1. THE DYNAMICS OF THE
ELECTRICITY SUPPLY INDUSTRY (ESI)
A PUBLIC LECTURE
BY
TAN SRI LEO MOGGIE
AT THE INAUGURAL
DISTINGUISHED SPEAKERS’ PROGRAMME
BY
THE ENERGY MARKET AUTHORITY OF SINGAPORE
29TH
APRIL 2011
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Ms Chan,
Distinguished Guests, Ladies and Gentlemen,
Introduction
1. It is a pleasure to be in Singapore again. But first, I would like to
thank the organizers, the Energy Market Authority of Singapore
(EMA), for inviting me to speak in this inaugural Distinguished
Speakers’ Programme. I appreciate this privilege of sharing my
thoughts on the dynamics of the Electricity Supply Industry (ESI), with
respect to the countries of ASEAN and within the context of current
developments and realities. My comments are made in my personal
capacity as someone who has been involved in the industry for many
years, not as Chairman of Tenaga Nasional Berhad.

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2. With regard to issues of energy, we are all aware of global
concerns with carbon emission and climate change, and the
significant role of the mitigating steps the energy industry can take.
That aside, there has been a great deal going on around the world
lately which are worthy of our attention because of their profound
impact on the dynamics of the energy and electricity supply industry
today – the floods in Australia earlier this year, the on-going instability
in the Middle East and North Africa, the triple earthquake / tsunami /
nuclear tragedy in Japan.
3. It will be some years yet before the world fully recovers from the
effects of these events. But, among the important lessons learned is
the reality of how globally and economically connected we have
become and how profoundly vulnerable the industry is to the vagaries
of nature and the multiple crosscurrents in the global economics. And
as an immediate reaction, these events will lend to some adjustments
in the way the electricity industry carries on with its business.
Ladies and Gentlemen,

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Dynamics of the ESI
4. The Electricity Supply Industry (ESI) of ASEAN, which serves
as the backdrop of what I am discussing today, faces multi-
dimensional challenges in fulfilling its responsibility to deliver
reasonable, affordable and reliable electricity supply to consumers
and in support of national development objectives of the respective
countries. These include depleting indigenous energy resources,
high demand growth in the electricity sectors, huge investments that
are needed, increasing and volatile fuel prices, vocal public demands
on the issues of environment at a time when customers’ expectation
are also increasingly sophisticated. On the part of the utilities, this
calls for prudent management and planning to be put in place, which
involves finding a balance between project development and its
associated risks, and exploring alternative supply options and
technologies.
5. The utilities will have to manage a delicate balance among the
primary elements which drives and determines the dynamics of the
industry, namely Energy Supply Security, Competitive Costs, Green
Energy and Environmental Sustainability and the assurance of
Safety.
6. For example, Green Energy goals of reducing the level of
carbon emission and mitigating climate change are much desired.
However, the cost of available technology for Green Energy today is
still very high and therefore not cost efficient. And also current
technology on renewable energy is still not dependable in terms of

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security and stability of supply. It is almost necessary to have a
replicate generation capacity for base-load supply.
7. Similarly, industrialization policy that encourages the setting up
of heavy industries runs contrary to the objective of reducing carbon
emissions, as it is also contrary to the objective of encouraging
efficient use of energy. The question is should high-energy
consuming industries, which are likely to be highly polluting be
allowed to be set up? Those tasked with framing a country’s industrial
policy cannot ignore the impact such a policy will have on the
country’s energy supply.

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Ladies and Gentlemen,
Energy Supply Security
8. Since power plants require fuel to generate electricity, obviously
fuel supply security is critical to ensuring the ability of a power utility
to fulfill its responsibility of delivering safe, secure and reliable
electricity to its consumers.
9. Generally, the ASEAN countries are or may seem to be in a
comfortable position with regard to the current position of supply
security. The majority of the countries of ASEAN utilize natural gas as
the main source of electricity generation. Currently, for example,
Brunei, Malaysia, Thailand and Singapore are largely dependent on
natural gas for power generation. Natural gas is relatively abundant
within the ASEAN region, with proven reserves of about 4% of global
reserves.
10. In the North ASEAN region encompassing the Mekong Basin,
in particular Lao PDR (People’s Democratic Republic) Myanmar and
Vietnam, power generation is mostly derived from hydropower.
11. Even though presently the role of renewable energy is still very
small, renewable energy is already part of the generation mix, for
example geothermal for both Indonesia and the Philippines, biomass
and geothermal in Thailand and biomass in Malaysia.

