Oleh/By : THE HON DATO SERI DR
MAHATHIR BIN MOHAMAD
Tempat/Venue : THE NIKKO HOTEL, KUALA LUMPUR
Tarikh/Date : 16/07/2001
Tajuk/Title : THE MALAYSIAN ELECTRIC POWER
FORUM 2001
Versi : BI
Penyampai : PM
" THE CHANGING STRUCTURE OF THE ELECTRIC POWER
INDUSTRY: AN UPDATE "
I would like to thank the organisers, the Ministry of
Energy, Communication and Multimedia, Tenaga Nasional
Berhad and ASLI for inviting me to deliver this keynote
address before leaders, experts and executives in the
energy and electric power industry. I join the
organisers to bid a warm welcome to all the
distinguished delegates to this Malaysian Electric
Power Forum 2001.
2. Malaysia has enjoyed electricity for more than
100 years. We have seen the industry transformed from
its humble beginnings in the form of isolated plants
supplying mining operations into localised district
supply systems supplying the commercial, industrial and
domestic sectors. This was followed by central power
stations making their appearance because of their
economies of scale, accompanied by construction of
transmission lines and a national grid supplying the
whole nation from end to end. All things are familiar in
the development of electricity use in most countries.
But Malaysia made a special effort to supply electricity
to the rural areas including to the poor. The homes of
the poor are frequently separated by miles of forests
and hilly land and supplying them costs uneconomic sums
of money. But we feel they deserve to have electricity
without giving any return on the outlay. It is a social
duty. Today, we have achieved rural electricity coverage
of more than 93 per cent in the country. With almost
universal coverage in Peninsular Malaysia, our
priorities for the RM856.6 million allocated in the
Eighth Malaysian Plan, will be the rural communities in
Sabah and Sarawak.
3. The Government's active role in the industry has
been one of the key factors leading to the spread of
electricity use. By creating a centralised electricity
board in the middle of the 20th century, consolidating
all the municipal operations, the transition into an
interconnected national network system at minimal cost
was made possible. The single utility also ensured
that engineers and technicians could move around the
country, building expertise and managing projects more
efficiently and effectively. Efficient and economical
thermal power plants could be built to supply, not just
the locality, but also any part of the country. But
most importantly, as a centralised Government-owned
utility, it was easier for the industry to seek and
receive the required funding to finance the investments
either from the Government or through Government
guarantees.
4. However, times have changed.
5. One of the industries that became the target for
privatisation and liberalisation in many countries
during the 1990s was the electric power industry. Run
for many decades as national monopolies, the demand for
power increased so rapidly that the Governments became
unable to build the power plants fast enough. The
Government monopoly, usually unprofitable, became
unwieldy, inefficient and a drain on Government
coffers. Privatisation of the power industry began to
look more and more as an attractive alternative. The
problem was the form of privatisation which would not
result in the social needs becoming neglected. The
private enterprises must look for the bottom line in
order to justify investments of huge sums in new
plants. This may end up in power being too costly and
the cost of living going up too fast for the good of
the country.
6. In countries that already have investor-owned
electric power utilities - Western Europe and the U.S.
for example - Governments embarked on establishing some
kind of market mechanisms, popularly called the "power
pool" where electric power generators could bid and
sell bulk power to distribution companies or large
customers. It was believed that this competitive
bidding would keep electricity rates low.
7. Other countries have tried to customise their own
initiatives to suit their local conditions. For a time
the competitive bidding by power suppliers was believed
to be the ideal way of managing electricity supply.
Many countries, were adopting or seriously considering
adopting the market mechanism. Then came the
persistent breakdown in power supply in California
where the system had been used for a very long period.
8. Apparently what happened was the dismantling of
plants by those power suppliers who had failed to win
bids. The plants were idle, and even in idleness much
money had to be spent on maintenance. Yet there was no
income. The logical thing to do was to close down.
When demand suddenly picked up there was no stand-by
power to fall back on. And building new plants takes a
long time. In the meantime black-outs and brown-outs
have to be endured by the highly developed state of the
U.S. and its very rich people. In a third-world
country this can be accepted, but not in a highly
developed country.
9. The electricity industry is peculiar in that there
must always be a fairly big reserve power available.
Obviously the reserve capacity will not earn money.
Who should be responsible for these stand-by plants?
