How TNB (and the public) got a raw deal

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With an electricity tariff hike due to be announced on Monday, it might be useful to recall how the first generation of ‘independent power producers’ (IPPs) profited at TNB’s (and the Malaysian public’s) expense.

There’s a been a lot of talk, and rightly so, about the gas subsidies given to the IPPs, but not enough about the high price TNB has to pay to the IPPs for the electricity it has to take up – whether it needs it or not.

How did this Malaysian model of IPPs come into being, while TNB’s own expansion plans were cold-storaged in the early 1990s? As former TNB executive chairman Ani Arope says, “Ask our previous prime minister (Mahathir).” (Incidentally, Ani Arope studied at St Xavier’s Institution in Penang.)

This interview is from The Star:

Tuesday June 6, 2006
Ani: TNB got a raw deal

WHEN the Government decided to approve the request from Tenaga Nasional Bhd (TNB) to raise electricity tariffs, the plight of the national utility took centre-stage. Naturally, the knee-jerk reaction among consumers was not favourable. The 12% rise in tariffs appears to have re-ignited the debate on how good the going is for independent power producers (IPPs) at the cost of the national utility’s cashflow. The imbalance between the generation side of the business and that of transmission and distribution has put a strain on TNB. To understand the privatisation of the power generation sector, one needs to take a look back in history to understand that the country’s IPPs came about as a result of the Government’s effort to address the issue of stable power supply after the landmark 1992 blackout. Lending a historical perspective to the issue of IPPs is former TNB executive chairman Tan Sri Ani Arope, who headed the national utility from 1990 to 1996. It was during his tenure that the first generation IPPs were created. StarBiz deputy news editor JAGDEV SINGH SIDHU has the story.

STARBIZ: What happened after the first major blackout in 1992?

Ani: TNB had plans in place to pump out more energy by building plants in Pasir Gudang and Paka. Financing was no problem and our credit standing was very high. We had the land acquired and were ready to move in and plant up.

But we were told by the Economic Planning Unit (EPU) that it had its own plans. We cautioned EPU that if those plants, which would take two years to complete, were not built, Malaysia would get another major blackout. When you have a place with 250 engineers, it does not make sense to say (the blackout) is because of poor planning. But the EPU said it had its own plans and we were told to surrender the land.

Then it surfaced that it wanted to privatise the power plants. I am not anti-IPPs per se. It is good to have other players but it has to be done fairly. It has to be fair to the consumers, not just TNB, which is a conduit. TNB, because of the electricity hike, has been treated as the whipping boy. The focus should be on the consumers.

When the generous terms were given to the IPPs, all my other peers around the world asked what was happening. They said they would like to have a share in the IPPs. They said (the contracts to IPPs) were “too darn generous.” (The terms) were grossly one sided.

How was the Malaysian model of IPPs created?

Ask our previous Prime Minister.

How was the process of negotiations with IPPs conducted?

There was no negotiation. Absolutely none. Instead of talking directly with the IPPs, TNB was sitting down with the EPU. And we were harassed, humiliated and talked down every time we went there. After that, my team was disappointed. The EPU just gave us the terms and asked us to agree. I said no way I would.

What about the pricing and terms of the contracts?

It was all fixed up. (They said) this is the price, this is the capacity charge and this is the number of years. They said you just take it and I refused to sign the contracts. And then, I was put out to pasture.

Why did you disagree with the terms?

It was grossly unfair. At 16 sen per unit (kWh) and with the take or pay situation, actually it was 23 sen per unit. With 23 sen, plus transmission and distribution costs, TNB would have had to charge the consumer no less than 30 sen per unit. If mixed with TNB’s cost, the cost would come down but that was at our expense because we were producing electricity at 8 sen a unit. We can deliver electricity at 17 sen per unit.

And then there is a capacity charge. Nobody produces excess electricity like Malaysia and it goes to waste because there are no batteries to store that power. TNB only needs a reserve of 15% to 20%.

TNB was producing electricity at 8 sen a unit. What should have been the right price for IPPs to sell to TNB?

Twelve sen. They could not beat our price as we had already amortised our assets. But for the new guys or even ourselves to come in then and (having) to meet interest charges and to make a small profit, it would cost 12 sen a unit.

