IPPs to face brunt of rising fuel prices

Independent power producers (IPPs), which benefited significantly from highly subsidized fuel, have been dealt a major blow following the imposition of a 30% windfall tax on their return on assets (ROA) under the Malaysian government’s restructured subsidy scheme. Prime Minister Datuk Seri Abdullah Ahmad Badawi said the taxes would be implemented under the Windfall Profit Levy Act 1998 and would entail the IPPs contributing towards the higher cost of fuel such as gas for power generation. The windfall tax for IPPs stems from state-controlled Petroliam Nasional Bhd (Petronas), increasing the price of gas supplied to power producers by 123.6% to 14.31 ringgit (US$4.37) per million British thermal units (MMBTU) from 6.40 ringgit (US$1.96) per MMBTU, previously. Industry observers said the first generation IPPs such as Malakoff Bhd, Tanjong Plc. Bhd. and YTL Power International Bhd would bear the brunt, given that their ROA were generally higher compared with others. (June 5, 2008)