&8672',$162)32:(5M · 2018. 1. 8. · 6XUXKDQMD\D7HQDJD0DODYADQG (QHUJ\6HFXULW\A &8672',$162)32:(5M Headline CUSTODIANS OF POWER MediaTitle International Business Review Date 30 Sep

$Page 1: &8672',$162)32:(5M · 2018. 1. 8. · 6XUXKDQMD\D7HQDJD0DODYADQG (QHUJ\6HFXULW\A &8672',$162)32:(5M Headline CUSTODIANS OF POWER MediaTitle International Business Review Date 30 Sep$
Suruhanjaya Tenaga MalavândEnergy Security ^

CUSTODIANS OF POWERj

Headline CUSTODIANS OF POWERMediaTitle International Business ReviewDate 30 Sep 2013 Color Full ColorSection NEWS Circulation 14,078Page No 32 to 40 Readership 80,800Language English ArticleSize 3807 cm²Journalist N/A AdValue RM 51,796Frequency Monthly PR Value RM 155,388

Established on the 1st of May 2001 under the EnergyCommission Act 2001 and made fully operational on the1st of January 2002, Suruhanjaya Tenaga Malaysia (ST The Energy Commission of Malaysia) is the statutorybody entrusted with the regulation of the energy sector inPeninsular Malaysia and Sabah. It was the result of theMalaysian governments realisation that the demands ofan emerging economy required the performance of theenergy supply industry to be enhanced.

ST has the responsibility ofensuring the secure, reliable, safe,adequate and reasonably pricedsupply of electricity and piped gas toconsumers. In addition, it also aims in line with the government's drive to improve efficiency and quality inutility (namely energy) service andincrease private sector participationin infrastructure development.

At the helm are its Chairman andits CEO who are Tan Sri Dr Ahmad

Tajuddin Ali and Datuk Ir AhmadFauzi Hasan respectively. Speakingto International Business Review, TanSri Dr Ahmad explained that bothhe and Datuk Ir Ahmad Fauzi were

appointed to their positions at thesame time in April 2010. Previously,the Commission was headed byan Executive Chairman who had

the responsibility of chairing theBoard of Commissioners and also

overseeing the daily operations of ST.According to the Chairman, it

was the then Minister of Energy,Green Technology and Water TanSri Peter Chin, who offered himthe opportunity to lead the Energy

Commission. Speaking on his roleas the NonExecutive Chairman of

ST, Tan Sri Dr Ahmad said, "I havebeen an executive chairman before,and during meetings everyone waswaiting for me to talk first becauseI was the one leading from the front.As a nonexecutive chairman, myrole is more advisory. Therefore inBoard meetings, I invite everyone tospeak first and then I summarise thepoints made and give my input."

Input that is definitely inspired,just as Tan Sri Dr Ahmad was aninspired choice for the role of theNonExecutive Chairman of the

Energy Commission, bringing to thetable vast experience, in particularhis past tenure as the ExecutiveChairman of the country's largestutility Tenaga Nasional (TNB). Hewas, after all, the man who wascalled in to revive TNB's reputationafter it took a hit following the 1996National Blackout.

He also holds other positions,most notably as the Chairmanof the Malaysian Standards andAccreditation Council, Joint

rA GOOD DYNAMIC

Previous page:Tan Sri Dr AhmadTajuddin Ali's experience in the energysector as well as his involvement in thefield of sciences and innovation madehim the ideal choice to be Chairman of

the Energy Commission of Malaysia.

Chairman (Industry) of the MalaysianIndustryGovernment Group forHigh Technology (MIGHT), andPresident of the Academy of Sciences,Malaysia. These appointments havegiven him invaluable experiencewhich has been key in helping theCommission realise its goals.

It is the Board that determinesthe overall direction of ST and the

energy sector, after consultationswith stakeholders, in particularthe Ministry of Energy, GreenTechnology and Water (KeTTHA).The duty of executing these planshowever falls on the shoulders of

the CEO, together with and his teamwhich comprises six departmentsand nine regional offices.

Thus the Chairman is of the strongopinion that transparency is a must inthe relationship between them. As hetold International Business Review,"I need him (Datuk Ir Dr AhmadFauzi) to be open with me and to tellme if a plan is not viable, because hewill best know the situation on the

ground. Because of this dynamic, wework well together to ensure that theST achieves its goals."

