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thousand megawatts to its power grid over the next five years. There are excellent opportunities for U.S. companies in this industry to participate in the healthy market of this prosperous and stable country.


A.                  SUMMARY

The most recent announcement by the Malaysian Central Bank (Bank Negara) on the 2004 first quarter (January-March) gross domestic product (GDP) growth of 7.6 percent was a positive indication that the Malaysian economy is strengthening.  The 7.6 percent GDP growth was the highest recorded for any quarter in the past three years, and it surpasses analysts’ expectations.  Bank Negara credited the strong growth to a robust manufacturing activity, expanding at its fastest rate in more than three years at 12.5 percent.  This was mainly driven by the export sector that grew 15.1 percent during the 2004 first quarter.

Against this overall economic growth background, demand for electricity, which accounts for 18 percent of the total final energy consumption in Malaysia, is likely to grow by an estimated 5-7 percent per annum for the next ten years, according to the Ministry of Energy, Water and Communications.  On moves to further diversify electricity generation, coal and natural gas are expected to contribute 32 and 61 percent to Malaysia’s fuel mix in 2005, from the current 10 and 77 percent. 

Malaysia currently has approximately 14 gigawatts (GW) of electric generation capacity, of which 86 percent is thermal and 14 percent is hydroelectric.  In 2001, Malaysia generated around 65 billion kilowatt-hours of electricity.  The Malaysian government expects an investment of $9.7 billion to be required in the electricity utility sector through 2010.  Large portions of this amount will be for coal-fired plants, as the Malaysian government has adopted a policy of attempting to reduce the country’s dependence on natural gas for electric power generation, with a goal of increasing coal’s share to 30 percent by 2006.

As stipulated in the Third Outline Perspective Plan for 2001-2010 (OPP) and the Eighth Malaysia Plan, the government has decided to intensify the development of renewable energy as the fifth fuel resource under the Fuel Diversification Plan.  This is to supplement the previous four fuels (i.e. oil, gas, coal and hydro).

In 2003, Malaysia imported approximately $3158 million worth of electricity transmission and distribution equipment, which accounts for 82 percent of the total market demand. In 2003, the main import countries were Japan, U.S, Singapore and China, with market shares of 19 percent, 17 percent, 16 percent and 11 percent respectively.  Best prospects for U.S. exporters are primarily in the accessories market for transmission and distribution equipment, raw materials, and in the area of research and new technology.

B.                 MARKET OVERVIEW


Demand for electricity, which accounts for 18 percent of the total final energy consumption in Malaysia, is likely to grow by an estimated 5-7 percent per annum for the next 10 years, according to the Ministry of Energy, Water and Communications.  On moves to further diversify electricity generation, coal and natural gas are expected to contribute 32 and 61 percent respectively to Malaysia’s fuel mix in 2005, from the current 10 and 77 per cent.

According to the Energy Commission, Tenaga Nasional Berhad (TNB) has an installed capacity of 8,055 MW, Sabah Electricity Sdn Bhd (SESB) has 478 MW, Sarawak Electricity Supply Corp (SESCo) has 557 MW, and the independent power producers (IPPs) 18,097 MW.  Malaysia Ministry of Energy, Water and Communications has maintained the margin reserve as 30 percent citing its priority to ensure a secure, undisrupted power supply, even though the industry is trying to persuade the government to reduce it to 15 percent 

Malaysia currently has approximately 14 gigawatts (GW) of electric generation capacity, of which 86 percent is thermal and 14 percent is hydroelectric.  In 2001, Malaysia generated around 65 billion kilowatthours of electricity.  The Malaysian government expects that investment of $9.7 billion will be required in the electricity utility sector through 2010.  Much of that amount will be for coal-fired plants, as the Malaysian government has adopted a policy of attempting to reduce the country’s heavy reliance on natural gas for electric power generation, with a goal of increasing coal’s share of electricity generation to 30 percent by 2006.

