Natural gas price hike discouraging, says Misif

PETALING JAYA: The Malaysian Iron and Steel Industry Federation (MISIF) is opposing the cumulative natural gas price increase of about 23% over the next three years, lamenting that it is a very discouraging decision by the government on high energy-consuming manufacturing entities within the iron and steel industry.
In a statement last Friday, MISIF said the overall and unprecedented steep increase in natural gas price would invariably impose more pressure on production cost and affect the viability and competitiveness of the industry.
It noted that the tariff rebate of RM0.40/MMBtu applicable for the January-June 2017 period, which translates to an average effective tariff of RM26.31/MMBtu, is just a meagre reduction of 2.74% from the previous average tariff.
“More worrisome is the fact that there would be an overall increase of about 23% over the next three years.
“We strongly object to this increase and reiterate our call to the government to adopt a moratorium of any increase in natural gas price for at least the next two years,” it said.
Adding to the woes are the intense competition in the domestic iron and steel industry as well as high influx of imported steel products from all over the world, according to MISIF.
Total Malaysian iron and steel imports this year are expected to reach a record 8.6 million tonnes (7.92 million tonnes in 2015), with China alone contributing 40% or 3.45 million tonnes.
MISIF said the increase in natural gas price will continue to adversely affect the industry’s competitiveness in the international market and severely jeopardise its exports of steel products, which is also expected to continue with its declining trend.
MISIF also highlighted that over the last two years (May 2014 to July 2016), the natural gas tariff had increased five times, from RM16.07/MMBtu to RM27.05/MMBtu, a staggering increase of RM10.98/MMBtu or 68%.
"The new average base tariff as announced would effectively mean that come July 2019, the natural gas price would have increased by an astounding 104% over a five-year period," it said.
Meanwhile, the Federation of Malaysian Manufacturers (FMM) also voiced concern over the impact of possible cumulative gas price increase of 22.6% by end of 2019 amid the uncertainty in the world economy in the next few years.
In a statement last Friday, the association said it hopes the government will continue to consider industries competitiveness against regional competitors in the energy subsidy rationalisation and the proposed transition to market price and to continually assess the impact of price reviews against the prevalent economic and market conditions.
“FMM will continue to advocate for a fair pricing of natural gas, in particular for the locally sourced piped gas, and seek further engagement with the government to obtain further clarity on the basis of the average base tariff determination for the next three years,” it said.
The Energy Commission has approved the average base tariffs for the regulatory period beginning Jan1, 2017 to Dec 31, 2019 whereby the average base tariff is projected at RM32.74 per mmBtu by 2019 from RM26.71 per mmBtu this month.