Friday, June 6, 2008

Oil Price Hike according to Tun M

Dr M on Fuel Subsidy

The government, given the amount of profit made by the national petroleum company (Petronas), can actually afford to maintain the fuel subsidy, said Dr Mahathir Mohamad.

The former prime minister who is also advisor to Petronas said in his blog posting today that a gradual subsidy reduction would have been a better option considering the burden of the increase that people have to cope with.

"Roughly Malaysia produces 650,000 barrels of crude per day. We consume 400,000 barrels leaving 250,000 barrels to be exported. Our 250,000 barrels of export should earn us RM27 billion."

But Petronas made a profit of well over RM70 billion, all of which belong to the government. I feel sure that maintaining the subsidy and gradually decreasing it would not hurt government finances," wrote Mahathir.

Following the increase, he reasoned that all other consumer goods, services and luxury goods would increase in price as well. This will be followed by the increase in the cost of living, then increased inflation and the drop of people's standard of living.

"The increase hurts but the pain is greater not just because of the increase percentage-wise is higher than in developed countries but because of the manner the increase is made," said Mahathir.

Floating ringgit a bad decision

Mahathir also said that the government's decision to float the ringgit was a bad one as the subsequent rise of fuel price by the government has placed the people in a more rough position."

In the first place the government should not have floated the ringgit. A floating rate creates uncertainties and we cannot gain anything from the strengthened ringgit.

"Certainly the people have not experienced any increase in their purchasing power because of the appreciation in the exchange rate between the US dollar and the ringgit," he said.

Explaining further, Mahathir said had the government retained the fixed rate system and increased the value of the ringgit presumably at 10 per cent at a time, the cost of imports, in ringgit terms can be monitored and reduced by 10 per cent. This will lead to a 20 per cent decrease in the cost of imports.

"But we know the prices of imported goods or services have not decreased at all. This means we are paying 20 per cent higher for our imports including the raw material and components for our industries," he added.

Govt bowing to IMF and World Bank

The government, Mahathir claimed, instead wanted to please the International Monetary Fund and the World Bank by floating the ringgit and as a result had merely increase the cost of exports without giving the people the benefit of lower cost of imports.

"This is not wisdom after the event. I had actually told a minister not to float the ringgit three years ago. But of course I am not an expert, certainly I know little about the international financial regimes," he said in his usual trademark sarcasm.

The world, Mahathir said, is currently facing economic turmoil due to the depreciation of the US dollar, the sub-prime loan crisis, rising oil and raw material prices and food shortages.

"Malaysia will not escape these problems. I wonder if the government is prepared to face it," he wrote.

He however said there must be ways to mitigate the problems so that the people will not bare the entire burden following the steep rise of fuel price.

"I am sure the government will not just pass all these problems to the people as the review of oil prices every month seems to suggest," Mahathir added.

Mukhriz: Shocking decision

Meanwhile, Umno Youth exco member Mukhriz Mahathir today became the first party member to break ranks by criticising the government over its fuel hike.Calling the move "shocking and drastic", Mukhriz said he was shocked over the sudden fuel price hike.

"All this while, the indication was that the price increase would only take place in August," said Mahathir's youngest child in a statement today. "For me the timing of the rise was not suitable. We should have taken a smarter action in trying to counter the increasing price of crude oil and the needs of the people," he added.

The Jerlun member of Parliament said that the government should have sought the views of everyone in reaching a formula that was more appropriate in countering the need to cut down the government subsidy on oil.

"I think the price rise should have been done in stages to give time for the people to adjust to the changes."Now, with the sudden big jump in price, the people are burdened with the need to quickly adjust to the new requirements which creates unnecessary tension and uncertainty for them," he said.

He also said that he was bemused with Prime Minister Abdullah Ahmad Badawi's call for the people to change their lifestyle to adapt to the price rise."The rural folks, including those in Jerlun, do not live extravagantly. How else can the alter their lifestyle now?" he asked.

Taken from (Tun M's own blog!!!! Check it out)


KahJoon said...

i actually support the price hike of petroleum. my opinion is made based purely on economical considerations.

subsidy is not a good things. being too dependent on it may cause huge problems further down the road.