New Energy Policy – 5th Fuel Policy

To supplement the conventional supply of energy, new sources, such as renewable energy, will be encouraged.  In this regard, the fuel diversification policy which comprises oil, gas, hydro, and coal will be extended to include renewable energy as the fifth fuel, particularly biomass, biogas, municipal waste, solar, and mini-hydro.  Of these, biomass resources, such as palm oil and wood waste as well as rice husks, will be used on a wider basis mainly for electricity generation.

The government announced the launching of the Small Renewable Energy program (SREP) in May 2001.  The launch of the program was among the steps taken by the government to encourage and intensify the utilization of renewable energy in power generation.  This is in line with the government’s decision to intensify the development of renewable energy as the fifth fuel resource under the country’s Fuel Diversification Plan, as stipulated in the objectives of the Third Outline Perspective Plan for 2001-2010 (OPP) and the Eighth Malaysia Plan.

Regulatory Framework

The Energy Division of the Ministry of Energy, Water and Communication is responsible for formulating the electric supply industry policies.  Meanwhile, the Energy Commission acts as the regulator and is the enforcement agency of the energy supply laws.

The following are the energy laws and regulations in Malaysia:

  • Energy Commission Act 2001

  • Electricity Supply Act 1990

  • Gas Supply Act 1993

  • Electricity Supply Regulations 1994

  • Gas Supply Regulations 1997

Electricity Transmission

Tenaga Nasional Berhad’s transmission system spans all of Peninsular Malaysia, connecting power stations owned by the company and independent power producers (IPPs) to customers.  The system operates at 132 kV, 275 kV, and 500 kV voltage levels and forms an integral network known as the national grid.

The national grid is interconnected to Thailand’s transmission system operated by the Electricity Generating Authority of Thailand in the north, with a transmission capacity of 300 MW and a 132 kV overhead line with a maximum transmission capacity of 80 MW.  In the south, the national grid is connected to Singapore’s transmission system at Senoko via two 230 kV submarine cables, with a firm transmission capacity of 200 MW.

The transmission network is managed and operated by TNB’s transmission division.  TNB’s transmission division is comprised of: TNB Transmission Network Sdn Bhd, which is the operation and maintenance operator and asset manager of the transmission network system for TNB; System Planning, which is responsible for the short-, medium-, and long-term planning for TNB; Protection, Telecontrol and Telecommunications, which is responsible for the operations and management of TNB secondary equipment; and TNB Fuel Services, which is responsible for the procurement of fuel resources for TNB.

Industry Restructuring

Malaysia is considering reforms to its power sector to make it more competitive and less expensive.  Currently, three-state owned utilities (TNB, SESB, and SESCo) dominate power generation and distribution in Malaysia.  The market was opened to IPPs in 1994, and 15 IPPs were licensed, though not all of the projects have been built.

In recent developments, TNB, the main state-owned utility, began in 1999 to divest some of its power generation units.  Eventually, Malaysia expects to achieve a fully competitive power market, with generation, transmission, and distribution decoupled.  But, reform is still at an early stage and the exact process of the transition to a competitive market has not been decided.  This issue is still under study, and many observers have voiced caution in light of the experiences of other deregulated utility systems.

C.                 IMPORT MARKET

Total Imports, Exports and Local Production of Power Generation Equipment
(U.S. Dollar Millions)


2002 (actual)font>

2003 (actual)

2004 (estimated)

Total Market Size




Total Local Production




Total Exports




Total Imports




Imports from the U.S.




Exchange rate




Source: Malaysia Department of Statistics

(Estimated: projected growth for total local production, total exports, total imports, imports from the U.S. are 5 percent, 2 percent, 5 percent, 5 percent respectively)

The above statistics include the following Harmonized System (HS) codes:

HS Code            Description

84.02              Steam or other vapor generating boilers (other than central heating hot water boilers capable also of producing low pressure steam); super-heated water boilers.                        

