Subsidy? What subsidy? Aiyah, I don’t understand-lah…
For the last few days, I have been trying to figure out what exactly this oil “subsidy” is that the government is talking about, which it cannot tahan any longer and so it has to collect more money from the people.
What exactly is this “subsidy”? Everyone is talking about it without really knowing what this subsidy is all about.
Who is paying this “subsidy” to whom? I mean, actual cash payment. Is Petronas actually paying cash to anyone for this “subsidy”? Is the government paying cash to Petronas?
As a trained accountant, I hate to admit it, but I still don’t understand what this subsidy is all about. Aiyah, accountant cannot understand subsidy, susah-lah like that. Maybe it’s a good thing I am no longer working as one!
So last night I asked an experienced lawyer, “Who exactly is paying this subsidy to whom?” - and, guess what, he didn’t know either. This morning, I asked an operations director of a foreign multinational corporation, a trained engineer, the same question - and, guess what, he didn’t know either. I feel better now - the lawyers and engineers are equally confused!
But everyone is talking about this “subsidy” thing as if they know what it is all about. Is there anyone actually handing a cheque or making a bank transfer to anyone and saying, “Here, this is your subsidy payment”?
Of course, this subsidy could merely be a “notional subsidy” or “opportunity cost” - which would be the revenue that is being lost because the oil is being sold locally at less than the global market price. In other words, extra revenue that could have been earned - and put to good use - has been lost.
Let us remember that even at the old “subsidised” or discounted price, Petronas made more than RM40 billion in profit before tax for the half year to Sept 2007. So mana sakit? If Petronas can make huge profits based on the old prices, why the need to raise prices by 40 per cent at one go? (You want extra cash after squandering all our oil money in the past, izzit? Just say so.)
Being a major commodities exporter and net exporter of oil, the country should be flush with funds as a result of soaring commodity prices, no? How are other oil-producing countries able to offer lower oil prices for their people?
If you really need to increase the price to be closer to market price (to encourage conservation and to use the extra revenue to assist the poor), why not a gradual increase, spread out over a few months? Why the desperate urgency? Why disrupt the national economy and burden the lower-income group with one fell swoop?
If Petronas really needs more profits, why not start by raising the price of the natural gas that it sells to the Independent Power Producers, which have made massive profits over the years at the expense of Tenaga and the people? These IPPs are still getting a “subsidy” compared to other industrial users, even with the new higher prices.
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Bravo Anil, well said. May be the loss of extra income goes elsewhere to be divided again amongst them. AB may have been pressured on ‘look if you don’t do this we are going to pull you down!’ I have received sms from unknown hand phone number encouraging to take part in peaceful rally to protest on fuel hike. The power of IT has again served its purpose, just like during the election!
It is nothing but a BIG BULL S***. They think the Malaysian Rakyat are morons and BN?UMNO can say anything and the rakyat will believe them. Another spin….these guys have zero conscience and how they can sleep at night while blatantly lying to the rakyat.
Cost of Production at USD30 per barrel x 650,000 = USD7.2 billion
250,000 exported at USD130 = USD11.9 billion
They can give petrol free to Malaysian public or at cost and they still make profits.
All is nothing but efforts to increase the revenue so that (certain) UMNO goons can (allegedly) line their pockets even more. DISGUSTING
It is not a ’subsidy’ and there is no such thing, as your article implies. Rather PETRONAS is selling a national resource to Malaysians at market prices. For some readers here, I simplify the so-called subsidy issue.
That market price is cushioned by a so-called ’subsidy’ i.e. Malaysian Government using taxpayers’s money to ‘reimburse’ PETRONAS for so-called loss of revenue.
In another words, Malaysian taxpayers’s are paying twice for PETRONAS profits. One, at the petrol pumps for the so-called subsidised price. And two, when your tax money goes to PETRONAS to make up for difference in pump prices and market prices.
PETRONAS suffers no losses. It reports only to Pee Emm. It does not make its accounts public. Anil Netto, you know what this means. It is not accountable to Parliament. How come some SIL can buy bank? How come Madame Dottie can throw money away in Paris? That is correct. We pay for their excesses through petrol pumps.
