Subsidy? What subsidy? Aiyah, I don’t understand-lah…

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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.

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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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absent2
absent2
20 Nov 2008 6.00am

Subsidy? simple-lah! It is just plain UMNO-lingo. Whatever necessary things we purchased in our own country, it is being heavily subsidised by the BN Government. There is no good things that is not being subsidised by our so competent Government! Have you all noticed that only UMNO/BN people used the word to their advantage and benefits? We only questioned the meaning of the quirky work, but never seems to get a favorable answer. One can go round-and-round, but will never get the answer. Forget it! But never mind, this word will be still around as long as UMNO/BN is still… Read more »

Valerie
Valerie
9 Jun 2008 6.48pm

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.

Navi
Navi
9 Jun 2008 11.04am

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… Read more »

Pocoyo
Pocoyo
9 Jun 2008 10.49am

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?… Read more »

Valerie
Valerie
9 Jun 2008 9.08am

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.

Mirage
Mirage
7 Jun 2008 10.43pm

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,… Read more »

Mirage
Mirage
7 Jun 2008 10.38pm

What are the subsidies??? This is a hoax … to hoodwink the general public on the believe that there are the purported subsidies. There are no subsidies…. 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… Read more »

virtualmystic
7 Jun 2008 5.03pm

“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… Read more »

Ganesh
Ganesh
7 Jun 2008 3.49pm

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.

Philip Tham
Philip Tham
7 Jun 2008 2.54pm

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.

Desmond Lee
Desmond Lee
7 Jun 2008 9.15am

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… Read more »

Teresa M J N
Teresa M J N
7 Jun 2008 7.43am

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?

John 316
John 316
6 Jun 2008 5.05pm

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… Read more »

Pocoyo
Pocoyo
6 Jun 2008 4.39pm

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… Read more »

matt
matt
6 Jun 2008 2.15pm

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***.

malaysian
malaysian
6 Jun 2008 2.06pm

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 ?

donplaypuks
donplaypuks
6 Jun 2008 1.32pm

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… Read more »

Al Tugauw, Sarawak Headhunter
6 Jun 2008 1.15pm

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”.

lucia
lucia
6 Jun 2008 1.03pm

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

yh
yh
6 Jun 2008 1.00pm

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.

Robin Goodfellow
Robin Goodfellow
6 Jun 2008 11.39am

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… Read more »

Myblog
Myblog
6 Jun 2008 11.11am

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….

Sarawakian
Sarawakian
6 Jun 2008 10.57am

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!