This was what we told one IPP. The IPP agreed to it but the EPU said that unless the IPP raised its price, the contract would not be given to the IPP. So he got it for 14 sen per unit.

And then, there is the cost pass-through. If the price of fuel went up, the extra cost is passed through to us. And in other words, it is passed on to the consumer.

Under what terms would you have agreed to the IPPs being set up?

Have an independent buyer for the electricity and in one way, let TNB come in and bid for the plants. Get other people to come in. Get a commission to see (to) our needs and TNB can be one of the producers.

It is argued that the IPPs’ contracts are too lucrative but there are IPPs in other countries in Africa or Asia that have better terms.

There are IPPs charging 50 to 60 US cents per unit but they use diesel. Take our own situation and compare oranges with oranges. Then it is fair. Do whatever is fair.

How were you affected by the process of awarding the IPP contracts?

I felt sick. It was morally wrong and not fair. If it is legal and not fair, I will not do it. If it is fair and illegal, I still won’t do it. It has to be legal and fair.

We work for the consumers, workers and shareholders. TNB is morally obligated to these three, but the consumers come first, otherwise we won’t be around. It is then the workers and the shareholders.

When I said that, they said ‘Dia ingat bapak dia-punya’ (He thinks this is his father’s company). This job is an amanah (trust). You are entrusted with this responsibility and you carry it out to the best of your ability. I do not want somebody to come and urinate on my grave. In the Malay culture, that is about the worst insult they can do to a man.

Do you think you did the right thing by not signing the agreements?

Absolutely.

How should a contract with the IPPs work?

In Australia, they call the IPPs and ask “what is your price”. They will pay the IPP that offers the best price. What they could have done is to throw the net wider and ask everybody (if they) are good, it would be awarded to them. But in our case, the contracts were ready-made and we were asked to sign.

What is your view on the impending renegotiation with the IPPs?

It has to be legal and fair. If we were to negotiate unfairly and illegally, the whole world will be looking at us and they will say “don’t sign anything with Malaysia because if things go against the country, the Government will void the agreement”.

We have to look at this very carefully.

But what we can do now is to say, can we bring down the capacity charge. Anything above the 15% reserve margin, we will call for bids.

The second thing is that the IPPs would have by now paid up their whole capital investments in their plants and it is all gravy (or profit) from now. Could we not bring this down a bit? Instead of paying a small amount to (a special fund), why not increase the (payment) for future planting up? In that manner, we can control the price of electricity. Otherwise, it’s going to escalate.

Who in your opinion should get involved in the negotiations?

The consumers should be there. For me, you should get a very independent body. Then, you can bring in TNB, the IPPs, the consumers and Energy Commission. But these bodies and consumers should not make a judgment.

So, pray tell, who is subsidising whom?

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bow

The subsidy mentality and political culture in energy sector need to revamp for a healthy economies to exist. Let’s the market forces decide the rate without unduly government favortism and biase policy . Only then, can consumer exert their influence and competition can be restored in the energy market, few energy producers monopolis power can be curtailed for the well being of the masses.

semuanya OK kot

By all means, TNB (and its shareholders) is welcome to a profit if it is running on commercial basis. After all, we don’t want a sitution where people waste even more electricity than they do now (no thanks to the Ministry of Technology blah blah). The trouble is that it is not commercial. It is paying for above-market supply of electricity from IPP cronies who furthermore are benefitting from cheap gas. Someone should also tell us whether the coal TNB uses is bought at market rates. The long-term sale of gas to Japan and Korea does not benefit us, only… Read more »

moo_t

I doubt few Malaysia understand how the free market world work in electricity business. If putting any Malaysia IPP to USA, follow the usual pricing and efficiency , they definitely go bankrupt within 6 months. When electricity follow the free market, the meter tariff run at different rate for day and night. Most Malaysian think this is outrages, but this is how market suppose to be work. Burning extra coal,gas,etc and force the turbine turn faster, put burden on the grid. And building a plan with a bigger turbine , are more expensive than a smaller size turbine. And bare… Read more »

bigjoe

This is another example where, everyone really knows how it all happens but the rakyat is helpless to hold those powerful to be responsible for it. Its this kinds of abuse that saps the wealth and strengths from the rakyat especially the poor. Its surprising that rich people are treated with the kind of respect the get in this country because it appears that rich, even if they make an honest living, are not much of leaders or superior, in fact, largely pathetic and for sure to do show the necessary active behaviour in ensuring the class they belong to… Read more »

haisara

This ipp is just a creation of ATM to draw out money for BN from the rakyat.