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12. This level of comfort in energy supply security is however
compromised, even in the short term, by the rising trend in energy
prices that we are seeing now. What is clear is that there will be
increased challenges in ensuring supply security in the longer term.
Fuel supply security within the region revolves primarily around three
fossil fuels, i.e. oil, natural gas and coal. Brunei, Indonesia, Malaysia
and Vietnam are countries in the region with oil reserves at 1.1, 4.4,
5.5 and 4.5 thousand million barrels respectively. These reserves are
however finite and fast depleting due to the high regional demand, as
well as increasing demand for export revenue.
13. It is the same for gas. ASEAN countries have a proven reserve
of 4% of global reserves, and accounts for about 6.6% of the world’s
production. We are already seeing some strains in gas supply. In
Malaysia, for example, the development of natural gas is also further
hampered in that it involves smaller fields containing CO2 and the
increase in exploration and production costs.
14. In the case of coal, while the Asia Pacific region is reported to
have the second largest proven reserves in the world, after Europe
and Eurasia, most of the coal within the region is found in Indonesia,
though there are some smaller quantities in Thailand, Vietnam and
Malaysia (Sarawak).
15. At the same time, Asia Pacific is also the largest consumer of
coal. In addition, most of the coal produced and consumed within the

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region is of lower calorific value coal or lignite used at mine-mouth
coal plants within the region.
Ladies and Gentlemen,
16. The response adopted by individual countries in ASEAN to
mitigate the risk of supply security is very much influenced by
available resources. Most adopt a general policy of fuel
diversification. There is however some focus on a dominant particular
fuel choice, especially where such a resource is obtainable
domestically.
17. For instance, Brunei’s energy supply is relatively secure.
Brunei has an abundant domestic natural gas supply and gas will
continue to be dominant in its generation mix. Even so, Brunei is
examining the possible sourcing of future long term capacity from
Sarawak’s hydro power projects to complement its gas-based plants.
18. Meanwhile, Indonesia’s current high economic growth also
means high demand growth for power. In order to meet this demand,
Indonesia is focusing on fast track projects of coal-fired plants and
reinforcing its transmission network, including grid interconnection
projects for energy transmission from coal-fired plants to load centres
and grid connections between its main islands. The Philippines is
diversifying its generation fuel mix. So does Thailand, which has
formulated quite a comprehensive fuel diversification strategy,
ranging from Renewable Energy (RE) sources and fossil fuels,

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augmented by its hydro imports from neighboring countries.
Singapore will continue to be highly dependent on gas powered
plants, and in order to manage its supply security, Singapore will
diversify its sourcing of gas and is investing in infrastructure for LNG
imports.
19. For Peninsular Malaysia, where 40% of generation mix is from
coal, which is primarily sourced from Indonesia, Australia and South
Africa, the risk of fuel supply is a real challenge to Tenaga Nasional.
In an effort to manage the increased risks in fuel security and, in
particular the worrying prospect of having too much coal in the
generation mix, Malaysia is also investing in infrastructure for LNG
imports as an alternative for gas from domestic supply. In Malaysia’s
diversification policy, natural gas will continue to be one of the major
fuels for base-loan electricity generation. The first LNG import facility
is under development in Malacca and is expected to be ready in
August 2012
20. Malaysia also has a large hydro potential of approximately
28,000 MW in Malaysia’s State of Sarawak. The actual capacity that
can be developed is likely to be much less, but still substantial. As
may be recalled, the original plan for the development of the 2400
MW Bakun hydro project in Sarawak, was for part of the power to be
transmitted via submarine HVDC cable to Peninsular Malaysia.
Power from Bakun is now totally reserved for use in Sarawak.

