Experts Believe Targeted Electricity Subsidy Is The Best Way Forward

Energy and economic experts generally concur that targeted electricity subsidy is the way to go in easing people’s cost of living.

Association of Water and Energy Research Malaysia (Awer) president S. Piarapakaran said targeted subsidies would help those in need directly.

“Through this approach, the government can provide greater assistance with a lower allocation, and the savings gained can be used for other national expenditures,” he told the national news agency, Bernama.

Last year, rising costs of fuel and other commodities caused the country’s consumption subsidy expenditure to swell to RM77.7 billion, the highest ever borne by the government.

Despite the latest half-yearly electricity tariff adjustment for consumers in Peninsular Malaysia, about 99 percent of domestic consumers — those with a monthly consumption of 1,500 kilowatt-hours (kWh) and below (equivalent to RM708 and below) — will not experience any hike in electricity tariff and will continue to enjoy the rebate of 2 sen per kWh.

This follows the RM5.2 billion electricity subsidy allocation announced by the government on June 16 for the July 1-Dec 31, 2023 adjustment period.

Siti Indati Mustapa, director at the Institute of Energy Policy and Research at Universiti Tenaga Nasional (Uniten), said targeted subsidy is a positive mechanism to ensure the government will not be overburdened with subsidy costs.

“Targeted subsidies can also encourage more Malaysians, especially those who can afford it, to invest in the renewable energy sector such as solar,” she said.

Echoing her view, economist and i-CATS University College pro-vice-chancellor (research and graduate studies) Prof Datuk Shazali Abu Mansor said with households getting the appropriate levels of subsidy during the economic recovery period, consumers will have the money to spend and stimulate economic growth.

“During this time of the country’s recovery from the effects of the Covid-19 pandemic, any form of subsidy can ease the burden of consumers and is a means of closing the ‘prosperity income’ gap between the rich and the poor,” he said.

Consumption-based vs income-based focus

Shazali said a consumption-based targeted electricity subsidy is ideal as its implementation may encourage consumers to save electricity and indirectly preserve the environment.

“According to Tenaga Nasional Bhd’s Integrated Annual Report 2020, more than 95 percent of TNB’s electricity was generated by gas and coal,” he noted.

He said it makes sense to save energy in these times to balance energy demand and supply, especially for countries that are dependent on coal and gas reserves.

Indati said given that electricity is a basic need, the government has made the right decision to focus on providing subsidies based on household electricity usage rather than just household income groups.

“A comprehensive study needs to be conducted to gauge the minimum electricity requirements for individual household members,” she said.

Indati said there is a need to find out the real threshold value of electricity required by an individual each month in Malaysia.

“This would allow the government to determine household subsidy requirements in a more effective and targeted manner for the longer term.

“The government should use the threshold value from this research as the ‘living electricity allowance’ base in determining a household’s electricity subsidy eligibility without factoring in household income,” she added.

Indati said the pricing structure needs to be fine-tuned to safeguard the people’s well-being in terms of access to fair and equitable subsidies.

She added that for electricity consumption beyond the threshold value, unsubsidised tiered electricity tariffs based on consumption level can be considered to encourage prudent electricity usage and increase people’s awareness of energy-efficient household products.

“Savings gained from the subsidy reduction can also be channelled to those in need through the cash aid programme and other projects that benefit the people,” she noted.

Safeguarding against fraud, leakages, global uncertainty

To prevent any abuse of the subsidy for domestic electricity users with consumption levels not exceeding 1,500 kWh, she suggested that big data technology be harnessed to analyse electricity consumption data and provide subsidies to those who are truly eligible.

She said that with the installation of smart meters, a detailed study can be done to gauge the actual individual needs in households and have more accurate Malaysian usage patterns.

Having a real-time reporting system can also help detect electricity thefts and prevent leakages, she said.

Indati said a gradual subsidy reduction is a positive step that should be welcomed in order to ease the nation’s financial burden, educate the public on sustainable practices, and cut down on excessive household electricity consumption.

However, she said the implementation of a targeted subsidy mechanism needs to be monitored in the near term to ensure it is economically effective without affecting people’s well-being and comfort in the long run.

According to Piarapakaran, the continued provision of targeted electricity subsidies would depend on the supply and demand situation.

“Even if the energy crisis driven by the Russia-Ukraine war subsides, we still have the Organisation of the Petroleum Exporting Countries and its allies, which control petroleum production and ensure prices remain high.

“After 2011, what we have observed was the rise in the price of crude petroleum, followed by natural gas and coal prices.

“Therefore, the government has to carry out careful planning backed by solid data to ensure any uncertainty in global fuel prices will not have a deep impact on electricity cost and increase the cost of living,” he added.

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