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What are you talking about, Jeff? The 5 IPPs you mentioned are gas-fired, and Petronas is the one subsidizing the consumers by charging a below-market rate of RM6.40 per million BTU. This cost is computed into the tariff that the IPPs charge TNB, so it is wrong to say that the government is subsidising the IPPs.

JEFF OOI says: And you didn't mention the fact that TNB is a Government-linked Company (GLC), through the people has a big stake? And you didn't dispute the fact that by supplying gas to the IPPs, Petronas, another huge GLC, is cross-subsidising parties who don't deserve subsidies? And you didn't argue for the People that it's THEY and not the IPPs who rightly deserve a subsidy, should subsidy continue to distort the economy? Sigh you missed the trees for the woods.

I think it should be "You missed the woods for the trees"!

JEFF OOI says: I stand corrected. My apologies.

That is why we have th OSA in Malaysia!!! I hope the Liberated States of Malaysia will do away with OSA by making public all agreements that it now possesses and will be possessing in the future.

As long as the subsidy from Petronas to the IPP is fully reflected in the price of electric power supplied by the IPP to TNB and the subsequent cost per kWatt/hr paid by the ultimate domestic consumer, I have no problems with giving a subsidy to the IPP.However the issue is with the phrase "fully reflected". There needs to be independent assessment by consumer bodies, to counter the very human trait of greed among the IPP's and business in general which operates on the basic principle "charge what the buyer will bear"

A more systemic issue is : I believe TNB guarantees to pay for a contracted amount of power whereas power demand has a fluctuating profile. Thus what happens to the "wasted power " produced by IPPs which is paid for by us, the ultimate consumers even though it is unused?

The IPP busines is lucrative as evidenced by the emergence of one of Malaysia's billionaires based on on his involvment,inter alia, with IPPS.

You are the one missing the wood from the trees. Since you have little or no knowledge of IPPs, let me enlighten you.

All IPPs have fuel pass-through mechanisms, which means that IPPs pass their actual fuel costs to TNB, who is supposed to then pass these on to the consumers. So far, there are three types of IPPs - gas-fired, oil-fired, and coal-fired. The gas-fired IPPs are within the government's control in terms of fuel costs since the supplier of gas is Petronas. The other two forms of IPPs have fuels that are beyond the government's control, so these are charged to TNB at market rates. The higher the oil price, and the higher the coal price, the higher the IPP tariffs to TNB, who will then presumably seek an increase to pass these costs to the consumer.

Now back to your posting. If your point is about IPPs being subsidised at the expense of TNB or the rakyat, then that premise is WRONG.

JEFF OOI says: Unfortunateky, you still missed the woods for the trees. You didn't argue the fact that it was EPU during Dr Mahathir's time that crafted the lopsided agreement terms in favour of the IPPs and the consumers and the taxpayers are made the suffering fools for 21 years while the agreement is in force. I strongly recommend you get a copy of ( I ) "The IPP Investment Experience in Malaysia" by Jeff Rector of Stanford University (2004); ( II ) "The Experience of Independent Power Producers in Developing Countries" by Erik J Woodhouse of Stanford University (2005), and ( III ) Rating Approach to Independent Power Producer by MARC (2006). Try to understand the relationship of the three parties -- the BN Government & EPU, the IPPs and TNB. The pass-throughs ultimately land on the consumers' laps.

Whether or not the IPPs generate electricity, their returns are already assured through fixed capacity payments.

JEFF OOI says: You just confirmed what I have explained above, Thank you for concurring with me.

For too long, the entity that is subsidising the rakyat is TNB - and that's why the share price is what it is today. That's why foreign investors are reluctant to invest in TNB shares.

JEFF OOI says: Yes and No. You just confused yourself with half-baked understanding of the big picture involved. Read the three reports I quoted again. I am helping you to learn beyond the obvious.

Hope the economic lesson helps Jeff.