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21. The development of major hydro power has its own challenges,
which requires proper planning of the future livelihood of affected
local communities in a comprehensive way. The implementation of
hydro power projects has to be part of extending the development
process encompassing the economic future and welfare of the
communities that are affected. As long as such issues are properly
addressed, the prospect of transferring hydro power capacity from
Sarawak should be revived, particularly as there will be serious
concerns on the development of nuclear power post Fukushima.
22. As can be appreciated, the investments that will be needed in
the future to meet the demand for power infrastructure in the region
are huge. According to some industry experts, ASEAN, with 601
million in population and current total generation capacity of about
130,000 MW, will require more than USD 100 million in investments
in the next 10 – 15 years (ACE & IEEJ, 2006) to meet its rapidly
growing electricity demand, which is at an average of 3.8% per
annum until 2030.
23. Let me also comment on the role of nuclear power generation
in ASEAN. A number of countries in the region have made some
early preparations to include nuclear power in their respective
generation mix. Vietnam is perhaps more advanced in its preparation
to build its nuclear power plant, as compared to other countries in
ASEAN.

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24. However, what happened in Fukushima Daichii, Japan is likely
to raise new concerns on the future of nuclear power. Those in the
nuclear industry continue to be convinced of the technical safety of
modern nuclear reactors with their stringent safety features. They will
point out that the Fukushima reactor is outdated and was in fact
expected to be decommissioned soon. Also the main argument
supporting the use of nuclear power is because it is seen to be the
only viable technology that will address the issue of global warming
and climate change. Then came the March 11th
tragedy. The
supporters of nuclear power will also point out that as a result of
Fukushima, there will be more stringent regulatory rules and design
criteria are going to be further tightened. The challenge, post
Fukushima, however, is not strictly technical but one of public
acceptance. With all the images of the Fukushima nuclear plant
meltdown fresh in their minds, together with footage of what
happened in Chernobyl as Ukraine commemorated the 25th
Anniversary of the tragedy three days ago, it is unlikely that, at least
in the short term, public opinion can be persuaded to support the use
of nuclear power. For a number of countries in ASEAN that have
factored in the use of nuclear as part of its generation mix,
Fukushima meant these plans will need to be revisited. It will also
encourage pressure of public opinion for governments and utilities
worldwide to focus more on the development of renewable energy
and green energy technologies.
Cost Competitiveness

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25. As to Cost Competitiveness, we know that electricity pricing
policy varies from country to country, depending on a number of
considerations, such as fuel price subsidy, availability of indigenous
resources, economic multiplier and the country’s generation mix.
Electricity tariffs in Singapore and the Philippines, for example, are
based on full market price of fuels and, therefore, are higher
compared to tariffs in other countries in ASEAN. In cases where the
electricity supply industry is still government-controlled, even if by
proxy, and where there are some moderate natural resources per
capita, elements of subsidies are often embedded in pricing. This
results in relatively lower tariffs in countries such as Indonesia,
Malaysia and Thailand. For countries which are rich in natural
resources for their electricity generation, the consumers are able to
enjoy relatively cheaper tariffs, since fuel inputs are predominantly
domestically-based – e.g. natural gas for Brunei and hydropower for
Lao PDR (People’s Democratic Republic).
26. Price volatility is an accepted feature of fossil fuels. As we
know, prices of natural gas and coal often move in tandem with prices
of crude oil. This presents a great challenge where spikes in oil
prices occur, typically during events of crisis such as the current
political instability in several North African and Middle East countries.
As is expected, the main fossil fuel (gas, coal) prices used for the
power sector in ASEAN are directly linked to and move in tandem
with the movement of international oil prices. This is now
compounded by increased coal generation due to the reduction in
electricity from nuclear plants in Japan and Europe, particularly

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Germany, as a result of Fukushima. Demand for coal from Japan
and Germany have increased, putting pressure on coal prices
worldwide.
Ladies and Gentlemen,
27. It has often been commented that micro managing of the
activities of the power supply industry by government will result in
inefficiency. From the industry’s perspective, utilities should be free to
manage their own operations. In an ideal electricity supply industry
environment, government intervention in the operation of the industry
should be avoided. However, we are living in a world where,
according to the International Energy Agency (IEA), around 1.5 billion
people still have no access to electricity. Of relevance to us in this
room is the fact that 10% of them reside in the ASEAN region.
28. There is a real disconnect between the uses of electricity in
advanced economies and the population in the less developed areas.
There are areas where companies can come in, supply electricity and
do a perfectly viable business, such as in Singapore. There are also
areas where proactive intervention and subsidies are necessary to
promote increase in the rate of electrification.
29. We also need to remind ourselves that electricity is essential for
socio-economic development and that access to it is a basic need for
the general population. So, whilst many of us talk about advanced
issues on the electricity supply industry such as market liberalization,