One of these goals is to enhanceMalaysia's energy security. As thecountry is a developing economywith the ambition of becoming a


ÎncentiveBased Regulation has been usedto great effect internationally, and works byfocusing on projections of future earningsby the utility. It looks at efficient operating

expenditure, depreciation of assets, return onfunds invested, and tax payable. ^

Datuk Ir Dr Ahmad Fauzi Hasan,

CEO The Energy Commission of Malaysia

fully industrialised nation by theyear 2020, power consumption hasbeen on the rise. To illustrate, in 2011,electricity demand stood at 107,331gigawatt hours (GWh), comparedto 104,519 GWh in 2010, 96,302 in2009, and 92,815 in 2008.

ÂCHIEVING BALANCEAs Malaysia's economy and

industry is on a forward momentum,the last thing it needs is to hit aspeed bump along the way, and thiswill happen if the energy supply isunable to meet demand. In addition,

other factors such as costs

including import, production andto the consumersneed to be takeninto account.

It is ST that needs to juggle thisrather precarious situation. As Tan SriDr Ahmad Tajuddin Ali explained,the Energy Commission needs becognisant of several factors. For onething, the two largest fuel sources forelectricity in Malaysia are coal andgas (accounting for 33% and 58%respectively). Since Malaysia doesnot have an indigenous coal supply,it has to import it from Indonesiaand Australia, and be subjectedto the risk of price hikes in thecommodities market.

As for gas, Tan Sri Dr Ahmadrevealed that despite Malaysia beinga net exporter, Peninsular Malaysiaalso imports about 30% of its naturalgas. This is piped in from offshore andthen mixed with locally producedgas. Of course, at the end of the day,the consumers are none the wiser as

they still enjoy subsidised prices fornatural gas. However, it still costs toimport. In fact, the country startedto import liquefied natural gas orLNG in May this year to meet aburgeoning demand for gas.

The ST Chairman admits that the

current system of subsidising oil andgas is resulting in the country losingmoney as it pays market price for thefuel and then sells it at a discount. He

believes though, that there is a biggerpicture that needs to be looked at.

Owing to the subsidies, Malaysiais able to offer one of the lowest

electricity tariffs in the region.This in turn has helped attractinvestors to start operations in thecountry. In addition, local SMEsare also dependent on the low costsof electricity to maintain theirbusiness, and without it, many willsurely suffer, if not close down.Therefore, at present, the subsidies


SAIDI (SYSTEM AVERAGE INTERRUPTION DURATION INDEX)FOR PENINSULAR MALAYSIA 2011 AND 2012

The chart shows the System Average Interruption Duration Index (SAIDI) for Peninsular Malaysia for 2011 and 2012, which is acalculation of the average outage duration per customer. As can be seen, the monthly SAIDI for 2012 has been lower in general

than for 2011, which translates to more efficient power supply for consumers.

S 50 . . . . . ........ Bl§ 11» 40 . .| 30 II

II10 IIo BB Bb BB BB BB BB IB BB BB BB »B GB II

7.22 4.67 6.95 4.18 6.76 6.31 6.89 5.41 6.33 4.65 4.42 4.94 5.57 4.65 5.29 3.90 5.38 5.57 5.84 4.99 4.27 4.87 4.19 6.32 69.1160.46

JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC TOTAL(JAN DEC)

10 2011 B 2012 Source: SuruhanjayaTenag

INCENTIVEBASED REGULATION TIMELINE FOR ELECTRICITY TARIFF SETTING

This diagram shows the timeline for IncentiveBased Regulation (IBR) for the electricity industry in Malaysia which is being introducedin the setting of electricity tariffs in Peninsular Malaysia; IBR is one method in the determination of electricity tariffs and gas and is used

effectively in international economic regulation.

Commission to issue final TNB to prepare its Commission to assess ibr First regulatoryRegulatory Implementation submission covering TNB's proposal implementation period of full IBRGuidelines to TNB with 4 years and prepare review

the Revenue (Sept 2013Aug 2017) recommendationsRequirement Model | Approval by the'| Government for IBR

Â^ implementation fA^2012 Feb Mar Jun Jul Oct Nov 2013 April MayJun July 2014 July Sept Dec 20VT#>+#I' '1 '1 I | '1

TNB to develop Commission to TNB to submit full Stakeholders Imbalance cost pass TNB to submitproposed service release final submission to the consultation through mechanism actual data basedstandards and decision on service Commission and process for review for every on the proposed

targets in accordance standards government's 6 months submission forwith RIG 6 approval ST's review

Completed1. Issuance of 11 RIGs 4. Full submission of IBR proposal to ST by TNB2. FuelCost Pass Through recommendations for Dec 2011May 2012 5. Weighted Average Cost of Capital Discussion with TNB3. Issuance of TNB Key Performance Targets for Incentive Framework 6. ST Board approved the regulatory WACC


For instance, renewable energy(RE) is still relatively new. Whilethere has been a push to encouragethe development of RE in the country,the ST Chairman acknowledgesthat even if the goal of having REaccount for 5.5% of energy supplyby 2015 is reached, the remainderwill still need to be accounted for.

