During the recent World Earth Day, my friend proudly announced that he was contributing towards a greener earth by sleeping without the air conditioning. His logic is that if everybody consumes less electricity, the power companies would produce less electricity, hence reduce the burning of fossil fuels which in turn reduces the amount of greenhouse gasses choking our atmosphere.

While that logic holds true in most other countries, I sadly told my friend that his efforts were in vain, because in this country, it really doesn’t matter. This isn’t me being pessimistic saying that the efforts of one individual doesn’t matter. This is me saying that in this country, it really doesn’t matter.

I have been made aware of a series of unfortunate truths of power generation in Malaysia. In 1992, there was a nationwide blackout that shut down much of the country for 48 hours. As a result of that, it was decided that there was a need to restore an adequate safety margin of capacity. This led to the birth of the Independent Power Producers (IPPs). A lot of the following information is available in the public domain:

As far as I know, under the Power Purchase Agreement (PPA) signed between TNB and the IPPs, TNB is obligated to purchase all the power produced by the IPPs, regardless of whether the national grid needs the power or not. Today, I am told, we have about a 40% reserve power in the grid while the international benchmark for reserve power typically stands at 15-25%.

Apparently, for the first generation IPPs, tariffs ranged between 13.7 to 15.5 sen per kilowatt hour (kWh). In TNB plants, their cost of generation is only about 8 sen/kWh. Higher tariffs are common when compared to other IPPs worldwide, but certainly this gap is much larger than it needs to be.

You would think that such a high generation cost is due to the rising fuel prices, but apparently it is alleged that under the lopsided terms of the PPA, the IPPs are shielded from the rising cost of fuel. The five first generation IPPs all use natural gas as their feedstock and Petronas sells gas to the IPPs at RM6.40 per million British Thermal Units (mmBTU).

That pales in comparison with the current market price of around RM35/mmBTU. Petronas has paid out RM58.2 billion in gas subsidies since 1997, out of which, RM26.7 billion has gone into the pockets of the IPPs.

In short, the IPPs are getting heavily subsidised natural gas from Petronas, while charging TNB exorbitantly high rates to produce excess electricity that we don’t even need in the first place.

There has been talk by the government and TNB that the IPPs be forced to renegotiate their PPAs, but nothing has materialised so far. It is important to note that when the PPAs were signed all those years ago, the rates were fixed for over 21 years without indexing to inflation. Because the tariff was fixed in nominal terms over time, the inflation adjusted price of power is higher in the first few years of the contract, allowing for a quick return on investment early in the project’s life cycle.

Whether it is economically feasible for the government and TNB to force a renegotiation is a different matter – forcing anybody to amend the terms of the contract is not good for investor sentiment and would drive up the price of future PPAs because of the uncertainty over their validity.

So while I am not suggesting that the IPPs be forced to renegotiate the PPAs, they could be, and should be pressured to contribute more towards the development of this nation. They have made their quick buck, and it is time to repay the communities they have been operating in.

One of the first generation IPPs can point to their major awareness campaign on climate change done recently in conjunction with World Earth Day. Is it not highly ironic that this company must have spent millions on promoting environmental awareness when they are guilty of burning precious hydrocarbons to produce excess energy that they are well aware is not required in the first place?

If these companies were sincere about wanting to minimise the effect of greenhouse gasses, it would be a good start if they voluntarily reduce their power output and produce only what is required by TNB and Malaysian consumers. Reducing wastage is surely the responsible thing to do.

In recent times, there have been cries from the rakyat as well as politicians that GLCs have not contributed enough towards the nation. When TNB increased their tariffs because they were losing money, people questioned why it was necessary for a government entity to make money, since making money was akin to ‘taking from the rakyat ’.

We currently hear in the news of the Penang chief minister saying Petronas has not done enough and is asking the national oil company to fund the second Penang bridge.

With the billions of ringgit in subsidies, it is unfair to question the contribution of GLCs alone. The recent political tsunami has shown that we have grown increasingly mature in thinking. Perhaps it is also time that the rakyat and the politicians turned their attention to all Malaysian companies, and pressure them to contribute more towards the nation and the people. And perhaps we should start with the IPPs.