One has to understand the hike in electricity rates, inflation will worsen, there will be an increase in manufacturing costs, it is unacceptable, these are some of the comments from various sectors.
TAN SRI WILLIAM CHENG
Associated Chinese Chambers of Commerce and Industry of Malaysia
Inflation may worsen due to the 12% tariff hike, as consumers will be more prudent in spending. It will also affect the industries and the nation's competitiveness. TNB could have avoided the hike by considering various options such as reviewing its tie-ups with independent power producers. These strategies should be undertaken first before considering an increase in electricity tariff rates.
MOHD GHAZALI ABU BAKAR
Bumiputra Manufacturers & Services Industry Association of Malaysia
Our members had adhered to the government's advice to try to absorb the cost and not burden consumers by raising price when the petrol price increase was announced. With the 12% hike in electricity tariff, we expect there will be price increases (of goods and services), one after another, in the near term. I think there will be at least 10% increase, especially in consumers goods.
DATUK WONG SIEW HAI
Malaysian-American Electronics Industry Association
The increase will result in direct increase of manufacturers' operating costs. However, people should look at the tariff hike on a broad spectrum and not item to item. We cannot say that just because the electricity tariff increased, thus the nation's competitiveness will reduce. We have to look at things in totality.
DATUK SERI DR LIM WEE-CHAI
Executive chairman and chief executive officer
Electricity comprises about 2% to 3% of our total operation costs. We are still waiting for the actual tariffs as per industry to be finalised. In the meantime, based on the 12% hike, we can expect about 0.2% increase in our cost.
For now, we can say that the impact will be minimal.
AFZAL ABDUL RAHIM
Chief executive officer
Applied Information Management Services Sdn Bhd
One has to understand why the cost of power generation has gone up.
Is the 12% increase to cover the rising cost of fuel used to generate power or to pay for better services from TNB or both?
If the hike is just to cover the former reason, then it is no good. Consumers will expect TNB to provide better service such as improvement on the national grid and less frequent blackouts.
As a centre that hosts various telecommunication service providers, this would have a negative impact on our margin as we consume a lot of electricity.
Chairman and managing director
There will definitely be some impact as electricity is a rather big component of our total costs. Nevertheless, we have to work around it – we will have to increase productivity as a way to mitigate the extra charges.
The tariff hike has been long overdue and we are not surprised by the government’s move.
DATUK TEO CHIANG KOK
Director, Bandar Utama group
President, International Real Estate Federation (FIABCI) Malaysia
For a start, the hike in energy cost will be passed to tenants in retail outlets, thus bumping up operating cost.
At the same time, the cost of goods to customers would also increase, which is a double whammy for retailers.
In this softening economy and increasing interest rate environment, my feeling is that they should not increase rates.
I appreciate that in an environment of high fuel prices, there is pressure for Tenaga Nasional Bhd to increase tariff rates but this will create a multiplier effect, which would further dampen consumer sentiment.
All of us should take this increase and try to absorb it through cutting down on wastages and improving efficiency.
However, the local councils and government bodies seem to be “leading the way” by increasing assessment rates and fuelling inflation.
LEE HENG GUIE
Head of Economics
Electricity tariffs account for a relatively small 3% of our CPI basket, so based on this contribution we have factored in a 0.36 percentage point increase in inflation rate in the second half of the year.
However, our forecast average inflation rate for 2006 was 3.7% as we expect inflation to have peaked in March at 4.8%. With this tariff increase and since the government will not be hiking petrol price further this year, the 0.36 percentage point will translate into a new forecast inflation rate of around 4%.
Besides the small 3% power tariff constitution to the CPI, we believe the government and the economy itself will also help minimise the inflationary impact of the hike. We are confident the authorities will step in to curb any excessive profiteering from sectors that are choosing to pass the costs down to consumers.
However, while a complete passing down of costs could have a significant impact on inflation, we do not expect businesses and retailers to do this, especially with the economy not that strong yet. Producers would want to conserve their market share and therefore they would not be keen to pass on the total hike to consumers.
According to TNB, fewer than 300 companies in Malaysia have electricity tariffs amounting to more than 5% of total costs. Based on this, the 12% increase will not have a major impact on operating cost for many of the manufacturers. Secondary effects from petrol price and electricity tariff hikes will also be mitigated by competition among producers.
With 59% of households being exempted, there will not be significant impact on public consumers. Besides, our tariff rates are still competitive against Thailand's 27.91 sen per kilowatt, Singapore's 35.9 sen and Indonesia's 23.27 sen.
DR YEAH KIM LENG
RAM Consultancy Services
There will certainly be some impact on the CPI numbers with this 12% hike. However, the lower income group who are not heavy users of electricity – below 200kW per month – will not be affected. Institutions like government schools, places of worship or welfare homes will be afforded a 10% discount on bills and hence the effect will be mitigated, together with companies in the agriculture sector.
However, we do expect inflation numbers from June to inch up, though with the 3% contribution to overall CPI, the effect will be minimal. The knock-on effects of this hike will depend on the extent businesses want to pass on their margin squeeze.
In competitive sectors, for example like food processing – restaurants and eateries – we expect less passing on to customers and consumers. It would be better for these businesses to absorb the slight pressure and have lower input margins than lose their customers.
For other sectors, it depends on how much electricity costs account for their production costs. Wanting to hang on to market share would also definitely come into the picture.
Haco Asia Pacific Sdn Bhd
An increase of up to 12% is unacceptable and not in line with the current inflation rate in the country. It is not justifiable and I had expected the hike to be no more than the inflation rate. Once the hike sets in, it will increase our operational cost.