Surely not the companies which had not won in the
supply bid. Even those which won would want to
minimise their cost by selling all the power they could
generate. In the end the stand-by capacity would be
neglected in favour of lower bidding prices. The
result is an inability to meet sudden surges in power
demand or when a major breakdown occurs.
10. Because of the disastrous experience of
California many, including Malaysia, are more cautious
in restructuring the electricity industry. It is too
important an industry to be left entirely to market
forces. As I said earlier, in Malaysia, we have built
a system that has progressively become more and more
technically sophisticated and reliable. By doing so, we
have also developed our technical and scientific
manpower resources and this is important for the
advancement of our country. We should not risk losing
this technical aspect and our objective should be
towards building a high quality electricity supply
system for the people aimed at keeping the lights on at
reasonable prices. With this objective in mind, the
Government has decided that we re-look at the
restructuring in the light of recent experiences in
other countries. The power pool and biddings to supply
need not be the best solution to aim for in the short
or medium term.
11. The present electric power industry has served the
country well. However, this does not mean we do not
need any change. Change is still necessary. We still
subscribe to the concept of competition and efficiency
but should maintain adequacy, reliability, quality and
security of supply as the first priorities. We need not
follow blindly models that have been adopted in more
advanced countries that are not really applicable to
us. We do not want to risk entering a situation that
will cost us so much more to undo when things go wrong.
It would be better to progress one step at a time and
with enough time to measure the effect of those changes
before proceeding with the next. We have learned enough
from the experience of the Asian financial crisis of
1997, so as not to be over-dependent on market forces
which economists so mistakenly believe as being
"perfect".
12. The introduction of Independent Power Producers or
IPPs in Malaysia was intended to instill competition in
the industry. Unfortunately, some have alleged that
IPPs have caused electricity to be more expensive to
TNB. But this was merely a short-term temporary cost
that was necessary to break the barriers of entry. As
the IPP industry matured, costs must come down, and
this has been well demonstrated.
13. What we need now is to evolve and refine this
model further. We are ready to introduce a more
transparent competitive bidding process as the next
immediate step, where IPPs can be expected to compete
for new power projects. This will generate a more
competitive pricing structure. If the need to have
enough stand-by capacity is always borne in mind,
eventually this should result in the fairest prices to
all. Winning bids can be used as a basis for long-
term power purchase contracts as an alternative to real-
time bidding in power pooling markets, which has
experienced problems and raised doubts elsewhere.
14. Another area that will need change is putting
industry planning in its proper place. In the absence
of the so-called power market, it is apparent that
planning for adequacy, reliability and future growth in
new generation, transmission and distribution
capacities must be carried out effectively and
independent of the industry players. This planning is
required to determine when, where, what size and what
plants or power facilities will be required and offered
for bidding.
15. As a first step, the Government established the
Energy Commission, with effect from 1 May 2001, with a
view to increasing the effectiveness of the regulatory
supervision of the energy sector, more specifically,
the electricity supply industry and the gas supply sub-
sector of the industry. At the moment, these
regulatory functions are the responsibility of the
Department of Electricity and Gas Supply, which will
soon be dissolved when the amendments to the
Electricity Supply Act 1990 is passed by Parliament.
16. One of the principal areas of responsibility for
the Energy Commission will be the planning of capacity
adequacy in the electricity industry. The Commission
will be entrusted with the task of calling for bids for
new planting-up programmes. Apart from the planning
function, the Energy Commission will also be
responsible for the promotion of research and
development; improving energy efficiency and the
productive value of energy consumed; and the promotion
of new and renewable sources of energy. The promotion
of renewable energy and the efficient utilisation of
our energy resources is part of our National Strategy
on Fuel Diversification and is in line with the
sustainable development goals of the country.
17. The Government fully subscribes to the concept of
sustainable development. In our pursuit of growth and
development, we must be conscious of the needs,
expectations and higher aspirations of our children and
generations to come. We must pursue a growth strategy
that places high priority on protecting and leaving a
resource-rich environment for the benefit of our
children and grandchildren. That is our moral
obligation. Although progress and economic growth are
important national priorities, we have been careful to
ensure that it is not pursued at the expense of the
environment. From a state of over dependence on oil
before the oil crises of the 1970s, Malaysia embarked
on a fuel diversification strategy that focused on
cleaner resources like natural gas and hydroelectric
power. In 1980, our power plants recorded 85 percent
oil consumption and today their dependence on oil has
reduced to a mere 8 percent. Natural gas usage in this
sector, on the other hand, increased from a mere 1
percent in 1980 to more than 71 percent in the year
2000.