BARANG NAIK, PETRONAS UNTUNG…
simple. fat cats need their feeding now. else, they become scrawny and its not nice to parade themselves in fanciful cars in that body state.
haha. reading the heading, i feel that is me who is speaking. yes indeed i’m very confused over this subsidy thing. what i only know is that people been saying what we pay for our petrol price now is already being subsidised by the government, if not we have to pay more. thus, that is what i tell others! but if others prod me further… what subsidy? how? what? and so on, i’m lost.
malik imtiaz, the lawyer had a good post about the subsidies here:
http://malikimtiaz.blogspot.com/2008/06/of-subsidies-and-corruption.html
Correct! Correct! Correct!
There is NO real subsidy!
It is the Malaysian people that have been subsidising shoddy government, mismanagement and extravagance, even sheer waste and corruption, the brunt of which is being borne by the hardcore poor of the oil-producing states, Sarawak, Sabah and Terengganu, who should rightfully have a far better claim for “subsidies”.
Dear Anil
The subsidy is the loss in opportunity cost from selling petrol (what the Americans call Gas) at less than full mark up compared to pump prices in foreign markets like S’pore, USA etc. Thus S’poreans flock to JB to fill up their tanks since they enjoy the double advantage of lower petrol prices AND exchange rate gains relative to their market.
100% of Petronas crude oil is sold to Japan for refining while Petronas buys lower grade oil for our pumps. This lower grade oil has an adverse effect on our car engines’ wear & tear and the environment i.e the impact on pollution, global warming, ozone layer depletion and our general health.
Our Govt has systematically and deliberately not compared apples with apples in talking about local pump prices & foreign ones. They do not take into consideration very very important factors such as per capita income, inflation, car prices, cost of living and other expenses which take a big whack on our savings - education, health, housing etc.- relative to Western countries.
The national car policy is also a disgrace. AP holders (the select few)pay no licence fees to the Govt while raking in billions. As a CA you will appreciate a business with a ZERO Cost of Sales, an Ali Baba entrepreneur’s dream! In S’pore a mandatory Car Certificate of Entitlement (CoE) can cost S$30,000 and it goes straight to the Govt’s bottom line.
Subsidies to Proton is another matter. Were it not for a Govt Grant of RM 192 million, Proton’s unaudited operating profit for Y/E 31/3/08 of $200 million would have been a loss. The loss in 2007 was close to $600 million. Yet only last month, the PM was quoted in Parliament as having said they Govt does not give Proton a helping hand.
There is also the subsidy on Gas to IPP’s whose power supply Tenaga has never needed nor does it now (due to over-capacity of 30%), but was arm-twisted by generous parties in the EPU, as so graphically revealed by Tenaga’s ex-MD Tan Sri Ani Arope. So, Petronas has subsidised these IPP’s who like the Toll Highway Concessionaires, have very nice ‘Take or Pay’ OSA contracts. Tenaga and the motoring public, have been, to put it mildly, Royally Screwed! There is no logical reason why domestic consumers and private-sector commercial enterprises should pay a single subsidised rate for Gas.
I would hazard a guess that if our Govt of the last 50 years had been more diligent in formulating national policies, in preventing leakages out of the financial system in the form of corruption of titanic proportions and massive mismanagement, Petronas would be in much better shape than it is now, and this 40% would have been totally unnecessary.
Even now, many of the Govt’s proposed grandiose plans for a 2nd Penang Bridge, Airport extensions at Subang Jaya, more toll highways, day 1 loss making double-tracking railways, unnecessary power stations in E.M’sia, all sorts of dead-end corridors with no clue of where the financing is coming from, can be shelved indefinitely, to shore up our long-term Reserves.
Can you recall the Govt saying in 1996 that if Bakun was not commissioned by 2005, M’sians would be groping as in the Dark Sages? This is the kind of hype that drives many in the EPU who have vested interests. All that transpired was that a very grateful croney laughed all the way to the bank having cleared 400 acres of timber!! Did they tell us how many millions they had to compensate Asia Brown Bowery? What about that $700 million compensation for that totally wasteful Crooked Bridge Over Troubled Waters Leading To Nowhere? Petronas money again?
