Total factor productivity analysis of a single vertically integrated electricity utility in Malaysia using a Törnqvist index method

•We measure the TFP growth of TNB in Malaysia from 1975 to 2005.•Törnqvist index method is used.•There is no direct evidence of productivity improvements attributable to the industry restructuring.•The introduction of private sector involvement in the industry is observed to coincide with lower TFP growth rates.

The objective of this paper is to measure the total factor productivity (TFP) growth of Tenaga Nasional Berhad (TNB) from 1975 to 2005. Prior to 1995, TNB was essentially the sole electricity provider in Malaysia. However, since 1995 independent power producers (IPPs) have also begun generating electricity, all of which is purchased by TNB under fixed Power Purchase Agreements (PPAs). The introduction of IPPs has reduced the need for TNB to find finance for new power plants. It has been argued that the participation of IPPs in the electricity generation industry should also facilitate improvements in TNB's productivity; however this proposition is yet to be tested. In this study we calculate TFP growth using a Törnqvist index method, finding that there is no direct evidence of productivity improvements attributable to the industry restructuring. Furthermore, it is not clear that consumers have benefited from this, since the PPAs have generally been quite generous to the IPPs in terms of risk sharing and prices paid.