84.04              Auxiliary plant for use with boilers of heading No. 84.02 or 84.03; condensers for steam or other vapor power units.

84.06              Steam turbines and other vapor turbines.

84.10                             Hydraulic turbines, water wheels, and regulators.

84.11                             Turbo-jets, turbo-propellers and other gas turbines.

85.02              Electric generating sets and rotary converters.

85.03              Parts suitable for use solely or principally with the machines of heading No.  85.01 or 85.02.

85.04              Electrical transformers, static converters and inductors.

85.32              Electrical capacitors, fixed, variable or adjustable (pre-set).

85.35              Electrical apparatus for switching or protecting electrical circuits, or for making connections to or in electrical circuits, for a voltage exceeding 1000 volts.

85.36              Electrical apparatus for switching or protecting electrical circuits, or for making connections to or in electrical circuits for a voltage not exceeding 1000 volts.

2003 Import Market Share (Percent for U.S. and Major Competitors): Japan (19percent), U.S. (17percent), Singapore (16percent), and China (11percent).

D.                 COMPETITION

In the last five years, the market for transmission and distribution equipment for the electricity sector has become increasingly competitive.  The high demand for electricity needs, and the apparent shortage of supply in the early nineties, attracted many suppliers to the Malaysian market.  In addition to traditional international players from the U.S., Japan, South Korea and Europe, there are a growing number of companies from China, India and former Eastern Europe.  According to industry experts, these latter firms are concerned primarily with expanding their market share and are willing to sell equipment at very low prices to achieve this objective.

There are also increasing numbers of Malaysian national manufacturers.  Traditionally, Malaysian manufacturers have produced low voltage transmission and distribution equipment.  With the encouragement and protection of the Malaysian government, there is now a trend toward producing medium and even high voltage components.  The market for medium voltage equipment in the distribution sector (including medium voltage switchgear) has been localized for about fifteen years.  Although 70 percent of high voltage transmission equipment is still imported, efforts are being made to assemble components locally.  Substation automation is now localized and plans are underway to manufacture high voltage substation towers.  The result is a very mature market with an over-capacity of suppliers, especially in the distribution sector.

Two of the largest Malaysian manufacturers are Malaysia Transformer Manufacturing Sdn Bhd (MTM) and Tenaga Switchgear Sdn Bhd.  MTM is a subsidiary of TNB and is the country’s first local company to manufacture transformers.  MTM manufactures distribution transformers of 100 kVA to a maximum of 33 kV, medium-sized power transformers of 5 MVA to 30 MVA up to a maximum voltage of 33 kV, combined substation units of 500 kVA and 1000 kVA, and low voltage distribution boards of 800 A to 2000 A, both indoor and outdoor types.  Plans are underway to manufacture higher voltage transformers of 132 kV.  A technical agreement with ABB Kraft AS has been signed for the technology transfer to manufacture 132 kV power transformers between 10 MVA and 100 MVA.

Tenaga Switchgear Sdn Bhd, also a subsidiary of TNB, began operation in 1995 to take advantage of the local high voltage switchgear market estimated at RM 300 million.  This venture is the first of its kind in Malaysia and the region.  Tenaga Switchgear had commenced production of high voltage 132 kV and 275 kV gas insulated switchgear, and conventional SF6 circuit breakers.

Among the biggest foreign players in the market for medium voltage transmission and distribution electric equipment are ABB, Siemens, Toshiba, Hitachi, and GEC-South Africa.  In the high voltage range, ABB, Siemens, Samsung, and Anagoin Invest (Yugoslavia) enjoy strong market shares.  Leader Universal, a Malaysian company, is the largest manufacturer of power cables.  Other cable producers include Federal Power, Cable Powers Malaysia, Uniphone Cables, and Furukawa Electric Cables.

