CIMB wants review of windfall tax on IPPs

Author: bicarajutawan | Category: Business, News

CIMB group chief executive is urging for a review ‘not because of what it does to IPPs (independent power producers), but because of what it has done to the Malaysian financial market’

CIMB Group has asked the government to review the windfall tax imposed on independent power producers (IPPs) pursuant to the Windfall Profit Levy (Electricity) Order 2008 as it will harm the Malaysian capital market.

In making the call, its group chief executive Datuk Seri Nazir Razak said the imposition of the tax has already resulted in the widening of the credit spread and in the dropping of the bond market volume.

As it affected infrastructure debt financing for both lenders and borrowers, it could also signal an increased regulatory risk going forward.

“What has been covered in the capital market currently is the recent announcement on the IPP windfall taxes.

“That’s quite a material announcement and I would urge the government to review this and review it very urgently. It is not about the impact on IPPs, it is about what we have on our financial market, both equity and bond markets.

“There are no winners in this IPP windfall taxes because if you look at it when it happened, credit debt had widened and bond market volume had dropped, investors have gotten nervous and as a result borrowing costs in Malaysia will go up and further retreat incremental cost of borrowings to the government.

“As a result of this widening credit spread, it will far exceed any money that they (the government) hope to raise from the IPP windfall taxes.

“So, I’m strongly urging the government to review this and review it urgently. Not because of what it does to IPPs, but because of what it has done to the Malaysian financial market,” he told reporters after the group’s extraordinary general meeting.

The government imposed a windfall tax on IPPs as part of efforts to offset rising costs due to surging crude oil prices. The windfall tax is enforced on July 1.

Likening the tax to “shooting a golden goose”, Nazir said the tax had made it more expensive to raise funds for government-related infrastructure projects.

“I think there is a misunderstanding on the taxes. Some think the IPPs earn a lot of money in the past, so it is okay to tax them a bit more.

“In reality, the impact of IPP windfall taxes is way beyond that as IPPs account for 21 per cent of the bond market
.
“Of course, when you charge windfall taxes on IPPs, it will affect investors’ perception on government-related infrastructure projects such as toll roads.

“In today’s uncertainties, it is very difficult for infrastructure projects like toll roads to raise money in the bond market.

“It will result in a flow-through. When the net infrastructure project goes to the market, the cost of money is much much higher. This has nothing to do with the IPPs anymore.

“You want to build a toll road today, you have to pay a much higher borrowing costs as a result of the IPP windfall taxes.

“So, how anyone will benefit from the windfall taxes?” he asked. - Bernama

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