Commentary Economics

Much ado over fuel prices


Written by TheMole

By Salahuddin Hisham

Nov 17, 2017

IT must be insensitive on the part of yours truly to brush off the recent gripe on rising fuel prices as much ado over nothing. For the penny pinchers, it is no laughing matter.

Even though private vehicle users, including those in the Klang Valley metropolitan area, hardly consume 100 litre of petrol a month and an increase of seven sen per litre to RM2.38 would still be cheaper than a Big Mac a month at McDonald’s, they would not appreciate the reality check.

Similarly, an old friend on Facebook was screaming at the top of his lung in capital letters for the government removal of  fuel subsidy.  He argued that the government should not increase petrol prices but remove the subsidy.

That must have been a new revelation for the legally-trained but non-practising lawyer.  It certainly does not help his case to argue on a policy that has already been in place since September 2014.

He even accused Deputy International Trade and Industry Minister Datuk Ahmad Maslan as having a sick mind for purportedly saying that the petrol price increase was to reduce road accidents. That was a fake statement attributed to Ahmad Maslan.

To comment on public policies, the facts must be right in order to be relevant and contribute to the discourse on the concern for rising fuel prices.

Having floated fuel prices for the last three years, Malaysians are only learning to cope with rising fuel prices due to political development in Saudi Arabia that resulted in oil shooting up in the international market.

As Facebooker Lim Sian See wrote: “Malaysian will have to get use to paying market prices for petrol like the rest of the world. Oil prices is no more at sub-US$30 per barrel as in early 2016 but is at the latest new high of US$62 per barrel.”

Oil prices are not determined by Prime Minister Datuk Seri Najib Razak. It is not a matter to joke about as the power to determine is the international oil market of producers and buyers offering and bidding prices.

To have low pump prices for petrol, there must be a party to subsidise, but not the government. The policy has been not to waste money on unproductive subsidies and reallocate the subsidies for the needed areas.

Petronas could be one option to subsidise but consider that out of RM1.11 trillion contributions for 1974 to 2014, 230.6 billion (21 per cent) is wasted to subsidise cheap oil for Independent Power Producer.

Without taking into account money that was wasted to bail out failed banks and logistics company, build F1 racing track, investment in Africa and other unproductive ventures, it is a tempting political spin to claim the public was denied 21per cent of Petronas revenue for five major cronies to enrich themselves.

There are many problems attached to subsidising fuel prices, which can be summarised as the government can no longer afford to waste resources on such subsidies.

Before 2014, the government fuel subsidies bill was rising like there’s no tomorrow. Petrol and diesel subsidies for 2012 and 2013 were between RM17-18 billon. The complaint then was only 25 per cent of the subsidy benefited the people.

At end of 2016, fuel subsidy was RM23.4 billion and that compared to RM2 billion a year during the time of Tun Dr Mahathir Mohamad’s administration.

In 2002, Dr Mahathir and the then Domestic Trade Minister Tan Sri Muhyiddin Yassin raised concern over the rising fuel subsidy burden and made the politically safe view that fuel prices would have to be raised and subsidy reduced.  The fuel subsidy budget was RM6 billion in 2002.

Dr Mahathir had since never criticised any government policies to remove fuel subsidies.  Petrol prices were 89 sen in 1981, the year he became Prime Minister and it was 50 per cent higher when he left.

Najib has a better track record. Current prices of RM2.31 per litre are lower than prices in 2008, the year he became Prime Minister.   

Nevertheless, the 2009 shocker from Datuk Idris Jala was a reality check that the government could go bankrupt should we continue to subsidise every other thing. Expenditure for subsidies in 2008 was RM35.2 billion and despite the fall to RM20 billion, the tendency was to move up to RM30 billion.

Though many were annoyed then with such fear-inducing claim, the figures and projection proved to be right.

Malaysian consumption for fuel has overtaken the production of fuel from the oil fields in the country since 2010. Today, consumption is on average about 745 barrels per day but production is 630 barrels per day.

Even if rising oil prices would mean increase in national oil revenue, fuel for local use is imported and the sweet crude oil produced from our oil fields is exported. It is not prudent to allocate all the national oil revenue for public consumption as though having oil reserve as much as Saudi Arabia.    

Finance Minister II Datuk Johari Ghani said the government has no plan to intervene as the prices are within acceptable level.

It may be comforting words that government will not leave the public to the whims and fancies of the market.

However, Malaysians may have to face the reality and learn to economise. It is time to acquire a new habit to use public transportation and the rail transport available to urban dwellers.    

One comfort the government has provided for the transition is to exempt tax on petrol prices. It is the reason that despite the float, Malaysia still offers one of the top 20 cheapest petrol prices.

The subsidised fuel price in the past has resulted in uncontrollable abuse by Malaysians to smuggle and sell the cheap fuel of diesel, LPG and petrol abroad for insane profit.

The greed of these Malaysian “businessmen” and the habit to turn a blind eye by civil servants involved with law enforcement is being borne by us.

No amount of effort to combat corruption and enforcement on law enforcement could curb the rampant practice.

Thus the only way is to cut off the opportunity to profiteer. So the blame is not on politicians or policy makers.

The public has turned a blind eye to these smuggling activities.

For the legally-trained friend, he may still not agree and accept these constraints faced by the government as he is more concerned with his own predicament.

If that is the case, irrational and emotionally-driven views that lack objectivity will have to be ignored.

Perhaps leave them to the psychiatrist to deal with.  



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