Oil Price

First, it is not easy being a politician.

Second, it is even harder being the government.

I've just watched the Debat between opposition leader Dato' Seri bin Anwar Ibrahim and Minister of Information Dato' Ahmad Shabery bin Cheek. The oil thing has been a great issue and forever will be. It is a good thing the government has decided to make such an open debate for all the rakyat to see.

There's too many points in the Debat that I wanted to point out and I can't afford covering everything they said. In lowyat it is already 45 pages by 12:30 pm. I wish I could read it all. So first, I would go with my opinion on the fuel price only. Then I'll try to give my opinion on the Debat. I have to tell you guys, I will probably be biased towards the opposition, though I will try to be very neutral.

On 7th of June 2008 Malaysian government increased the fuel price from RM 1.92 to RM 2.70, more than 40% hike. Diesel was even worse, more than 60%. Minister of Domestic Trade and Consumer Affairs, Datuk Shahrir bin Abdul Samad appeared in numerous talkshows and forums explaining the price hike. Even among my friends, oil price has become our topic of conversation during our maple sessions.

OK I admit, I don't know what's the current price for gasoline. There is a standard for crude oil, that is Light Crude in New York Mercantile exchange or Brent Crude in International Petroleum Exchange (you can wiki this for more information). For gasoline, there is no standard. Gasoline varies from one country to another. Even in the same gasoline station, there could be two or three types of gasoline. Here in Malaysia we have RON 97 which is the common one sold at RM 2.70 and we also have RON 92 sold at RM 2.62 and V-Power Racing (of RON of 100) sold at RM 3.15. My point is, gasoline has no fixed price. The only price we are concerned about is the price we are importing our gasoline, and to discover that, I'm too lazy to check on the PETRONAS report. Here in wikipedia (my ultimate source of information, though for this particular piece of information there is no citation) it is said that as of June, the gasoline price has increased to US$ 3.30 per gallon which translates to RM 2.79 per liter. (Wow, that's startling! This is a very spontaneous reaction after I did the calculation. Someone please check how correct my calculation is. If this is true, then the government is only subsidizing RM 0.09 per liter. I initially thought after the price hike, the government is still subsidizing up to RM 0.30 per liter.)

Am I very dependent on subsidy? Yes. And so does millions of other Malaysians I believe. We have been born in a country that provides subsidy and it will be embedded in us to be dependent on subsidy. But one thing I do support the government stance is to abolish subsidy. I do think it is good for the rakyat and the nation as a whole to be no longer dependent on subsidy. But I don't think it is very wise for the government to slap the whole country with such a drastic rise of fuel price to accomplish this.

Subsidy strangles the country with burden of allocating more money to make a certain commodity cheaper. It slows the development process. If subsidy is abolished, there will be billions of money for the government to spend on other things. Thing is, if the subsidy is abolished drastically, the whole country will be hit by a superinflation. Maybe not super, but I'm sure it will be huge. Even now the inflation is increasing already. My suggestion ever since the whole fuel price discussion started is, "Why not we increase the fuel price gradually instead of drastically?" Instead of RM 0.78 in one night, why not make it RM 0.10 per month, or RM 0.02 a week or something like that? Maybe the paperwork will be very complicated, but you choose to be the government, you have to serve for the rakyat. I'm not an economist, I don't know how practical my idea is going to work, but my theory is the inflation will be much less than now if the fuel price is increased gradually instead of drastically, and also there will be no panic. On the eve of the fuel price hike, all gasoline stations had kilometres of queuing cars trying to save some money by filling up their tanks before the price hike. If the full tank is RM 200 for the car before the price hike (which is a very big tank) the car would save up to RM 80 for that fill. However, most cars have much smaller tanks, which means each car will save not much more than RM 80. That, not considering the burning of fuel while idling or during the engine start if the car chose not to idle. In net, the whole country actually lost a substantial amount of fuel during the panic already. If the fuel price is going to increase by RM 0.10 tonight, and another RM 0.10 next month for the next ten months, I don't think the panic would be that serious.

Going back to the Debat, I remembered, Anwar always stressed on the word mendadak, because probably that is his point. Why it has to be sudden? If he's the government, maybe the promise that Shabery kept repeating about reducing the fuel price below the original RM 1.92 is impossible, but at least maybe the price won't be RM 2.70 today. Well, maybe. Politicians are all sweet talk.

And about Malaysia being the net exporter of oil. That is a big point. Gasoline prices are insane at certain countries, insane at both ends I should say, like Singapore selling at more than RM 5.8 per liter (just for the 'fun' fact, the most expensive gasoline is at Sierra Leone, selling at more than RM 15 per liter, and Norway at more than RM 8 per liter) while at the cheap end, Venezuela sells their gasoline at RM 0.10 per liter and Turkmenistan at a little over RM 0.20 per liter. These countries manage to sell their oil very cheap because they themselves produce oil. The logic is simple (yet this logic escapes most minds) if the country is a net exporter, global crude oil price rise will only benefit the country. It's like during my days of playing Ragnarok, if I have this worthless junk, the name is jellopy for example, I have tonnes of jellopies, and the price is low, it's useless, but suddenly tomorrow the jellopy's price goes insanely high (yup, online games have their own economics, and such event has happened before, numerous of times) I will be very happy. Malaysia's selling oil, and if the oil price increases, Malaysia should theoretically make more money. Or is it so? The innocent PETRONAS president and CEO Tan Sri Dato' Seri Hassan bin Marican had to be dragged in to explain things. Things that actually does not have to involve him. He runs PETRONAS, PETRONAS earns hundreds of billions, they give back to the government tens of billions, so why drag them? They did their job. The media and some of the rakyat insists PETRONAS must explain the oil price rise and so they explain their part. Even though the country is exporting oil, the oil they're exporting are crude oil which must be noted to be far cheaper than gasoline (anyone who doesn't know this, is not ignorant, that person is an idiot). And our crude oil, even though of better quality than those of Saudi Arabia, Iraq and those Middle East countries, costs more for the exploration and production, because our drilling is at sea, and some even at deep sea, while those Middle East countries suck their oil out of their land, costing as low as quarter of our exploration and production cost.

