November 25, 2017
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Trouble in Store?

Electricity

Gas and Oil Rich Malaysia’s Energy Problems a Warning for Myanmar

Electricity prices in Malaysia are likely to be increased for the first time in more than two years as the government there struggles to cope with the spiralling cost of subsidies in the face of international prices for oil and gas.

It’s a problem which could soon be confronting Myanmar despite its rich natural gas resources and probable oil reserves.

Although Malaysia is technically self-sufficient in oil and gas, much of what it produces is exported.

To help keep inflation and the cost of living down, the Malaysian government has for years resold gas and oil for domestic users at below market rates – a practice which is now costing the state US$3.65 billion a year, said the chief executive of MyPower Corp, Abdul razak, in a statement last week.

MyPower is a government agency in charge of proposing and implementing reforms in the country’s electricity industry.

The subsidies go mainly on the price of domestic gas sold to the power generating businesses, which are able to buy it at only one third of the international market rate, said The Star newspaperin last week.

Natural gas fuels about 50 percent of Malaysia’s 20,000 megawatts generating capacity.

Myanmar at present has an electricity generating capacity of barely 4,000 megawatts for a population about three times the size of Malaysia.Only 26 percent of Myanmar’s estimated 55 million people have access to mains electricity, the Asian Development Bank said in a recent study.

The Naypyitaw authorities have said a number of foreign firms have proposed building new power stations with a total capacity of about 2,000 megawatts. Several small gas-fuelled plants are being constructed in the Yangon region mostly to try to improve electricity supply to factories forced to stutter along on limited power.

In July, Myanmar’s Ministry of Electrical Power said the country would need to buy natural gas from overseas suppliers to meet rising domestic energy demands.

The ministry said it was inviting tenders to supply up to 200 million cubic feet of gas per day up to March 2014 to fuel power plants and “will increase the amount to 500 or 600 million cubic feet of natural gas daily after 2014,” the trade newspaper Natural Gas Asia reported.

The Naypyitaw government is also considering the rent or purchase of a costly offshore floating import terminal, known in the industry as a Floating Storage and regasification Unit, to handle liquid natural gas (LNG), said the paper.

While Myanmar makes plans to increase the use of natural gas to fuel rising electricity demand, the Malaysian government is trying to reduce gas dependency by building coal-fuelled power plants and also more hydroelectric systems.

Malaysia is one of the world’s three biggest exporters of gas in LNG form but slowly declining production caused a domestic shortage in 2011 which forced the state power distributor Tenaga Nasional to import electricity for several months from long-time rival Singapore.

“The government’s plan is to move towards marketbased prices. But it is also conscious of how this move is going to impact customers,” said the chief executive of MyPower Corp Abdul razak in a statement last week.

“Higher [international] gas prices had made subsidies unsustainable and the prospects of having to import liquefied natural gas at market rates to alleviate the country’s energy supply challenges had only added to the woes,” The Star newspaper of Kuala Lumpur said.

“As a country, it will be difficult for us to sustain the level of subsidy that is now being enjoyed,” the chairman of Tenaga, Leo Moggie, said recently.

The root of the problem, likely to also soon be faced by Myanmar, was highlighted in an unusually frank statement by Malaysia’s stateowned oil giant Petronas to clarify what it said was “misconceptions” by the Malaysian public about the cost of domestic fuel products.

“The current retail pump prices of petroleum products in Malaysia does not reflect the real cost of producing the commodity as it does not track and reflect the changes in [international] crude costs,” said Petronas on September 4.

“As Malaysia exports and imports different blends of crude simultaneously – similar practice can also be seen in other oil producing nations – we are inevitably susceptible to the changes in global crude oil prices. Over and above the price of crude oil, the petroleum product prices needs to factor in logistics, infrastructure as well processing costs.

“Despite this, the current retail pump prices of petroleum products in Malaysia do not reflect the real cost of producing the commodity as it does not track and reflect the changes in crude costs.”

This blunt explanation by Petronas, which has clearly been made to soften up Malaysians for electricity and vehicle fuel price increases, is perhaps also unintentionally a warning to the Naypyitaw government to manage its energy housekeeping budget – or be lumbered with heavy subsidy debt.

This article first appeared in the September 19 edition of M-ZINE+.


M-ZINE+ is a business weekly available in print in Yangon through Innwa Bookstore and through online subscription at www.mzineplus.com

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