Aside from regulating the electricity industry,The EnergyCommission is also responsible for overseeing piped gat

supply in Peninsular Malaysia and Sabah.This map shows the^ gas supply pipeline in the Peninsula

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without having to resort to hikingtariffs as this will prove untenable tothe economy. When asked about thepossibility of looking at alternativefuel sources, Tan Sri Dr Ahmadexplained that the reality of thesituation is that coal and gas will stillbe dominant, owing to drawbacks ofthe other fuel sources.

have to be regarded as necessary forthe economy to grow. Nevertheless,they also add to the cost of powerproduction.

rWEIGHING THE OPTIONSIt falls on the Energy

Commission's shoulders to come

up with ways to mitigate the cost


Deputy Prime MinisterTan Sri MuhyiddinYassin (standing inthe centre) posing for a group picture during the launchingof the Diamond Building in Putrajaya. On his right is thenMinister of Energy, GreenTechnology and WaterTan Sri PeterChin, while on his left is ST ChairmanTan Sri Dr AhmadTaiuddin Ali.

^3 Follow us on wwwjnternationalbusinessreview.net 37

Hydropower is also not feasibleowing to geographical limitations.

Then there is the nuclear option.Malaysia was reportedly lookingat building a nuclear power plant.However, the meltdown of theFukushima station in Japan in 2011put a hiatus to such plans. The benefitsof nuclear power cannot be denied uranium is less polluting than fossilfuels and provides greater energy.Even so, nuclear power is a highlyemotive issue, and as Tan Sri DrAhmad highlighted, the governmenthas to take the reaction of the publicinto account. Therefore, at present,it seems like nuclear power is anogo area.

Incidentally, Tan Sri Dr AhmadTajuddin Ali has the distinctionof being one of Malaysia's first

manufacturers, and of course tomembers of the public.

He clarified that this ruling wasgazetted on the 3rd of May 2013,and fully enforced one gazette, allmanufacturers and importers of thefive appliances have to complywith certain requirements inorder to obtain the Certificate of

Approval (CoA) from the EnergyCommission before they can beimported, produced, marketed andsold in the country," Datuk IrAhmad Fauzi explained. "Theappliances are required to obtain atleast two stars on ST's Energy Labeland failure to comply with MEPSmay cause those appliances to beremoved from the market."

In addition, ST also organisedthe first National Energy Security

nuclear engineers, having receivedhis doctorate in 1977. He revealed

that he pursued such an unusual (atits time) discipline because evenback then, Malaysia was alreadyconsidering going nuclear. However,significant oil and gas reserves werelater discovered and the nuclear

option was shelved.

rWORKING FOR EFFICIENCYThe reality is that coal and oil

will at least for the foreseeable

future make up the largest shareof Malaysia's energy mix. In lightof this, the focus is on increasingenergy efficiency where the outputis maximised while costs are

minimised. ST is taking the leadin promoting energy efficiencyto power producers, electrical


Conference (NESC) in February2012. This was a oneday conferencethemed 'Closing the Energy SupplyDemand Gap' and it reflected theCommission's commitment to

improving energy security in thecountry, inviting 14 speakers fromreputable international organisationsand local energy sector to share theirviews on this issue.

Also, in order to better disseminateinformation regarding the country'senergy sector, ST has also set upand manages the Malaysia EnergyInformation Hub (MEIH). Explainingit, the ST CEO said, "MEIH is aportal that collates information onMalaysia's energy planning, pricing,and other relevant data, and makesit available to stakeholders in the

public and private sectors, as wellas members of the public. Throughthis endeavour, people will be ableto have a greater appreciation of thechallenges ahead."

