AFTER large corporations were made to endure ‘drastic’ upward adjustments in electricity tariffs which came into effect in January this year, similar adjustments are in the pipeline with high-volume domestic users being targeted next.
For perspective, this category of users is currently enjoying higher subsidies than low-volume users even though they make up a smaller share of users.
Deeming electricity tariff adjustments as “low hanging fruits”, CGS-CIMB Research said based on its estimates, 13.1% of the subsidy for electricity is enjoyed by domestic high-volume users even though they account for just 9% of the total number of users.
“We think the government’s next move will be to target high-volume domestic users,” projected senior economist Nazmi Idrus.
“Overall, domestic users still enjoy a 2.00 sen/kWh rebate in 1H 2023. According to the government, the amount that should be applied on domestic consumers given the prevailing input costs is a 27.00 sen/kWh surcharge.”
Aside from domestic users, non-SMEs (small medium enterprises) that make up a mere 4% of users, also enjoy up to 43.3% of the subsidies offered prior to subsidy cut.
All-in-all, the government’s withdrawal of subsidies offered to non-SMEs resulted in the latter seeing a massive jump in electricity tariffs to a surcharge of 20.00 sen/kWh from 3.7 sen/kWh previously.
According to CGS-CIMB Research’s estimates, the subsidy bill borne by the government in managing the steep price rise of commodities such as natural gas and coal will prompt the subsidy bill borne by the government to balloon to about RM6 bil in 2022E and RM6.8 bil in 2023F,
Nevertheless, the research house expects inflationary impact from the tariff hike for high-volume domestic users to be “visible but limited”.
“We have estimated the impact of domestic electricity tariff increases on the CPI (consumer price index). A full adjustment of domestic tariffs to the prevailing input costs would boost CPI growth by 60 basis points (bp) in 2023,” noted CGS-CIMB Research.
“A more realistic assumption of a partial adjustment (targeting only high-volume domestic users) will lead to an increase in 2023 CPI growth of 20bp.”
Added the research house: “Based on such findings, the impact adjustments – even to their fullest extent – do not appear to be extremely significant. This builds the argument that the government may pursue this avenue as part of its subsidy rationalisation plan.” – April 6, 2023
