*4.1. Regulatory Framework and Institutional Bodies*

Apparent from the experience of both countries is the defining role of the legislative framework that subsequently entails the setting up of the regulatory and institutional bodies to enforce reform. The legislation must be enacted, and the established regulatory and institutional bodies must be given the authority they need to execute the transformation. The Philippines began to see the progress towards ESI liberalisation after the enactment of the EPIRA. Actions can be seen taken involving the revision and redefinition of the existing agencies' scope of work and the establishment of the new ones to undertake the various tasks to reform. Similarly, Singapore's more serious move towards liberalisation started with the enactment of the Electricity Act (Chapter 89A) that was followed by the EMA Act (Chapter 92B) to define the scope of work to be done and by whom. Furthermore, the authority given to the regulatory and institutional bodies has to cover the entire value chain of the ESI. For instance, the ERB of the Philippines only plays an active role in distribution rate regulation while transmission and generation (wholesale) rates are largely developed by the NPC with only minimal oversight by the ERB [39], which has led to issues in performance accountability, incentive for efficiency and financial burden on the government [39]. The legislation and institutional environment also needs to be designed in such a way that it survives the changes in the government because ESI liberalisation is not a one-off event [40,41]. Continuous development is foreseen and there probably

will be no end to it [42]. Thus, it requires strong and sustained political commitment, extensive and detailed preparation, and continuous development to foster long-term investment.

In Malaysia, there is already a handful of laws and acts to govern the ESI, as listed below. Each comes with their respective regulations, orders, rules and other sub-legislation, where applicable [43].


For both MESI 1.0 and MESI 2.0 reforms, Malaysia Programme Office for Power Electricity Reform (MyPOWER) has been entrusted to spearhead the initiatives. The agency has been actively engaging the stakeholders through various workshops and discourses in order to gain inputs from them with regards to the subsequent reform plan (MESI 2.0). This is certainly an important move to ensure that the latter's concerns are taken into account in instituting the reform and their support can hence be obtained. The next move to realise MESI 2.0 would be to define or revise the necessary legislation. Based on the timeline presented by the minister during the 10th International Greentech & Eco Products Exhibition & Conference Malaysia (IGEM 2019) in October 2019, a number of work on this has started since the fourth quarter of 2019 and is still on-going with varying expected completion dates. This includes detailing of rules, incentive mechanisms, reviewing and drafting amendment and regulatory controls, detailing of energy and capacity market design and rules, and detailing of retail regulatory framework including SOLR's responsibilities and remuneration [44]. The new Act to cater for the whole reform initiatives is planned to be tabled in the second half of 2022. In formulating the required regulations, there is a number of lessons that can be learnt from the Philippines and Singapore. EPIRA has especially received unfavourable remarks from the critics, stating that it is not achieving its objectives and calling for its amendment [45]. In particular, the electricity price has been and keeps on increasing post EPIRA, which is claimed to be due to the ineffectiveness and inefficiency of its structure and the institutional bodies that constitute the ESI [17,46,47]. Therefore, Malaysia has to carefully identify the agencies and institutional bodies needed to implement the reform. It is also important to clearly delineate the boundary of each, especially in areas where their functions can potentially overlap. In this respect, Reference [48] pointed out the importance of a well designed reform structure as one of the lessons learned from the electricity reform moves around the world. Another reason that causes the benefits of the WESM not be realised is because only a very small amount of about 8.2% (As of 2015) electricity is being traded in the market, while the rest is sold through bilateral contracts [49], which defies the purpose of having the market. On the contrary, Singapore has made it compulsory for the generators with capacity of at least 1MW to register with NEMS [50]. The issue in Singapore on the other hand is concerning the competition at the retail market level. Since the opening of the Singapore's retail electricity market in 2001, the market has been dominated by the "Gentailers", which is the term used for retailers who share parent organisations with generation companies, as opposed to the "independent" retailers, who do not have any connection with the generators. There is also a plan to allow gentailers to operate in the MESI's wholesale market [44]. Therefore, careful analysis and implementation mechanisms are needed to prevent oligopoly and to avoid the independent retailers from shying away when they are not able to develop successful business cases. Finally, it is also recommended for the government of Malaysia to consider not privatising the electricity industry fully and entirely. The government should be allowed to own and operate some assets, either

on its own or through the government-linked company like Tenaga Nasional Berhad (TNB). This is especially important during critical and trying times when private companies, which are profit oriented, may decide to stop operation or shut down when business is not good [51]. This is also one of the problems faced in the Philippines because the EPIRA at the moment does not allow the government to own and operate assets.