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renewable energy and new technologies like Smart Grid and Carbon
Capture and Storage (CCS), the basic need to supply electricity
remains an issue in many parts of the world, including parts of the
ASEAN region. It is in cases such as these that government
intervention is necessary to ensure that electricity supply can be
delivered to all at affordable prices.
30. Energy pricing can be a complicated issue. For example, one
aspect which countries that produce resources (oil, gas, coal) are
constantly engaged in is to determine the optimum prices of the
indigenous fuel resources for domestic use, as opposed to
maximizing revenues through exporting it at market prices. Countries
such as Indonesia, Malaysia and Thailand subsidize their fossil fuel
prices for use in the domestic power sector. This is seen as
appropriate and as a necessary support for domestic industry, with its
components of value added activities.
31. Let me say this is not peculiar to the region. In 2009, USD 312
billion was spent on worldwide fossil fuel subsidies. As far as ASEAN
is concerned, Indonesia spent USD 12.5 billion, while Malaysia and
Thailand spent USD 4 – 5 billion, according to the World Economic
Outlook 2010 published by the IEA.
32. Those in the industry will point out that fuel subsidies create
artificially lower energy prices, encourage wasteful consumption,
distort market signals and undermine the competitiveness of
renewable energy. They are right. However, there are many reasons

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why governments continue with the policy of subsidizing energy
prices - primarily for social-economic and affordability purposes. For
example, Indonesia’s end use electricity prices are heavily
subsidized. Subsidy restructuring programs, while absolutely
compelling on economic ground, need to be carefully crafted and
judiciously implemented, not only to ensure sustainability of the
energy sector, but also to sustain the stability of the economy.
Elective governments are sensitive to public opinion, even if at times,
at the cost of being seen to compromise economic management.
Green Energy and Environment Sustainability
33. Yesterday, at Universiti Tenaga Nasional, we had Professor Dr.
Rajendra K. Pachauri, Chairman of the Inter-Governmental Panel on
Climate Change speak to us and clearly showing how urgent global
action is required to mitigate the march of climate change. ASEAN
Governments generally recognize environmental sustainability as
their national agenda. Malaysia, Singapore and Thailand have taken
initiatives to incorporate green energy strategies in their generation
plan. Singapore has also advanced its CO2 reduction initiatives with
the promotion of energy efficiency and renewable energy, as well as
other green energy projects, such as the waste-to-energy power plant
and intelligent energy system pilot projects in Pulau Ubin. The
Government of Thailand also promotes renewable energy production
and usage in its long term development plan, with its current RE
installed capacity of 405 MW (i.e. 1.4% of Generating Capacity). I

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understand Indonesia is planning to harness substantial capacity
from its geothermal potential.
34. In Malaysia, Tenaga Nasional is aligning its green energy
initiatives with the green energy agenda and the 40% carbon intensity
reduction voluntary pledge made during the Conference of Parties 15
in Copenhagen in 2009. The policy focuses on driving for operational
efficiency and encouraging Energy Efficiency among its consumers.
Tenaga Nasional is also improving the generation thermal efficiency
of its power plants, reducing Transmission and Distribution Losses
and working on Demand Side Management.
35. The promotion of a culture of Energy Efficiency and Demand
Side Management, unfortunately, has not been given much attention
by the industry in the past. Now, it is what we must emphasise and
focus on. For example, incorporating energy efficiency in building
plans. The Malaysian Government will introduce the Feed-in-Tariff
(FIT) this year as part of the initiatives to promote power generation
from renewable energy sources. The FIT will help accelerate the
development of renewable energy and covers technologies such as
solar, biomass, biogas, mini-hydro and municipal solid waste
projects.
36. Going by comments in the media, there is a lot of interest in
renewable energy usage. It should however be recognized that while
there is encouraging emphasis on promoting the development of
renewable energy for electricity, its application in the near future will

