Proposed electricity tariff hike for big companies and users has an upside

PETALING JAYA: The proposed electricity tariff hike that is aimed at multinationals and large export-oriented companies is a good step towards implementing fairer targeted subsidies, said economists, who added the move is necessary for the government to reduce looming inflation.

Malaysia University of Science and Technology (MUST) economics professor Geoffrey Williams said the new electricity tariff hike will protect households and SMEs that cannot afford price increases.

“Large companies can absorb the cost and multinational enterprises (MNEs) can pass the costs on in international markets with offset options due to the exchange rate,” said Williams.

In June, the Finance Ministry said the total amount of subsidies, which included petrol, diesel, cooking oil and electricity, is expected to reach almost RM80bil this year.

Meanwhile, Williams said it was a good announcement by Anwar, as it will not have an adverse impact on big companies and at the same time, it provides a form of relief for small companies.

“It will also help to cut the subsidies bill because higher tariffs on big companies offset the costs of low tariffs on small companies so it will help economise the overall costs,” added Geoffrey.

He added that in future, the government can widen the tiered tariffs to have lower prices for households and SMEs who use less electricity, and implement higher prices for large companies that use more.

“This will encourage them to be more energy efficient and will help cut their carbon footprint.

“Electricity prices will not fall because of this, but it can slow inflation,” said Geoffrey.

“If the government went further and tariffs were cut back to previous levels, then inflation could be 0.3% lower, according to our analysis. This option is still open in the future,” added Geoffrey.

Sunway University economics professor Yeah Kim Leng said the move is necessary for the government to hold down costs of essential household expenditure items and reduce inflationary pressures.

The fiscal cost involved in the form of subsidy payment to TNB may be offset by allowing progressively higher rates for upper income households.

“With more prudent government spending and increased revenue from higher oil and gas prices, the government may be able to cope with the additional subsidy burden,” he said when contacted.

He said the increase in utility cost for certain manufacturers may be passed through to consumers, but the quantum is unlikely to be significant for industries facing strong competition.

“If profit margins are adequate, the producers and suppliers could absorb the additional cost,” he said.

He said the export-oriented sectors are better positioned to absorb higher utility costs due to the undervalued ringgit.

“The domestic industries, particularly hotels, food and beverage and domestic consumption-based manufacturing could be affected by higher electricity tariffs, but as a proportion of total cost, the impact may not be sizeable (enough) to cause prices to be revised sharply upwards, but the cost pass-through needs to be monitored closely to prevent profiteering,” he added.

Centre for Market Education CEO Dr Carmelo Ferlito said it was a good decision by Anwar to ensure that the hike in electricity tariff would not be directed at households and SMEs, given the concerns about cost of living.

However, for the electricity tariff hike on big businesses, Carmelo said the matter should be approached in a more holistic manner.

“First of all, it is necessary to understand the implied trade offs – will this be a negative incentive for businesses to keep investing in Malaysia?” Carmelo questioned.

Carmelo also said the electricity tariff hike for multinationals and large export oriented companies could potentially impact foreign direct investments (FDIs).

“It might affect FDIs. Therefore, a serious trade-off analysis should be made,” he added.

Carmelo argued that there shouldn’t be any form of monopoly in the energy sector to ensure fairer electricity tariffs for all.

“We should discuss how to liberalise the market for energy provisions, because that is the only way if we want the market price to be permanently lowered,” he added.