Quote:
(Interview with Tan Sri Ani Arope, former TNB Executive Chairman)- June 6, 2006)
How was the Malaysian model of IPPs created?
Tan Sri Ani Arope: Ask our previous Prime Minister(Dr.Mahathir)
How was the process of negotiations with IPPs conducted?
Tan Sri Ani Arope: There was NO negotiation. Absolutely none. Instead of talking directly with the IPPs, TNB was sitting down with the EPU. And we were harassed, humiliated and talked down every time we went there. The EPU just gave us the terms and asked us to agree. I said no way I would.
What about the pricing and terms of the contracts?
Tan Sri Ani Arope: It was all fixed up. (They said) this is the price, this is the capacity charge and this is the number of years. They said you just take it and I refused to sign the contracts. And then, I was put out to pasture.
Why did you disagree with the terms?
Tan Sri Ani Arope: It was grossly unfair.
How were you affected by the process of awarding the IPP contracts?
Tan Sri Ani Arope: I felt sick. It was morally wrong and not fair. If it is legal and not fair, I will not do it. If it is fair and illegal, I still won’t do it. It has to be legal and fair.
We work for the consumers, workers and shareholders. TNB is morally obligated to these three, but the CONSUMERS come first, otherwise we won’t be around. It is then the workers and the shareholders
When I said that, they said ‘Dia ingat bapak dia-punya’ (He thinks this is his father’s company).
This job is an amanah (trust). You are entrusted with this responsibility and you carry it out to the best of your ability.I do not want somebody to come and urinate on my grave. In the Malay culture, that is about the worst insult they can do to a man.
(Star Biz, June, 6, 2006)
In the Anwar-Shabery Debate, Tan Sri Ani Arope's name was mentioned regarding the role of Independent Power Producers (IPP). Anwar said in the debate, Tan Sri Ani Arope resigned because he did not agree with the Government's decision on the IPPs. It was the bureaucrats in the Economic Planning Unit who forced the Government (read Mahathir's regime)'s position on Tenaga Nasional Berhad(TNB).In an interview (read below)with Star Biz (6 June, 2006), Tan Sri Ani Arope was clearly unhappy with the contracts given to the IPPs.
A former high court judge, Dato Syed Ahmad Idid, described the Penang-born Ani Arope as follows:
"Tan Sri Ani was and remains an upright person and had to suffer because he did not agree with the IPPs getting away with too much ... and consumers have to pay."The Blood-Sucking Mahathir/UMNO Cronies (IPPs)
(Read here article, "EcoMahaNomics – the warped economics" for more on Navel-Gazing Blog)
Excerpts:
INTERVIEW WITH TAN SRI ANI AROPE (JUNE 6, 2006)Malaysiakini reported the colossal amount of profits made by the Independent Power Providers (IPP) last year (2007).
In total, the 13 IPPs made RM3.37 BILLION of profit before tax (PBT) last year. On average therefore, EACH IPP makes about RM260 million of PBT last year.
It is public knowledge that some of the IPPs were awarded contracts to produce power and rewarded with power purchasing agreements with TNB since 1994. The contracts run for a period of 21 years, thus expiring in 2015.Just imagine. On the assumption of a RM200 million of PBT every year, EACH and EVERY IPP would be making RM 4,200,000,000.00 of PBT at the end of the concession period! Just count the zeros.
That is RM4.2 billion of PBT, ladies and gentlemen! And that is on the assumption of just RM200 million of PBT per year.
Just to rub salt in the already very painful wound, as reported in the same Malaysiakini report, it was disclosed in the Parliament that 10 IPPs, within the period of May 1997 to March 2008 enjoyed a total of RM35.7 million worth of GAS SUBSIDIES from Petronas.
In trying to justify the colossal amount of discounts given to the already obscene looking IPPs, (the Government) said that the subsidies did not actually benefit the IPPs but rather, they benefited the end users as electricity rate would be much higher without the discounts.
Sorry. I am feeling stupid today.If the IPPs are collectively making RM 3.37 BILLION a year, can’t they afford to pay RM 35.7 million for the gas in a period of 11 years, which coincidentally would amount to a meagre RM 3.245 million a year?
And if (the Govt's) contention is correct, why is it that electricity rates are going up instead of coming down?
The statement that the end users, namely, myself and other Malaysians are benefiting from the subsidies and from this obscene privatisation exercise is an INSULT to ALL ordinary Malaysians.
Reuters reported last year that 40% of the total electricity generation capacity was NOT USED.
Wasted Electricity
In fact, as there is no technology as yet available to store electricity, it means that 40% of the total electricity generated in Malaysia is WASTED! And that is not taking into account the power which going to be generated by the Bakun project.