18. Today, under the Third Outline Perspective Plan,
we have now embarked on a much cleaner fifth fuel
strategy that focuses on renewable sources of energy
and energy efficiency. A recent study completed by the
Government has shown that the renewable sources of
energy available in the country have a technical
potential of about 36 million tonnes of oil equivalent.
This is a huge resource that would be wasted if not
adequately tapped. Most of these resources are biomass
wastes generated by our industries that also face
problems in disposing them with minimal negative impact
upon our environment.
19. By its nature, electricity is a form of energy
that can help meet the objectives for sustainable
growth. It gives us multiple choices of primary energy
fuels that include oil, coal, gas, hydro, biomass,
solar and various other forms of renewable energy. It
is for us to establish the most economic and optimal
mix. It also gives the opportunity to generate power
at locations away from areas of high population
concentration enabling greater opportunity for the
environment to absorb any pollutants resulting from the
power stations. In addition, electricity also allows
for easy distribution, and helps remove the constraints
of power transport on the transmission and distribution
networks. It is this flexibility that makes
electricity a form of energy that can be moderated
according to our needs and concerns for sustainable
development.
20. I take this opportunity to congratulate the
Utilities for their recent initiatives in promoting
renewable sources of energy, efficiency improvements
and demand-side management. These efforts should be
intensified for greater economic resilience and to
enhance the nation's competitiveness.
21. Electricity peak demand in Peninsular Malaysia
alone has grown from 3447 Megawatts in 1990 to 9948
Megawatts this year, and this is projected to grow by
more than 117 percent to 21,668 Megawatts in the year
2010. With such huge demand growth expected in the
future, it is imperative that we achieve greater energy
efficiency. Yet another study completed recently by
the Government shows that if we were to encourage our
industrial and commercial sectors to improve their
energy use efficiency by a mere 10 percent, the
resultant total national benefit will be more than
RM5.8 billion over five years. However, once efficient
technology and practices are put in place, the benefits
will continue to accrue over the life of the equipment
that can range from 10 to 15 years.
22. Until Malaysia reaches a level of development
envisioned in Vision 2020, we will continue to push for
rapid growth. It is therefore imperative that we pursue
a strategy that meets the demand for reliable and
quality supply. As stated earlier, in the 1960s and
70s our economy was fueled largely by oil. In the last
two decades, we had gradually grown our reliance on
natural gas. And, it is obvious that for sustained
future growth, we will need to further diversify our
energy resources. For this reason, the Government will
continue to advocate the promotion of the renewable
energy and energy efficiency as the fifth fuel in its
fuel diversification strategy. As a country generating
considerable amounts of biomass wastes, notably in the
palm oil and wood industries, we have vast potential
for substantial recovery of energy from these wastes.
Since the energy industry is set to see continued rapid
growth, greater energy use efficiency will not only
help reduce wastage and improve the competitiveness of
our industrial production, it will also facilitate
sustainable growth through the maximisation of resource
utilisation.
23. Renewable energy and energy efficiency, being new
growth industries worldwide with growth projections
higher than the conventional energy business, offer far
greater potential for entrepreneurial and technological
development. If a successful industry can be nurtured
in the country early, Malaysia can quite easily assume
leadership positions in the export of new technologies
and consultancy services in renewable energy and energy
efficiency.
24. We should be proud of the achievements of our
electricity supply industry. Except for one or two
glitches in the history of the industry, which were
good lessons in our growth, we have done reasonably
well.
25. Let us learn from our mistakes, and persevere to
improve the level of reliability, security and quality
of electricity supply in this country. For a fast
growing country like Malaysia, priority should be
placed on these criteria rather than compromising on
them simply in the name of competition and
liberalisation.
26. If it is greater efficiency and innovations we
need, I believe that we can achieve this through
national aspirations and stewardship. I hope the
culture of cooperation and coordination among all the
industry players will continue, and together we should
strive to make the industry more efficient, cost-
effective, and progressive. Maintaining an industry
structure consisting of IPPs based on competitive
bidding in the generation sector should instill a
competitive spirit in the industry so that we remove
all opportunities for complacency. This forum is a fine
example of cooperation and coordination among players
in the industry, and I hope your deliberations would
continue to enhance this spirit of exchange and
harmonisation.
27. On that note, it now gives me great pleasure in
declaring the Malaysian Electric Power Forum 2001
officially open.
Sumber : Pejabat Perdana Menteri
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