In the wake of these disasters for the average Joe (not for those in ivory towers and those with nice OSA Gtvt contracts), I would ask Forexloosecannon Robokop R2D2FM to explain precisely his very fortuitously timed pre-GE 2008 pronouncements that:
1. M’sia’s per capita income grew by 40% in 4 years, implying a rate of growth in excess of that in China & India (and probably the whole world), and
2. That Petronas would run out of oil by 2011.
Can this be substantiated by very real numbers and facts or were the statistics conveniently massaged to attempt to scare the electorate & win votes? A strategy that failed miserably!
Subsidy ? we only talk of subsidy when one buys goods and sell at the cheaper price and of which the seller absorb the differential sum. In our case we didnt buy petrol because Petronas dug up the oil from our Land hence it is the raayat money so where is subsidy ? what happen to the huge profit made by Petronas year after year ?
The one thing you can’t stand is the lies the gov’t tell us and the best part is they expect us to swallow the bulls***.
I’m asking anyone of you who can introduce me to become the No.1’s “think tank” or “economy advisor” .
It seems like an fabulous easy job with handsome pay. why?
simple, if No.1 asked how to resolve the petrol hike problem, just tell the No.1, follow to the simplest way: to pass all the hike cost or ‘headache’ to the john doe named RAKYAT. It is the simplest way, isn’t it?
Let the RAKYAT get headache (WHY SHOULD WE THE ”BOSS’ GETS HEADCHEA) ,
let the poor suffer (since they are suffering ALREADY),
let them get broke (since they don’t have much since before, now and future),
let them starving (since we are BOSS OF THIS COUNTRY WE CANNOT BE HUNGRY, RIGHT?) ,
let them “change their life style”( as such, WE can keep our luxurious style),
let them spend less (WE CAN SPEND AS USUAL AND NEVER MIND ABOUT WASTING 1 OR 2 BILLION RM IN ONE PROJECT),
let them get less (WHILE OUR POCKET GETS THICKER),
let them worry (BECAUSE WE NEED GOOD NIGHT SLEEP, IT IS IMPORTANT TO US AS THE BOSS OF THIS NATION)
See, how simple is to be an well paid advisor. The only thing needed to do, is to get to the No.1. You don’t even need any economy knowledge, experience or even BRAIN.
BRILLIANT!
My understanding of ’subsidy’ as defined by govt is as follows:
- Petronas sells 100% of their oil overseas at premium prices (Malaysia oil is low in sulphur and command higher prices overseas, less refining cost)
-Companies with refining facilities in Malaysia (Shell and Petronas) buy lower grade oil from Saudi Arabia at say US$ 130 per barrel.
-Malaysia govt pay refining companies (Shell and Petronas) the differential between refining price and pump price and govt call this ’subsidy’
-Govt is actually paying Shell and Petronas this ’subsidy’ so that they can maintain pump price at RM 1.92 (in the past)
- What the govt pays to Petronas as subsidies is probably shown as income in Petronas accounts. Same accounting treatment in Shell accounts
-The amount of subsidy govt pays to Petronas goes back to govt (because Petronas is 100% owned by govt)
-So by increasing price of petrol at petrol station is another way of govt sucking money out from rakyat and disguising this as ‘reduction in subsidy’
Tak faham why is the oil price too high. Gradual increase should have been the way. But Noooo. Some one wanted to untung so naik so much. Subsidy? All nonesense talk only.
Tomorrow we must exchange our cars for donkeys, cows and a cart. But will we afford it while the rich get richer?
Understanding The Mystery Of Domestic Oil Price Hike.
This shows the uncaring attitude of the current Govt and it;s cabinet leaders as well as their inablity to understand the mechanics of micro and macro economics and inflation.Increase in petrol at such a steep hike will cause spiral inflation on transport cost and food as well as all services.The Rakyat will suffer the blant of this created price hike by the Govt just because PM is again as usual being ill advice and is ignorant of the cause and effect of such a move.
Either the Govt is ignorant or there might be mismanagement of our country’s reserve funds derived from all taxes and services charged by the govt or have scoundered all the nations funds and our country’s reserves is at an all time low and AAB needs to replace it pronto.
A depleting nation’s reserves can be scoundered away due to extravagant and abusive spending and mismanagement without proper control and accountability.