Under the various power purchasing contracts between TNB and the IPPs, TNB has to purchase power from these IPPs at a certain rate. What does that mean?
Well, Reuters very succinctly put it as follows:“Since Malaysia has a glut of power capacity, Tenaga (TNB) is buying power NO ONE wants.”The same Reuters report says that as of last year, the IPPs each pay a tax of 1% of the profit.
Well, I don’t know whether this is correct but if it is correct, the obvious question would be why are the IPPs paying such LOW tax?
It looks like the IPPs have it all.
- Firstly, they produce electricity with subsidies given by Petronas.
- Then they are guaranteed of income by power purchase agreements with TNB at a certain rate.
- Then, even unused power is also guaranteed of sale by those power purchase agreements.
- Then they make billions.
- Then they only pay 1% tax on profit. As reported also, the Government had proposed to increase this tax but the proposal was opposed by the IPPs concerned.
Instead, it was also reported, the IPPs concerned had “sought a five-year extension to current pacts, and permanent licences to operate after the agreements expired."
Read that properly. They want PERMANENT licenses to operate!
Jeez, the greed of it all!
The power producers were :
- Genting Sanyen Power Sdn Bhd
- Powertek Berhad
- Segari Energy Ventures Sdn Bhd SEV 2nd
- YTL Power Generation Sdn Bhd
- Port Dickson Power Berhad
- Ranhill Powertron Sdn Bhd
- ARL Tenaga Sdn Bhd
- TNB Janamanjung Sdn Bhd
- Teknologi Tenaga Perlis Consortium Sdn Bhd
- Prai Power Sdn Bhd
- GB3 Sdn Bhd
- Tanjung Bin Sdn Bhd
EcoMaha(thir)Nomics
The privatisation of the power production happened during the administration of Dr Mahathir. This was HIS idea of good management of the economy.
If all the IPPs could make a total of RM54.2 billion PBT – and it must be remembered that this amount is AFTER deducting costs, including financial costs - (ie RM4.2 billion average PBT per IPP x 13 IPPs) at the end of the concession period of 21 years, why couldn’t TNB itself produce the power?
Why must it be privatised?
Dr Mahathir did not have to consult a super duper accountant to figure out the numbers.
Let’s just say the plant would cost RM30 billion. TNB could incorporate a subsidiary company for the purpose of constructing, commissioning and operating the plant. It can issue bonds with fixed rate certificate for say, 20 years to obtain finance.
As TNB is in a monopoly business, namely, the supply and distribution of electricity to all and sundry in the whole Malaysia, I am sure RAM can give an AAA rating to the bonds. Otherwise, the government could even guarantee the bonds.
Why so difficult? After all, the business is a monopoly and there are at least 20 million guaranteed end users!
I am dead sure TNB would be making money just as the IPPs are now making money (and continuing to make money).
We now talk about sodomy. All of us Malaysians have been sodomised to the hilt!
What do you call this? I call it EcoMahaNomics.
(From Star Biz, Read here)
WHEN the Government decided to approve the request from Tenaga Nasional Bhd (TNB) to raise electricity tariffs, the plight of the national utility took centre-stage. Naturally, the knee-jerk reaction among consumers was not favourable.
The 12% rise in tariffs appears to have re-ignited the debate on how good the going is for independent power producers (IPPs) at the cost of the national utility’s cashflow. The imbalance between the generation side of the business and that of transmission and distribution has put a strain on TNB.
To understand the privatisation of the power generation sector, one needs to take a look back in history to understand that the country's IPPs came about as a result of the Government's effort to address the issue of stable power supply after the landmark 1992 blackout.
Lending a historical perspective to the issue of IPPs is former TNB executive chairman Tan Sri Ani Arope, who headed the national utility from 1990 to 1996. It was during his tenure that the first generation IPPs were created.
STARBIZ:
What happened after the first major blackout in 1992?
Ani Arope:
TNB had plans in place to pump out more energy by building plants in Pasir Gudang and Paka. Financing was no problem and our credit standing was very high. We had the land acquired and were ready to move in and plant up.
But we were told by the Economic Planning Unit (EPU) that it had its own plans. We cautioned EPU that if those plants, which would take two years to complete, were not built, Malaysia would get another major blackout. When you have a place with 250 engineers, it does not make sense to say (the blackout) is because of poor planning. But the EPU said it had its own plans and we were told to surrender the land.
Then it surfaced that it wanted to privatise the power plants. I am not anti-IPPs per se. It is good to have other players but it has to be done fairly. It has to be fair to the consumers, not just TNB, which is a conduit. TNB, because of the electricity hike, has been treated as the whipping boy. The focus should be on the consumers.
When the generous terms were given to the IPPs, all my other peers around the world asked what was happening. They said they would like to have a share in the IPPs. They said (the contracts to IPPs) were “too darn generous.'' (The terms) were grossly one sided.
