Gas price hike in 2018

Tariff up: Contract workers patching up a gas pipe at the Kapar Petronas metering station. From next year, the effective gas tariff rate will be increased by an average of 16. — Bernama

PETALING JAYA: The price of gas used for cooking and fuel by the industrial and commercial sectors will be increased next year, reflecting the higher price of natural gas in the international market.

This will be the first gas tariff hike since July 2016.

The increase to the effective tariff rate is significant, at an average of RM4.47 per million British thermal units (mmBtu) or 16%, as it includes a surcharge under the new gas cost pass-through (GCPT) mechanism.

Among the sectors that will be heavily impacted is the rubber glove industry, which is set to see costs increase by an average of US$0.50 to US$0.75 per 1,000 pieces of gloves, depending on the type of gloves and efficiency of the factories.

The Malaysian Rubber Glove Manufacturers Association told StarBiz that Malaysian glovemakers were within the category of businesses currently paying RM26.11 per mmBtu, and would be subject to a 14.5% increase following the tariff hike.

He said the increase was significant and that glovemakers would have to pass the additional costs to customers.

“However, we are quite annoyed as we have already requested that Gas Malaysia Bhd gives us at least a two- to three-month notice before the tariff revision, as this will allow us to factor in the cost so we can pass it on to the consumers – but we were not given any such notice.

“Now, we only have a 30-day period to give notice to our customers and this is not enough.

“Glovemakers will be forced to absorb one or two months of additional costs before it can be passed on to our customers,” he said.

He added that the unexpected additional costs were a loss of revenue for the industry as well as the country.

Gas Malaysia announced yesterday that the government had approved, via a letter from the Energy Commission dated Nov 28, the revision of the natural gas tariff for the non-power sector in Peninsular Malaysia from Jan 1 to June 30, 2018.

It told the stock exchange that the government had prescribed the incentive-based regulation (IBR) framework which set the base tariff for a regulatory period of three years from January 2017 and allows changes in the gas costs to be passed through via the GCPT mechanism every six months.

The average natural gas base tariff was set at RM30.90 per mmBtu for the period beginning January to June 2018.

In addition to this, under the GCPT mechanism, a surcharge of RM1.62 per mmBtu will apply to all tariff categories due to the higher liquefied natural gas price against the reference price in the base tariff during this period, the group said.

This translates to an average effective tariff of RM32.52 per mmBtu across all categories, which also includes gas for residential use.

Although there had been a 5% increase in average base tariff for the period from July 1 to Dec 31, 2017, a government subsidy had resulted in lower effective tariff rates for all tariff categories for the period.

Top Glove Corp Bhd executive chairman Tan Sri Lim Wee Chai told StarBiz that its gas costs would increase by 23% following the tariff hike.

He said it planned to appeal to the government to not increase tariff rates so significantly at one go.

Lim suggested that the increase should instead be done in two stages, 50% of the increase in January and 50% in July 2018.

“For now, we may have to explore working with our customers to share this cost.

“In doing this, we will also factor in currency exchange and the downward trend in raw material prices.

“However, we believe that our internal improvement initiatives, such as heat energy savings projects, will help cushion our increase in costs,” he said.

The food and beverage (F&B) industry and shopping malls are other segments that will be impacted by the tariff increase.

Malaysia Shopping Malls Association adviser H.C. Chan said on average, about 30% of the space at malls were leased to restaurants or F&B outlets.

“As the increase is quite substantial, this will affect their cost of doing business, and eventually the pricing of food. Consumers will end up footing a higher bill,” he said.

Chan, who is also Sunway Malls and Theme Parks CEO, agreed that the quantum of increase should have been kept to a single digit to reflect inflation instead of the hefty average double-digit increase of 16%.

In the cement industry, Lafarge Malaysia Bhd, when contacted said it would not be impacted by the tariff increase as it does not use natural gas in its operations.