E.                  END USERS

Electricity supply is dominated by three integrated utilities: Tenaga Nasional Berhad (TNB), serving Peninsular Malaysia, Sabah Electricity Sdn Bhd (SESB), and Sarawak Electricity Supply Corp (SESCo).  These are complimented by various independent power producers (IPPs), dedicated power producers, and co-generators.

Electricity supply in Peninsular Malaysia is provided mainly by Tenaga Nasional Berhad (TNB).  TNB was established in 1990 through the corporatization of the National Electricity Board.  The move to transform the former government utility into a private entity is regarded by many Malaysians as being highly successful because of TNB’s unique position as a monopoly in the generation, transmission, and distribution of electricity in Peninsular Malaysia.  The Malaysian government, through the Ministry of Finance, continues to hold the majority stake in TNB.

TNB is the largest electricity utility in Malaysia, with the largest generation capacity of over 8000 MW that accounts for over 61 percent of the total power generation in Peninsular Malaysia.  The main subsidiaries of TNB are: TNB Generation Sdn Bhd, TNB Transmission Sdn Bhd, TNB Distribution Sdn Bhd, TNB Research Sdn Bhd, TNB Engineers Sdn Bhd, TNB Engineering and Consultancy Sdn Bhd, and TNB Repair and Maintenance Sdn Bhd.

Sabah Electricity Sdn Bhd (SESB) was founded on September 1, 1998 to take over the business of electricity supply from Sabah Electricity Board, a statutory body of the Federal Government, which had been supplying electricity to consumers in Sabah and Labuan.  TNB and Sabah state government jointly own SESB.

Sarawak Electricity Supply Corp (SESCo) is a statutory authority established by the Sarawak state government.  The Sarawak state government has 55 percent ownership and Sarawak Enterprise Corporation Bhd (SECB) holds the remaining shares.

NUR is a dedicated power producer serving the Kulim High Technology Park in Kedah, a state located in the north of Peninsular Malaysia.  It has two subsidiary companies, NUR Generating, involved in electricity generation, and NUR Distribution, which is involved in electricity distribution.  The capacity of this dedicated power plant is 450 MW, which is implemented in 2 phases. 

IPPs in Malaysia generate and sell electricity in bulk to the 3 dominant utilities.  The IPPs in operation are as follows:

Peninsular Malaysia

IPP Location

Capacity (MW)

YTL Power Generation

Paka, Terengganu


Pasir Gudang, Johor




Segari Energy Ventures Sdn Bhd

Lumut, Perak


Powertek Sdn Bhd

Alor Gajah, Melaka


Port Dickson Sdn Bhd

Tanjung Gemuk, Port Dickson


Pahlawan Power Sdn Bhd

Tanjung Keling, Melaka


Genting Sanyen Power Sdn Bhd

Kuala Langat, Selangor



IPP Location

Capacity (MW)

ARL Tenaga Sdn Bhd



Serudong Power Sdn Bhd



Powertron Resources Sdn Bhd



Stratavest Sdn Bhd



Sandakan Power Corporation Sdn Bhd




There are no IPPs operating in Sarawak, but there is an associated power producer called Sejingkat Power Sdn Bhd, which is a generating company 49 percent owned by SESCo and the remaining 51 percent by Sarawak Enterprise Corporation Berhad (SECB).  It is situated at Sejingkat and has capacity of 2 units of 50 MW, each fuelled by coal.

Co-generation is the production of electricity and heat energy from a single fuel source.  The thermal efficiency of up to 90 percent is possible compared to 40 percent in conventional thermal generation, and about 60 percent in combined cycle generation plants.  To date, there are about 30 co-generators which have been licensed by the Department of Electricity and Gas Supply.  The main co-generators are:  Sabah Forest Industries Sdn Bhd, Perwaja Steel Sdn Bhd, Titan Petrochemicals Sdn Bhd, Lembaga Padi and Beras Negara, Gas District Cooling (KLIA) and Gas District Cooling (KLCC).

