December 2, 2013 / 9:56 AM / in 4 years

UPDATE 1-Malaysia power rates to jump 15 percent in 2014

(Adds economist comment, details)

By Stuart Grudgings

KUALA LUMPUR, Dec 2 (Reuters) - Electricity tariffs in Malaysia will rise by around 15 percent next year, the government said on Monday, as higher-income consumers and companies in the Southeast Asian nation feel the impact of moves to cut the country’s heavy fuel subsidy bill and reduce its budget deficit.

The electricity charge would rise by 14.89 percent on average in peninsula Malaysia as part of the government’s “subsidy rationalisation” measures outlined in the country’s annual budget announcement in October, energy minister Maximus Ongkili said.

Malaysia’s electricity tariff was last revised in June 2011 when the government hiked the price of subsidised gas to the power sector to 13.70 ringgit per million metric British thermal units from 10.70 ringgit.

Prime Minister Najib Razak’s budget outlined a cut in the government’s total subsidy bill by 15.6 percent next year.

Under pressure to rein in spending and boost tax collection to tackle Malaysia’s high budget deficit and fast-growing debt pile, Najib also announced a new consumption tax that will come into force in 2015.

Ongkili said that the power tariff hike would save the government about 4 billion ringgit ($1.25 billion) in subsidies next year, according to state news agency Bernama. In a statement, he said that about 71 percent of consumers in peninsula Malaysia would not be affected by the increase, due to exemptions for low-income Malaysians.

“Since 1997, the government has fixed the domestic price of gas at a much lower level than the market rate to ensure that all segments of society enjoy affordable electricity tariffs,” the statement said.

Manufacturers in Malaysia’s export-driven economy have expressed concern that the sharp hike in energy costs next year could hurt their competitiveness.

The tariff hike will push up inflation, which could add pressure on the central bank to tighten monetary policy for the first time since May 2011, said Barclays Capital economist Rahul Bajoria.

But any negative impact on growth should be limited, partly due to the broad exemptions for consumers, he said.

Malaysia’s economy grew 5 percent year-on-year in the third quarter, driven by resilient domestic demand and a recovery in exports.

“Growth is already fairly strong in Malaysia and with global activity picking up, we should see it well supported,” said the Singapore-based Bajoria.

Shares in Malaysian state power firm Tenaga Nasional Bhd were suspended from trade earlier on Monday pending an announcement, which is expected to be related to the national tariff hike.

The new rates are effective from Jan. 1. (Reporting by Stuart Grudgings; Editing by Kim Coghill)

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