#### *4.2. Clearly Defined Implementation Phases and Targets*

Apart from flawed design, flawed implementation of a reasonable reform design can be the cause of problematic ESI reform [52]. Liberalising the ESI is a long-term endeavour, involving many parties and possibly transcending governments. Singapore did it in about 24 years from corporatisation of the PUB to the full opening of the retail electricity market, which was attained in 2019 [53]. The Philippines, which started five years later than Singapore is in the last few steps of the staggered opening of the retail electricity market, which is now put on hold due to the TRO explained earlier. For such a long-term transformation process, meticulous planning with clearly defined stages and milestones is important. The importance of implementing the reform in 'proper' sequence is also emphasised in Reference [48]. The logical sequence ideally begins with raising the prices to cost-recovering levels, followed by creating regulatory institutions and restructuring the sector, and then privatisation [48]. Such sequence can lead to significant improvements in several dimensions of operating performance and in a variety of country settings. Furthermore, the transformation can be made more systematic and smoother with clearly defined and communicated activities and targets. Singapore for example can clearly divide their electricity industry reform into four distinct phases; corporatisation, regulatory infrastructure, privatisation and divestment, and full market contestability, as explained earlier in Section 3. Although the stages of the ESI liberalisation in the Philippines are not found specifically mentioned in any source, similar approach to Singapore is seen as shown in Figure 3. In general, it can be seen that the first step would be the detachment of the monopolistic agency that governs the ESIs through privatisation or corporatisation. It ends with the staggered opening of the retail markets by gradually lowering the contestability thresholds of the consumers. With respect to privatisation, findings from Reference [54] show that privatisation improves efficiency if accompanied by independent regulation, privatisation and independent regulation have no significant effect on prices and private investment is stimulated by independent regulation. As for Malaysia, privatisation of the NEB, the government agency in charge of the electricity supply industry was already accomplished in 1990, which subsequently known as TNB. However, the private, government-linked company that took over was still a monopoly. The presence of the first generation IPPs has reduced the monopoly at the generation sector a little bit. Until now, the IPPs account up to about 50% of the total electricity generation in the country. In this respect, Malaysia bears similarity with the Philippines where at the onset of the liberalisation is the involvement of IPPs, albeit the number is not as many as the Philippines'. The first reform series that started in 2011 (MESI 1.0) had envisaged the managed market model that will eventually lead to the presence of the franchisers at the retail market with contestable and non-contestable consumers to be achieved by 2020 [55]. However, the progress has been slower than expected. It only started to take a more serious turn recently after the new government took over with the launching of the next wave of reform, MESI 2.0 [12], which indicates strong political influence in determining its course. A MESI reform roadmap comprising four stages as shown in Figure 4 has been presented to the Panel Perundingan Tenaga (energy consultative panel) in March 2018. The first stage focuses on the long run efficiency while the second stage focuses on the short run efficiency. The first three foci of the third stage are to optimise regional resources, to open the market for fuel supplies and to create independent single buyer (SB) and grid system operator (GSO). The first two are already in implementation and the focus of discussion during the meeting was the third focus as the next move forward. In stage 4, choice of qualified distribution customers will be made and the independent SB is expected to become the electricity market operator. However, the timeline is not clearly stated in the roadmap except that beyond 2030, managed competition with customers having

the choice of retailers would be the focus. In the revised roadmap [44] presented in October 2019, aggregated timeline has been included with more details. Among others, it is planned that the hybrid wholesale market to be ready by 2029. The hybrid market comprises the capacity market on top of the existing energy market, while still honouring the last batch of the PPAs that will end in 2045 [56]. While capacity market ensures reliability by paying generators to commit generation for delivery in years to come, the energy market pays generators only when they provide power day-to-day [57]. The need for capacity market in a liberalised ESI is also in line with the recommendation made in Reference [58] concerning the risks of energy-only market in supporting intermittent RE. The full price-based retail is also expected to be ready by 2029, with the pilot opening of the retail market expected to happen in the second quarter of 2021 [44]. Thus, it can be seen that the plan forward has been clearly laid out with the activities and respective targets made explicit known. The next step would be the execution of the activities, monitoring and revising them in the course of doing so, taking into account the challenges and delays in the first reform series, as well as lessons from other countries. It is also important to ensure timeliness of the execution, allowing the affected parties to adapt to the changes.

**Figure 4.** Malaysia electricity supply industry (MESI) roadmap—https://www.singlebuyer.com.my/ MESI.php.