F.                  SALES PROSPECTS

Demand for electricity is expected to remain robust during the period from 2001-2005, spurred by strong growth in most sectors of the economy.  Concerted efforts will be focused toward ensuring the availability of sufficient, secure, and reliable supply of electricity.  The IPPs will increasingly assume a larger share in generation, while the utilities continue to focus on improving transmission and distribution networks. 


An additional 8800 MW of generation capacity will be commissioned from 2001-2005, most of which will be installed by the IPPs in Peninsular Malaysia.  These include the gas-fired plants of 1500 MW in Port Dickson, 640 MW in Lumut, 720 MW in Telok Gong, 220 MW in Pasir Gudang, and 710 MW in Sepang.

The implementation of the 2400 MW Bakun Hydroelectric Project will continue and the electricity generated will be mainly utilized to meet the long-term power requirements of Sarawak and Sabah.


The transmission systems in Peninsular Malaysia, Sabah, and Sarawak will be further strengthened to enhance reliability and efficiency.  During the period from 2001-2005, a 500 kV transmission project will be completed, which will link the Manjung power station to Ayer Tawar.  In Sabah, 275 kV transmission lines of the west coast grid extension project from Kota Kinabalu to Kudat, involving a distance of 400 circuit kilometers (cct-km), will be completed.  Work will also commence on the east-west inter-connection from Kota Kinabalu to Sandakan  covering a distance of 600 cct-km.  In Sarawak, work relating to the upgrading of the transmission system is also expected to commence with the revival of the Bakun Hydroelectric Project.


The distribution network in Peninsular Malaysia will be expanded almost two-fold to 356,900 cct-km.  In addition, 133 new main intake substations and 185 main distribution substations will be constructed and commissioned for the primary purpose of injecting additional capacity to meet the projected demand growth, as well as enhancing network security, power quality, and voltage conversion for specific distribution systems.  The SESCo system will be upgraded to a total capacity of 8,370 cct-km with the additional 617 cct-km to the distribution network and 33 kV substations to improve coverage, reliability, and customer services.  Similarly, with the implementation of the east-west inter-connection and the west coast grid extension projects, Sabah distribution network will also be upgraded and expanded by an additional 2,789 cct-km.

Rural Electrification

Rural electrification programs, especially in Sabah and Sarawak, will be enhanced during the period from 2001-2005.  These involve grid extension and the provision of stand-alone system generators comprising solar photovoltaic, mini-hydro, and hybrid systems.  A total of RM 856.6 million will be allocated by the Federal Government for rural electrification programs, which are expected to benefit 103,126 rural households.  In Peninsular Malaysia and Sabah, rural electrification programs will also be partly financed through their respective electricity supply industry trust funds.  Electricity coverage for Sabah is expected to increase to 85 percent, while that of Sarawak will reach 90 percent by the end of 2005.  In Peninsular Malaysia where universal coverage has been achieved, improvements will continue to be made to extend the duration of supply in remote areas.

According to industry experts, U.S. exporters will have the greatest opportunities in consulting services and accessories components for transmission and distribution of electric equipment.  These include raw materials such as copper lining for power cables, testing equipment and instrumentation, specific technological know-how in areas such as back-up supply systems and mobile substations, high voltage research, and advanced engineering software to improve the transmission and distribution networks.

G.                 MARKET ACCESS

Firms bidding on TNB tenders are required to source all equipment and material locally wherever possible.  To encourage this type of purchasing, high import duties (10-35 percent) are placed on imported components that can be manufactured locally.  Sales tax is 10 percent.  Equipment which must be imported for lack of local supply enjoy substantially lower import tariff rates (approximately 5 percent).

For large projects, TNB’s bidding is reasonably open.  Tenders are announced in the newspaper and international companies are encouraged to bid.  Although foreign companies can participate, they must partner with a local company.  For smaller tenders, TNB will generally approach a few, select companies directly.