ha ha I heard (someone) made a joke which cost him his position. He was in Jakarta when the black out happens and he joke

“there was a blackout as there was no Megawatti in Malaysia”

mmc

antares,

insofar as I know, ani arope didnt resign. he was literally yanked out by “apanama”. bet my last dollar, “apanama” will deny and if shown proof, cite “cant remember”.
best part was Ani just went on leave and refused to sign the documents to enirch the “apanama” buddy, the God-fearing church goer. ani has to go just like the ‘apanama” deputies, dont he for not toeing the line?

ani, May God bless you and your family, always.

Tim

it is common knowledge that the IPP’s were (the ruling elites’) cash cows. … How can anyone fight (them)…. when they have the protection of Mahathir… These billionaires are … of the worst kind. (Much of) the wealth they have… from the people of Malaysia. Principled gentlemen like Ani Rope, were victimised … and made an example of, so that the others’ will toe the line, and most just did. Mahathir doesn’t play fair, and he made that obvious. We should insist that the Govt makes the IPP’s concessions and agreements public and be the judge. Then Mahathir (may) come… Read more »

tunglang

It is all recorded for display on Judgement Day, so all dirty linens will be hanged out. The only problem, we don’t have the patience to wait for justice. And the leeching keeps going on at our expense. At the expense of this nation’s questionable future.

May God’s Sword of Justice be not too slow to swing.

wandererAUS

The White Knights in this wonderful Bolehland are few and remote.
Still the same old story, “The Privileged rule over the Pendatang”
Don’t worry be happy, folks!

mmc

btw where are you Gerakan K. Dont you want to defend “apanama”?

mmc

i always have respect for tan sri ani. he stood his grounds on principle and was eventually removed. the “apanama” will as usual couldnt remember and we the consumers are paying for the apanama cronyism abnormal profits. You know, a piece of IPP licence was worth more than RM100m. To whom the bells toll? Asked the “apanama” who will like marcos at his last breath swear he is clean.

charleskiwi

This is why Malayisis is still in the third world and worse of all about to go bankrupt ! May be. Anil , shenanigan Mahathir, as always has an answer and solution to all the problems the country is facing.

Jonathan

So Mahathir sold Malaysians out……why is everyone so surprised?????……..It has always been his modus operani….

If Malaysians dont vote or fight to get this country back….say bye bye …(they) will contunue to rule till its completely barren….

LC Teh

Ani Arope is one guy who makes me proud to be another Xaverian.

HY

barang naik regime knows the mentality of the average folks because of over 50 years of mental conditioning in education system & various schemes.
mudah lupa dan tidak sedar minda sudah terkongkong !

Yang

The government by removing subsidies make us pay for the subsidies that enrich their cronies

tunglang

B’cos Ah Kong’s monies is dwindling by the minutes, they … have to … Satu Lagi Projeks and then cut subsidies in the name of saving the nation from bankrupcy. It is thro’ Barang Naik syndromes, fevers and antidotes to subsidies (no thanks to no-brainer Consumer Association) that we now direct pay with sweat, tears and blood for the economic sins / crimes of others.

Only in Boleh Land, it handsomely pays to commit economic crimes in broad daylight.

Kono

Kindly provide some facts to back up your claim so that I could help to preach the message to the rural folks.

tunglang

Come to Penang and see for yourself.
Unless you are sleeping the last 42 years.
ZZZZZZZZZZZZZZZZZ….

Kassim

Not all rural folks can afford to go to Penang to see.

You should do your national service to provide the needed facts, pictures or documents so that we can show to the kampung flers who have been reading Utusan Tipu.

Plain Truth

Ani Arope is an honest and honourable man. The same cannot be said of the racist … who stuffed such blantantly biased terms down the Rakyat’s throats.

CHEN KING SIONG

I take my hat off to Tan Sri Ani Arope (incidently was my former Chairman and CEO).