Junjun said...

This will be my first comment here...

"... call for the people to change their lifestyle to adapt to the price rise. " quoted from the last para of the blog...

For most Malaysian, the best way to "adapt" is -- rise the price of other things (no matter it is related with petrol or not related).

Rm 650 per year really helps in "ringankan beban rakyat" but only if for those who have cars... For those who don't even have a car... What can they do ?
for those who don't have cars they need to suffer from "side effectsssss" of the rising of petrol price.. Almost the price of everything that related to petrol are rising too...

For example,
bus fare...
10 cents per trip, 20 cents per day, Rm 6 per month, Rm 72 per year... May be these figure sound small compare for those who have cars... But If you are really poor it will never sound "small" for you..

KahJoon said...

THE debate over federal subsidies for fuel is a hot issue. Lawmakers should be studying historical facts very carefully before deciding on the best path for their country.
I grew up in a divided Europe. By the Berlin Wall, one half of us had planned economy, the other half had a free economy. But we all had the same terrible starting point, starvation and ruin after the Second World War, and similar pre-war economic status, with our fair share of agriculture productivity, natural minerals and science. We all started fairly equal so-to-speak.

In the planned-economy sector, the prices were kept low through decades, mainly to pacify and please the (poor) people. Over decades, prices stayed low, and people stayed poor and indifferent. Efficiency was never achieved. In Russia, where oil was kept cheap, the working classes opened their windows when their apartments got too hot during the hard Russian winter.

Cars, like Lada and Skoda, (and scooters) did not improve fuel-efficiency for near 40 years because there was no need to improve as prices were kept low. It led to individual and national waste and pollution never seen in Europe, which was a great sin also from a religious standpoint.

In the free-economy zone; prices for fuel and food kept increasing. It was, of course, harsh on the poorest people, who were poorer than their Malaysian counterparts today. But the economic reality installed systematic discipline and innovation among all the people, thus industry.

Year by year, the tough conditions of the free (and brutal) economy forced the people of the west, not shielded by well-meaning lawmakers, to save fuel and increase food production. Quickly, working class apartments in the west, by energy-laws, got so well insulated (30cm stone-wool between the two brick walls) that one could tell if it was plus or minus 30°C outside! In comparison, today’s 4,000-6,000 sq ft super-condos in Penang and Kuala Lumpur are still built only with single layer glass windows and flimsy walls and doors; because the air-conditioner is so cheap. No one, rich or poor, bothers to save energy.

In Europe the public transport developed mainly to save cost (fuel), and buses and trucks are still allowed to drive only not more than 80km/h instead of 120km/h because a lower speed reduces consumption to only 25 litres per 100km, instead of 50 litres per 100km of Malaysia’s heavy duty vehicles, which today race off to pollute and kill thousands each year by the de facto free speed limits. Our wastage will lead to net oil imports beyond 2011, which is catastrophic for coming generations.

In addition, the real prices of the west also gave the elite a sense of energy discipline. Today, almost every 7-series BMW or E-Class Mercedes found in Europe runs long-range diesel engines, because the rich too feel the pinch of RM8-a-litre fuel. My children had only short showers. In Britain, we paid RM600 a month for water, now I pay RM6 and my wife and children don’t care anymore. We, like all Malaysians, develop a sinful attitude.

Malaysia is driving in the wrong direction at the moment, and fake low pricing is for sure everyone’s fuel. The old saying that short-term pain equals long-term gain is valid more than ever, also in Malaysia.

C. Kobke

suesin23 said...

The fuel hike by Malaysian government is definitely not the best way to slove problems. Esp for a petroleum country. They are already earning so much from petroleum and why can't the government utilize the petroleum for the rakyat? This fuel price increase is too high for poor people to bear, esp those who is earning less than RM1k, who has family to take care of. Malaysia government might be telling lies about how hard and burdensome for them to bear the subsidies of petrol. Its just hard for me to trust our government again. If rakyat have faith for them, they wont be losing the general election.