In order to be successful in the transmission and distribution electric sector, foreign companies need to have a physical presence in Malaysia.  TNB typically relies on local companies to procure imported equipment.  Although the government will grant licenses to foreign companies to manufacture components locally, multinational companies cite the lack of majority equity ownership as the biggest obstacle they face in penetrating the Malaysia market.

U.S. exporters wishing to enter the market should tie up with a local partner.  In particular, the Malaysian Government strongly encourages foreign firms to form joint ventures with Bumiputra (indigenous) companies, through the Vendor Development Program (VDP).  Under the VDP, which was set up to encourage Bumiputra entrepreneurship, Bumiputra firms enjoy certain privileges such as exemption or reduction of import duties and sales tax.  These companies usually look for overseas partners to bring in the technology.  Joint ventures between Bumiputra firms and foreign companies have enjoyed varying degrees of success.  TNB has been asked to help develop the vendor system in areas such as manufacturing, installation, and services.  Industry experts cite that when foreign manufacturers are searching for the appropriate local partner, it is especially important to tie up with a company that has industry experience and is staffed with skilled engineers who have knowledge of the electricity sector.

U.S. exporters are also advised to open a representative office.  A less expensive, but also less effective, alternative to actually having a physical presence in Malaysia is to appoint a local distributor to represent them.  Local players in the market pointed out that networking and relationship building with TNB is vital in achieving successful market share in Malaysia’s transmission and distribution electric sector.


Exports to Malaysia may be financed through letters of credit issued to importers by banks in Malaysia. Financing is readily available on the domestic market to Malaysian importers. Although limited capital controls were imposed in September 1998, Malaysia’s current account remains fully convertible. In addition, importers and exporters have sufficient access to foreign exchange to carry on their business transactions. The Malaysian Ringgit (RM) cannot be sent or received from abroad, thus. payments for imports and exports must be sent and received in foreign currency (except those of Serbia, Montenegro and Israel).  While the capital controls complicate the activities of portfolio investors, foreign direct investment capital remains freely convertible.

In addition to the Malaysian banking sector, the U.S. Export-Import Bank (EXIMBANK) can provide support. EXIMBANK can provide:

  • Direct or intermediary loans
  • Loan guarantees to enable a foreign buyer to secure private credit
  • Loan guarantees to a private creditor to provide working capital to an exporter
  • Insurance policies for exporters to eliminate both political and commercial risk of repayment by foreign purchasers

Export financing is also available through the U.S. Small Business Administration (SBA), which can provide:

  • Regular business loans
  • Revolving export line of credit
  • Joint guarantees with EXIMBANK
  • Investment Company financing
  • Long-term asset financing
  • International trade loans to compete, export, and develop export markets 

Larger projects with high U.S. export value may qualify for a grant from the Trade Development Agency (TDA) for a feasibility study.

Dispute Settlement

Malaysia is a signatory to the UN-sponsored Convention on the Settlement of Investment Disputes. The domestic legal system is open and accessible. Past cases of foreign investment disputes, which have been rare, have generally been handled satisfactorily by existing dispute settlement mechanisms. Additionally, many firms choose to include mandatory arbitration clauses in their contracts.

Should local administrative and judicial facilities fail to satisfy claimants, the dispute is submitted to the International Center for Settlement of Investment Disputes (ICSID) under the aegis of the United Nations. The government has also set up the Kuala Lumpur Regional Center for Arbitration under the auspices of the Asian-African Legal Consultative Committee to offer international arbitration, mediation, and conciliation for trade disputes.

H.                 TRADE SHOW

ASEAN ELENEX 2005, The 6th International Exhibition of Transmission & Distribution and Electrical Engineering for the Asean region.

Date: July 20-23, 2005

Venue: Kuala Lumpur Convention Center

Supported by: The Ministry of Energy, Water and Communications, Energy Commission, Asean Federation of Electrical Engineering Contractors, Tenaga Nasional Berhad, The Electrical and Electronics Association of Malaysia, and Malaysia External Trade Development Corporation.

Other Teams:


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