Thursday, June 05, 2008

Prices Take A Hike

I won't have enough time to do a complete post on the issue of oil price hike at this point of time. I'll be issuing a statement on it soon enough. But in a gist, I believe that the fuel price hike is economically unavoidable, and persistence in existing low fuel prices will have major detrimental impact on the country's economy in the medium and longer term. The question isn't so much the hike, but what the government does with the savings.

I've written from various angles the issue (subsidies, oil and gas) on this site previously. You can read them here:
I've added here below excerpts from a post by Shin Liang, who is waiting to pursue his PhD overseas in 3 months time, which I thought was interesting food for thought.
I think almost all blogs in Malaysia will be about the increase in petrol price today. But I think my stand on this issue will be different from the rest, because I'm in favor of the price increase!

Yes, all the arguments against the price hike has its merit. And as a consumer myself, I can feel the pain too. But from a country point of view, it was necessary.

For long, our country's economy has relied on exports of raw material. In particular, oil export has proven to be a lucrative business. However, our dwindling oil reserves means that we can continue to enjoy this business for only another 10 years (or so). This means we need to plan ahead and 10 years is pretty short from a country's economy point of view.

For every cent of subsidy in petrol price, we are in fact taking away funds that could be use to prepare our country for the years after our oil reserves are depleted. The profit obtained from the price hike should be invested in building infrastructure, transportation and help building more research centers and improve our university such that we are still competitive when our oil reserves are gone.

The ratio of income per capita and the petrol price is Malaysia is obviously unreasonable and the price hike will definitely have a short term impact. But to improve this ratio, the govt. have to either reduce/maintain the price or to improve the income per capita. As of the current situation, it'd be difficult to improve the income per capita without having to resort to the increase in petrol price. Hence, this price hike is a necessary short term pain for a long term gain.


This petrol price hike could be a good thing for Malaysians, really. But if and only if the profits from this increase in price is put into good use. And knowing our govt., this should be our grave concern. Out of the 70 cents increase, how much of it will go to corruption and how much will go to developing our nation? Unfortunately, without transparency, we can only hope.

If the funds are used to build another twin towers, then please "kill me". I'd rather if the govt. use the funds to build infrastructures that could promote economic activities, to build things that will be catalyst to economic growth. For example, improving our transportation system, communication system, research centers etc.
Feel free to give or share your 2 sens ;-)


Anonymous said...

YB Tony
I too in full support of the reduction/removal of the subsidy, and hence the increase of the petrol price. What I am very UNcomfortable with is the way it is done.
1. The government initially said that it will NOT be increased, not until August.
2. The quantum of the increase at one go.
3. The double whammy announcement - petrol and electricity - at the same time
4. Show the citizens the comparison between Malaysia and other oil export nations in its petrol price
5. Detail explanations on what savings will be obtained, WHAT this savings will be spent on, and HOW will they be distributed/spent
6. How much of PETRONAS profits (from the increase in oil price) will be cascaded to the deserving rakyat (mind you not necessarily ALL rakyat)
7. What about TNB's profits? How can these gains/profits be channeled back to the right people?
8. What are the government, government agencies, GLCs, GLiCs, etc doing to change their "lifestyle" vis-a-vis in cutting its cost and expenditure? air travel? lawatan sambil belajar trips? number of official vehicles? utilities expenditure? kueh-mueh/makan-makan for tea breaks and meetings?
9. What are the ministers, deputy ministers, etc are doing to demonstrate that their lifestyle has changed?
10. What alternatives do the rakyat have? What should we expect down the road with these price hikes?

Clearly a lack of change management. Items 4 to 10 above could and should have been articulated, shared and communicated much better via the e-media, MSM, blogs, forums, talks etc. But not like this.


Anonymous said...

Dear YAB
i hope that,WAkil rakyat can bring this prices hike to parliment to debate.By the way,ask the rakyat to sign petition and send to the prime minister.
Listen,this is not a race problem,this is about our prime minister do not know how to control the Price,It is their problem.
Furthermore,regard the Damansara Primary school,i hope that the school name will not be change.And the school form ipoh should not migrate to Selangor.As Perak will have lost one chinese school.
It is about the interest of Our chinese community and not regard race.
That all

Yours sincerely

VIncent chin

Andrew said...


