IPP subsidies cannot be removed, says Soi Lek

UPDATED @ 10:44:36 PM 24-05-2011
By Boo Su-LynMay 24, 2011

Dr Chua says with some agreements due to lapse, the government might have a window to start negotiations. — file picKUALA LUMPUR, May 24 — The government cannot remove billion-ringgit subsidies for independent power producers (IPPs) as it is tied up in agreements with them, MCA president Datuk Seri Dr Chua Soi Lek said today.

The DAP has said that the Najib administration would only spur inflation by removing the diesel super subsidy before cutting “big opium” gas subsidies worth RM19 billion for IPPs and commercial power sectors.

“Because the government is tied up in a lot of agreements, this cannot just be abolished like DAP says or (Datuk Seri) Anwar (Ibrahim) says,” Dr Chua told reporters today.

“Then Malaysia will be seen by the world as a government that does not honour its agreements. That’s wrong,” he added.

He said some of the agreements were due to lapse and the government could then start negotiations.

Anwar said yesterday that the multibillion-ringgit federal gas subsidy granted to IPPs through “lopsided agreements” would hamper Malaysia’s ability to curb rising inflation.

The opposition leader said the subsidy had not translated into lower electricity tariffs for consumers as Tenaga Nasional Bhd was contractually bound to buy the power at a premium that the IPPs generated.

Dr Chua said today that the government would negotiate its various agreements with IPPs in stages as their contracts had various dates of expiry.

“Some are (signed) 15 years ago, some are 20 years ago,” he said. “So when the time comes for the agreement to lapse, that’s when the government starts negotiating.”

Domestic Trade, Cooperatives and Consumerism Minister Datuk Seri Ismail Sabri Yaakob reportedly said the government would announce the decision on controversial subsidy cuts next week, even as pressure mounts for it to call off the exercise amid growing inflation.

Pakatan Rakyat has warned that “haphazard” cuts to subsidies may raise the price of food by as much as eight per cent this year. This would bring the people back to what Anwar described as “the pain of 2008.”

Despite their unpopularity, Putrajaya is expected to ram through the subsidy cuts, having given broad hints last week of the move.

Deputy Prime Minister Tan Sri Muhyiddin Yassin has said the government expects the subsidy burden to double from RM10.32 billion to RM20.58 billion this year.

Prime Minister Datuk Seri Najib Razak said fuel subsidies were “like opium” to the economy, and would have to be gradually cut as the initial bill of RM11 billion had soared to RM18 billion this year owing to escalating crude oil prices.