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Regulation of the ElectricityIndustry 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
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Outline
Brief History
Current Structure
Issues & Challenges
2 Paradigm & Msia’s Direction Conclusion
General References
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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 TenagaNasional Berhad (TNB).
1993:Independent Power Producers (IPPs)
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Privatization Plan
3 Objectives
Relieve financial and administrative
burden of govt;
Improve efficiency & productivity;and
Reduce size & presence of public sectorin the economy.
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National Energy Policy
3 Objectives
Supply: ensure adequate, secure, cost-
effective energy supply, both renewable& non-renewable;
Utilization: promote efficient utilization,
discourage wasteful non-productivepatterns of energy consumption; and
Environment: minimize negativeenvironmental impacts of energy supply
chain.
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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 outfunctions
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Independent Power
Producers (IPPs) 1993: Licenses to Build, Operate and Own
(BOO) power plants
First IPP: YTL Power Generation Co.
Currently 21 Power Purchase Agreements(PPAs): Contributes approx 43% total
installed generation capacity
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Current Structure
TNB – Peninsular
Sabah Electricity Sdn Bhd (SESB) – took
over from Sabah Electricity Board in 1998.TNB now holds shares in SESB
Sarawak Electricity Corp (SESCo)
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Related Govt Depts
Prime Minister’s Dept - Economic PlanningUnit: Privatization of electricity supply
Ministry of Energy, Water & Comm:Energy supply industry, energy efficiency,renewable electricity energy
Ministry of Rural Development: Ruralelectricity
Energy Commission: Regulates energy
supply in Malaysia (except Sarawak)
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Related Legislation
Electricity Supply Act 1990, s 4 “The Commission shall carry out such
functions & duties … (c) to promotecompetition in the generation and supply of electricity at reasonable prices;”
Electricity Supply (Successor Company) Act1990
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Related Legislation
Energy Commission Act 2001, s 14
“The Commission shall have all the
functions … (h) to promote and safeguardcompetition and fair & efficient marketconduct or, in the absence of acompetitive market, to prevent the misuseof monopoly or market abuse in respect of the generation, production, transmission,distribution and supply of electricity …”
Lembaga Letrik Sabah Act 1983
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Electricity Coverage
Region 1990 2000 2005
Peninsular 91 97.5 98.6
Sabah 48 67.1 72.8
Sarawak 50 66.9 80.8
Malaysia 80 89.5 92.9
Source: 9th Malaysia Plan 2006 - 2010
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Forces leading to Change
Poor performance, high cost, unreliablesupply, outages/ 1992’s 48 hours blackout
Inadequate finance for new investments/maintenance
Remove subsidies to release resources for
other pressing public expenditure
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Issues & Challenges
Only generation phase privatized
TNB remains largest generator
Transmission phase not privatized - nocompetition at wholesale & retail market
Tariff - related to whole line of generation,transmission & distribution e.g. powerloss/theft
Power Purchase Agreements
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Power Purchase Agreements (PPAs)
Individually negotiated exclusionarycontracts
Different terms for each - e.g. energycapacity charges cl or “take or pay” cl
21 - 25 years expiry date
Only one buyer
Association of IPPs
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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 1997Electranet (Australia) 2000
Wessex Water (UK) 2002
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Electricity Supply Industry:
Two ParadigmCentral Planning Policy Driven (Approval Oriented)
Public or private sector
Single Buyer
No retail competition Tariff regulation & cost
recovery
Investor interest only with(long term) PPA
Administered input pricespossible
Common ownership possible
Decentralized Market-Driven (Merchant Investment)
Mostly private sector
Wholesale power pool
Effective retail competitionpossible
Robust regulatory processesrequired
Considerable expenses incurred
Limited governmentintervention
Investors interest without (longterm) PPA
Source: Dato’ Seri Che Khalib bin Mohamad Noh, President & Chief
Executive Officer Tenaga Nasional Berhad, 2007
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Peculiarities of Electricity Industry
Historical Monopoly/Continuing GovtIntervention
High Capital/Investment Cost
Balancing needs of developing economies- attracting investments & capacity
building
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Malaysia’s Direction
Central Planning Policy Driven (CPD) model relevant to Malaysia National Energy Policy Stable industry environment & reliable supply - ongoing economic
growth Attracts investment Full deregulation could affect system reliability in various ways e.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, 2007
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Conclusion
Experiment in privatization & competitionin the electricity industry
Continuing learning curve
Lessons for other public utilities …
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General References
Nikomborirak, Deunden & Manachotphong,Wanwiphang, “Electricity Reform in Practice: The case of Thailand, Malaysia, Indonesia and the Philippines”, 2007.
Sivalingam. G, “Competition in the Asean Countries” Ch3 The New Economic Policy, the State and CompetitionPolicy in Malaysia, 2005, at pp 94-110.
Smith, B. Thomas, “Privatizing Electric Power in Malaysia& Thailand: Politics & Infrastructure DevelopmentPolicy”, 2003.
Akhtar, A, et.al, “Development of Privatized PowerIndustry in Malaysia”, 1996.