Frankly, I would support the price increase if I knew that the money would be put to good use. Unfortunately, most of the rakyat know that there is a boatload of "fat" in the system that has not yet been removed.

The government needs to prove that it can handle public funds in a responsible manner. Currently, it has done nothing of that sort. Instead, it's looking for *additional funding* by cutting subsidies instead of removing fat/corruption/unwise spending from the system.

This is what makes most people uneasy; knowing that a large percentage of the subsidy money will go to line somebody's pockets.

Unknown said...

Tony, I am glad to see you have taken this correct and sensible stance.

I would ask that you help to increase the understanding among some DAP MPs who, quoted in the press today, have made rather unhelpful statements about how we should continue to enjoy subsidised energy just because we (still) have oil. In the face of widespread public discontent, such statements are ill-considered and poorly informed, and do not help Malaysians to move forward in coping with these challenges.

Everywhere the world over people are suffering from increases in food and energy prices. Malaysians cannot escape this reality, need to understand that, and more importantly, those with less means need to be helped through these difficult times.

The government's budget deficit has been unsustainable, especially when it has been ballooning due to the fuel subsidies. First principle should be to bring the deficit down to zero, and eventually turn it round to surplus as it was prior to 1998. So to talk about "savings" from ending the subsidy is incorrect -- ending the subsidy merely reduces the deficit which should not exist in the first place now that the economy has more or less recovered from the Asian financial crisis.

The anonymous comment just before mine mentions that the quantum of increase is too large at one go and for both petrol and electricity. I would tend to disagree -- better for a (yes, hard as it is!) one-off shock to the economy and a once and for all adjustment, rather than creeping price rises which will never keep up with global prices.

Secondly, everyone needs to understand that just because Petronas, TNB etc. make profits, it doesn't mean that somehow these should be paid as handouts to the rakyat. Better for Petronas profits to be taxed, and for the proceeds to be channeled to a state fund, as in Norway where Statoil operates like any petroleum company, and the state fund operates like Singapore's GIC.

In terms of how best to direct government expenditure within the existing revenue structure -- there are a number of very sensible calls which have surfaced on various blogs today. I would suggest at some stage we take the time to summarize the best ideas and press for the government to act on them -- including through the upcoming Budget. These would include, for example, transparency in Petronas' accounts, improving public transport, and restructuring IPP agreements. I see, for example, there has been a windfall tax on palm oil and IPPs, but these again are not the best economic instrument in the long-term.

Malaysia needs to pull together cohesively to get through this difficult time and come out stronger -- the role of the opposition should be to be as constructive as possible and to support government policies where these are well-designed and sensible.

Anonymous said...

Do all you really think this is a good move? If so, let's remove the fuel subsidies totally altogether! and see what happens! Say yes to fuel RM4! Bravo!

Those who are hoping that the govt will make good use of the money saved are still in alice wonderland... Public transportation, wages are still in the prehistoric ages, what makes you all think they will be improved right away? Inflation will sky-rocket.

It's the beginning of a nightmarish scenario..

Anonymous said...

If the government can use the subsidy money saved to build world-class efficient public transport, I have no objection to the price hike.

Last time when the petrol price was increased by RM0.30/L, we did not see any improvement in public transport infrastructure, albeit the promise from Pak Lah.

This time, Pak Lah did not even mention how he will use the subsidy money saved for development purposes.

Truly an incompetent and corrupt PM.

Anonymous said...

Yes, the hike in petrol prices is inevitable.

More worrying though is that crime will certainly escalate.

And when will the protection for Proton be removed since we are so into free markets now?

Anonymous said...


I'll gladly pay unsubsidized fuel for 2 benefits which I think is reasonable.

1. Abolish car tax and levy.
2. Abolish toll.

Otherwise don't talk about comparing market rates.

But I suspect the money is meant for something else.


Anonymous said...

I'm totally agreed with my19, but what BN government done so far. All project benefits people not successful, a big project like Putrajaya didn't achieve its goal, people still suffer lower salary, RM exchange rate weakening compare to Singapore dollar, people is suffering from the high price daily consumer products, public transport in the city didn’t improve since BN government promise in 2006.

