Electric production costs K110 to K115 per unit and if the consumer purchases for K35 then there is a K80 gap. As a result, the State has to subsidize about K800-K900 billion a year.
Deputy Minister Dr Tun Naing
U Ko Ko: Could you give us an economic or managerial perspective on the Deputy Minister’s discussion?
Dr Aung Tun Thet: The focus of this discussion is the word ‘subsidy’. Cross subsidy is related to electricity and is where the range is raised for businesses and the finance collected from them is distributed to the general public.
Businesses have to pay more and lowering the rates for consumers benefits them. High expenditures for businesses are one part. To recap, it won’t be noticeable for someone who uses less lighting. There would be no profit or losses.
However, it will be very noticeable for someone who opens 10 air-conditioners. It’s convenient. What happens is that is we businesses bearing the brunt of people using ten air-cons. This is something to ponder on.
Of course, commodity prices will inevitably rise. Commonly in our country, other prices will rise before the electricity rate is increased. We need to be wary of that. Before, when staff salary would increase, commodity prices increased first so the new salary was all spent. How will authorities prevent that effect?
Another fact is that economists sometimes make emotional analyses when it comes to predicting costs. They won’t like this being said.
There are people who use mobile phones everyday but don’t put its costs in their heads. Compare the costs between using a phone and using electricity over 24 hours. No one will look at it like that. They will say they are using on their own will and to keep out of their matters.
Now, the electric bill will rise because of the government. You need to explain this so the public can accept it. There needs to be short, medium and long term solutions after increasing the price. How much will supply follow to meet the increase in demand.
Then we have to consider generation, distribution and consumption of electricity. The ministry is inviting foreign investment too. If decreasing the subsidy is meant to create incentives for big foreign companies investing here then we can expect supply to increase.
The supply in our country will increase without a doubt but there are those emotional complications. Crowds of people will protest against any move of hydroelectric power and fossil fuel is another matter.
People mention ‘solar’ when talking about costs but it’s overall cost is still too high. Our country is actually abundant in hydropower but it has its own set of difficulties. But I hope the subsidy is made for adjustment.
The people of Myanmar need to understand that it’s not just the ministry that will be producing electricity. The private sector will be in on it as well. I believe if the Union Government is involved then we will overcome the subsidy matter in a short period of time.
Deputy Minister: I want to discuss on the same topic as Dr Aung Tun Thet. Daw Khaing Khaing Nwe asked if we can promise there will be no more power cuts and the doctor asked if we can scale up production.
A few days ago, we called for open tender on a 1,200 MW power plant project in the state newspapers, inviting both domestic and foreign investors. I presume the public has seen these ads as well. The investors must also be aware of the changes to the electric rates too. We hope that investors will boldly take a step for this endeavour.
Replying to Sayama’s question on whether the electric generation will increase, it will get better than the current situation. This includes voltage stability. The old transformers at the electric substations had to be turned off when regulating them and it was all manual.
Consumers want electric supply and voltage to be steady. The truth is voltage is always changing and to regulate it requires automatic systems. Authorities are now installing more transformers with automatic systems. They weren’t so easy to acquire in the past as they cost a lot.
In order to provide better services in the future we need to generate more income. Then we can invest in better machinery and provide more stable voltages to the consumer. This is why the electricity rates have been changed. It’s to push forward in that direction.
U Ko Ko: After announcing the changes in the meter prices there were calls for tenders too. They are related. Could you tell us if changing the price was intended to give independent power producers (IPPs) some sort of incentive?
Deputy Minister: Yes, because for domestic and foreign investors, only 20 to 30 per cent of their project costs for constructing power plants is their own money. The remaining 70 ore 80 per cent is acquired from bank loans.
The banks counter check them by asking if the project they are investing in has secure annual income in order to repay the bank. This also becomes a question for the IPP to ask the ministry if they can afford the electricity they will produce.
If the ministry has high subsidy rates every year and is unable to pay the electricity rates in the long run, well, it becomes a high risk venture for the IPPs. No one will come to such a volatile situation. There aren’t a lot of banks that will lend to IPPs either, who won’t come invest without a loan.
When the banks see that the electricity rates have changed then they will know that the ministry will be able to purchase electricity from the IPPs over a long period. Hence, they will approve the loans and IPPs will come in to invest.
They have shown interest since three to four years ago because investors see the opportunity in Myanmar’s inadequate power supply status and the large number of people without access to electricity.
However, they saw that the rate the ministry is redistributing the electricity is different from the rate purchased from them and they viewed this as a high risk. Now, we are able to reduce the challenges and hopefully increase investment to fulfil the electric demand.
Dr Aung Tun Thet: When we amend the subsidy and discuss this with the IPPs, this creates a good situation in our favour which will allow the Myanmar Investment Commission to act more easily.
We are the priority sector and support the electric sector to drive sustainable development for the nation. Now that the ministry has adjusted the subsidy there is all the more reason for investors to come in.
U Ko Ko: Industrial zones demand a stable and steady electric supply. They don’t want to rely on standby generators anymore. Can you give your opinion on this, Sayama?
Daw Khine Khine Nwe: We can see the visible direct cost go up but there is still the not-so-visible indirect cost. It can’t be estimated and that is what I worry about. If IPPs enter then the prices will be evident enough for calculations. But what are the invisible costs that will follow it.
The direct costs include the 30 per cent we discussed earlier, so they are calculable. But our business depends on our workers having good living conditions, so we are more worried about their wellbeing.
Htet Htet Htun: I see that main issue being the gap between the costs of generation and distribution. Can increasing the rates levied from the public be the only solution? which other ways are there?
Increasing electric rates on part of the public will reduce subsidy and generate more investment for the future. But the public may wonder if investment from somewhere else can be used to resolve this issue instead of taxing them more. Are there other ways to get more investments to provide better services?
Deputy Minister: Electric production costs K110 to K115 per unit and if the consumer purchases for K35 then there is a K80 gap. As a result, the State has to subsidize about K800-K900 billion a year.
Here, I want to give the public a clear example. People want hospitals and clinics near where they live, so they request cottage hospitals to be constructed nearby. Now, construction costs around K500 million and building two would cost a billion kyats. If we had to subsidize K500 billion then consider how many hospitals we’d be able to build.
Hluttaw representatives are asking the State for hospitals and schools that the people and the nation greatly require but the ministries are unable to construct them. Why? Because the subsidy to the electric sector is taken out of the Union budget. The budget that has to be used for development is put into the subsidization of the electric sector every year.
Some suggest using loans to solve this issue. We would need to borrow US$800 million to construct a 500 MW electric station. Even if construction was completed in a year it would only be enough for that one year. We would have to borrow another eight hundred million dollars next year. And all those loans would have to be repaid with public revenue.
Then we must ask what difference it will make when everyone has to bear the rising loan repayments just to decrease the payments for their electric bill.
Another thing is while the people with electric access are thinking of ways to keep the electric rates the same, there are still 55 per cent of citizens who have no access and the budget to link them up is needed.
Everyone should be given equal opportunities. Which is why even if electric access is not yet perfect, we must think for those people who do not have access to electricity.
We must also reduce the burden of repaying massive loans. Setting appropriate rates from each household will strengthen the Union budget. Instead of borrowing from someone else and being restricted, if we used our own budget, we can achieve better and faster management.
(To be continued)
(Translated by Pen Dali)