Awer warns of higher tariffs if utility companies take over infrastructure development

October 11, 2018 | By | Reply More

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PETALING JAYA: The Association of Water and Energy Research Malaysia (Awer) has warned that imposing the cost for utility infrastructure in housing projects on utility companies will ultimately result in higher tariffs for consumers with additional capital expenditure (capex), along with a more frequent review of tariffs.

Awer president S. Piarapakaran pointed out that the tariffs collected by utility companies are not enough to cover the capex, as tariffs are currently based on the infrastructure that has already been set up. Currently the rates cover the maintenance of the utility.

“When developers pass the compliance costs to utility companies, the utility companies will have to incur additional capex and this is the cost that will be passed on to the tariff. When developers don’t want to pay and they push it to the utility companies (to bear the compliance costs), consumers will have to absorb this cost in the form of a tariff increase,” he told SunBiz.

In such a case, Piaparakan said, this will backfire on the tariff-setting of utilities, as utility companies will have to bear the compliance costs, whether or not the housing project is completed, subsequently causing cost fluctuation every six months.

“That’s why the compliance costs are passed to the developers because when you take this costs, you need to complete it (the housing project). I don’t think it’s fair if the government listens to one side of the story. If the developers want to develop an area, they need to take full responsibility of it,” he explained.

Earlier this week, Housing and Local Government Minister Zuraida Kamaruddin said she wants utility companies to bear the costs for constructing their own utility base in housing areas so that it reduces the cost for developers in an effort to push for lower house prices.
“At the ministerial level, principally, they (the respective ministries) have agreed to take up the costs,” she said.

Developers of affordable housing are expected see a reduction in their compliance costs by 2019, including for utility, water and telecommunications, if the affordable housing policy is approved by the Cabinet.

Citing an example, Piarapakaran said for electricity, the only cost being passed through every six months is the generation cost due to different types of fuel being used, with rising fuel costs or savings being passed on to consumers.

“If we were to accommodate the requests by Rehda, which means for the distribution part, we will need to pass through the costs every six months, because there is going to be new infrastructure being built every six months. All the utility companies will bear this additional capex that is going to directly impact tariffs. Is the government ready to review tariffs every six months?” he asked, adding that the government has indicated its stance to do away with tariff reviews.

Piarapakaran said the tariffs for electricity are currently reviewed every three years and for water every three years in the first few cycles.

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