Regulation of the Electricity Industry in Malaysia

Professor Dr. Cheong May Fong Faculty of Law, University of Malaya Asian Competition Forum, Hong Kong 10 December 2007 email: cheongmf@um.edu.my @cheongmayfong

Outline

Brief History Current Structure Issues & Challenges 2 Paradigm & Msias Direction Conclusion General References

Brief History

1949:Central Electricity Board (CEB) 1965:National Electricity Board (NEB) 1979:National Energy Policy 1991:Privatization Master Plan 1990:Corporatisation of NEB to Tenaga Nasional Berhad (TNB). 1993:Independent Power Producers (IPPs)

Privatization Plan

3 Objectives Relieve financial and administrative burden of govt; Improve efficiency & productivity;and Reduce size & presence of public sector in the economy.

National Energy Policy

3 Objectives Supply: ensure adequate, secure, costeffective energy supply, both renewable & non-renewable; Utilization: promote efficient utilization, discourage wasteful non-productive patterns of energy consumption; and Environment: minimize negative environmental impacts of energy supply chain.

Tenaga Nasional Berhad (TNB)

1990: Corporatisation of NEB to TNB 1993: Shares public listed in KLSE Controls generation, transmission & distribution of electric power 8 subsidiary companies to carry out functions

Independent Power Producers (IPPs)

1993: Licenses to Build, Operate and Own (BOO) power plants First IPP: YTL Power Generation Co. Currently 21 Power Purchase Agreements (PPAs): Contributes approx 43% total installed generation capacity

Current Structure

TNB Peninsular Sabah Electricity Sdn Bhd (SESB) took over from Sabah Electricity Board in 1998. TNB now holds shares in SESB Sarawak Electricity Corp (SESCo)

Related Govt Depts

Prime Ministers Dept - Economic Planning Unit: Privatization of electricity supply Ministry of Energy, Water & Comm: Energy supply industry, energy efficiency, renewable electricity energy Ministry of Rural Development: Rural electricity Energy Commission: Regulates energy supply in Malaysia (except Sarawak)

Related Legislation

Electricity Supply Act 1990, s 4 The Commission shall carry out such functions & duties (c) to promote competition in the generation and supply of electricity at reasonable prices;
Electricity Supply (Successor Company) Act 1990

Related Legislation

Energy Commission Act 2001, s 14 The Commission shall have all the functions (h) to promote and safeguard competition and fair & efficient market conduct or, in the absence of a competitive market, to prevent the misuse of monopoly or market abuse in respect of the generation, production, transmission, distribution and supply of electricity Lembaga Letrik Sabah Act 1983

Electricity Coverage
Region
Peninsular Sabah Sarawak Malaysia

1990
91 48 50 80

2000
97.5 67.1 66.9 89.5

2005
98.6 72.8 80.8 92.9

Source: 9th Malaysia Plan 2006 - 2010

Forces leading to Change

Poor performance, high cost, unreliable supply, outages/ 1992s 48 hours blackout Inadequate finance for new investments/ maintenance Remove subsidies to release resources for other pressing public expenditure

Issues & Challenges

Only generation phase privatized TNB remains largest generator Transmission phase not privatized - no competition at wholesale & retail market Tariff - related to whole line of generation, transmission & distribution e.g. power loss/theft Power Purchase Agreements

Power Purchase Agreements (PPAs)

Individually negotiated exclusionary contracts Different terms for each - e.g. energy capacity charges cl or take or pay cl 21 - 25 years expiry date Only one buyer Association of IPPs

IPPs Perspectives: Case Study YTL Power Generation Co

First IPP 1993 2 power plants Msias successful IPP project in region Forerunner to other Power Purchase Agreements Experience led to export services YTL Power Generation International 1997 Electranet (Australia) 2000 Wessex Water (UK) 2002

Central Planning Policy Driven (Approval Oriented)

Electricity Supply Industry: Two Paradigm

Decentralized Market-Driven (Merchant Investment)

Public or private sector Single Buyer No retail competition Tariff regulation & cost recovery Investor interest only with (long term) PPA Administered input prices possible Common ownership possible

Mostly private sector Wholesale power pool Effective retail competition possible Robust regulatory processes required Considerable expenses incurred Limited government intervention Investors interest without (long term) PPA

Source: Dato Seri Che Khalib bin Mohamad Noh, President & Chief Executive Officer Tenaga Nasional Berhad, 2007

Peculiarities of Electricity Industry

Historical Monopoly/Continuing Govt Intervention High Capital/Investment Cost Balancing needs of developing economies - attracting investments & capacity building

Malaysias Direction

Central Planning Policy Driven (CPD) model relevant to Malaysia National Energy Policy Stable industry environment & reliable supply - ongoing economic growth Attracts investment Full deregulation could affect system reliability in various ways e.g Under-investment in generation and transmission Capacity withholding Market power abuse
Source: Dato Seri Che Khalib bin Mohamad Noh, President & Chief Executive Officer Tenaga Nasional Berhad, 2007

Conclusion

Experiment in privatization & competition in the electricity industry Continuing learning curve Lessons for other public utilities

General References

Nikomborirak, Deunden & Manachotphong, Wanwiphang, Electricity Reform in Practice: The case of Thailand, Malaysia, Indonesia and the Philippines, 2007. Sivalingam. G, Competition in the Asean Countries Ch 3 The New Economic Policy, the State and Competition Policy in Malaysia, 2005, at pp 94-110. Smith, B. Thomas, Privatizing Electric Power in Malaysia & Thailand: Politics & Infrastructure Development Policy, 2003. Akhtar, A, et.al, Development of Privatized Power Industry in Malaysia, 1996.