Why Singaporean didn’t compliant about increase of petrol price, 1st they have a wonderful public transport system, 2nd Singapore dollar is stronger, if Malaysian working in Singapore with same value of salary (SGD3000 compare to RM3000), your purchasing power is higher than Malaysian, petrol price in S’pore only 2.20 compare to Malaysia we need to paid 2.70. China oil price RM2.37, Indonesia RM2.05, they are oil export country like Malaysia and Singapore not oil export country.

On top what my19 suggestion, YB Tony and opposition representative should fight for people for lower personnel income tax, increase taxable income threshold, this definitely will benefits lower income groups.

Strong DAP Supporter

Anonymous said...

Hey Tony,

I am your voter & I will tell you this, choose your words carefully.

Yes, the eventual raising prices for petrol must be done. Not suddenly as it was. From an economic point of view, these are the facts in this country, as we also have terrible levels of corruption, low transparency, wastage of taxpayers money, little checks & balance, high prices of cars, a relatively high level of personal loans & people suffering under high amounts of debts.

Many take home hardly anything after epf, socso, tax, loan payments, etc.

As RPK put it, all the money Petronas made has not been put to good use in developing this country & making us competitive & independent.

Just Change It Lah... The bloody gaaaaveeerrrrmeeennnttt lah that is.

We are willing to give you the federal funds, but you better make sure we do not continue to suffer & be taken for a ride for long.

Your excuses & internal party & political problems do not matter to us.

WY said...

Thank you Tony...for showing us how a real politician should be. Although you re on the opposition, you should not be opposing for the sake of opposing. Every economists would know too much subsidy will lead to inefficient outcome, and alter consumer behaviour adversely.

I hope DAP can propose some welfare-based mechanism for the government, before the people go rioting.

Unknown said...

Hi again, Tony. I hardly ever post comments and don't have much time available to spend in blogosphere.

But I've come back to emphasize two points which I hope you will take further and clarify for everyone:

1. There are NO "savings" from ending the subsidy.

In other words, the government is not suddently flush with cash from today! As early as 3 or 4 years ago, the size of the federal government's budget deficit was equal to the cost of the fuel subsidy. End the subsidy and you end the deficit. As oil prices have increased, the subsidy has increased, and so has the deficit.

One day someone has to pay for the accumulated deficit, and that will be taxpayers.

That is not to say that the current expenditure is not wasteful, I agree with many of the comments about how we need to hold our public officials to account for unnecessary and wasteful spending.

2. We cannot abolish tolls for road use.

I agree that we should not protect Proton anymore, and all duties on cars should come down. Obviously.

But someone has to pay for roads and highways. Obviously the user should pay. That is what tolls are for.

In some countries, there are no tolls, but the roads are not provided free -- they are funded from a tax on fuel which is then used for road maintenance. So are those who want to abolish tolls asking for a TAX on petrol?

Anonymous said...

Well, I am a Singaporean and unlike what some of have said, it is not really true that we are not complaining about the increase in petrol prices. You are right to say that we have a good public transport alternative. If you live in Singapore and earn SGD3000 and spend your money here, I can tell you that you are not better off, unless you save your money and expense that in Malaysia. I hope that it make you feel better now. I have always wanted to make and save my money in Singapore and finally retire in Malaysia, if possible.


clk said...

Few issues can be raised from the recent fuel hike:

a) Credibility issue and flip-flop policies on fuel subsidy; enough said and repeated numerous times by many.

b) Mixing free markets prices with monopoly/protected markets. This is what many here are making noise over. If we want free mkt pricing then free the other mkts as well. Give us free market in terms of car imports (i.e. abolish APs), free markets for telco services, free markets for banking charges/fees, free markets for taxis/ airlines, free markets for IPPs, etc. The excesses here can release more $ into the market to better distribute income. Let the public enjoy lower rates, tariffs, charges etc.

c) Reduce excesses and inefficiencies in Govt. Lead by example, senior Govt officials on economy class, limit travel claims and cut down on 1st classs accomodations. Free-open market tenders to best/lowest price bidder for quality products/ services. Remove quotas, restrictions and crony tenders/awards.

Once the above is done, I fully support non-subsidise full fuel-pump prices

Bentoh said...

I'm with most DAP's reps view on this issue,

Price hike is inevitable, and the subsidy practice won't benefit the country...

but at the same time, where does the oil money go? What about the subsidy that IPP is enjoying?

Why not scrutinizing all the related issues, make a firm step on dealing with these issues, before levering the subsidy?