^BOOSTING MARKETPRESENCE

Another initiative which is in

the process of being introduced

Solar panels installed on the roof of theEnergy Commission's headquarters allowit to save on energy costs as it produces its

own electricity.


is the Incentive Based Regulation(IBR) scheme, which will beimplemented in January 2014.Elaborating further, CEO Datuk IrAhmad Fauzi said that at present thetariffs are determined according toa number of criteria. These include

the government's energy policies,the prices of fuel gas and coal, andthe cost of energy purchase by theutility (namely TNB in PeninsularMalaysia and Sabah Electricity inSabah) from independent powerproducers (IPPs). In addition,other factors that are taken intoconsideration are the cost of

supply to consumers which covertransmission and distribution

infrastructure expenses.All in all, the aim is to give a

reasonable rate of return to the

utility company, while at the sametime ensure that electricity pricesare not too prohibitive as to stiflegrowth or hinder the socioeconomicwellbeing of consumers.According to the ST CEO,

"IBR has been used to great effectinternationally, and works byfocusing on projections of futureearnings by the utility, which arecalculated by looking at efficientoperating expenditure, depreciationof assets, return on funds invested,and tax payable." Also, under theIBR is the Fuel Cost Pass Throughmechanism, which will allow forthe revision of electricity tariffsdepending on the price of feedstockand foreign exchange fluctuations.

For Datuk Ir Ahmad Fauzi,"The required income must alsobe commensurate with the level of

services offered and that users get areliable supply at a reasonable cost."Also, there should be no worrythat electricity tariffs will shoot upimmediately, as ST will still ensurethat the needs of the public arenot ignored.

^1 need the CEO tobe open with meand to tell me if aplan is not viable,because he willbest know thesituation on theground. Becauseof this dynamic,we work welltogether to

ensure that theST achieves

its goals. ^

Furthermore, utilities such asTNB are given incentives to reducecost. In addition, the IBR aims tocreate a more conducive environment

for private sector players in theenergy industry. This, ST believes,will help beef up energy security asmore providers join the field.

As it is tasked with promotingenergy efficiency, it is only aptthat the Energy Commission bea model for it. This can be seen in

its headquarters located in theMalaysian Federal administrativeregion of Putrajaya which is themost energy efficient building inMalaysia and Singapore, and hasbeen rated Platinum on the Green

Building Index (GBI).

Tan Sri Dr Ahmad Tajuddin Ali,Chairman, The Energy

Commission of Malaysia

rLOOKING ATTHE LONG TERM

Ultimately, Tan Sri Dr Ahmadrealises that the decisions made byST today are for the long term. As

he explained, the ramifications ofpolicies usually only come severalyears after their implementation."I am now in my second twoyearcontract which will expire nextyear 2014," he explained. "Thismeans that if I were to be offered

and accept an extension, it willonly be up to 2016 because I canonly be chairman for three terms."

He recognises that whateverdecision in which he has a partto play given his position asST Chairman Malaysia andMalaysians will be affected bythem long beyond 2016. This iswhy he is driven to give his bestand why he strongly believes thatthe Energy Commission shouldalways strive to be respected andtrusted as an unbiased regulator aswell as the champion of efficiencyand excellence in the energyindustry.

Tan Sri Dr Ahmad TajuddinAli is therefore proud that STdoes not receive any governmentfunding, but instead financesitself. Furthermore, it also has theadvantage of being able to hireits own staff rather than throughthe Public Service Commission

(PSC), and this allows it to attracttop industry experts.

Also, he views the decisionof the government to allow ST tomanage the bidding process forpower plants as an indication ofthe trust it has in the Commission.

In line with this, the regulatorhas introduced the International

Competitive Bidding process.Part of its objective to develop amore competitive and ultimatelyhealthier power industry, it wasused for the first time when callingfor tenders for the building of anew Combined Cycle Gas Turbine(CCGT) of between 1000 to 4000MW in Prai in November 2012.


That is the goal that needs to be reached for Malaysiato become a fully developed nation a healthier, morecompetitive, more efficient energy sector, and a powerindustry that is ready to meet the demands of a dynamic,growing economy. Making sure that this is possible isSuruhanjaya Tenaga The Energy Commission which isconstantly vigilant and always making sure that power issafe, secure, adequate and affordable.

The Energy Commission's headquarters theDiamond Building has become an almost

iconic sight.The winner of the ASEAN EnergyAwards 2012 for Energy Efficient Building New

and Existing Category, Certified Platinum bythe Green Building Index, and recipient of theSingapore BCA Green Mark it is the Greenest

and most energy efficient and sustainablebuilding in Malaysia and Singapore.


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&8672',$162)32:(5M · 2018. 1. 8. · 6XUXKDQMD\D7HQDJD0DODYADQG (QHUJ\6HFXULW\A &8672',$162)32:(5M Headline CUSTODIANS OF POWER MediaTitle International Business Review Date 30 Sep