Malaysia Raises Power Prices for First Time Since June 2011

Malaysia will allow national power distributor Tenaga Nasional Bhd. to raise electricity charges for the first time in more than two years, adding to business and living costs as the government cuts state subsidies.

Tenaga will increase prices by an average of around 15 percent in Peninsular Malaysia to 38.53 sen per kilowatt hour from Jan. 1 when the government will reduce the gas subsidy provided to power producers, Maximus Johnity Ongkili, minister of energy, green technology and water, told reporters in Kuala Lumpur today. Tariffs will rise by an average 16.9 percent to 34.52 sen/kwh in the country’s eastern state of Sabah, he said.

“The government’s subsidy to the power sector is close to 14 billion ringgit ($4.4 billion) so far this year,” Ongkili said. “Savings can be used for infrastructure development.”

Prime Minister Najib Razak scrapped sugar subsidies in October after raising gasoline prices in September as he focuses on improving government finances to avert a credit-rating downgrade. Inflation accelerated to a 21-month high of 2.8 percent in October, adding pressure on the central bank to curb price gains while supporting economic growth.

Ringgit Rises

State-owned energy company Petroliam Nasional Bhd. sells gas to Tenaga at a fixed price to cap costs and keep inflation in check. Today’s review will save Petronas 4 billion ringgit a year, Ongkili said.

“The electricity tariff increase is a positive in terms of fiscal improvements,” said Saktiandi Supaat, head of foreign-exchange research at Malayan Banking Bhd. in Singapore.

The ringgit rose as much as 0.6 percent after the announcement to 3.2050 per dollar as of 4:41 p.m. in Kuala Lumpur, its biggest gain since Oct. 28. The benchmark FTSE Bursa Malaysia KLCI Index was 0.1 percent higher, paring an earlier gain of as much as 0.2 percent.

“Inflation will rise whenever there is an increase in prices of goods,” Abdul Wahid Omar, head of Malaysia’s Economic Planning Unit, told reporters today in Putrajaya, outside of Kuala Lumpur, before the announcement. “If there is an increase in electricity tariffs, the inflation rate will be below the 3 percent benchmark, just like how it was after we reduced fuel subsidies.”

Tenaga, based in Kuala Lumpur, last raised tariffs in June 2011 by an average of 7.1 percent. Its shares were halted today for the announcement.

Before it's here, it's on the Bloomberg Terminal.