STARBIZ:
How was the Malaysian model of IPPs created?
Ani Arope:
Ask our previous Prime Minister (Dr Mahathir).
STARBIZ:
How was the process of negotiations with IPPs conducted?
Ani Arope:
There was no negotiation. Absolutely none. Instead of talking directly with the IPPs, TNB was sitting down with the EPU. And we were harassed, humiliated and talked down every time we went there. After that, my team was disappointed. The EPU just gave us the terms and asked us to agree. I said no way I would.
STARBIZ:
What about the pricing and terms of the contracts?
Ani Arope:
It was all fixed up. (They said) this is the price, this is the capacity charge and this is the number of years. They said you just take it and I refused to sign the contracts. And then, I was put out to pasture.
STARBIZ:
Why did you disagree with the terms?
Ani Arope:
It was grossly unfair. At 16 sen per unit (kWh) and with the take or pay situation, actually it was 23 sen per unit. With 23 sen, plus transmission and distribution costs, TNB would have had to charge the consumer no less than 30 sen per unit. If mixed with TNB’s cost, the cost would come down but that was at our expense because we were producing electricity at 8 sen a unit. We can deliver electricity at 17 sen per unit.
And then there is a capacity charge. Nobody produces excess electricity like Malaysia and it goes to waste because there are no batteries to store that power. TNB only needs a reserve of 15% to 20%.
STARBIZ:
TNB was producing electricity at 8 sen a unit. What should have been the right price for IPPs to sell to TNB?
Ani Arope:
Twelve sen. They could not beat our price as we had already amortised our assets. But for the new guys or even ourselves to come in then and (having) to meet interest charges and to make a small profit, it would cost 12 sen a unit.
This was what we told one IPP. The IPP agreed to it but the EPU said that unless the IPP raised its price, the contract would not be given to the IPP. So he got it for 14 sen per unit.
And then, there is the cost pass-through. If the price of fuel went up, the extra cost is passed through to us. And in other words, it is passed on to the consumer.
STARBIZ:
Under what terms would you have agreed to the IPPs being set up?
Ani Arope:
Have an independent buyer for the electricity and in one way, let TNB come in and bid for the plants. Get other people to come in. Get a commission to see (to) our needs and TNB can be one of the producers.
It is argued that the IPPs' contracts are too lucrative but there are IPPs in other countries in Africa or Asia that have better terms.
There are IPPs charging 50 to 60 US cents per unit but they use diesel. Take our own situation and compare oranges with oranges. Then it is fair. Do whatever is fair.
STARBIZ:
How were you affected by the process of awarding the IPP contracts?
Ani Arope:
I felt sick. It was morally wrong and not fair. If it is legal and not fair, I will not do it. If it is fair and illegal, I still won’t do it. It has to be legal and fair.
We work for the consumers, workers and shareholders. TNB is morally obligated to these three, but the consumers come first, otherwise we won’t be around. It is then the workers and the shareholders.
When I said that, they said ‘Dia ingat bapak dia-punya’ (He thinks this is his father’s company). This job is an amanah (trust). You are entrusted with this responsibility and you carry it out to the best of your ability. I do not want somebody to come and urinate on my grave. In the Malay culture, that is about the worst insult they can do to a man.
STARBIZ:
Do you think you did the right thing by not signing the agreements?
Ani Arope:
Absolutely.
STARBIZ:
How should a contract with the IPPs work?
Ani Arope:
In Australia, they call the IPPs and ask “what is your price''. They will pay the IPP that offers the best price. What they could have done is to throw the net wider and ask everybody (if they) are good, it would be awarded to them. But in our case, the contracts were ready-made and we were asked to sign.
STARBIZ:
What is your view on the impending renegotiation with the IPPs?
Ani Arope:
It has to be legal and fair. If we were to negotiate unfairly and illegally, the whole world will be looking at us and they will say “don’t sign anything with Malaysia because if things go against the country, the Government will void the agreement”.
We have to look at this very carefully.
But what we can do now is to say, can we bring down the capacity charge. Anything above the 15% reserve margin, we will call for bids.
The second thing is that the IPPs would have by now paid up their whole capital investments in their plants and it is all gravy (or profit) from now. Could we not bring this down a bit? Instead of paying a small amount to (a special fund), why not increase the (payment) for future planting up? In that manner, we can control the price of electricity. Otherwise, it's going to escalate.
STARBIZ:
Who in your opinion should get involved in the negotiations?
Ani Arope:
The consumers should be there. For me, you should get a very independent body. Then, you can bring in TNB, the IPPs, the consumers and Energy Commission. But these bodies and consumers should not make a judgment.
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