An increase in electricity tariffs at a whopping of 12 percent will take effect from June 1, the government announced today.

An electricity price increase will be unpopular with Malaysians, who objected strenuously to steep fuel price hikes in recent months.

Utility giant Tenaga Nasional said that consumers whose monthly electricity bills were less than RM43 - or no more than 200kw - would not be affected by the new tariff structure.

According to Prime Minister Abdullah Ahmad Badawi, 60 percent of domestic users will not be affected by the tariff hike.

The hike, the first increase since the Asian financial crisis nine years ago, was triggered by rising fuel costs.

Energy, Water and Communications Minister Lim Keng Yaik said the decision would boost Tenaga's annual revenues by RM1.5 billion and allow it to upgrade its infrastructure.

"This new graduated tariff structure is in line with the government's policy on efficient utilisation of our energy resources. Therefore it will encourage consumers to use energy more efficiently by being less wasteful," he said.

"The government had considered the rising costs and the need for (Tenaga) to re-invest in ageing supply equipment in the light of increasing demand and the changing socio-economic environment in Malaysia," he told a press conference.

Lim said Tenaga had originally proposed a 20 percent across-the-board increase but it was whittled down on a sliding scale so that 60 percent of households with only small electricity needs will not be affected.

The government has been under pressure to allow energy prices to rise as Tenaga has operated under difficult conditions since the 1997 Asian financial crisis which increased its borrowing costs.

Fourth biggest company

Tenaga, Malaysia's fourth-biggest company in market value terms, has not increased prices since 1997 despite spiralling costs. Lim said the price of coal and oil had jumped 69 percent and 244 percent respectively since then.

The government has said that it faced a dilemma in juggling consumer concerns and demands from Tenaga, as well as Petronas, the national oil and gas company which supplies gas at subsidised rates to power Tenaga's generators.

"With the new tariff structure, (Tenaga) will be in a better position to re-invest in existing infrastructure from 2006 to 2010 in order to improve reliability and quality of supply in core areas," Lim said.

"(Tenaga) is expected to invest an estimated RM40 billion for upgrading and improving the electricity supply system over the next five years."

Shares in Tenaga, which have surged on anticipation of the announcement, were halted from trading on the Malaysian exchange today. They rose 15 sen or 1.8 percent to RM8.65 before the halt.

The price hike is strongly opposed by the opposition which has said it will worsen the already high inflation rate and is aimed only at guaranteeing the profits of privately-owned power producers.

The government has proceeded cautiously on the issue after a furore over recent steep rises in petrol and diesel prices.