News Coverage

Date: 
19-11-2015
Foreign Control More Good Than Harm, Say Analysts
Foreign Control More Good Than Harm, Say Analysts
Source: 
Bernama
Author: 
Azlina Aziz
Category: 

KUALA LUMPUR, Nov 19 (Bernama) -- Foreign control of utility companies can be good for the industry as well as serve the national interest, say energy analysts and observers.

They noted recent concerns raised by some quarters on the speculated sale of power assets to foreign investors and felt such concerns did not consider the reality of the industry.

A researcher told Bernama, "The energy business is never as free as the operators may want it to be due to strong control mechanism, licensing and multiple regulatory bodies, including the Ministry of Energy, Green Technology and Water and Energy Commission."

For instance, he said, tariffs for the existing Independent Power Producers (IPPs) are fixed under the long-term Power Purchase Agreement (PPA) for the life of the PPA, and any revision to these tariffs will require the consent of EC and Tenaga Nasional Bhd (TNB).

He pointed out that there is also the primary fuel supply for the power plants which must be sourced from government-linked or controlled entities.

Currently, TNB controls coal supply and Petronas supplies gas.

"Gone are the years when a particular IPP could dictate 'take or pay' on TNB. Today TNB, which has total control of the National Grid, calls the shots. TNB will buy what it needs and not whatever IPPs produce," he said.

He stressed that TNB has full control over IPPs, foreign or local, because under the PPA, TNB could step in to take over the operations of a plant in the event of contract breaches.

Asked if foreign companies could use lower cost structure (from economies of scale) to undermine local operators, he said they must first have a huge market share in terms of capacity and fuel usage.

In the case of Edra Global Energy Bhd, which is now up for sale, its effective share of installed generating capacity in Peninsular Malaysia is only 14.6 per cent, significantly behind market giants TNB (50 per cent) and Malakoff Corporation Bhd (25 per cent).

For fuel share in Peninsular Malaysia, Edra utilises around 17 per cent for total gas-fired capacity and approximately 15 per cent effective share of total coal-fired capacity. And it has no hydro plants.

"With such a marginal share, Edra poses little threat on all fronts, especially in view of TNB's dominant and unique market position across all three segments of fuel supply, generation and transmission, its robust financial strength (total assets of more than RM110 billion) and familiarity with the local IPP industry," he said.

He also allayed fears that Malaysians would lose their jobs, saying there is no evidence to suggest that foreign companies would bring in foreign workers to replace Malaysians.

The Malaysia Investment Report by the Malaysian Investment Development Authority (MIDA) states Malaysia had approved investments of up to RM235.9 billion in 2014 which could potentially create about 178,360 job opportunities.

Foreign investments formed 27.4 per cent of the total investments (RM64.6 billion).

It is notable that many countries, including Singapore, Australia, Indonesia and the United Kingdom (UK), permit 100 per cent foreign ownership of power generation plants.

Hong Leong Investment Bank Research's energy analyst Daniel Wong was reported to conclude that even if the assets were sold to foreign companies, TNB would still remain a defensive stock and its role in the transmission of the nation's electricity would not be jeopardised.

Economist Professor Dr Hoo Ke Ping recently said giving the country's energy sector to foreign countries would open the sector to shielded growth.

"Giving the IPPs to foreign control means that we are allowing foreign investment into the country. Without foreign investment, it is not easy for the country to achieve growth," he said.

Stressing that the world is globalising and opening up, Hoo said the country had also been opening up to the global market ever since the government agreed to the Asean Free Trade Area (AFTA) in 1992.

-- BERNAMA