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.