Wednesday, January 21, 2009

Efficient govt will lower business costs far more than cheap power

Over the weekend, the Real Estate and Housing Developers' Association of Malaysia (REHDA) joined the chorus for reduced electric tariffs. President Ng Seing Liong reportedly said the move was “essential for them to ease their burden in terms of doing business.”

Really, how much of the cost of a house is due to power tariffs? 5% at most? So, even if power tariffs are cut by 20% as REHDA requests, developers' costs will go down 1%. Do you think the savings will come to you and me, the housebuyers? Or will the developers happily pocket the savings as extra profit?

Power in Malaysia is already very cheap – far cheaper than in Singapore, for example. And yet, in Singapore, which its government admits will be in recession this year, no-one is clamouring for cheap power. It is accepted that power is a product for which a fair price has to be paid. Instead, the Singapore government is working on various stimulus packages to help the local economy along.

Back home here in Malaysia, far greater savings could be made if productivity were improved. Take a look at any property development site. Look at the wastage in materials and the inefficient working practices. If REHDA and its members focused on this instead, I'm sure they could find 1% of cost savings. And on the government side, cutting red-tape and smoothening implementation will help developers cut costs too, if they no longer have to employ runners and “consultants” to keep things moving.

Cheap power does not benefit the average Malaysian, and will kill our economic competitiveness. All this focus on cheap power detracts from the real issue – the biggest savings and gains are to be made if the BN government practices Competency, Accountability and Transparency.


Anonymous said...

Agreed that an efficient govt will lower business costs and agreed that lowering power tariffs has nothing to do with property developers.

But lowering power tariffs will provide an immediate relief to those companies whereby power makes up a big component of their costs. You may say that these companies should be more efficient but real life is not that simple.

Malaysia is known for its entreprenuership and small businessmen starting out may use second hand machines to produce whatever it is that they produce. They become reasonably successful and they want to upgrade their machines. This will require financing. Are banks helpful? A lot of times, they are not. So, stuck with old inefficient machineries. And there are a lot of these SMIs.

Given the current economic strife, these businesses are struggling, not helped by the massive increase in power tariff last year putting their costs out of whack. Reducing power tariff may help these businesses to survive and in turn will ensure that they do not retrench their workers, which could be you or me. So who says a power tariff cut will not have any impact on the people of Malaysia.

Talking about the ineffectiveness of cheap power in the long run is moot if we all close shop in the short term.

- Collateral Damage -

Chi-Chang said...

Thanks for the comments, Collateral Damage.

I think we both agree that reducing power bills can help businesses survive.

But instead of outright lower tariffs, the government can help businesses improve efficiency.

The Energy Commission can work with Federation of Malaysian Manufacturers on standard measures to improve energy efficiency, and govt can provide one-time cash incentives/grants for companies to invest in these improvements.