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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.