Major D Swami (Retired) said...

Take action against the frigging corrupt, from the PM and Dep PM down. Investigate all and sundry and throw them in jail, and then talk about talk removing subsidies. I would only then support the removal of the subsisdies.

Anonymous said...

Dear Tony,

One of the issues that have come out of the debate over the fuel hike has been over transparency over the Petronas accounts. (Yes, I know it's an old issue!)

Yet when I raise the issue with friends in PETRONAS they tell me that the results are announced every year, the accounts are available online and the full annual reports are in the Parliamentary Library.

Now that you're a YB, maybe you can tell me if the annual reports are actually available in the Library?

If they're not, that's one thing, but if they are then I was curious as to what sort of additional information people are looking for?

Anonymous said...

to strong DAP supporter 5.11:

china and indonesia are net importers of oil. i'm afraid your information is outdated by the decades.

Anonymous said...

Although I agree that long term subsidy for the petrol will not be a wise move for Malaysian, I definately very upset with this recent hike. Why? Because the saving from the fuel subsidy will not be channelled for 'rakyat' welfare or country growth.

I equally dissappointed that the government have no compassion for rakyat as the current economy sentiment already is not good. What have the government do to prepare rakyat for all these price hikes? Asking us to change our lifestyle but is the government setting any example for the rakyat? What happen to 'Kepimpinan melalui Teladan'?

So what choice does the rakyat have now? Tighten our belt and embrace the worst.

NEO said...

Now is only USD130++ per barrel but by this December it will hit USD200++ per barrel!

Do not believe? Check the Oil future market @ NY.

Be prepare for higher fuel cost in future.

Anonymous said...

Find out the IPPs in the country that have lopsided agreement with Tenaga. Boycot all the products & services of these IPPs related company or related to the bosses.

Ferking crazy schemming us poor rakyat!!!!!

Anonymous said...

From a commentator in Mahathir's blog expressing frustration of the incompetence Abdullah Badawi.

memory said...
Dear Tun,
I am Malaysian chinese,been travelling to Taiwan, China and HK frequently and all of my friends there always recognized 'Mahathir' as the Icon of brave speaker. I am proud of u, with the visions. But there are too many bad politicians involved in your baby projects-sucha as Silterra in kulim and 1st silicon in sarawak. They lost about RM6 billions each so far as per 2007. That's my own calculation and was published in NST last year too.
My business was badly hurt and closed down due to the high cost after Ringgit was unpacked.
I believe in your idealogies and your ways of thoughts and comments on the issues and fired the issues -are all true!. There is no way that strengthening Ringgit without tarnishing the export or there is no way that cost of operation has not been increased with the strengtening of ringgit. All are lies by the ministers! we should send them back to primary schools to learn their math! and the Miss Zeti too!.
I had earned some money when u were PM. But after the handover, i faced the problems of bad economy,strengthing Ringgit and etcs. I lost RM3000 in exchange rate per 1 transaction, which was summed up to rm150k per year. A fried of mine, in Furniture export, lost rm300 to 400k for the exchange lost.
And now, i am unemployed with debts, lost of income, business closed.
Tun, please make a come back!!
By the way i am in High tech industry -semiconductor and electronic.
Please help tun. We can survive with this government. They dont even know what is the economy!

Anonymous said...

I dun get why we were told that there will be no price increase earlier... read this info which is funny but true

Anonymous said...

I accept the withdrawal of out feul subsidy for vehicles provided the tax on cars also withdrawed immediately or refunded!!!1

Anonymous said...

Dear All DAP Supporters,

Let us all unite together to support and contribute in our best possible way to help DAP MPs & YBs to fist fight this political journey less traveled.

Together we will surely rise in no time to ousted Pak Lah, The Forever Sleeping PM and rebuild Malaysia to the world.

Just Change It!

Tan Wee Tiong said...

Perhaps this is a trap to INSTIGATE the public to go for LARGE SCALE DEMONSTRATION.......

Only by then they can impose martial law to keep everybody's mouth shut.

Tzu Yen said...

Dear Tony,
After reading what KianMing wrote on MalaysiaKini, I'm again glad to hear that you share his view that it's necessary and not cash in for political popularity.
As a public figure within a party, it must be hard to express your belief without stepping on others. So are you going to support the demonstration with the party?

