Will we pay more for power every six months or not?

OVERVIEW We try to decipher the verbosity of government leaders on the electricity tariff hike - and what it may portend for citizens.

Following the hike in electricity tariff and gas price announced on Monday, government leaders have given mixed responses the possibility of an electricity rate hike every six months.

Malaysiakini traces their statements and tries to decipher what these mean to the rakyat.

What they have said, so far...

On May 30, Energy, Green Technology and Water Minister Peter Chin and Minister in the Prime Minister's Department Nor Mohamed Yakcop called a press conference in Putrajaya and announced a 7.12 percent hike in the electricity tariff and a higher price for Petronas natural gas for the power and industrial sectors, from RM10.70 per mmBtu to RM13.70 from, June 1.

The gas price will then be increased by RM3 per mmBtu every six months until December 2015, before it is allowed to float with the market level from 2016.

Nor Mohamed said the increase in gas price was to address market distortions and to gradually reduce the government subsidy.

Chin announced that the government would adopt a 'Fuel Cost Pass-Through' (FCPT) mechanism that would determine electricity tariff rates in the future.

"The quantum of fuel cost (sen/kW unit) that will be passed to the consumers will be calculated according to the real cost of fuels, the gas and coal, that will be used for power generation for a period of six months."

The same day, Tenaga Nasional Bhd (TNB) chief executive officer Che Khalib Mohamad Noh told another press conference in Kuala Lumpur that the FCPT means consumers will have to absorb the cost.

"The government will also introduce a FCPT mechanism for the power sector. Under the FCPT, the fuel cost will be reviewed every six months.

"Any changes, upward or downward, in the fuel cost due to the fluctuation in fuel prices, namely gas, coal and fuel, will be passed to the end users' tariff," Khalib said.

What does this mean?

Under the FCPT, any change in gas price will not be borne by power producers, including the independent power producers (IPPs), but will be transferred directly to the consumers' electricity bill.

Reading Chin and Khalib's statements together, it is clear that when Petronas increases its gas price as scheduled on Jan 1, 2012 by RM3 per mmBtu, it will be followed by a hike in electricity rate.

However, all the ministers have denied that there will be an increase.

What did they say?

"Fuel is a pass-through element, so it does not mean that if there is a future revision of the gas price, the electricity tariff will be automatically reviewed," said Chin.

When the same question was posed to Khalib, he said any increase in electricity tariff would still be bound by government approval.

The next day, Chin reiterated that there would be no scheduled increase in electricity tariffs because the plan was only to review the gas price under the FCPT mechanism every six months.

"Then only we will decide on whether we should increase the tariffs or not."

He explained that any subsequent increase in gas prices will not affect TNB because the increase would be absorbed by Petronas.

"The price right now is RM13.70 per mmBtu. Six months later it will increase by another RM3 to RM16.70, but our electricity sector will still buy it at RM13.70."

Also the same day, Prime Minister Najib Abdul Razak concurred with Chin, saying Petronas would forgo part of its revenue by selling natural gas below the market rate to power producers who would sell power at a cheaper rate.

"In other words, it goes straight to consumers... it is a pass-through tariff, so nobody benefits."

On the scheduled increase in electricity tariff, Najib gave the same answer: "We will monitor, but the final decision lies with the government."

What does all this mean?

In a report last July, Singapore daily Straits Times, citing official Petronas data, said about 56 percent of the gas supply in the peninsula goes to the power sector.

Therefore, if Petronas is to absorb the scheduled RM3 per mmBtu rise in gas price in order to prevent another electricity tariff hike, the government would only save less than half (44 percent) of its subsidy, compared with what has been planned.

In fact, the subsidy rationalisation proposal unveiled by Pemandu in May last year suggested that the gas price be increased by RM3 per mmBtu and followed by an electricity tariff hike of 1.6sen per kW unit every six months.

Should the government reject the Pemandu proposal to raise the electricity tariff rate on Jan 1, 2012 and continue to subsidise the 56 percent gas supply to the power sector, the whole purpose of eliminating market distortion and reducing subsidy, as stated by Nor Mohamed, would be defeated.

Or, are the promises by government leaders that electricity tariffs will not follow the gas price hike just a gimmick to prevent a backlash during the next general election - which is speculated to be called in the second half of this year?