Further more we are not only a Surplus Oil Producing Country but also the top 5 producer of Crude Palm Oil that can also produce Biofuel and also and exporter of Gas, mind you.Where does all the Income derived from these 3 precious and expensive commodity bestoewd by God to our Rakyat and Nation goes to..? Global Price is at an all time high and our Govt is making 100& profit just from the price increase over last year alone on these 3 commodities.
So where does all the Profited money goes to…???
Why keep selling off our all own Crude Oil,petroleum products and Gas as well as Palm Oil,and then import lower grade oil from other countries and charge domestic usage at global price.WHy is the Govt claiming they are subsidizing the petrol prices and keep making comparison to Non Oil producing countries?
Solution : Sell/Export only half of all our yearly oil produce and use the balace for our own local consumption.
As this would only cost the Rakyat minimum. All oil producing countries who use their own oil domestically like Brunei,Saudi Arabia,Kuwait,Russia, Venezuela etc the Domestic Oil Prices should be cheaper than a bottle of Minieral Water.So why is the Govt bragging and talking about their great effort to subsidize domestic oil prices in the first place when it should not be any subsidy at all as we are our own producer of our own oil products..? Hello Pak Lah..???
The balance of other 50% Oil Produce - export it and our Govt make 100% Profit from the Global Oil all time hike price and that is more than enough to run any Govt and country with a population of 25 million.
So in conclusion our Domestic Oil Prices per litre should and always be less that the cost of Minerral Water per litre.
So what the heck is the AAB Govt and Cabinet increasing the Domestic Oil Prices so steeply and on the other hand trying to aplease the RAKYAT by explaining away in terms of their great effort in giving Subsidy.Pak Lah and Cabinet please explain your actual stand and real reasons on Domestic oil hike of 40% for Petrol and 63.3% on Disel.?
Desmond Lee
I always wondered where they get all the money to support all their dumb projects and the losses that goes with it. Petronas is UMNO’s personal piggy bank. If these resources had been properly managed like Singapore’s, Malaysia would be in the the first world class instead of still lingering as a third world country.
The only reason why all these losses and corruption in Malaysia didn’t drive the country to bankrupcy is because the country is rich in naturally resources.
Such a waste. A rich country run by dumb currupted leaders.
Anil, pls post this article to Malaysiakini and Malaysia Today. Not many people know about this “subsidy”. Its actually an Oppurtunity Cost and not a Subsidy. Your article will shed light to many people.
Sadly, many people read only mainstream media and are convinced that there is a subsidy.
“Solution : Sell/Export only half of all our yearly oil produce and use the balace for our own local consumption”
Dear desmond and others reading this reply, this simplistic solution is not realistic. Yes, you are rigth that Malaysia exports it’s oil and buys lower grade crude to supply our domestic fuel needs. But do you knwo how good our oil is? It is the most expensive blend of crude oil there is on this planet! My latest blog entry has a link the price comparison of most crude oil prices in the world.
If Malaysia does not seell it’s high grade crude on the open market there will be no money for infrastructure. You coul dhave your fantastic high quality petrol at el cheapo prices but no roads to drive it on, nowhere to go. To put it simplistically.
What are the subsidies??? This is a hoax story to hoodwink the general public on the believe that there are the purported subsidies. There are no subsidies only a hoax to cheat the masses. Every crude oil producing countries allocate a percentage their production for domestic consumption and the balance for export to earn foreign exchange. What is this nett producer & nett exporter of crude oil talking??? Look at Brunei & Saudi Arabia and the many more crude oil exporting countries do, both and all are nett producers & nett exporters of crude oil, there are no changes in the prices at their pumps for both petrol and diesel despite the whopping Crude Oil prices now reaching US$139/- per barrel, they are all enjoying boom and boost to their State Coffers with the greatest windfall of all times with record foreign reserves’ balances and also a boost to their economies, so why are we seeing the reverse in Malaysia??? There is obviously mismanagement of the funds from the power that be. Where are the windfall profits for Petronas gone to from the nett exports after being handed over to the Government??? A royal commission should be formed to investigate where have all the profits/funds earned from the exports had gone to???
Remove this deadly cancer, throw out that rotten tyranny!!!