JEFF OOI says: Same to you.

Jeff:

Sometimes it is better not to say things that you don't know about, or things that you only have read about, but have no firsthand knowledge of. I am writing here because I was part of the system that bred the IPPs and I was more intimately involved in the debate PRIOR to the IPPs being formed in the early 90s.

JEFF OOI says: I sympathise with you that despite your claims to be so-and-so in breeding the IPPs and yet you have little acumen about how to prevent this economic distortion from happening. Shame on you, but you have my sincere sympathy.

The foreign publications you mentioned are not erroneous, but they were wrong on one simple premise - if TNB were to be fully in charge of power generation in Bolehland, it can do better than the IPPs and that therefore the costs would be lower.

JEFF OOI says: It is people like you that Malaysians must stand up against for leading the EPU into a 21-year IPP concession that betrays public interest. It is a known fact that TNB was generating at circa 8 sen/KWh at the time when IPPs were given 15.5 sen and upwards. I beg to differ on your xenophobic brush-off of the foreign reports. No, you are wrong. Of the three reports I mentioned, only two were from foreign sources while the 3rd title from MARC was actually from Malaysia Rating Corporation Berhad of Malaysia. I expect you to professionally and rationally evaluate the eco-system of the IPPs, the utility players and the governing authorities -- from agreement crafting to investors' risk exposure to market and system efficiency -- in their intricate cob-web of relations. The current over-capacity of 40%, for example, is exactly the amount of national power generation from the IPPs in 2004. The TNB seems more a victim of IPPs than its lack of control over power generation and distribution in the country. Kill the IPPs and TNB's share will go up, is that what you said, inter-alia?

Do you know what the cost of Janamanjung (a plant wholly owned by TNB) is ? Do you know that the federal government guaranteed the foreign currency debts of Janamanjung ? Do you know why they could not privatise Janamanjung ?

JEFF OOI says: You tell if you know? I will be happy still if the JanaManjung, which I visited in 2007, generates atr around 11~12.5 sen. But you can't ignore the devil of the IPPs charging 15.5 sen and upwards (for the Top 5), not withstanding capacity charge, power charge and fluctuative pass-throughs. We can't dismantle the PPAs or else our country rating suffers. Why don't you strike up the courage to suggest these IPPs to transfer the plants to TNB or the Government at the expiry of the 21-year concession, as you know I know these IPPs largely recoup their capital investment in the first 7 years at worst.

Again, don't argue when you are purely dependent on third party reports.

JEFF OOI says: Sorry. You can continue to argue on technicalities and you know little about business management and ROI/ROE, but I will deal with the IPPs, the lop-sided PPAs, and the raw deals they strike on TNB, the Government and ULTIMATELY, the end users. Petronas subsidies and cross-subsidies had gone to the wrong recipient, the IPPs, not the TNB and certainly not the public at large. I buy the services of consultants and I discuss with seniors in the industry. That's the power I get when people recognise my earnest drive to understand the intricacies that plagued national economy. Is it any wonder that EPU is now equated to Economic Plundering Unit of the power-that-be?

WilliamL say
"Again, don't argue when you are purely dependent on third party reports."

Wow!!!! I roll my eye.

When Enron busted with billions dollar lost, it is DEFINITELY NOT the FIRST party, the collapsed Andersen consulting that tell the truth.

I bet Mr WilliamL hates external auditors : 3rd party.

Wow, Janamanjung generates at 11 - 12.5 sen/kWh while TNB's generation cost at the time of the first generation IPPs was 8 sen/kWh. Wonder if you know where these numbers come from, and how they were computed.

JEFF OOI says: It's for me to know and for you to find out.

Let me tell you that I am an Opposition supporter, but unlike you - now an MP - I don't support blindly.

JEFF OOI says: This is the familiar tune we hear nowadays, but not during the 22 years of Mahathir or 4 years of Abdullah. So, I can;t expect more.