FenceSitter

The govt’ asks us to get rid of our subsidy mentality. When the gov’t remove the subsidy to the IPPs, ain’t we taxpayers the ones who are actually going to subsidise them? Why pass everything to the consumers straight away? Get the IPPs, other GLCs and what-nots to get rid of their subsidy mentality first!

kee

Vote la beramai-ramai for BN comes next election !!!

Pandai-pandai criticise la Pakatan government, dont give Pakatan a chance, taruh Pakatan kuat-kuat !!!

Gula naik, petrol naik, tepung naik, electricity naik… semua naik but gaji tak naik…

BN politicians having good and luxury lives while Rakyat struggling for their lives, and yet majority of Rakyat still cant wake up, keep voting for BN !!!

Sigh sigh sigh !!!

Uni

BN hentam Anwar kaw kauat sampai tak boleh buat ceramah!!!

Mari undi Pakatan.

Tak nak barang naik.

Antares

Ani Arope, among the last of a rare breed of gentlemen administrators. In my books he reclaimed his soul and his sovereignty by refusing to go along with Mahathir’s insane demands. Rather than accumulate obscene wealth for himself by bending to Sauron’s will, Ani Arope opted to retire quietly, his dignity and integrity intact. …

tunglang

Ani Arope is the rare breed of corporate figures any head hunter or profitable organisation would pay handsomely for his unquestionable integrity and man with unbending principles.
He should be guest speaker at all of our local unis convocations and graduations to inspire the right work attitude and moral / ethical principles to young Malaysian graduates who will lead the nation on the right path to glory.
Ani Arope, we believe your every word.

moo_t

Malaysia NEVER practice free economy. Even during so call “free economy” Mahathir regime, Malaysia economy still under heavy government intervention and excessive regulation. To understand how bad a “big government” damage the economy and productivity, as well as Keynesianism eonomy failure, USA Jimmy carter (1977-1981) administration is the ultimate thesis. It took US people 4 years to realise the damage, and take another 2 painful years to learn Ronald Reagan deregulate , free market policies that bring US back to the road to lead the world economy. Malaysia IPP, like the national car project, proton, are NEVER build with FREE… Read more »

Kono

So we should not buy Proton in order not to perpetuate the problem.

hc

but because of Proton, gov increased the car duties, the non-national car prices now are more expensive few times if compare with other countries.

one good example:-
http://www.nissanusa.com/versa/

Sucker Puncher

Declassify IPP agreements ???
http://www.themalaysianinsider.com/malaysia/article/declassify-ipp-agreements-dap-tells-putrajaya/

“Najib administration would only spur inflation by removing the diesel super subsidy before cutting “big opium” gas subsidies worth RM19 billion for IPPs and commercial power sectors.”

Kassim

Unless there is deliberate attempt to cover the wrongdoing, Malaysians are entitled to know the exact provision of the power purchase Agreement between all IPPs and Tenaga Nasional Bhd!!!

This is not OSA!
This is the right of all rakyat of Malaysia.

Leithaisor

And what does Peter “Tarak subsidies wan” Chin have to say?

Useless tin-kosong ke?

Andrew I

It’s nice to know that there are some people in positions of authority who will not take crap from politicians. The outcome is already known, yet these people will follow what their moral conscience dictates.

I salute these people.

Anthony Louis

The Federal Republik of Germany subsidies all Solar panel installations. Even FARMERS have gotten into the act and are building solar farms!!. Don`t forget the sun does´t shine everyday here. In a country that has 365 days of sunshine its a real shame that this has to happen and with imported dirty coal to top it all!! The electricity generated is connected to the grid and sold to the electric company . As ownners we are making money daily. Perhaps Penang can be the first to this from every roof top with made in Penang solar panels.

Apanamameverick

when u need a venture running to meet your biz/political aspiration, u need fund to keep it running, right ?
so as long as nobody (majority) makes noise, i can forever turn on the tap (with a few loyals also being fed well to guard the interests) to fulfill my intention to control …..

Steve

Red Devils were subjected to a footballing masterclass by Messi and his Barca teammates.

Relentlessly torn apart!

Ruthlessly executed!

A bad omen for Najib who wore MU jersey during the game?