Years of cheap power depleting Malaysia’s gas wells

By The Malaysian Insider

KUALA LUMPUR, July 22 — Malaysia is set to become a nett gas importer in five years, no thanks to a profligate subsidy policy where Petronas has been subsidising independent power producers (IPPs) by RM116.4 billion since 1997, a report said today.

The Singapore Straits Times report blamed soaring domestic demand for cheap gas — fuelled by a “financially costly gas subsidy” — as the cause of a looming gas crisis that will turn Malaysia, a key gas producer in Asia, into a nett importer.

This costly subsidy policy largely benefits the power sector “which takes up more than half of Malaysia’s gas supply at below market prices because of the country’s subsidy policy,” the report added.

“According to industry executives and Petronas official data, about 56 per cent of the gas supply in Peninsular Malaysia goes to its power sector, and of that amount, more than 55 per cent is taken up by independent power producers, which have been buying the gas at a subsidised rate since 1997,” it said.

The report also said the discounted fixed rate was extended to the industrial sector in October 2002 to spur economic activity.

Last year alone, Petronas incurred a gas subsidy bill of RM18.9 billion. Only six per cent of the country’s gas is sold to Singapore.

Industry analysts have often said the subsidy policy leads to the “inefficient use of a depleting resource, [has] made the Malaysian economy less competitive and diverted funds that could have gone towards scouring for more reserves.”

It is believed the government is studying ways to solve the looming crisis, “including the gradual dismantling of subsidies and removal of import restrictions.

“It is also considering removing Petronas’ monopoly over the market and opening up the use of the national gas transmission network to new players,” the report added.

While the government cut subsidies on sugar, cooking gas, petrol and diesel last week — a move it said will save RM750 million annually — gas subsidies were spared.

But Pakatan Rakyat has said the Barisan Nasional government should re-look the subsidies for the IPPs rather than burden the people.

At the heart of the debate is whether the country’s sole power utility, Tenaga Nasional Berhad, can re-negotiate terms and conditions of buying power from the IPPs.