This will help reduce costly energy subsidies by the govt: DPM Najib

(PUTRAJAYA) Malaysia will have to revise electricity tariffs again as part of a plan to reduce costly energy subsidies, Deputy Prime Minister Najib Razak said on Monday.

The government was still working on a previously announced review of subsidies, but it was clear that reform would have to deal with the prices of electricity, gas and petrol, he added.

'You can't review gas prices without looking at the (electricity) tariffs because otherwise the market will dump TNB (Tenaga Nasional Bhd) shares,' Mr Najib said.

State-controlled Tenaga is Malaysia's monopoly power distributor and largest power generator. In 2006, the government allowed it to raise electricity tariffs for the first time in almost a decade, but other energy subsidies remained intact.

Tenaga and independent power producers still buy gas at heavily discounted rates from state oil firm Petronas, so raising gas prices would boost electricity costs. The pump prices of petrol and diesel are also heavily subsidised by the state.

Malaysia is a net oil exporter but spends RM15 billion (S$6.59 billion) a year on fuel subsidies, a bill the government says could hit RM20 billion in 2008 if nothing is done.

But with a snap general election expected to be called within weeks, the government has stressed that reform could take time.

'We can afford to wait a little while,' Mr Najib said, adding that reform needed careful thought. He did not give a time frame.

He also fleshed out government thinking on its approach to cutting subsidies, saying that means testing to ensure benefits are directed at the most needy was likely to form part of the overall reform proposal.

Mr Najib also dismissed suggestions that petrol and diesel could be stockpiled to help protect the economy against rising prices.

To keep inflation in check, the government recently announced plans to stockpile commodities such as rice and cooking oil.

'We will not touch petroleum products,' he said, adding that construction materials were more likely to end up on the final list of non-food commodities to be stockpiled.

'It will be more like items relating to construction - steel bars if you like - that could be subject of our consideration.'

Malaysia counts the United States as its biggest trading partner, but despite the US slowdown, Malaysia is still aiming for 6-6.5 per cent economic growth this year. Mr Najib said the government was also sticking to its budget deficit targets.

'We are not in dire straits yet,' he said.

The government is aiming for a budget deficit this year of 3.1 per cent of gross domestic product, down from a 3.2 per cent target in 2007. -- Reuters

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