Iron, steel group expects surcharge to raise costs by RM100m a year

It noted that CSC Steel

KUALA LUMPUR: The Iron and Steel industry expects to pay out more than RM100mil per annum in addional costs for their power consumption from July to December this year under the revised charges.

The Malaysian Iron and Steel Industry Federation (Misif) said on Wednesday it would be adversely impacted by the government's adjustment to the Imbalance Cost Pass Through (ICPT), which came into effect on July 1.

The Energy Commission (EC) had on June 29 announced the adjustment to the ICPT by cancelling the rebate of 1.52 sen/KWhr and simultaneously imposing a surcharge of 1.35 sen/KWhr.

“The net impact of this adjustment amounted to an increase of 2.87sen/KWhr or a drastic 8%-16% increase for industrial users,” it said. 

“Both steelmaking and rolling processes consume more than 650 kWh per metric tonne of electricity.  This latest adjustment will translate to more than RM100mil per annum of additional cost to the industry,” it said. 

In June, the Pakatan Harapan government had in the biannual review cycle, allowed the continuation of the ICPT mechanism even in the current environment of rising fuel costs. 

It will maintain an average base tariff of 39.45 sen/kWh for July to December 2018 and pass through excess costs via a surcharge in line with the ICPT mechanism. A surcharge of 1.35 sen/kWh will apply to non-domestic customers.

Misif complained the iron and steel industry had been affected by cheap imports for the past five years and it was just about to recover. 

However, it said the recent surge in natural gas and electricity price in June to December would  hamper the recovery effort of the industry and the Malaysian economy at large, especially the last increase of both utilities was just six months ago. 

Earlier, Misif had highlighted that over the last four years, the natural gas tariff was increased eight times, from RM16.07 per MMBtu to RM32.69 per MMBtu, up RM16.62 per MMBtu or 103%.

The additional gas cost incurred by the iron and steel industry is estimated to be more than RM107 mil under the new tariff against the applicable rate in May 2014. 

Misif said for the industry to stay competitive regionally and globally, government support and assistance was necessary.

The industry contributed 2.9% to Malaysia GDP in 2016 and it has the potential to generate up to 6.5% of GDP growth and could potentially generate up to 225,000 job opportunities in 2020.