Anwar’s False Promise on Fuel Prices

Any attempt to reintroduce fuel subsidies in Malaysia is grossly irresponsible

Self-proclaimed prime minister-in-waiting Anwar Ibrahim now claims that he will revert, when he takes over of course, to the previous fuel oil prices. If he fails to do so, he says, he will resign immediately as prime minister. Anwar’s latest pledge comes after the Badawi government dramatically cut fuel oil subsidies on June 5.

Anwar is feeling even more “high” than usual since the new fuel oil prices appear to have hastened what he expects to be his takeover of the government, now set to take place by Sept 16, Malaysia Day, at the latest. An earlier date hinted was Aug 31, National Day or Hari Merdeka, Malaysia’s Independence Day.

This is not the first time that Anwar has grossly misled the public in making pledges by referring to his “credentials” as a former Finance Minister for so many years. In the run-up to the March 8 general elections and in its aftermath, Anwar promised the oil-producing states of Terengganu, Sabah and Sarawak that he would increase up their current royalty of 5 percent to 20 percent, and at one stage even 40 per cent, if and when when his Opposition Alliance was to seize the reins of power from embattled Prime Minister Abdullah Ahmad Badawi’s mortally wounded Barisan Nasional coalition.

How Anwar would manage the 20 percent pledge is a mystery. Oil and gas reserves have never really benefited the peoples of the lands where these commodities are found in abundance, as established by numerous UN and other studies. In Malaysia, under the Production Sharing Contracts, 70 percent of oil barrels are recovered as cost oil by the contractor concerned. The remainder 30 percent is shared equally between the oil contractor and Malaysia, with each party getting 15 percent. Malaysia’s 15 percent is split 2:1 with 10 percent going to the federal government, and held by national oil corporation Petronas, and five percent paid by Petronas to the oil states concerned on behalf of the federal government. Hence, from where does Anwar get the magical royalty of 20 per cent to the oil states?

Beyond that, Anwar’s promise of lower oil prices is built on a promise that as former finance minister he has to know is farcical. If Malaysia’s economy is to return to anything resembling health, market-distorting subsidies and projects like the Proton national car must be done away with completely, which will be painful but has to be faced.

In the case of fuel oil subsidies, the government should act in concert with the whole world, an unlikely case to say the least. But if all the oil consuming nations of the world were to agree to do away with fuel oil subsidies completely, such an agreement alone would cause the oil futures bubble to burst, oil consumption would drop and the price of oil per barrel would go to US$40 (Idris Jala’s estimate) to US$ 65 (oil analyst’s estimate).

The government should also work on improving public transportation so that wasteful consumption of petrol for cars can be eliminated. The government has deliberately dragged its feet on improving public transportation in order to force the country to buy Proton cars. Malaysia is one of the smaller nations in Southeast Asia, yet it has the largest automobile market in the region. How? This surely reflects the poor state of public transportation and is not something to be proud of. Focus also on the poor state of the public transportation and the fact that most cars on the road have only one person inside it.

Malaysia needs to stop buying cars and change its lifestyle. Public transportation is the way to go. Why drive to work and leave the car in the parking lot to bake in the sun the whole day, only to drive back home in the evening? Take the bus or tram to work. Carpool.

What is worrisome is that nobody seems to be mentioning the Fuel Price Formula. Badawi clearly mentioned it on television. If so, why is the Domestic Trade Minister, Shahrir Abdul Samad, pledging that the fuel price at the pump will not go up for some time to come? Perhaps, he also means it will not go down either. That seems to be against the formula announced by Badawi.

Effective June 5 2008, the fuel price at the pump is to be reviewed monthly to be 0.30 sen less than the market price per liter. The market price today is RM3.00 per liter which gives us RM2.70 per liter at the pump for the next one month after the 0.30 sen discount.

The principle of 0.30 sen per liter discount stays. This means if the market price of fuel goes down to RM2.90 by July 5, the price at the pump after the 0.30 sen discount will be RM2.60 per liter. If the market price of fuel goes up to RM3.10 per liter by July 5, motorists will have to pay RM2.80 per liter at the pump after the discount of 0.30 sen.

The principle must be accepted. What we can dispute is the 0.30 sen discount per liter. Maybe it should be 0.50 sen per liter. Discount (or subsidy) means taxes foregone by the government.

Don’t focus on the fuel price at the pump going up from RM1.92 to RM2.70 per liter. Focus on the formula for fuel prices. Denmark, for example, reviews the fuel price at the pump weekly. In short, there is no reason for traders to raise prices unless they want the consumers to boycott them.

Meanwhile, the government has announced some cost-cutting measures to save RM$ 2 billion a year. More are to be announced. All these measures sound like the same stupid austerity drive measures that former Mahathir Mohammad announced when he became Prime Minister in 1981 and sent the economy into a recession. Cutting government spending will affect businesses which are dependent on such spending.

-joe fernandez

ps- joe Fernandez is an educationist, former newspaper editor and ex-civil servant in Malaysia.

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2 Responses to “Anwar’s False Promise on Fuel Prices”

  1. Duxem Says:

    Hi,Driving a car is becoming more expensive all the time. Gas prices are at record highs. By combining some simple gas saving tips, you can achieve savings of up to 20% at the gas pump.

  2. PAULNAIDU Says:

    most of what you said is true, and to sum up, the bottomline is total removal of fuel subsidy.

    but i am surprised that being an educationist, you got you math wrong, when you work out oil revenue in terms of % of %. it does not work that way…. recheck you math.
    statitics my friend can work both ways. give you an example.
    10% of all accidents caused by drink drivers. that means non-drink drivers cause 90% all accidents. so do we tell every one to drink and drive to reduce accident to 10%?

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