MONOPOLY OF TNB (TENAGA NASIONAL BERHAD)

Tenaga Nasional Berhad (TNB) is a monopoly company in Malaysia. It is the LARGEST electric utility company in Malaysia with almost RM73 billion in assets. TNB has a monopoly on the electricity supply of Malaysia. It simply controls the price of their goods (electricity). All houses and businesses in Malaysia must pay TNB to get their electric. The company serves over seven million customers.

While having a monopolist in an industry will enable it to utilize the full potential of the resources available and thus, reducing average total cost, which in terms, means less price needed to be pay by the consumers. However, this could mean the other way round though if a particular monopolist decides to raise price with an aim for gaining more profit.

We all have already witness the on-going rise of price for electricity in Malaysia, which is also clear evidence too. They on their trump, complain about rising cost for producing energy and utilities, giving excuses for a rise in price, in the end, the consumers will suffer.

TNB Raise Price Tariff

Effective from 1st June 2011, government announced the increment of electricity (TNB) tariff with average of 7.12%. TNB raise the electrical tariff as an excuse to compensate for increase in fuel prices. The increase is contributed by:

   -      Average 5.12% increase due to the 28% upward revision of natural gas price to the power

          sector from RM10.70/mmBTU to RM13.70/mmBTU;

         -      Average 2.0% increase to partly recover for the increase of electricity cost of supply since June
                2006.

The increase of electricity tariff was based on the following reason stated by TNB, such as increase in gas price, increase in electricity cost of supply, in line with Renewable Energy (RE) Act, to be used in development of RE projects.

HOW IT AFFECTS YOUR POCKET
Consumption Band (kWh)	Existing Monthly Bill (RM)	New Monthly Bill (RM)**	% of Bill Increase
0 - 200	0 – 43.60	0 – 43.60 0 %	(0%) (No increase)
201 - 300	43.93 – 77.00	43.93 – 77.00 0 %	(0%) (No increase)
301 - 400	77.33 – 110.40	77.40 – 117.00	0.1% - 6.0%
401 - 600	114.69 – 180.80	117.40 – 198.80	2.4% - 10%
601 - 800	181.19 – 259.20	199.23 – 285.10	10%
801 - 1000	259.62 – 345.50	285.55 – 375.80	8.8% - 10%
> 1000	345.95 and above	376.25 and above	Up to 8.8%

* Old and new electricity tariffs

The Importance of Electricity!

With the advancement and technology development of the society, electricity is very important to people nowadays. Electricity runs everything in our everyday life. For instance, gas stations can’t pump gas without it.  Businesses have to close because their cash registers won’t work without it.  Restaurants can’t cook food without it.  Everything in our world today depends on having the power to keep them running. In our house, everything we need and enjoy is plugged into a wall socket and requires electricity. Our lives almost come to a standstill without electricity.

However, TNB has no fear of charging a high electrical tariff, because no one can live without it. It is their food, their soul, their energy to survive on! This will bring financial burden to the low income group due to the soaring prices of electricity. Even they are poor but they still required electric to survive.

This is why Monopolists tend to extend their funds into their pockets and neglect consumer beneficial programs. This results in a major hog down on complains by the consumers but were left with no choice in the end as they only have 1 source to look for their needs.

Should government take over TNB ?!

How government can help us? In my opinion, I think government should take over TNB in order to protect consumer from the high tariff of electricity.

Referring to the diagram below, Private Monopoly (TNB) reach Point E when curve MR=MC, and produce products at Point A with price of P_m and quantity of Q_m.

Government monopoly should get involved with the monopoly in this case by taking over the electric utility company. The advantage is that it may lead to lower prices for consumers and reduce the burden of high electrical tariff on consumer.

There are 2 methods on controlling the price in order to protect the consumer.

Government should set a new price at point:

      1)     P = MC  (to produce at socially optimal price level) which is Point B

                or

   2)     P = AC  which is Point C

As a result, by setting a new pricing, consumer can used a higher quantity of electricity by paying at a lower price.

As a conclusion, I strongly agree that government should take 

over TNB.

EXTRA INFORMATION

- A monopolistic market is a market structure that consists of a single seller that sells a unique

   product that does not have a close substitute, and there are barriers to block the entry of new
   firms into the industry.

- Socially Optimal Price is when P=MC on a monopoly graph.

Reference List

1)   Tenaga Nasional Berhad, 2011, Pricing and Tariff, [online], Available at: < http://www.tnb.com.my/residential/pricing-and-tariff.html >, [Accessed on 20 November 2012]

2)  Sharidan M. Ali, 2011, All eyes on impact of electricity rate increase on consumers, [online], Available at : < http://biz.thestar.com.my/news/story.asp?file=/2011/5/31/business/8787840 >, [Accessed on 18 November 2012]

3)   Jeeva Arulampalam, 2010, Electricity price increase, if any, likely to be 1%-2%, [online], Available at : < http://biz.thestar.com.my/news/story.asp?sec=business&file=/2010/12/10/business/7593182 >, [Accessed on 18 November 2012]

Posted by Chua Yi Jing.