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Monday June 1, 2009

Proposed, fund to manage fuel cost

PETALING JAYA: The Energy Commission has proposed the setting up of a stabilisation fund to support the fuel pass-through mechanism and manage fuel cost volatility more effectively, says chairman Datuk Pian Sukro.

“An automatic pass-through mechanism is not viable as consumers would be caught when prices are high. The fund helps insulate consumers from the volatility of fuel costs and acts as a buffer when there’s high fluctuations,” he told StarBiz in an interview.

The commission regulates the energy sector with a mission to balance the needs of consumers and providers of energy to ensure safe and reliable supply at reasonable prices, protect public interest, foster economic environment and competitive markets in an environmentally sound manner.

Pian said while the stabilisation fund would keep consumers’ affordability intact, it would also sustain the business of energy players instead of letting them bear all the market risks.

At the peak of coal prices last year, national utility company Tenaga Nasional Bhd (TNB) had to bear the brunt as tariff revision was reviewed only on an annual basis.

Petronas, which supplies natural gas to TNB, also wanted to raise prices due to the heavier subsidies required when international gas prices surged.

Pian said the stabilisation fund could be pooled with any savings from gas or coal prices, or from the fee reduction in power purchase agreements (PPAs).

He added that once the disparity of terms in the existing PPAs was resolved, there would be some cost savings which could be contributed to the fund.

There was a need to renegotiate existing PPA terms as the discrepancy had created a non-level competition within the market structure, Pian noted.

The costs of the huge surplus of energy generation capacity were borne only by TNB, making it difficult to manage costs efficiently, he pointed out.

In addition, consumers need to get accustomed to the market pricing of energy with the Government gradually removing gas subsidy in tandem with utility and consumers’ affordability, according to Pian.

“Subsidised gas price has resulted in a shift by industrial consumers from oil to gas-fuelled energy, which has driven gas demand above the supply volume,” he said.

When gas is priced at market prices, it allows market forces to play their role. The producer may be keener to invest in securing additional gas supplies, given the economic benefit, while consumers will get to enjoy a reliable source of energy.

Pian said that owing to the current market conditions it might be a good time to lift some of the subsidies since the prices of coal and gas were at low levels and almost on par with each other.

Another suggestion by the Energy Commission is the separation of accounts at TNB instead of the present practice of a consolidated account of generation, transmission and distribution.

“This is important to allow comparison and benchmarking in the industry,” he said.

Contrary to belief, fuel reserves are still ample. “The world is still going to depend on oil, natural gas and coal as sources of energy until 2030. But it depends on what price we can afford to pay,” Pian said.

Sarawak still had reserves and would be one of the sources of power for the peninsula, besides importing from neighbouring countries, he added.

Meanwhile, the main issue of Sabah’s electricity supply is of inadequate supply capacities in generation, transmission and distribution, leading to a low level of supply reliability and a lack of access to electricity for the general population in the state.

Pian said Sabah Electricity Sdn Bhd (SESB) suffered a deficit of 16 sen per kilowatt, as the selling price was insufficient to cover the supply cost as electricity generation was via isolated and uneconomical small diesel sets.

As part of a turnaround plan, an integrated electricity grid was built and completed in 2007.

This would enable bigger and more economical gas and coal units to be used given that gas was available in the west coast while coal could be readily imported from eastern Kalimantan, he said.

The commission has proposed, among other things, sufficient gas supply to be allocated to Sabah for power and non-power sectors while increasing electricity penetration via expansion of the distribution system.

In addition, Sabah needed to increase electricity generation to meet future demand, he added.

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