Understanding the SESB
Published on: Sunday, February 04, 2024
By: Datuk Seri Panglima Wilfred Madius Tangau
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There is a notion that SESB is a statutory body and or a wholly owned Sabah government company where a sentiment is often uttered among the citizens in Sabah, “SESB kan kerajaan Sabah punya.”
This misguided belief has contributed to a lack of understanding among the people regarding the various challenges confronting SESB, including the ominous financial sustainability situation.
I wish to clarify that SESB, is a company (a Sendirian Berhad,) registered by Suruhanjaya Syarikat Malaysia (SSM) with Tenaga Nasional Berhad (TNB) owning 80 percent of the shareholding and the remaining 20pc is owned by Sabah State Government respectively.
The Federal Ministry of Finance (MOF) owns a golden share in SESB by virtue of their contribution to the financial sustainability of SESB. In short, SESB is a Government Linked Company (GLC).
As a responsible corporate entity, SESB, like any other company, fulfils its obligation by paying corporate tax and other related taxes. It is imperative for SESB to be operated as a commercially-focused organization, prioritizing consumer satisfaction and related client activities to ensure the sustained health of our bottom-line objectives.
As a utility company, adopting a profit-oriented mindset aligns SESB with the principles commonly embraced by successful business entities.
The prevailing sentiment, however, suggests that many individuals, perhaps even a substantial portion of SESB’s own staff, do not perceive the organization through the lens of a profit-driven enterprise.
Just like any monopoly companies, the business of SESB is regulated. And so, Under Incentive Based Regulation (IBR) SESB has to apply for the Weighted Average Cost of Capital (WACC) to the regulator for every Regulatory Period (RP).
In simple terms WACC can be interpreted as our “profit” for that period. For example, last year our WACC was 4 pc.
This residual mindset may have originated during the era when SESB was under the purview of the state government, operating as Lembaga Letrik Sabah (LLS) before its privatization to the now known SESB in 1998.
Addressing this misunderstanding is paramount, as it lays the foundation for a more informed understanding of what and who is SESB especially its current operational dynamics and financial challenges.
Shedding the notion of SESB as a socio-economic entity is crucial to understanding its transformation into a business-driven entity and the resultant shifts in its modus operandi.
For instance, the financial sustainability of SESB does not only depend on the tariff in place but also in its ability to collect electricity bills from consumers.
SESB has made significant strides in its revenue collection, witnessing a notable improvement from around RM1 billion in the past to the current achievement of RM200 million.
Despite this progress, there remains a pressing need to further enhance efforts in recovering outstanding payments from the sizable number of over 400,000 consumers who owe SESB.
This clarification becomes especially pertinent when discussing the potential spectre of “technical” bankruptcy, a term tethered to SESB’s financial health.
By recognizing SESB as a profit driven entity, the public can appreciate its dual responsibilities – generating profit while ensuring the consistent and affordable provision of electricity. There are those who consistently complained of unstable electricity supply but at the same time allow their outstanding payment in arrears.
This dual role requires SESB to navigate the complex interplay of economic variables, infrastructure costs, and regulatory oversight inherent in the utility industry.
It is crucial for consumers to understand that the Sabah government is a minority shareholder of SESB with a 20pc stake where full ownership is only contingent on the acquisition of shares from Tenaga Nasional Berhad (TNB), the majority shareholder at 80pc.
Just like any GLCs, SESB operates using revenue generated from its businesses and not from budgetary allocation from the government. Although federal subsidies, particularly tied to oil prices as well as Tarif Support Recovery (TSR), currently sustain SESB, these subsidies are set to cease by 2030, necessitating a strategic recalibration.
The looming cessation of federal subsidies poses a critical question for SESB’s sustainability post-2030. The imperative lies in a fundamental mindset shift, acknowledging SESB as a profit driven entity.
Treating SESB as a profit driven company demands strategic thinking, financial innovation, and a collaborative effort from both the organization and the public.
This distinct regulatory framework introduces one of many constraints that SESB must navigate. Understanding the intricacies of these constraints is pivotal for the public, as it sheds light on the nuanced challenges SESB faces in balancing financial sustainability with its fundamental role in providing reliable and affordable electricity to the people of Sabah.
Understanding this concept is quite straightforward. Let’s consider a stall hawker as an analogy. If they spend RM 43 on the cost of goods but sell them for RM 34, there’s an evident loss.
Similarly, SESB faces a comparable situation. Our total cost of power generation is RM 0.43 per unit of electricity, yet we sell it to consumers at RM 0.34, regardless of whether they are domestic, commercial, or industrial users. This results in SESB operating at a loss only being sustained by the TSR.
Unlike the hawker who can adjust prices to turn a profit, SESB cannot do so. Tariff or selling price per unit of electricity supply is for the government to decide. SESB can only request.
In all candour, our current state does not warrant a tariff increase, especially considering the need for substantial improvements in our service delivery.
Achieving this improvement requires not only the support of the state government but also the collective empowerment of the people.
A transformative step would be for the state and its residents to rally behind the initiative of SESB to increase the reserve margin from the present 12pc to something like 30pc.
In pursuit of this objective, SESB is actively implementing a range of strategic initiatives, with the optimistic goal of achieving a 30pc reserve margin by the end of the year which will play a pivotal role in eliminating the need for load shedding, ensuring a more stable and reliable power supply for our consumers.
However, a word of caution on that target, unforeseen breakdowns and outages may still occur due to the inherent instability of the grid. As I mention before, we still have over five thousand kilometres of uncoated distribution cable within our network, which poses a potential source of outages.
- The views expressed here are the views of the writer and do not necessarily reflect those of the Daily Express.
- If you have something to share, write to us at: [email protected]
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