For most of us who has the resources to read this blog and post comments here, the price hike may be something to curse about as it tighten our spending power. What about those people who already can't get ends meet? They got no share of rebate because they couldn't even afford a motorbike but the huge inflation will spare no one!

Worried about crime rate.

Anonymous said...

Thank you Tony for the brief statement. You're statement truly show your understanding of the economy. I would strongly urge DAP to give a solid suggestion towards solving the problem. With the suggestion, it'll show the people that DAP is a party with constructive solution and not a party that knows how to organize protests only.

James Loh

Anonymous said...

The removal of subsidies is inevitable, which I agree, as it distorts the real price and encourages inefficient consumption of resources. But I feel that the reasoning above is strictly from a textbook point of view. Apply it to the normal struggling man on the working man on the street who has to wake up at 6 am to avoid the jams and reach work at 8 am... then work till 7 pm and endure jams to get back at 8.30 pm or later and yet does not even indulge himself/herself in veblen goods, the sudden 40% hike doesnt give him/ her much choice does it?

The long term effects are good of course as the money from subsidies saved can be channeld to providing better infrastructure (which in this case most likely refers to better mass rail transport as we hope). However, again, the construction of a mass rail transport will take a longer term to materialise.

In the mean time what does the person who has a family to feed going to do?? He/She still has to send their kids to school dont they? I still have to drive alone to work, as I dont have anyone to car pool with as my colleagues leave else where and we leave work at different times and have different commitments. To boot the public transport at my area is almost negligible.

On the Second Finance Minister's call for people to take public transport as he mentioned most developed countries have almost 50% of their citizens using it, I would like to ask him to try it out for a week and then imagine just 30% of the whole Klang Valley using it. I don't have empirical results to back it up, as some economists/statisticians among u will of course ask me for it, but I believe that logic would have it that the whole public transport system would crash in the morning peak hour and most of us would be late for work.

Again I reiteate the view that subsidies has to be reduced, but it has to be done in a way that minimizes shocks the most. I agree with those that say it has to be done in stages for the effects to have a smoother absorbtion. Economics is about efficient use of resources - that is true. But in application I am in the view that it has to be applied in a humane way. Economics is about efficient usage of scarce resources, but in the end we are all humans with mouths to feed.

On a development point, the government doesnt even have any concrete plans to improve the public transport and also redistribute the rebates. While they come up with some sort of plan, normal people would still have to fork out money to pay at 2.70 - not yet factoring in the inevitable increase in necessity item costs. I would call the recent move in the hike as a "Gun and Run" using Economic theory as disguise.

Anonymous said...

Dear Tony

I'll get my "revenge" in next Sarawak state election .... coming soon!!

And for all those voters who voted for BN recently, that's your "reward" and you bring us all to brink of starvation!!


Anonymous said...

I share your sentiments but Anwar has promised to do the opposite.

What will you do if he becomes PM? What will DAP do? Support him or just keep quiet?

You know this is bad economics and will ruin the country in the long run when we become a net oil importer by 2014.

Anonymous said...

The thing is, from the so-called extra money from the reduction in fuel subsidies where will it go?

You talk about the future of Malaysia but all I can see is that it's either mostly for the pockets of some people or god knows where that extra money is going to.

Fuel is much more expensive for the citizens to buy now and there is no preparation nor alternatives given for the citizens to ease their burden.

Where are the more efficient public transports? Where are the policies that will be implemented to ease the burden of the citizens?

Before implementing all of this, the government just decided to drop an atomic bomb just like that. It's freaking unfair. Cost of living has gone up considerably especially in states where there public transport is like utter crap. No LRTs/MRTs available as alternatives and busses are only available on the main roads only (What about people living far away from bus stops?), not to mention the ripoff expensive taxis. Oh and did you think public transports in KL are efficient enough in the first place?

Don't get me wrong though, I'm not against the reduction and removal of fuel subsidies. I'm just against how the government did it.

Yes, the government can remove the subsidies for all I care BUT they must implement substitutes/alternatives that can offset the burden on the citizens.

What they did was totally a bad move. Take a look at how it has impacted on the Ringgit. The real value of money has fallen and there is no income increment, no other form of burden easing. How do you expect people to survive in the future where the fuel is not subsidised anymore?