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remain restricted to fulfilling specific roles. In addition, consumers are
likely to be more responsive to energy efficiency initiatives when they
are required to pay rates that reflect actual cost of production.
Ladies and Gentlemen,
ESI Structure and Development
37. As we have seen, the dynamics of the electricity supply industry
of ASEAN is such that while member countries share common issues
in ensuring the region’s long-term energy security, each country faces
different sets of challenges and corresponding mitigating strategies.
The structure of the electricity supply industry of ASEAN member
countries also differs from one country to another.
38. Let’s take the case of the liberalized market structure.
Liberalization of the electricity supply industry, where generation,
transmission and distribution are decoupled, is expected to bring
about efficiency gains and also will open up the industry to a greater
number of investors. In theory, there is a strong basis for this –
competition encourages efficiency. But the global scorecard on the
liberalization of the electricity supply industry, and where electricity is
traded through the operation of a pool market is somewhat mixed. In
general, prices to consumers have increased. As far as the ASEAN
electricity supply industry is concerned, the degrees of liberalization
differ from one country to another. Singapore has done relatively
well. Singapore’s experience and the role of its Energy Market

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Authority (EMA) can be a useful case study for countries of the
region. Others, such as Malaysia and Thailand, retain incumbent
vertically integrated utilities with the participation of the IPPs in the
generation sector.
39. As a personal observation, let me say that it is necessary to
take into account the gaps between the existing and the liberalized
structures. These gaps must be addressed. In particular, the rules of
the market has to apply to the whole chain of supply right to the
consumer, for full liberalization and the operation of the electricity
pool market to work.
40. Many of the pre-requisites for liberalization to work are matters
of policy that are in the hands of national governments. For example,
the removal of cross-subsidies in tariffs, institutionalizing the tariff
review process, establishment of a fuel pass-through mechanism and
a robust regulatory process with clear structure of accountability
assigned to stakeholders in the industry.
Ladies and Gentlemen,
Cross Border Potential
41. I would also like to mention the potential area of cooperation
among the power utilities of ASEAN – that pertains to the power

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system interconnections between the neighboring countries of
ASEAN, namely the ASEAN Power Grid.
42. The ASEAN Power Grid has been a subject of discussion in the
forum of Heads of ASEAN Power Utility Association (HAPUA) for
some time now. With the ASEAN Power Grid, there can be cross
border electricity trading between interconnected power systems.
The ASEAN Power Grid can also facilitate alternative supply options
for emergency assistance during crisis situations, and functions as an
economic exchange of transactions between utilities. These
exchanges are technically feasible and commercially viable, as
demonstrated by the existing interconnections between Tenaga
Nasional and the Electricity Generating Authority of Thailand, which
was achieved through bilateral agreements between both utilities and
between Tenaga Nasional and SP Power Asset Limited of Singapore
(originally signed between National Electricity Board (LLN) of
Malaysia and Public Utility Board of Singapore). In addition, the
sharing of spinning reserves amongst neighboring countries’ grid
systems will also, to some extend, help to reduce or defer addition of
new capacity plant-up requirements. This cooperation among power
utilities of ASEAN can gain momentum with more push from the
Governments of the countries of ASEAN.
Conclusion
43. On that note, and by way of conclusion, let me summarize what
have been discussed:

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(i) The electricity supply industry of ASEAN faces multi-
dimensional challenges in fulfilling its responsibility to deliver
reasonable, affordable and reliable electricity supply to meet
the needs of consumers and help support the regions’ national
socio-economic goals and objectives.
(ii) For utilities, prudent risk management and planning is
necessary, where there has to be a balance between project
development and its associated risks. Managing the
interactions of the dynamics of supply security, cost
competitiveness, environmental concerns and the overriding
assurance of safety, will determine the choice of supply option
and technologies. For example, new concerns with nuclear
energy as a result of Fukushima will increase pressure on
renewable energy and give new focus on Energy Efficiency and
Demand Side Management.
(iii) For some countries in ASEAN, policy intervention continues to
be necessary for socio-economic reasons. But for it to be
sustainable, the electricity supply industry needs to be allowed
to gradually reduce the elements of subsidy and for the industry
to be subjected , over time, to the commercial discipline of the
market.
(iv) The countries of ASEAN have an opportunity for regional co-
operation through the ASEAN Power Grid or grid
interconnection. It can serve as an avenue to optimize the use

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of energy resources among member countries, including the
sharing of spinning reserve, as well as emergency and
economic exchanges of power.
44. Once again I thank the Energy Market Authority of Singapore
and I thank you for your kind attention.
LEO MOGGIE