Sunday March 30, 2008
Fuelling trouble with petrol subsidies
CONTRADICTHEORY By DZOF AZMI
HUMAN beings are remarkably short sighted. Evolution has designed us to be efficient at spotting and avoiding a sabre toothed tiger waiting by the rocks, but we’re not so good with more long-term issues like retirement funds. And global warming. And oil subsidises.
Ah. We remember the good old days of 2004 when petrol cost only RM1.37 a litre, and we could happily bathe in the stuff.
Then, over the next two years, the price gradually rose to the alarming mark of RM1.92, and we had to instead be content with lightly showering in it.
Nevertheless, it is still cheap enough that we get a steady stream of visitors coming across Selat Tebrau to carry back our petrol – Singaporeans currently pay around S$2.10 per litre in their country (about RM4.80).
In fact, petrol in Malaysia is cheaper than in Thailand, the Philippines, Indonesia, and Vietnam.
(The only country in the region where it is less expensive is Brunei, where it’s at just above RM1 per litre.)
Still think it’s expensive? Consider this: Crude oil is currently priced at more than US$100 (RM322) per barrel. Now, you can calculate how much this would cost per litre in RM. Go ahead, do it.
If you need to know, there are almost 159 litres in a barrel, and the exchange rate is about RM3.20 per US dollar.
Compare your answer to the RM1.92 we pay for our fuel these days. Quite impressive, isn’t it? And note that this price represents crude, unprocessed, undelivered, unmarketed oil.
No wonder the Government had to pay around RM18bil in subsidies last year just to keep the price static.
We know this is true because during the recent elections, this was a hot topic. The Government took great pains to point out this number to us.
If anything, it was probably a little lower than expected because by August 2007, RM16bil had already been spent on subsidies. The opposition, on the other hand, claimed that they would either maintain the prices or even lower them if they were elected.
Of course, all this money is spent for a reason. What that reason is depends on who you ask. Sometimes it is so that the rakyat are not burdened by an increased cost of living. Sometimes it’s generosity, given that Malaysia is an oil-producing nation, so the citizens should all be able to share that wealth.
If I may say so, what rubbish.
We know that it’s a case of political expediency. For some reason, the crowds are particularly vocal when it comes to petrol price increases. The grumbles are loud, even if it is just a difference of five sen.
Therefore, the politicians sing the song that the public wants to hear, while quietly mumbling at each other during the break about how amazingly tone deaf the audience is.
Admittedly, some are griping with good cause. Those at the bottom of the consumption pyramid feel the worst pinch.
People like farmers and fishermen will see an already thin profit narrow even further.
Normally, increased costs would be balanced by increased revenue, but unfortunately, for various reasons, it’s not easy for fishermen to immediately sell their products at a higher price.
To this extent, the Government subsidises the diesel the fishermen use, to the tune of RM1bil a year.
Nevertheless, we have to face facts: it will be impossible to continually keep the price of petrol down through subsidies.
The price will have to increase. That steady stream of Singaporean tourists armed with their jerry cans will have to slow down.
One reason we have been able to get away with subsidies for so long is that Malaysia is an oil-producing country now.
Petroleum-based industries contribute around 40% of the nation’s revenue. In effect, the industry is indirectly subsidising the petrol that is being sold in this country.
This is actually fine – as long as there is an industry in the first place.
There is a finite amount of oil in the ground, and our demand is not decreasing. It is estimated that current oil reserves in Malaysia will only be sufficient to cover national needs for less than a decade. After this, we’ll have to start importing oil.
Of course, we could delay this by reducing demand, but that’s not likely to happen while the price of oil remains as low as it is. When a resource is relatively cheap and plentiful, wastage will occur.
People in Kuala Lumpur don’t carpool as often as they should, and by the looks of it, sales of gas guzzling SUVs and MPVs are still going strong.
Subsidies also create strange economic situations. Approximately 100,000 fishermen get diesel subsidies amounting to around RM100mil a month.
This is roughly equivalent to RM1,000 per fisherman a month – probably more than they make catching and selling fish.
If we were really worried about their welfare, we should just give them money directly, and have them do something else that can really earn an income.
The fish we import from overseas costs the same in the market as the ones caught locally, anyway.
Yes, I understand there is the concept of food security, of wanting to be self-sufficient, but look at the price of trying to achieve that: we waste both money and energy.
So, the subsidies cannot last, they don’t always make sense, and it’s better that we gradually feel the pinch, instead of facing a whiplash when the price has to jump sharply once again.
We have to accept that energy security will be as important as food security, and that we have to try to be as self-sufficient in both areas for as long as possible.
We should be conserving petrol, instead of selling it cheaply. We need to take the savings we make from dropping the subsidies and reinvest them in R&D that will address the looming energy crisis. We need to be adult about things.
And instead of bawling when the price of petrol goes up, and up, we should at most wince a little, and nod in understanding at the necessity of it all. After all, short-term pain is better than a long, slow death.
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