Of Flash floods, Bloggers, Puspakom and Crude Oil

Ok wow, DSAI won the Permatang Pauh seat, big surprise there. Let's move on, shall we.

KL and Klang Valley was again hit by flash flood. Even after the massive spending on SMART tunnel, it seems that the construction of the tunnel for the sole purpose of deviating rain water has been proven to be ineffective.

Just after the by-election, the latest news is about Malaysia Today to be blocked by all 19 Internet Service Providers in Malaysia. Bloggers are furious claiming that it is breaching the MSC Act of not censoring the Net. Wiki had some issues with falsified claims about personalities but it also had a self-correcting system whereby web users worldwide voluntarily "police" the contents of the site. If bloggers want complete freedom of speech, bloggers must be responsible for what they write and be accountable for it. It says a lot about your character.

With the arrest of 28 Puspakom staff over alleged corruption, it goes to show that Malaysians are willing to pay off everyone and everything to get things moving. No wonder we still have illegal buses operating during the festive seasons with half-drugged drivers with enormous amount of unpaid tickets and fines. The crackdown is commendable and should be continued. Quality staffing for ACA should be increased as I reckon their workload is piling up heavily and it is a matter of time before they begin suffocating with bureaucracy and red tape.

It will be a couple of years to go until Malaysia becomes a net importer of crude oil. What does this translate to us? Definitely less revenue from local production. That is why Petronas continues to invest in hot properties around the world for continued supply and revenue for the Government. However, how long can Petronas become the cash cow for Malaysia? What is the next engine of growth for the country? Palm oil? Services? Manufacturing? Retail? Tourism?

4th Best Airport in the world: KLIA & Drilling in the OCS

While we worry about who sodomized who, who should get subsidies, massive traffic jam in the city and the lack of professionalism in the Parliament, we failed to recognize the people at Malaysia Airports for a job well done! Can still improve :)

From Forbes:

On KLIA: This airport has won several accolades since opening in 1998. In addition to ranking forth in Skytrax's World Airport Awards, it also ranked first on the company's list of airports with the best immigration service. While passengers are almost guaranteed a seamless arrival and departure experience, they can also enjoy free wi-fi, luxury shopping and reflexology and massage services.

Down south got second place (still beatable):

Since Skytrax began ranking airports in 1999, Singapore Changi has placed first twice. The airport was built in 1981, and it has since added more terminals that cater to both budget and luxury passengers. The up-to-date services and amenities include an indoor orchid garden, a rooftop swimming pool, themed television lounges and a free sight-seeing tour for those who have at least five hours prior to their connecting flight.

Don't forget the recognition needs to go to Tan Sri Hassan Merican and Petronas staff as well for making us proud!

I also consider the fuel subsidy a closed issue. Let's move on to other interesting stuff like a standardized education, fuel efficiency and sustainability and such.

On oil development, Bush will endorse drilling in the Outer Continental Shelf (OCS). The US is surrounded by 4 OCS (Gulf of Mexico, Atlantic, Alaska and Pacific OCSs). The OCS is practically the area between the continent and deep ocean. He reckons there is approximately 18 billion of oil in these areas. Even if he manages to lift the ban on drilling in the OCS, it won't help reduce the current oil price. It will take years to develop these fields, the price of steel has increased to more than US1000 a tonne which slows down construction and increases price of platforms and rigs. It will take at least 1-2 years to explore and another 2-3 years to begin development. By then, oil would be USD200/bbl. Senator Obama plans to increase fuel efficiency by spending more money in car engine research, E85 at the pumps. He is also an advocate of the environment and wants to see the US help reduce green house gas emission as they are the biggest consumer of oil.

Curbing the oil price

US congress has recently approved bills to help combat speculation at Wall St that could drive crude price further up. Although the US is producing some 8 million barrels per day, it's consumption far surpassed the consumption of Asian countries put together (minus China of course), 3 times it's production rate. Although the production is huge and national oil company is non-existent, US citizens have never in their history demanded subsidy form the government for petrol purchase (or "gas" as the Americans call it from the word gasoline).

On a different note, Saudi has pledged to increase production to help lower the price; the $140-question is whether it could affect the price. The creation of US strategic petroleum reserve during the oil embargo decades ago proved that no one could stand a chance except for OPEC in influencing oil price (perhaps the stockpiling of some 1B bbls of crude in US and Japan needs to be also challenged). Perhaps the liberation of Iraqi oil and withdrawal of troops could calm the current hysteric market but then again, who knows what will happen. Chief Executives of some majors have officially and unofficially declared that the oil price should be in the region of USD70-90 per bbl. Whatever the reasons for this high oil price are, we are probably stuck with it for at least the next 6-18 months (that's me guessing of course and I'm no economist or analyst).

Chatting with some friends over teh ais yesterday, most were adamant that Petronas should be 'more transparent' in their accounts and that the subsidy reduction should have been implemented in stages. This is consistent with feedbacks from office folks, cabbies, the guy sitting next to me on the plane, neighbors, etc. Most do not agree with the subsidy reduction. Pity Petronas staff who have to put up with answering lots and lots of questions. Their bonus this year would also be affected, seeing how the opposition is trying to make everything an issue. Cabbies also disagree with subsidizing buses as they feel they service the city folks more efficiently than buses, therefore they are entitled to subsidies.

Malaysians being Malaysians, the old sensible plan of attack is to demonstrate. We've had demostrations led by PAS earlier and recently by Geramm (what a name). We'll have another giant demonstration next month which some have claimed to be a-million strong supporters. Some quarters claimed that they would increase the subsidies again if in power and have a magic formula to cure this mild recession. These are the same guys advocating international monetary entities to 'bail Malaysia out' from the Asian economic crisis. Imagine the Ringgit depreciated like the Rupiah - we'd all be millionaires!

