By Yasmin Ramlan
SHAH ALAM, June 30 — The upcoming electricity tariff revision, set to take effect tomorrow (July 1), is expected to benefit around 23 million domestic users, especially low-income and low-usage households. However, experts warn it could have ripple effects on businesses and consumers.
They cautioned that while the move aligns with the government’s goal of subsidy rationalisation, in which domestic users may enjoy lower electricity bills, businesses, particularly those in energy-intensive sectors, will be left to absorb higher operating costs.
This, in turn, could trigger a wave of price increases on goods and services, potentially fuelling inflation and placing further strain on the economy.
Economist Samirul Ariff Othman stated that under the revision, domestic users with low to medium electricity consumption can expect to pay lower tariffs, while industrial and commercial users with higher usage will be subject to cost pass-throughs.
The Universiti Teknologi Petronas adjunct lecturer said this shift effectively moves the subsidy burden away from blanket subsidies toward a more targeted approach.
“Rather than the government absorbing fluctuations in global energy prices via subsidies, the actual cost burden is distributed dynamically across user categories. This reduces reliance on fiscal buffers and makes energy pricing more market-aligned,” he told Media Selangor.
However, Samirul stressed the need for phased adjustments and urged the establishment of a dedicated Tariff Impact Monitoring Unit to track the impact of this revision on businesses.
He also recommended that the Domestic Trade and Cost of Living Ministry (KPDN) be empowered to monitor price movements in essential goods, while incentives like energy-efficiency rebates and green financing should be offered to help small and medium-sized enterprises reduce their energy usage.
“The government must transparently explain the long-term rationale behind the tariff restructuring to maintain public trust. They should frame it as part of Malaysia’s journey toward energy independence and economic resilience,” Samirul said.
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A resident views her electricity bill from Tenaga Nasional Bhd (TNB) at her home in Kuala Lumpur, on June 20, 2020. — Picture by BERNAMA[/caption]
Majority will benefit
On June 20, Tenaga Nasional Bhd (TNB) announced that over 23.6 million domestic users in Peninsular Malaysia will benefit from fairer and more progressive electricity rates under the new tariff that will take effect from July 1, 2025, to December 31, 2027, under the Incentive-Based Regulation (IBR) framework.
Under this revision, an Energy Efficiency Incentive will be introduced to promote prudent electricity use. Domestic consumers using 1,000 kWh or less will not be affected by the new tariff schedule and will receive bill rebates.
The tariff changes for Regulatory Period 4 (RP4) will involve restructuring the average base tariff rate, introducing a new tariff schedule, and implementing a fuel cost adjustment mechanism.
For the energy charge component, a new and more dynamic fuel cost adjustment mechanism, called Automatic Fuel Adjustment (AFA), will replace the Imbalance Cost Pass-Through (ICPT) mechanism.
This mechanism enables automatic monthly adjustments to generation costs based on current fuel market prices and foreign exchange rates, with updates now published monthly on the Energy Commission’s (EC) website, which is a shift from the previous practice of making adjustments every six months.
The Average Base Tariff Rate is also adjusted based on the estimated cost of electricity supply for the RP4 period and is set at 45.50 sen/kWj, compared to 45.62 sen/kWj approved in December last year.
With this adjustment, the average overall electricity tariff cost is reduced by up to 19 per cent, compared to the Third Regulatory Period (RP3).
Meanwhile, for the hardcore poor, the government will continue the RM40 Electricity Bill Rebate programme. At the same time, a 10 per cent rebate will be provided to eligible social institutions that meet the criteria and are registered with the government.
Who bears the cost?
With the rising subsidy burden through the lowering of tariffs for the majority of users, Samirul questioned how the government plans to reduce energy spending.
“While TNB claims 23 million Malaysians will benefit from the revised electricity tariff, this seems counterintuitive against the backdrop of Malaysia’s rising energy subsidy burden, which exceeded RM30 billion in recent years.
“So, how does the government expect to reduce expenditure while lowering tariffs for a majority?” he asked.
Association of Water and Energy Research Malaysia’s (Awer) S. Piarapakaran similarly raised concerns about who will ultimately bear the cost, questioning whether the government has allocated a budget for the tariff reduction or if the subsidy is being cross-financed by other categories of TNB consumers.
“If it is cross-subsidy among TNB customers, which category is paying for this? If this is the case, how can the EC call it a fair tariff approach?
“More clarification is needed from EC on this,” he said.
Piarapakaran also noted that, unlike the new AFA mechanism, the previous ICPT system — which revises tariffs every six months — gave the government more time to absorb or cushion sharp cost increases, helping to prevent sudden price hikes.
“If the impacts of the AFA mechanism are unevenly shifted onto the business sector, the negative consequences could be severe,” he said.
Piarapakaran warned that without proper oversight, the new AFA mechanism could lead to unintended consequences, such as profiteering and rising living costs.
“Generally, the government can monitor prices using electricity consumption data and assess the impact when tariffs are reviewed. If the AFA is going to be implemented, the government must create a proper price monitoring system to prevent profiteering,” he said.
Fairer, transparent tariff model
Meanwhile, Samirul said that implementing the AFA, which replaces the ICPT mechanism that has been in place since 2015, underscores the need for greater fairness, transparency, and long-term stability in determining electricity prices.
“By linking tariffs directly to fuel cost differentials (actual versus benchmark), this ensures that consumers pay a fairer share, more during energy surges, less during fuel downturns.
“The government is no longer fully shielding consumers from volatility but is also not blindly passing on all costs,” he said.
Using benchmark prices also makes the tariff-setting process more transparent and less subject to political influence, which is crucial for investor confidence, especially in a capital-intensive sector like energy.
In the long run, the mechanism encourages greater financial discipline among TNB and motivates consumers to be more energy-conscious, aligning with Malaysia’s broader sustainability objectives under the National Renewable Energy Policy (NREP).
Elaborating further, Samirul said that although adjusting tariffs during a period of rising global fuel prices may appear untimely, the move serves both short-term and long-term objectives, including helping to protect low- and middle-income households from further cost pressures during economic recovery.
“The adjustment is part of a broader plan to introduce automatic or semi-automatic tariff reviews, making future hikes predictable and transparent. This mitigates political fallout,” he said.
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TNB’s Southern Power Generation Sdn Bhd (SPG) power plants in Pasir Gudang, Johor.[/caption]
