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Regulation of the Electricity Industry in Malaysia

Professor Dr. Cheong May Fong Faculty of Law, University of Malaya Asian Competition Forum, Hong Kong 10 December 2007 email: cheongmf@um.edu.my @cheongmayfong

Outline
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Brief History Current Structure Issues & Challenges 2 Paradigm & Msia’s Direction Conclusion General References

Brief History       1949:Central Electricity Board (CEB) 1965:National Electricity Board (NEB) 1979:National Energy Policy 1991:Privatization Master Plan 1990:Corporatisation of NEB to Tenaga Nasional Berhad (TNB). 1993:Independent Power Producers (IPPs) .

and Reduce size & presence of public sector in the economy. . Improve efficiency & productivity.Privatization Plan    3 Objectives Relieve financial and administrative burden of govt.

Utilization: promote efficient utilization. secure. discourage wasteful non-productive patterns of energy consumption. . both renewable & non-renewable. and Environment: minimize negative environmental impacts of energy supply chain. costeffective energy supply.National Energy Policy    3 Objectives Supply: ensure adequate.

Tenaga Nasional Berhad (TNB)     1990: Corporatisation of NEB to TNB 1993: Shares public listed in KLSE Controls generation. transmission & distribution of electric power 8 subsidiary companies to carry out functions .

Independent Power Producers (IPPs)    1993: Licenses to Build. Currently 21 Power Purchase Agreements (PPAs): Contributes approx 43% total installed generation capacity . Operate and Own (BOO) power plants First IPP: YTL Power Generation Co.

TNB now holds shares in SESB Sarawak Electricity Corp (SESCo) .Current Structure    TNB – Peninsular Sabah Electricity Sdn Bhd (SESB) – took over from Sabah Electricity Board in 1998.

Water & Comm: Energy supply industry.Related Govt Depts     Prime Minister’s Dept .Economic Planning Unit: Privatization of electricity supply Ministry of Energy. renewable electricity energy Ministry of Rural Development: Rural electricity Energy Commission: Regulates energy supply in Malaysia (except Sarawak) . energy efficiency.

” Electricity Supply (Successor Company) Act 1990  . s 4 “The Commission shall carry out such functions & duties … (c) to promote competition in the generation and supply of electricity at reasonable prices.Related Legislation  Electricity Supply Act 1990.

to prevent the misuse of monopoly or market abuse in respect of the generation. s 14 “The Commission shall have all the functions … (h) to promote and safeguard competition and fair & efficient market conduct or. in the absence of a competitive market. production. distribution and supply of electricity …” Lembaga Letrik Sabah Act 1983 .Related Legislation   Energy Commission Act 2001. transmission.

1 66.9 Source: 9th Malaysia Plan 2006 .2010 .Electricity Coverage Region Peninsular Sabah Sarawak Malaysia 1990 91 48 50 80 2000 97.8 80.5 2005 98.9 89.6 72.5 67.8 92.

Forces leading to Change    Poor performance. unreliable supply. high cost. outages/ 1992’s 48 hours blackout Inadequate finance for new investments/ maintenance Remove subsidies to release resources for other pressing public expenditure .

transmission & distribution e.related to whole line of generation.no competition at wholesale & retail market Tariff . power loss/theft Power Purchase Agreements .g.Issues & Challenges      Only generation phase privatized TNB remains largest generator Transmission phase not privatized .

energy capacity charges cl or “take or pay” cl 21 .e.Power Purchase Agreements (PPAs)      Individually negotiated exclusionary contracts Different terms for each .g.25 years expiry date Only one buyer Association of IPPs .

IPP’s Perspectives: Case Study YTL Power Generation Co     First IPP 1993 – 2 power plants Msia’s successful IPP project in region Forerunner to other Power Purchase Agreements Experience led to export services YTL Power Generation International 1997 Electranet (Australia) 2000 Wessex Water (UK) 2002 .

Central Planning Policy Driven (Approval Oriented)     Electricity Supply Industry: Two Paradigm    Decentralized Market-Driven (Merchant Investment)    Public or private sector Single Buyer No retail competition Tariff regulation & cost recovery Investor interest only with (long term) PPA Administered input prices possible Common ownership possible     Mostly private sector Wholesale power pool Effective retail competition possible Robust regulatory processes required Considerable expenses incurred Limited government intervention Investors interest without (long term) PPA Source: Dato’ Seri Che Khalib bin Mohamad Noh. President & Chief Executive Officer Tenaga Nasional Berhad. 2007 .

Peculiarities of Electricity Industry    Historical Monopoly/Continuing Govt Intervention High Capital/Investment Cost Balancing needs of developing economies .attracting investments & capacity building .

ongoing economic growth Attracts investment Full deregulation could affect system reliability in various ways e. 2007 .g Under-investment in generation and transmission Capacity withholding Market power abuse Source: Dato’ Seri Che Khalib bin Mohamad Noh. President & Chief Executive Officer Tenaga Nasional Berhad.Malaysia’s Direction      • • • Central Planning Policy Driven (CPD) model relevant to Malaysia National Energy Policy Stable industry environment & reliable supply .

Conclusion    Experiment in privatization & competition in the electricity industry Continuing learning curve Lessons for other public utilities … .

G. . “Development of Privatized Power Industry in Malaysia”. Malaysia. 1996. B. 2003.General References     Nikomborirak. Smith. Deunden & Manachotphong. Wanwiphang. et. Sivalingam. at pp 94-110. the State and Competition Policy in Malaysia. 2007. Akhtar. Indonesia and the Philippines”. “Electricity Reform in Practice: The case of Thailand.al. A. “Competition in the Asean Countries” Ch 3 The New Economic Policy. 2005. “Privatizing Electric Power in Malaysia & Thailand: Politics & Infrastructure Development Policy”. Thomas.