Small and medium business players are concerned about the uncertainty posed by the ICPT.
PETALING JAYA: Industry players have called for more clarity on the Imbalance Cost Pass-Through (ICPT) mechanism, following the government’s decision to maintain the electricity surcharge for commercial users.
Manufacturers, in general, are unhappy that the surcharge of 17 sen per kilowatt hour (kWh) was not reduced, despite the dip in global fuel prices.
Small and medium business players, on the other hand, are concerned about the uncertainty posed by the ICPT.
ICPT refers to a mechanism under the Incentive-Based Regulation, which allows electricity tariffs to be adjusted every six months based on fluctuations in global fuel prices, namely coal and natural gas.
The adjustments are done so that any changes in costs can be passed on to the customers in the form of rebates or surcharges.
Last week, the Energy Commission (EC) announced that the rebates for household users with monthly electricity consumption exceeding 600kWh until 1,500kWh will be removed in the first half of 2024.
The households will no longer qualify for the two sen per kWh rebate available previously
Meanwhile, tariffs for other households as well as commercial and industrial customers will remain unchanged.
Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid told StarBiz that there should be more communication with the public as to how the ICPT is being decided.
“At the moment, there is a ‘frequently asked questions’ list on ICPT on the websites of EC and Tenaga Nasional Bhd
(TNB).
“But going forward, this information needs to be related more effectively to the general public so that they can appreciate the reform agenda and the benefits it can bring,” he said.
Last Saturday, Federation of Malaysian Manufacturers (FMM) president Tan Sri Soh Thian Lai called for more details to be made available on the decision to maintain the 17 sen surcharge.
He also claimed that the industry was not consulted prior to the announcement.
“There should be more consistent engagement with the industry to address concerns and challenges faced concerning the electricity tariff rate during the period of high ICPT surcharge rate, especially for the small and medium industries (SMIs) under the medium voltage (MV) category,” he said.
Soh also called for a “more robust customer profiling” to review the eligibility of SMIs under MV category to enable them to qualify for a lower surcharge at 3.7 sen per kWh.
This is necessary, he said, because industries including SMIs continue to operate under a challenging environment.
Soh said that even a small reduction in surcharge would be welcomed by industries, noting that there is a drop in fuel prices from the previous ICPT and the latest EC announcement.
Small and Medium Enterprises Association of Malaysia president Datuk William Ng said coal prices had dropped by more than half compared with its peak a year ago.
“So we would have expected a drop of 30% to 40% in ICPT, translating to at least 15% to 20% in tariff savings for commercial users,” he said.
He expressed concern about the uncertainty posed by the ICPT.
According to Ng, the ICPT is meant to be a temporary measure to address the spike in operational cost, not as a mechanism to guarantee the national energy company’s profitability.
“TNB has had plenty of time to transition away from coal, and to achieve better operational efficiency.
“The company should be mandated to stick to a strict energy transition goal and given its monopoly over energy generation and transmission.
“It should focus on operational efficiency and business diversification to achieve continued profitability instead of passing additional costs directly to consumers.
“Energy remains a major concern for small and medium enterprises and while we support the energy transition roadmap, we must be careful that the incremental cost is gradual and supportive of growth,” he said.
Ng pointed out that since the ICPT has two main components, fuel price – mainly coal – and generation costs, the development pointed to continued inefficiency on the part of TNB.
“Hence, our call is for TNB to stick to its renewable energy transition goal and to obtain better operational efficiency and diversifying its revenue stream.”
Meanwhile, Malaysia University of Science and Technology economics professor Geoffrey Williams highlighted that it is important that market regulations such as price controls and subsidies are transparent.He said the ICPT is a price control system with financial implications for consumers and the government. Hence, it must be transparent and open to review and improvement in line with new ideas, technologies and stakeholder inputs.
“It must be remembered that these changes are part of the subsidy rationalisation programme that people have been calling for.
“They will save money, reduce the subsidies to richer people and reduce market distortions.
“This is what is expected and what stakeholders want. The government is delivering on its promises,” he said.
Williams, however, disagreed with the FMM and said that the move to maintain the 17 sen surcharge will not be a disadvantage to industry players.
“The bills for high users will adjust in the same way as before and so there should be nothing to consider.
“Provided cheaper global fuel prices eventually feed into lower prices, there is no particular issue here,” he said.
When asked about the removal of electricity rebates for some households, Williams pointed out that it is a one-off event and 85% or seven million domestic consumers will not be affected.
He added that the removal of rebate would not have much of an impact on inflation.
“Anyway, inflation is low and so any marginal increment will not affect the headline figures much,” he said.
Mohd Afzanizam said there is “minimum” impact to inflation, as the bulk of domestic users are still enjoying the subsidies from the government.
“More importantly, this is about the government’s commitment to reduce the subsidies which means that the government would have more fiscal space that can be spent on infrastructure.
“It will bring benefits to the rakyat in the medium to long-term horizon,” he said.
The total subsidies for the first half of 2024 amounted to RM1.9bil, which is significantly lower than the RM5.2bil seen in 2H23 and RM10.8bil in 1H23, as costs of coal and natural gas have trended lower.
According to TA Research, the widening of targeted subsidies by removing rebates for high electricity users does not come as a surprise as this was already announced in Budget 2024.
While the tariff revision is “neutral” on TNB’s earnings for the financial year of 2024, the removal of rebates for high electricity users indirectly decreased the ICPT receivables for TNB in 1H24, it said in a report yesterday.
“Note that in early November 2023, TNB has received RM2.35bil ICPT cost recovery for July to September 2023 period. The government’s commitment to uphold the ICPT mechanism has aided in reducing the group’s ICPT receivables.
“Evidently, the utility giant’s ICPT receivables has declined over the past quarters in tandem with the drop in fuel costs and consistent payment received from the government,” it said.
It noted that the expected continuous drop in ICPT receivables would improve TNB’s cash flow and potentially lead to higher dividend payment.
TA Research has maintained its “buy” call on TNB, with an unchanged target price of RM11 per share.