Subsidy Mentality 02

Points from YB Dato’ Shahrir Samad, Minister of KDNHEP, during a debate with YB Salahuddin Ayob, Kubang Kerian on RTM tonight:

Money saved from reduction of subsidy in 2006 was used up with rising costs due to increase in petrol price

• Profit made by Petronas (not revenue) has been reinvested into assets around the world to ensure sustainability of fuel source for at least 1-2 decades
• Money saved from subsidy reduction this year to be used to subsidize food
• PM-in-waiting DSAI wants to lower fuel price by subsidizing, contradicting his stance against TDM’s policy to subsidize fuel during the 1997 financial crisis and wanting to oblige to IMF
• We cannot continually deprive Petronas of growth by burdening it with subsidies, they have done their part by paying royalty and tax to the Federal Government
  
  My points:
  
• Petronas must be allowed to use its resources as it finds fit to continually support our economy and be allowed to compete with the major oil companies, the likes of Exxon and Shell
• The danger of this is that the royalty and income tax from Petronas constitute almost half of the revenue earned by the Government. We must be serious and committed to create a robust 2nd and 3rd engine of growth now before we run out of oil!
• Alternative energies must be studied and researched thoroughly. Yes, these are not popular alternatives to fossil fuel due to economies of scale but does that mean we should just sit around and do nothing? The results of the research need to be shared with the public more often, as I know that numerous agencies are working on this. Nuclear perhaps (the most misunderstood and 'political' energy source)?
• The network of LRT must be extended immediately. The National Physical Plan launched earlier in 2004 must be revisited and progress must reported.
• The government needs to start thinking about decentralizing KL and develop a second satellite city, perhaps Seremban? This will enable people outside of KL to enjoy economic growth and stimulate job creations instead of just relying on subsidies. Also, the city plan must include massive integration of public transportation the likes of New York subway system, Singapore's MRT or London's tube. It is too challenging to integrate that in KL.
• Taxi drivers must be allowed to charge more and especially during peak hours.

Then again, whatever the government does will be condemned. The construction of Twin Towers and F1 circuit were known to be wasteful, now they are deemed as icons of Malaysia. TDM was heavily criticized during his premiership, dubbed cruel and undemocratic. Now people 'miss' him being the PM. Can you ever win with the Malaysian people? No wonder we are far behind.

The subsidy mentality

YAB PM has announced that the price of petrol has to be increased to RM2.70 per liter. With the price of crude close to USD 140/barrel, the government has to make this very necessary but unpopular decision. Indonesia and India have recently increased fuel price and getting general backlash from the public. The fact is that the price is dictated by market forces and subsidy will dampen development.

Now that the government has decreased the subsidy, it is now their responsibility to report on what will be done with the surplus resource. This needs to be communicated well and implemented in the best of methods to avoid further backlash.

Of late, we hear everyone suddenly becoming experts in the oil & gas industry, demanding that Petronas subsidize this and that. Although Malaysia produces some 600,000+ barrels per day, the production is not contributed from Petronas alone. Petronas relies on her partners, the Exxons, the Shells, the Carigalis and others to jointly develop our resources. Royalty money is paid to Petronas and the crude is split according to individual Production Sharing Contract (PSC). It doesnt necessarily mean that the government of Malaysia makes 600,000 x USD 140 = USD 84M/day! The lack of communication to the general public forces people to assume all kinds of formula on how much the government makes from oil & gas production.

After the massive win by PR during the 12th GE, one guy has been pushing hard to get Petronas to subsidize the construction of the second Penang bridge and give out subsidies for low income families. There was also a question about Petronas’ Philharmonic Orchestra and whether the spending is justifiable. Heck, let's just sell the Twin Towers to the highest bidder because it was a wasteful project and auction off Seri Perdana and all bungalows for Ministers and senior Civil Servants.

First of, we need to give a free hand to TSHM to steer the ONLY Fortune 500 in Malaysia without any political intervention. He is the “unofficial” Oil Minister by virtue of Petroleum Act 1974 and he is more than capable to manage the mammoth company. We are lucky to have him because believe me, he is severely underpaid compared to CEOs the likes of ExxonMobil, Shell, Chevron. I bet you if we increase his pay package, some quarters will start questioning why, why oh why (yes they have questioned why we are paying so much for the Petronas advisor).

Although the price of oil has increased and profit is rising, the cost of drilling wells has also increased tremendously. Rig daily rates can fetch anywhere between USD 100k-700k per day. Construction barge daily rates can fetch up to USD1M/day. We can’t afford to not invest more money in foreign countries as the findings in Malaysia have not been as extensive as before. The country will become a net importer in the years to come thus making it more imperative to increase investment and participation in other oil-producing countries. The subsidy on oil has to be decreased gradually despite pressures from the general public. If oil is expensive, we have to find creative ways to reduce cost.

For daily consumers, we need to find better alternatives to get to work either by taking public transportation, car pooling or buying fuel-efficient cars or converting to NGVs. Complaining will not help the problem. If the price of rice is too much, reduce rice consumption and increase consumption of bread. Inflation will come, it’s a matter of whether we are prepared to face it or not. The name of the game is maintaining competitiveness. If we fail to compete, we are destined to fall. If the local Mamak increases the price of icea Milo and roti canai, don’t go there, simple as that. Market forces will to some extent dictate the true market price.

Yes, people in the low income group will be affected tremendously. I believe Dato' Shahrir Samad is preparing a cabinet proposal to combat this problem. We shall see what the Government is planning and judge later.