KUALA LUMPUR (Dec 22): With the government’s mindset firmly set on continuing its targeted subsidy initiative, market watchers expect Putrajaya to expand the share of households that will face higher electricity tariff in the soon-to-be-announced Imbalance Cost Past-Through (ICPT) mechanism for the Jan 1 to June 30 period in 2024.
The ICPT mechanism determines rebates or surcharges based on cost savings or increases during the prior six-month period to pass through fuel generation costs to consumers. This is currently determined against the benchmark fuel cost — of US$79 per MT (coal) and RM26 per mmBTU (Tier 1 regulated gas) for the first 800 mmscfd — projected under Regulatory Period 3 (RP3) (2022-2024).
While coal and gas prices have been trending downwards from recent highs, with average coal and gas prices falling to US$111.8 per tonne and RM44.9 per mmBTU in 3Q2023, they remain elevated — higher than projected fuel prices which are used to calculate the base electricity tariff.
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In the most recent half-yearly period ICPT revision for 2H2023, the unity government embarked on doing away with blanket rebates (subsidies) enjoyed by domestic household consumers since 2021, albeit marginally.
In the period, households that consume more than 1,500kWh per month — equivalent to a monthly electricity bill of RM708 — face an additional surcharge of 10 sen per kWh for that month. This increased their bills by at least RM187 or 25%.
Only 1% of households fell under this high-consumption tier back in June, according to Nik Nazmi Nik Ahmad, formerly minister of Natural Resources, Environment and Climate Change.
Meanwhile, low-voltage non-domestic consumers — such as SMEs — saw their surcharge of 3.7 sen per kWh remain unchanged, while medium- (MV) and high-voltage (HV) users saw their surcharge reduced to 17 sen per kWh from 20 sen per kWh previously. This saw MV and HV users’ monthly bills decrease by 28% to 35%, according to Nik Nazmi.
In October, Prime Minister Datuk Seri Anwar Ibrahim said the targeted electricity subsidy helped lighten the burden on government coffers by RM4.6 billion.
Nevertheless, the government is still footing a RM16 billion subsidy bill for electricity in 2023, according to the premier.
Given the elevated fuel prices and the government’s subsidy rationalisation initiative, analysts expect the government to continue with the surcharge on high-consumption households, but with an expansion on the affected share — in other words, a lower monthly consumption threshold.
“I think it will likely be similar to the multi-tiered subsidy we’ve seen for this current period [2H2023] — tariff surcharge for high-income residential users while maintaining rebates for low-income,” said an analyst covering the sector, who wished to remain anonymous.
“It seems to go in line with Anwar’s narrative of rolling out blanket subsidies, right? So, I’m estimating something very similar to 2H2023,” they added.
As to how the government rejigs the ICPT for the coming six months — in terms of determining which consumption bands get a surcharge, a rebate, or just pay the base tariff — that will only be known when the Cabinet's decision is announced.
It was previously reported that the Cabinet had decided on the tariff adjustment for 1H2024 back on Dec 13.
The government is of the mindset that a very targeted subsidy is needed, one that gives “only to those who need help”, according to Mareena Mahpudz, a senior undersecretary of the Electricity Supply Division under the newly carved-out Ministry of Energy Transition and Public Utilities.
The division was previously under the Ministry of Natural Resources, Environment and Climate Change, which has now split into two, one being the Ministry of Energy Transition and Public Utilities under Deputy Prime Minister Datuk Seri Fadillah Yusof, and the other being the Ministry of Natural Resources and Sustainability, remaining under Nik Nazmi.