COMMERCIAL and industrial (C&I) users of electricity have questioned why Tenaga Nasional Bhd (TNB) should impose a surcharge on them following the approval of tariff setting for 2022 to 2024.

       Many also question the need to use surcharges from C&I users to re-invest into the system and grid, and also if the surcharge, which is actually a pass-through mechanism, translates into a higher revenue for TNB.

       Actually, TNB does not utilise the surcharge to re-invest and the surcharge does not translate into higher revenue for TNB.

       While depleting resources are being utilised to support rebates for domestic users, C&I customers that had previously received some discounts, have to shoulder the pass-through costs.

       Why can’t TNB absorb the higher costs?

       TNB needs to be financially strong to take on investments that will not only support the energy transition agenda but also reshape it.

       The surcharge of 3.7sen/Kwh imposed on C&I customers, under the imbalance cost pass-through (ICPT) mechanism, is on the back of an increase in fuel costs of RM1.67bil from July to December 2021.

       This was as the average applicable coal prices skyrocketed and touched US$200 (RM838) per tonne in the period.

       The ICPT mechanism allows TNB to reflect increases or reductions in fuel and other generation-related costs in the electricity tariff every six months.

       In times of lower global fuel prices and generation costs, savings will be returned to the rakyat in the form of an ICPT rebate.

       Higher global fuel prices and generation costs will be passed through to the rakyat in the form of an ICPT surcharge.

       Meanwhile, an ICPT rebate of two sen/kWh for domestic customers was maintained.

       The government has used RM715mil from Kumpulan Wang Industri Elektrik (KWIE) to maintain this rebate for domestic users.

       But KWIE is unable to cushion the blow on C&I customers, as its funds are depleting, after being used to fund electricity discounts during the pandemic in 2020 and 2021.

       Since the implementation of the ICPT in 2015, C&I customers had enjoyed a lot of rebates from savings in fuel and generation cost.

       Of the total rebate of RM8.5bil, C&I customers had already received RM6.6bil.

       For C&I customers, the Covid Relief Package in 2020 and 2021 had comprised a:

       > 5% discount to small and medium enterprises under the commercial, industrial and agricultural tariff from July 1 to Sept 30, 2021.

       > 10% discount to six selected sectors until Dec 31, 2021.

       For the short term, ICPT adjustments every six months for fuel cost movements and generation cost will impact C&I customers.

       The increase in fuel prices is a global phenomenon, driven by regional supply and tightness in demand.

       This is amid a series of disruptions and supply cut-offs in key producing countries as well as geopolitical tensions.

       Coal prices are persistently at high levels as global coal supply tries to catch up with the increase in demand, following the recovery from the pandemic.

       Newcastle index coal prices have risen to near record levels, higher than the peak in October 2021, and will continue to be elevated.

       This is due to supply tightness caused by Indonesia’s export ban, logistical constraints and weather-related disruptions.

       On March 2, 2022, the Newcastle 6000 kcal/kg coal price index recorded an all-time high at US$440 (RM1,845) per tonne on concerns over geopolitical tensions between Russia and Ukraine.

       This conflict has the potential to disrupt the global movement of energy commodities including crude oil, gas and coal.

       As of March 1, 2022, at least two of China’s largest state-owned banks have limited financing for Russian commodities.

       Russia is the world’s largest exporter of thermal coal and gas; this is likely to tighten global seaborne markets, and will have spillover effects as well as further jack up the prices of coal and liquefied natural gas.

       Based on the current market movement, Brent oil price had, for the first time since 2014, surpassed US$100 (RM419) per barrel at the end of February.

       This spectacular oil price rally is due to concerns over the Russian-Ukraine crisis, industry moves to cut back on production during the pandemic and control of supply by major producers.

       Therefore, it is expected that the power sector will be paying a higher gas price, which also contributes to additional generation cost.

       Electricity generation cost in Peninsular Malaysia accounts for 65% of the base tariff, with fuel cost forming the biggest component.

       A slight change in coal and gas prices will have direct impact on generation cost and hence, the tariff to consumers.

       “If the higher costs are not passed through to customers, TNB’s earnings can be easily diminished, while national electricity supply may be jeopardised,’’ said TNB CEO Datuk Baharin Din.

       TNB may cease to invest into maintaining and expanding the electricity grid, thus impacting the reliability of electricity supply.

       It may also impact TNB’s ecosystem and support of local vendors while investors could potentially lose confidence in the country’s policy and framework.

       TNB is using most of its profits to ensure cashflow and also reinvest into the system and grid.

       “We do not get funding from the government, our electricity sales will fund our investments,’’ said Baharin.

       TNB requires a large amount of capital expenditure and huge investments on land for transmission towers, substations and other high cost structures.

       Energy transition involves the transformation of the global energy sector from fossil-based to zero-carbon by the second half of this century.

       TNB plays an important role in ensuring that the nation’s electricity infrastructure is future ready.

       It has contributed towards low-carbon generation through its participation in large scale solar programs.

       The Green Electricity Tariff and the Malaysia Green Attribute Tracking System were launched to respectively enable subscription to green energy from the grid, and create a renewable energy (RE) marketplace based on RE certificates which generators can sell to customers.

       As a result, the group has seen utility scale solar, which is large scale generation of electricity through concentrated solar power, reach cost parity with natural gas.

       The increase in fuel prices is due to excess demand while recent events have caused the global prices of coal to escalate.

       For TNB, it is imperative to grow the usage of RE and wean away from coal, but in the transition, it has to face higher costs of fuel.

       Moving forward, this trend of high fuel prices will make it difficult for the government to revert to a rebate position.

       Yap Leng Kuen is a former SarBiz editor. The views expressed here are the writer’s own.