There are two sides to every story which you neglect before you became an MP, so I don't expect you to change now that you have your bosses' interests to worry about.

JEFF OOI says: You lost the plot.

Fairness is not in your blood, judging by your bashing of people like Harry Lee and of locations like Changi airport.

As an MP you need to grow up. You are no longer just a blogger.

JEFF OOI says: Not that you can't take criticism. You just lost the plot.

You should just examine your write-up. You said "fuel subsidies to the IPPs...". There is no such thing as fuel subsidies to the IPPs because these are pure pass-throughs i.e. the IPPs don't make money from fuel costs and revenues. If you are saying that the IPPs make money, it is because the capacity payments - nothing to do with fuel - may have been too high. These were designed to benefit Mahathir cronies, and I won't deny that.

For the sake of argument, let's say TNB builds a power plant like Janamanjung and borrows entirely in Yen through JBIC, the Japanese export-import bank. [In the real situation, TNB borrowed from the export credit agencies of France and Germany in swiss francs and deutschemarks.] Now, export credit agencies don't take project risks, so they require the express guarantee of the federal government. How much is the guarantee worth ? In TNB's case, federal government guarantees have no cost.

Now to carry this hypothetical scenario further. Yen borrowing costs are at near zero, so the Yen loan could only be at 1 or 2 pct p.a. Compare this with RM loans or PDS at 8 - 10 pct p.a. Does TNB tell you that their Yen loan carry significant FX risk (due to the mismatch between their RM revenues and their debt obligations) ? No, they tell you that their interest cost is only 1 - 2 pct and that therefore their cost of generation is only 8 sen/kWh.

Mahathir was right to push for IPPs post the blackout of 1991, but in his haste to give the opportunities to his cronies, his execution left a lot to be desired.

If PR doesn't want my support, financially and spiritually, then I have no problems in going away. We need to be fair in whatever we do, and the lack of fairness in the past is no excuse to perpetuate the unfairness today.

Another thing - all IPPs have guaranteed availabilities, which means that each power plant gives an assurance of how many hours it can run in a year. Failure to meet this minimum availability results in financial penalties. Cheating (as in mis-declaring availabilities) also results in retroactive financial penalties. This mechanism is not applied to TNB. If there is a blackout - and blackouts are becoming more common nowadays - all TNB does is to apologise or, in many instances, maintain a stony silence.

Comparing apples with oranges, Jeff ?

Hey Jeff,

You should really talk better to William. You are an opp MP, yet you sound like a BN MP who argues and argues.

William has valid points. So do you, but other than complaining what can be done about it? It's gov't gauraunteed. You proposing to break contract? If you won't go there, stop complaining and complaining. Breaking gov't contracts really impedes on investor's confidence.

JEFF OOI says: That's the trouble with you guys who read in haste and let the grey matter reign. Hadn't I said wrecking the contracts mid way damages our sovereign ratings? What needs to be done after the 21-year PPA is up/ You have no clue but we, yes we, have one. Share your ideas out of the box, don't just rabble without a cause, will you?

If you aren't willing to go there, then stop wasting time and concentrate on new ideas that will benefit the people.

JEFF OOI says: Gee, rhetorics again?

Where's my posting of this morning in riposte to yours, Jeff ? Got no answers ?

These angry responses of yours whenever someone - even a supporter - who doesn't share your views on a narrow subject is simply uncalled for. Not a sign of maturity.

Remember, Jeff, in this world, there are always people better than you and worse than you. You should never be vain or bitter simply because of this fact. This is a friendly advice from someone who designed the original PPA structure and contract not just in Bolehland, but in several other countries.

The contracts with the gen-zero IPPs were lopsided. The newer IPPs formula are much better, and protects the govt and the rakyat better than those generation-zero and first generation IPPs (they don't have the guarantees).

The question to be asked is why did the govt during Dr M's era sign up to such contracts??