The liberalization of the Malaysian gas supply market which came about in 2016 following amendments to the Gas Supply Act 1993 and the introduction of the third party access framework (“TPA Framework”), permits gas suppliers to import and supply LNG into the Malaysia market via the regasification terminals (“RGT”) and ship their gas to their buyers using the existing transmission and distribution pipelines and effectively breaks the monopoly over the domestic gas market previously enjoyed by Petroliam Nasional Berhad (“PETRONAS”). 

The law governing the TPA Framework is the Gas Supply Act 1993 (the “Act”) and the regulations, rules and orders made thereunder. The TPA Framework is regulated by the Energy Commission (the “Commission”) which has released a number of guidelines and codes which TPA licensees must comply with, including:

Note that any services regulated by the Act – including services provided under the TPA system – are subject to the competition rules in the Act and in the Commission’s Guidelines on Competition for the Malaysian Gas Market. Broadly speaking, these rules prohibit anti-competitive agreements and abuse of a dominant position in the context of the pre-existing monopolistic characteristics of the Malaysian downstream gas market. 

As at the time of writing there are only two RGTs in Malaysia: one in Sungai Udang, Melaka which commenced operations in 2013, and another in Pengerang, Johor which went live in 2017. Both RGTs are owned and operated by PETRONAS Gas Berhad. 

There are also other authorities who have jurisdiction over the technical and safety issues throughout the gas supply chain. For instance, the Department of Occupational Safety and Health (“DOSH”) regulates compliance of the licensee’s operations with relevant health and safety laws, such as the Petroleum (Safety Measures) Act 1984, and the marketing or export of liquefied petroleum gas is regulated partly under the Control of Supplies Act 1961 and the Customs Act 1967. 

Under the pre-TPA system the gas tariffs were determined by the Commission. However, in line with the introduction of the TPA system to Malaysian gas markets, the Commission has initiated a shift to Incentive-Based Regulation (“IBR”), with full implementation set to take place in 2020. With IBR tariff pricing, TPA licensees may freely set its own gas tariffs, but must abide by the principles and structures set by the Commission under its guidelines on determination of tariffs for regasification, distribution and transportation under incentive-based regulations. Tariff rates of certain licensees, such as Gas Malaysia Distribution Sdn Bhd (a distribution licensee) and PETRONAS Gas Berhad (a transportation licensee) can be found on their respective official websites¹

Notwithstanding this, the Malaysian government retains the right to regulate the gas price to retail customers as necessary to protect consumer interest.

Licence applications are made to the Commission. In order to participate in the TPA system, a person must obtain at least one of the seven available types of licences: 

A summary of the types of licences are set out at the end of this document. There are no foreign equity restrictions per se; however, based on the prevailing rules at the time of writing, licences shall not be granted to any person who is not incorporated in Malaysia, or who does not have a place of business in Malaysia (except for a licence for import of gas into a regasification terminal which may be applied for as long as they are registered as a foreign company with the Companies Commission of Malaysia or under Labuan company laws). 

Furthermore, all directors sitting on the board of directors of an applicant may not hold any directorships on the board of directors of any other applicant or any other holder of a licence issued under the Act.

Transmission, regasification and distribution licensees are to prepare and establish access arrangements, setting out the standard principles of the arrangement between a TPA licensee and any parties wishing to access their facilities or obtain the licensee’s services. These access arrangements must have been developed in accordance with the relevant TPA Code and are subject to the review and approval of the Commission. These access arrangements are required to be published prior to commencement of operations. For instance, PETRONAS Gas Berhad’s Access Arrangement for their gas transportation system is available on their website².  

The regasification, distribution and transmission agreements to be entered into between licensees and their respective customers must also be approved by the Commission. The TPA Codes require the agreement to, among others:

1. incorporate by reference, the terms of the published access arrangements;
2. provide the right to signatories to initiate legal action for any breach, in accordance with the access arrangements and the relevant TPA Code; and
3. require the regasification / distribution / transmission licensee to indemnify the other party to the extent and in the circumstances prescribed in the relevant TPA Codes.

In late 2019, Shell Malaysia Trading Sdn. Bhd. successfully negotiated and delivered a shipment of LNG cargo to TNB Fuels marking the first shipment and delivery of gas via the TPA Framework. According to news reports, TNB Fuels will use this shipment to deliver 3.5 trillion British thermal units (TBtu) of gas to TNB’s Tuanku Jaafar Power Station in Port Dickson and TNB Connaught Bridge Power Station in Klang.

Based on the information available on the Commission’s website, to-date, the Commission has issued 23 licences to a total of 17 entities under the TPA Framework.

The Commission’s website reveals that there are several parties which hold a combination of “import into RGT” licenses and “shipping” licenses, namely: Gaztech E&S Sdn. Bhd.; TNB Fuel Services Sdn. Bhd.; B.B. Energy Malaysia Ltd.; Petronas Energy & Gas Trading Sdn. Bhd.; Shell Malaysia Trading Sdn. Bhd.; and Petrolife Aero Sdn. Bhd. 
 

 

 

For further information on the TPA Framework, please contact Fariz Abdul Aziz (fariz.aziz@skrine.com) or Karyn Khor (karyn.khor@skrine.com).
 

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