Privatisation of the power sector: A Malaysian success story
Malaysia is a developing country with a population of 23 million and a per capita income of about RM13,000 (US$3,400). The economy grew at a rate of about 8% p.a. for the ten years before the 1997/1998 economic slow-down, with electricity demand increasing by over 12% p.a. It is expected to grow at 6% to 8% p.a. over the next ten years.
As a first step in implementing the government’s privatisation policy, the National Electricity Board was corporatised in 1990 as Tenaga Nasional Berhad (TNB) and subsequently privatised and floated on the Kuala Lumpur Stock Exchange, with the Ministry of Finance holding about 70% of the shares. The Sabah Electricity Board was privatised in 1998 as Sabah Electricity Sdn. Bhd., with TNB as the major shareholder, while the Sarawak State Government divested 50% of its equity in SESCO to the private sector in the late 1990s.
The government has also granted 15 IPP licences, one transmission licence, several distribution licences and a number of merchant co-generation licences since 1990. Besides these, there are about 2,000 self-generation licences issued to industrial and commercial entities that generate electricity for their own use.
Until recently the utilities were vertically integrated entities undertaking generation, transmission, distribution, supply, metering and billing activities. However, TNB has formed two wholly-owned subsidiaries which have taken over the operation of its thermal and hydro stations, selling the energy generated back to TNB through power purchase agreements. TNB has also appointed its subsidiary TNB Metering Service Sdn Bhd to undertake its metering services.
The Malaysian model of privatisation of the power sector, which was designed to meet the country’s social and economic objectives, has been able to secure adequate supply of reasonable quality, ensure affordable and stable electricity prices, provide confidence to the investors, meet the funding challenges, promote competition and improve efficiency and productivity. The main features of the model are:
- The incumbent utilities basically remain as vertically integrated entities undertaking generation, transmission, distribution, supply, metering and billing activities. IPPs are also allowed to put up generation plants.
- The IPPs sell power to the utilities through long-term power purchase agreements (PPAs).
- Proposals for new generation plants are evaluated by a committee of representatives from both government and the utility before a licence is granted. The PPA prices are negotiated between the IPP and the utility, with government acting as a moderator, although subsequently government has decided to introduce a bidding system to improve the process.
- TNB’s National Load Despatch Centre is the Grid System Operator in Peninsular Malaysia, responsible for the operation and planning of the grid system, despatch of generating units and load forecasting in accordance with the Grid Code.
- The Grid Code establishes the merit order in despatching generating units and the responsibilities and procedures in the operation and planning of the grid system, testing of generating facilities and load forecasting.
- A committee chaired by the Minister, with representatives from government agencies and the utilities, has been set up to review and approve the planting-up programmes, tariffs and charges levied by the utilities and conditions of supply.
- The utilities are required to submit annual reports to the regulator on generation security standards achieved in the previous year and expected in the next few years, the performance of the transmission and distribution systems, and the customer services function.
- Utilities and IPPs are required to engage independent auditors approved by the regulator to carry out management and engineering audits every four years.
One of the benefits of privatisation is that the government’s funding burden is lifted. Other benefits include an improvement in the operation of the generation, transmission and distribution systems. Productivity of the employees at TNB, in term of units of energy sold per employee, has increased from 1.12 GWh in 1993 to 2.23 GWh in 2000.
There is still room for improvement, however, particularly in metering and billing, customer relationship management, customer information services, quality of supply, demand side management and energy efficiency.
Since privatisation, TNB has introduced a number of measures to improve customer services. They include:
- Establishing outlets (known as TNB Shops) in major shopping complexes for payment of bills and as customer information centres. The number of payment points was also increased.
- Providing a dedicated national hotline, to enable customers to lodge complaints regarding outages. Each complaint is given a number for easy identification, and customers are contacted if the supply cannot be restored within a certain time.
- Minimising estimated reads through the use of telescopic devices.
- Installing meters with a transparent casing, for easy detection of defects or tampering.
- Providing a minor repair service to customers at a nominal charge, if a breakdown has been caused by a defect in the customer’s electrical installation.
- Offering advice to customers on power quality, demand side management and energy efficiency.
TNB’s Customer Satisfaction Index improved from about 65% few years ago to 68% in the year 2000, but much still needs to be done.
At the moment the supply, calibration and testing of meters is done by the utilities or their wholly-owned subsidiaries, which has led to questions regarding conflict of interest and fairness. These activities should be carried out by independent meter services providers.
Meters were not inspected to ascertain if they had been installed correctly. Actual meter readings were seldom audited against expected readings, especially for the new large power customers. This resulted in higher than normal non-technical losses and over- or under-billing, causing problems for both customers and utilities.
The need to use a multiplying factor to calculate the actual energy supplied when reading the meter should be minimised, to avoid human errors in billing. Meters should be suitable for the type of load, especially for loads with low power factors. Utilities should carry out inspections and audits on meter installations from time to time, particularly those of large power consumers, for earlier detection of problems. Even though meter accuracy up to three per cent is allowed under existing law, the utilities should periodically have their meters inspected, tested, recalibrated or replaced.
Installing smart meters which can provide information to consumers for load management, and introducing time-of-use tariffs, will enable consumers to save on electricity costs and utilities to shave peak demand. Installing prepaid meters will enable the utilities to save costs on meter reading and billing and hence improve their financial performance.
To sum up, privatisation of the power sector in Malaysia has produced a set of desired results, but there are areas that need further improvement to enhance the performance of the utilities and increase the level of customer satisfaction.