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FMM appeals for a more gradual electricity tariff surcharge increase

FMM In The News: THE SUN DAILY, KUALA LUMPUR, Sunday, December 18, 2022 - The Federation of Malaysian Manufacturers (FMM) on Dec 18 welcomed the announcement by Minister of Natural Resources, Environment and Climate Change (NRECC) on December 16, 2022 on no increase in electrical tariff surcharge on domestic and low voltage non-domestic users for the period of January 1 to June 30, 2023.

However, FMM president Tan Sri Soh Thian Lai expressed concern with the significant rate of increase in electricity tariff surcharge on the medium and high voltage industries and appealed to the Government for a more gradual and tenable surcharge rate to ease some of the cost burdens on these industrial users during this period of prolonged uncertainty.

He said while FMM appreciates the decision that the low voltage users would not be affected by any surcharge increase for the Imbalance Cost Pass-Through (ICPT) review for January to June 2023, the increase in surcharge by more than 44% for the medium (MV) and high voltage (HV) users will pose major concerns and challenges to this category of users for the next six months.

This request, he added took into consideration that the MV and HV industrial users comprising medium and large sized local and multinationals (MNCs) are equally affected by the challenging high operating costs given the high inflationary pressures and impact of the increase in minimum wage, labour shortages, rise in transportation costs, global supply chain disruption and weakening of the Ringgit.

He said is important to note that these companies have contributed tremendously to the Malaysian economy in terms of:

* Significant investments by the MNCs and local large companies: For the last 10 years (2012-2021), Foreign Direct Investment (FDI) have amounted to RM761.7 billion (35.8%) and domestic direct investments (DDI) to RM1,364.6 billion (64.2%) in all sectors of the economy. The manufacturing sector accounted for RM818.4 billion investments. Specifically in 2021, the manufacturing sector contributed significantly towards the economic recovery whereby, from the RM306.5 billion total investments approved, manufacturing accounted for RM195.1 billion or 63.7% investments approved of which 92.1% were FDI and 7.9% were DDI.

* Significant GDP contribution: Based on the National Accounts of Micro Small and Medium Enterprises (MSMEs) 2021 report, the Non-MSMEs’ contribution to GDP grew by 4.4% in 2021 and accounted for 62.2% of Malaysia’s GDP or RM868.8 billion. Meanwhile mid-tier companies (companies with annual revenues of between RM50 million and RM500 million in the manufacturing sector and between RM20 million and RM500 million in the services sector) contributed to 40% of the GDP in 2021.

* Largest employers: In 2021, large companies employed approximately 8 million people (52%) and the nation’s total employment and 53% of the manufacturing sector’s employment.

Given that the monthly electricity cost that a particular company would have to pay could range between 1% to 10%, depending on the size of operation and industry subsector, Soh said FMM propose the following to avoid any significant adverse impact to the cost of operation which could further reduce our competitiveness especially the export market given the intense competition among the regional competitors, namely,

* Three-month grace period with a gradual increase i.e. 6.3 sen/kWh surcharge to be effective April 2023 followed by another 10 sen/kWh by October 2023. This proposal is to even out the two ICPTs in 2023 as the surcharge in July 2023 is expected to be lower based on the energy price trend.

* Temporary moratorium of 1.6% contribution to the Renewable Energy fund for the next 6 months for the categories of customers affected with the increase in surcharge.

In view that the global environment is expected to be challenging in 2023, Soh said a more gradual increase in surcharge would also help to avoid any setback to the economic recovery as when the global demand is expected to drop, manufacturers would have to implement cost cutting exercise which may include freeze in employment as well as putting any expansion plans or projects on hold until the market normalises.

FMM would like to reinforce that given these many challenges faced, industries are in a very precarious position and hopes to be closely engaged by the Government in the gradual transition towards targeted energy subsidy.

Soh said FMM hopes to meet with the Ministry of Natural Resources, Environment and Climate Change to further discuss in greater detail the concerns from manufacturers and a more palatable solution as when it comes to energy costs, industrial consumers that are also using natural gas at market price are experiencing a double impact due to the upward trend and volatility in the global energy pricing.

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