Liberalising electricity market may fail society: CEM

Friday, November 21, 2008
Issue 534, Page 2
Word count: 560
Published in: Macau Daily Times

By Poyi (Natalie) Leung

The government’s proposal to liberalise Macau’s electricity market was deemed by CEM as “unlikely” to fulfil society’s expectations especially a substantial reduction in tariffs.

The formal response document of CEM to the public consultation paper of the future electricity market reform proposal was submitted to the Office for the Development of Energy Sector (GDSE) yesterday.

Chief Executive Officer of CEM, Franklin Willemyns, said in the press conference that decisions should be taken with “extreme caution” since any significant change in the existing electricity market might cause “profound impact” on the overall economy of Macau in a long term.

Mr Willemyns also said that introducing competitors to the electricity wholesale sector could be “complex”, adding “it may not be very interesting for a small size market like Macau’s”.

“The existing regulatory model has served Macau well over the past 23 years,” he said.

However, the CEO stressed that the company was not “against” any options or market liberalisation as long as “it’s beneficial to Macau”.

By referring to the example in Singapore which is “often considered to be a model of an open market”, Mr Willemyns pointed out that electricity tariffs there had soared by 80 percent in the last three years that made it about 20 percent higher than in Macau and “high price volatility” was also experienced in the country.

“Basically most of the advantages that are brought forward (in the reform proposal) can be attained in the current regulatory model,” he said.

According to the power supply company, diversified energy options were desirable but substantial local generation was preferred as an “important element in the best solution for Macau”.

Thus, CEM was also proposing to the government an installation of a 365 megawatt power generation unit at the current Coloane Power Plant in order to increase the generation capacity by 20 percent.

“If the imported energy from the mainland fails, no major blackout will be experienced in Macau,” Mr Willemyns said.

The survey result announced this week by CEM showed that the Macau society was mostly concerned about reliability of power supply, stable and reasonable tariffs, impacts to the environment and the company’s corporate social responsibility.

However, CEM’s response document said that market liberalisation was only “one of the possibilities” to achieve what Macau people were looking for, and the government’s proposed change could pose “massive risks and bring more problems instead of the benefits that are initially committed”.

The document went on to say that it was “not necessary” and also “very unlikely” that tariffs would be cut by 10 percent to 30 percent following a market liberalisation as pointed out in the reform proposal.

It was because “80 percent of an electricity company’s cost is usually unstable such as procurement of fuels and electricity as well as the amount of capital needed to be invested in power plants, transmission and distribution networks”.

In addition, CEM said they could not reduce their rate of return as “an unjustified return will minimise investment intentions which are essential for maintaining high reliability of power supply”.

The government’s public consultation paper was deemed by CEM as “lacking a convincing cost efficiency analysis and failing to quantify how competition can improve cost efficiency, decrease tariffs and improve service quality”.

Thus, Mr Willemyns said such industry reforms deserved further debate and Macau should not push for liberalisation in the electricity market “hastily”.

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