It is the right time that this grossly rotten, corrupt and incompetent flip flop tyranny that remove the fuel subsidies & increase the electricity tariffs should also be removed… & to accomplish this, all & whoever, MPs from both BN or Pakatan Rakyat, it is your call now and as all the people of Malaysia are firmly behind you to remove this rot. Cannot imagine that a nett producer & nett exporter of Crude Oil has to do this, look at Brunei, Saudi Arabia and many other crude oil nett exporters, there are no increases of prices of Petrol & Diesel at their pumps as both & all are nett producers and nett exporters of Crude Oil and they are now enjoying a boost to their state coffers & economies with a whopping windfall in oil prices of the current US$139/- per barrel that earned them huge foreign exchange reserves from their Crude Oil exports. But in Malaysia the reverse is true as there is no boost to the economy, but only sadness prevailed because the foreign exchange reserves from Crude Oil nett exports earned are poorly managed or badly mis-managed and no one knows where all the profits over the years had gone and we are saying a (large chunk of) the 700 or more Billions earned had disappeared and there is no accountability by the tyranny power that be. All Malaysians including those unborn ones have been betrayed by this cancer who has caused all these serious crimes, anarchies, chaos and inflations beyond comprehensions owing to the greed by this cancerous corrupted power hungry Moron who intended to stick to power beyond his welcome!!!
My simple understanding of ’subsidy’is to aleviate a hardhip in the event of a ’shortage’in a country. Look at Brunei - being a producer of oil, the rakyat are the first benefactors and with planned and calculated management, only then is the ’surplus’ exported.Why are we burdened with a 40% hike (passed on to us) when oil is exported?sold at USD130? So wh gets to enjoy this “increase” I wonder.
What’s to do with market price? I don’t understand. Profit is something about production cost, isn’t it.
I’m not economist or financial expert. My knowledge about market price is limited to amateur standard. thus, correct me if I’m wrong.
Say currently oil market is USD 140/barrel. The oil production cost is about USD 30/barrel (figure is adapted from the former No.1’s blog). Then the profit is USD 110/barrel, isn’t it?
What if Petronas is selling USD 70/barrel only to Malaysia and gain profit of USD 40 instead of USD 110 according to marketing price. Is it possible? and why not?
Malaysia is an oil producer and seller, why can’t Petronas determines the price for our local market? Petronas can sell USD70 locally and sell USD 140 or ÙSD 150 oversea, feasible? why not?
If Petronas is selling at the market price USD140, then it is logic to say that Petronas is selling to the Malaysia people at the market price and Petronas is making handsome profit like those middle east countries, correct?
To me, the RAKYAT is not subsidized but subsiding, probably Petronas and those who treat Petronas as their PRIVATE property!
I agree with Valerie. All oil producing countries sell their oil to their rakyat at a very low price. To the world it is sold at the market rate. In Malaysia, if it is petrol than we compare ourselves with Singapore. When we talk of other aspects we compare ourselves with Burma. This is the mentality of our ruling elites. At RM5.00+ (about $2.00) it is still cheap to the Singaporeans based on their earnings.
The decision by the government doesn’t make sense to me. The last raise was made with a promise that the savings would be used to improve public transport. We are yet to see any improvement. Now more promises are being made without a clue to how these are going to be implementerd. Higher petrol price means a hike in the price of practically everything.Our food bill is bound to go up. So will cost of clothes, entertainment, etc,etc. The cash incentive stated is not going to alleviate the problems.
As Anil has been advocating, what we need is a clear policy and plans for an efficient and effective public transport system. I have the last few days tried the bus service from Bukit Subang to PWTC KL. I had to take 3 different buses; over a 2 hour duration. The bus to KL was jam packed, a 68 passenger bus that carried more than a hundred, with no more standing room. The period of waiting for the bus to arrive was 40 mins. (Under such circumstance, I wouldn’t dare take my family by bus). On the return, I decided on the Commuter train. The train was packed too. From Subang Jaya I still had to take two different buses to reach home.
Raising petrol price by 78sen without provisions for alternative travel, the government is adding to the misery of the poor and already burdened rakyats.
For every action the govt has institutued, it always seems that they did not calculate or see the ramifications that would follow How come ah? Why now, after all the confusion,uncertainties,impending worry and sight of doom then the govt makes some feeble attempt to ’see what they can do’ to help alleviate the hardship. Best joke - a committee is being set up to study this!!!!Scream Scream. Ijuts! There’s a damn ‘committee’ for every damn thing.
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