Malaysia PM confirms ‘slight increase’ in electricity tariffs for industry sector

KUALA LUMPUR – As the Malaysian government prepares to reduce fuel subsidies in 2025, Prime Minister Anwar Ibrahim has confirmed a “slight increase” in electricity tariffs in Peninsular Malaysia, leaving businesses wary that increased costs will deter investors.

This comes after Tenaga Nasional Berhad (TNB), the sole electricity provider in Peninsular Malaysia, announced a 14.2 per cent hike in the base tariff for its “Regulatory Period 4” (2025 to 2027) on Dec 26, 2024.

But the move has those in the business community crying foul, with concerns that these measures, along with the proposed mandatory Employees’ Provident Fund (EPF) contributions for foreign workers – which could come into force this year – will lead to higher operational costs, making Malaysia less attractive to investors.

Mr Anwar in October 2024 announced that

RON95 petrol subsidies will be removed in mid-2025

and said that education subsidies will be gradually reduced for the top 15 per cent of the wealthiest consumers.

Kuala Lumpur

abolished a blanket diesel subsidy in June 2024

which is estimated to save the government RM4 billion (S$1.22 billion) annually. A targeted subsidy mechanism has also been put into place to prevent smuggling.

All this comes against a backdrop of global trade volatility triggered by US President Donald Trump’s tariff war against several countries, including China. These headwinds have painted a gloomy picture for Malaysia’s export-oriented economy.

Datuk Seri Anwar tried to reassure the business community at a Feb 3 event, clarifying that the electricity price increase would not be 14 per cent. He said a “small increase” was necessary to generate additional revenue for the government to fund public utilities.

“I don’t think it will be a significant burden or disadvantage to the business community. There will be a slight increase. I mean, earn more, pay more lah.

“Otherwise, how do I improve education quality? How do I help the poor? How do I improve the roads?... A small hike, don’t worry,” Mr Anwar told 500 Chinese business community leaders and diplomats at a Chinese New Year celebration. Electricity subsidies forked out by the government totalled RM20.7 billion between 2022 and 2024.

The mandatory EPF contributions for foreign workers, he added, will be set at 2 per cent of monthly pay for both employees and employers, totalling 4 per cent. Malaysia has 2.5 million registered low-skilled foreign workers, comprising nearly 15 per cent of the total workforce in 2024.

Similar to Singapore’s Central Provident Fund, Malaysia’s EPF is a compulsory savings scheme with contributions from both employers and employees. It is primarily for retirement but can also be used for home purchases, education, or medical expenses.

Mr Anwar reiterated in Parliament on Feb 4 that the electricity tariff hike would apply only to the industrial sector and the wealthy.

“If we don’t tax these groups, how can we increase allocations for schools and hospitals? We have to accept the reality of a reasonable tariff hike for industries and the super-rich... it will not affect 85 per cent of the population,” he said.

But not all business leaders appear to be convinced. Speaking to the audience before Mr Anwar at the Feb 3 celebration, the president of the Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM), Mr Ng Yih Pyng, urged that economic and subsidy reforms be implemented gradually, to avoid disrupting markets and businesses.

“Given the accumulation of additional operating costs, we sincerely urge the government to maintain electricity tariffs at current levels throughout 2025-2026, to ease the financial burden on businesses and mitigate inflationary pressures from increased operating costs,” said Mr Ng, who represents the ACCCIM’s 110,000 members. 

“Additionally, we hope the government will reconsider the proposed mandatory EPF contributions for non-permanent resident foreign workers and exempt employers from this requirement,” he said in a speech at the event.

In response to the imminent tariff hike, Mr Ng also said the chambers of commerce will continue to engage with government to address the business community’s concerns.

“ACCCIM will continue to engage with the government regarding the electricity tariff hike, as it impacts businesses across the board. In some industries, electricity costs can account for up to 40 per cent of the overall cost structure,” he told The Straits Times.

In December 2024, after getting the nod from the government, TNB announced that the base tariff will be raised from 39.95 sen per kWh in the 2022 to 2024 period, to 45.62 sen per kWh in the 2025 to 2027 period, from July 1, 2025.

The base tariff has been steadily increasing from 38.53 sen per kwh in the 2015 to 2017 period.

It serves as benchmark pricing in determining residential, commercial and industry tariffs. Currently, 70 per cent of the base rate tariff is linked to fuel cost.

Justifying the hike, TNB said that coal and liquefied natural gas – 90 per cent of fuel sources in Peninsula Malaysia – are expected to rise 24 per cent and 34 per cent, respectively, in the 2025 to 2027 period.

Since 2014, the government implemented the Imbalance Cost Pass-Through (ICPT) mechanism to reflect the actual cost of power generation on a semi-annual basis, accounting for fuel price fluctuations.

A rebate will be provided if the fuel cost is lower than the projected price, while a surcharge will be imposed if the fuel cost exceeds the projected price for domestic, business and industry users.

Despite the ICPT put in place, the government is expected to fork out RM2.4 billion worth of electricity subsidy for the first half of 2025. In the 2022-2024 period, the electricity subsidy amounted to RM20.7 billion.

Representing more than 4,000 manufacturing and industrial companies, Federation of Malaysian Manufacturers president Soh Thian Lai told ST that the government should maintain the current electricity tariff as the sector faces other challenges such as a service tax hike for logistics, additional costs for e-invoicing, and the upcoming EPF contributions for foreign workers.

“The energy intensive industry (comprises) mostly multinationals and large local companies and part of the global supply chain. A substantial increase in electricity tariff could further strain margins and affect their competitiveness,” Tan Sri Soh said.

Turning to solar energy is one way to mitigate an electricity hike, according to Selangor and Federal Territory Engineering & Motor Parts Traders’ Association chairman Kau Peng Yap.

“We are still using the TNB grid. But part of the electricity (used by our members) is generated by solar power not only to reduce cost, but also to fulfil environmental, social and governance requirements,” he told ST.

Political risk consultancy Viewfinder Global Affairs managing director Adib Zalkapli said the planned tariff hikes and subsidy cuts will no doubt affect the government’s popularity.

“In Malaysia, any subsidy rationalisation move will be politicised by the opposition, regardless of which party is in the opposition. So it will impact the government’s popularity,” he said.