PRESS RELEASE
Date: 01 APRIL 2020 (WEDNESDAY)

COMMENTS ON PRIHATIN ECONOMIC STIMULUS PACKAGE

Association of Water and Energy Research Malaysia (AWER) would like to thank the Federal Government in focusing the assistance from PRIHATIN Economic Stimulus Package to M40 and B40 groups’ welfare. Due to the magnitude of Covid-19 impact to the global economy and the slump in crude oil market, we would like to urge the Federal Government to prepare for a worst case scenario. AWER’s primary objective is to ensure Malaysia is able to stabilise our key economic enabler sector such as water and energy to ensure we are prepared for a turbulent economy in 2020 and 2021.

1. Kumpulan Wang Industri Elektrik (KWIE)
KWIE fund is generated from saving in fuel cost, capacity payments and recovery of revenue from Tenaga Nasional Berhad (TNB) when TNB generates more revenue from regulated cap set by Energy Commission. KWIE fund belongs to the people and the business sector. The recent discount given in electricity tariff comprises of KWIE fund, contribution from TNB and government. Due to current Movement Control Order (MCO), TNB will face drop in revenue collection that may impact funds channeled to KWIE for 2020. If our predictions are correct, the drop in crude oil prices will all rally a drop in coal and natural gas prices. This fuel price rally will add more funds to KWIE when fuel cost drops below benchmarked prices of fuel set in electricity tariff review. The Federal Government and ministry in charge must be prudent in utilisation of KWIE funds so that this fund can continue to play a cost dampening role in electricity tariff for 2020 and 2021.

2. Energy Price Stabilisation Fund
AWER has been proposing establishment of Energy Price Stabilisation Fund for many years now. Energy resources price are volatile and can be subject to cartel as Malaysia also depends on energy resource import. In addition to that, currency volatility will also be a major factor that affects affordable energy resource supply. Therefore, it is vital for Malaysia to establish Energy Price Stabilisation Fund to assist consumers to absorb sudden shocks in energy resources price. This fund is not a form of subsidy and it is auto generated from the retail prices of energy resources via modelling of historic data and forecast.

It is used only to cushion the sudden impact of fuel price volatility in international market. The current market price used in Malaysia will be coupled with upper limit cost and lower limit cost. When the limit is breached, the market price is moved to a new level with new upper limit and lower limit. The gap between limits is derived from historical data on the worst-case-scenario price fluctuation on different type of energy resources. The fund's size is based on ability to sustain a few fold of worst-case-scenario price fluctuation.

3. Drop In Crude Oil Price and Future Pricing of Coal and Natural gas
If coal and natural gas price can continue the trend of slump in crude oil, there is a positive part for this in Malaysia. Key issue here is that we need to put effort so that Ringgit remains strong. More than 50% energy mix for electricity is using coal and we purchase it using US Dollars. The government must also venture into spot LNG (Liquefied Natural Gas) market to reduce natural gas prices for electricity and manufacturing sector. This will be able to boost our economy by reducing cost of doing business. The government must develop workable mechanism to adopt this as soon as possible.

4. Treated Water Tariff Adjustment Must Be Postponed To 2021
AWER would also like the government to postpone implementation of water tariff adjustment for six treated water licensees (water operator). The government must also cancel the “cost plus” mechanism used by Suruhanjaya Perkhidmatan Air Negara (SPAN) to set tariff as this mechanism does not remove inefficiencies in the operations and just adds a regulated profit margin on top of the proposed cost. The correct mechanism that must be used is the benchmarking mechanism as agreed in 2009. Input cost benchmarking where similar operations’ input cost will be benchmarked to the lowest efficient cost and operators who operate higher than the benchmarked cost will not be allowed to pass through the inefficient cost to the water tariff. In 2020, SPAN should be directed to use cost benchmarking method to review tariff. This will allow a transparent and efficient cost to be passed to tariff. Due to our suggestion to postpone water tariff adjustment, Ministry of Finance must also ensure that Pengurusan Aset Air Berhad (PAAB) is able to service existing bonds and any new bonds issued must also be government guaranteed bonds to ensure least cost pass through to the water tariff.

5. Conclusion
These are the few issues we would like to highlight to the government to further enhance PRIHATIN Economic Stimulus Package to optimise positive impact to our nation’s economy. Upon completion of curbing the spread of Covid-19, we need to be prepared to hit the ground running!

Piarapakaran S.
President
Association of Water and Energy Research Malaysia (AWER)