with the relevant authorities.

“For our members operating in the Peninsular Malaysia, one of our biggest worries is being able to predict our costs. For some of us, the biggest component of costs is energy. When you do exports, you do long-term negotiations. So being able to have predictability of our costs is a major concern,” FMM energy management committee chairman Puan Sri Maimon Arif Patail told a roundtable organised by The Malaysian Reserve (TMR) in Bangi recently.

She said price predictability and consistency are important for the federation’s 3,000 strong members that have a big presence in the export market. About 70% of FMM members are export-oriented.

“It is very difficult to look at your long-term costs when an announcement of tariff comes within a short period, if you’re lucky, a month before. How to tell your export customers: ‘Sorry, we have to increase prices’. It is difficult as we are competing in a global market environment,” she said.

Maimon is also the director of Malaysian Mosaics Sdn Bhd.

She was one of the panellists at TMR’s Third Green Growth Roundtable on “Powering Malaysia: Transitioning Towards Clean Energy” held in Bangi recently.

The other panellists were Ministry of Energy, Green Technology and Water secretary general Datuk Seri Dr Zaini Ujang, Energy Commission (EC) chairman Datuk Abdul Razak Abdul Majid, TNB Energy Services Sdn Bhd Dr Ahmad Jaafar Abd Hamid and ENSEARCH chairman KN Gobinathan. PricewaterhouseCoopers Advisory Services Sdn Bhd ED for valuation Adeline Khoo Suet Ling moderated the roundtable.

As part of the attempts to rationalise electricity tariff, Malaysia implemented the incentive-based regulation in 2014. The decision resulted in an increase in the tariff to cover the higher costs of domestic piped gas, coal and liquefied natural gas. In the future, electricity tariff is expected to reflect the changing fuel costs as dictated by market prices.

Manufacturers that consume large amounts of energy — a major component of their costs — would definitely be affected if there is an increase in tariffs in electricity or gas. Higher tariffs would translate to an increase in cost.

The electricity tariff is up for its next review at the end of this month. The government had earlier decided to maintain electricity tariffs for consumers in Peninsular Malaysia, Sabah and Labuan from Jan 1 until June 30, 2017.

The move was on the back of the government’s decision to maintain power tariff rebate of 1.52 sen/kWh, amounting to RM766.33 million in Peninsular Malaysia, while in Sabah and Labuan the rebate is 1.2 sen/kWh.

“We do knock on ST doors very often,” Maimon told the roundtable, referring to the Malay acronym for the EC, which stands for Suruhanjaya Tenaga.

In response to the concerns, EC chairman Abdul Razak said many industrial customers are benefitting from the electricity tariff that is lower than cost.

He said the government is now trying to rationalise electricity tariff to bring it closer to the true cost of supply, something which has been adopted by most economies.

In order to get people on the bandwagon for energy efficiency, he said there is a need to lift subsidies to help them change their mindset and attitude towards energy efficiency.

On renewable energy (RE), he said solar panel developers are having difficulty to finance their projects due to financial institutions being risk-averse to the sector.

“We have a few programmes (solar panel) and they are moving on very well except that we still have to work with some financial institutions to give them the comfort that financing this kind of schemes can be viable enough for them to fund. Banks are very averse to this kind of risk and developers’ ability to support this kind of schemes,” he said at the roundtable discussion.

“We have gone through bidding exercises and trying to invite proposals and developers to come into this area. One of the things that they came back to tell us is that the banks are not willing to sponsor or commit at the rate that they (developers) are expecting. On RE, there is still some inconsistency and intermittent in revenue. That is why there is still a problem to convince the banks that they can support the programme at a reasonable funding rate,” said Abdul Razak.