Malaysia considers tiered fuel charges for household electricity subsidies

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Malaysia considers electricity subsidies

Highlights

The Malaysian government is considering a tiered fuel cost charge mechanism and automatic protection, expected to be implemented from 2027, in response to rising fuel costs.
The 800 kilowatt-hour monthly subsidised electricity limit for households will expire this December, affecting 8.8 million users below the threshold and 550,000 above it.
Tenaga Nasional Bhd bears costs of RM120 million to RM150 million for the surcharge exemption, while the KWIE fund faces concerns over insufficient subsidy reserves.

This article was translated from the original. Read the original version by our correspondent here.

Proposed review of the electricity tariff mechanism

As reported by The Edge Malaysia, the government is examining the introduction of a tiered fuel cost charge mechanism as one of the measures to support household electricity consumption, as fuel costs rise following conflict in West Asia and prolonged hot weather.

Deputy Minister of Energy Transition and Water Transformation, Datuk Seri Abdul Rahman Mohamad, said the measure is among several proposals being reviewed with the Energy Commission. He told the Dewan Rakyat that the ministry and the Energy Commission have taken preliminary steps to improve the existing automatic fuel adjustment, or AFA, mechanism, including the introduction of a tiered AFA structure planned for implementation from 2027.

According to him, the government will also consider an automatic protection mechanism to shield consumers from AFA spikes. AFA adjusts electricity generation charges monthly according to changes in fuel prices and other generation-related costs, meaning electricity charges may rise when these costs increase and vice versa.

Implications for households and the subsidy fund

The proposed tiered AFA comes as the higher limit for subsidised household electricity, set at 800 kilowatt-hours per month compared with 600 kilowatt-hours previously, is due to expire this December. The AFA threshold exemption protects consumers up to that level of usage from AFA, retail charges, and sales and service tax until the end of this year.

Abdul Rahman said 8.8 million households use less than 800kWh, while only 550,000 households exceed the threshold. Under the currently expanded electricity tariff fuel surcharge exemption for households, Tenaga Nasional Bhd absorbs an estimated RM120 million to RM150 million in costs.

He also said that the Electricity Industry Fund, or KWIE, established in 2016, has made a significant contribution to subsidies and has been used this year to subsidise electricity bills since May. The ministry and the regulator are also reviewing the KWIE fund's position amid concerns that its reserves may be insufficient.

In our earlier report on the Dewan Rakyat's focus on rising domestic electricity tariffs, the Energy Commission assured that around 85% of households are protected from the impact of tariff adjustments through the Energy Efficiency Incentive. The coverage also explained how tariff issues were raised during the ministerial question session as part of debates on economic and public policy in Parliament.

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