Still, fact is, we are a net exporter. Net exporter means the revenue we make from selling our crude oil is more than the money we pay to import gasoline. In the Debat, it is said that Malaysia makes around RM 56 billion from crude oil, so that is a profit. As my logic goes, if the country is a net exporter, we should make money, and it also means our fuel should be cheaper. So now I'm supporting subsidy? Didn't I just now said that abolishing subsidy is good for the nation?

Here is where Anwar bought me. He said the word 'subsidy' is negatively viewed. Thing is, the government provide billions of ringgit for relieve efforts but in other names, such as incentives, or bail-outs to depleting companies. And the infrastructure and development and all that stuff are also money from the government. The government is to serve the rakyat, and that includes relieving hardship by using money. The subsidy will reduce the government money for other purposes, hence slowing the development, but if subsidy is the way to relief the rakyat's hardship, then just use the subsidy.

Speaking about incentives, I remembered about the car rebate, RM 625 per car per year and RM 200 tax rebate for big engine cars. First, how much does that RM 625 equate to? 231.5 liters of gasoline, and for an average car (I took Perodua Kelisa's fuel efficiency instead of Kancil because I couldn't find it) of 25 kilometres per liter, that is 5775 kilometers. My car's mileage is 13000+ kilometres and that's only eight months old. So I can almost say that the fuel cash rebate is only enough for around four months of usage, and that is if you drive a Kelisa. Neo is definitely more, and so does other powerful cars (even with the RM 200 tax rebate for cars with engines bigger than 2.0, that is not enough).

The rebate is not enough, but there is another big flaw. There is this one anti-government e-mail (I hate anti-government movement because most of the radical Islamic people in my university are anti-government (but I'm not saying all religious people in my university are radical) although I myself am kind of tilting towards the opposition) giving this interesting insight. Imagine there is this poor family who only manage to own one car and gets the RM 625 annual rebate, compared to this wealthy family who own ten cars and get their annual rebate of RM 6250 plus the tax rebates if their cars are big enough, which certainly are.

The whole slashing of fuel subsidy is supposed to be focusing on relieving hardship among the poor and giving less relief to the rich. Shahrir always mention that one of the sections where the saved fuel subsidy will go is to the food subsidy. Food is consumed by everybody, rich or poor. This way, the poor will benefit more from the subsidy than the rich. I don't know how many billion have been channeled to the food subsidy, but I'm not seeing a significant reduction of price. In fact, by increasing the fuel price, there is a strong reason for food stalls and grocery shops to increase their food price, whether or not there was a food subsidy. People will not know (I know I don't know) about food subsidy, people only care about fuel subsidy. By increasing the fuel to from RM 1.92 to RM 2.70, there is a reason for the RM 1.00 nasi lemak to go RM 1.10 (less likely) or RM 1.20 (more likely). Even if the rice is more subsidized than before, people will not really notice it. People will notice more on, "Oh, the tractors and harvesters are using more expensive fuel now," and "The trucks transporting the rice from the field to the factory to the warehouse to the shops to the food stalls cost more now".

OK what else do I miss? This is plainly on my view first. Later I will go to the Debat. The same anti-government e-mail also mentioned about the unnecessary taxes (mainly road tax and tolls) that Malaysian government imposed that even non-petroleum-producing countries don't have. The e-mail has a lot of facts I don't agree, but on the unnecessary taxes, I agree. Where does this money go? Well, running the country is sure a tough job, and this sentence is no sarcasm. I really mean it. I will never know where exactly the money goes, but it does makes me wonder.

Now to the Debat. I am biased towards the opposition, but even if I try to be unbiased, I think Anwar looked better among the two. He managed to make himself look the wiser half, avoiding personal attacks, responding to personal attacks towards him with sinister smiles, giving good numbers and facts. At the end of the show, he was the one who came to Shabery and shook hands with his opponent. Shabery on the other side are trying too hard showing how bad Anwar is, how good BN is, giving horrible comparisons, and lacked the cheerful face. His speech is much less convincing than Anwar's. And he is also kind of lampi (lambat pickup). Anwar had to explain that his attacks was towards BN and not PETRONAS. And even after that explaining, during the round-up Shabery kept saying don't ask more from PETRONAS.

Anwar's whole stance was to reduce the fuel price by RM 0.50 by tomorrow if he leads the country by tonight. Of course the latter is impossible, but his confidence in stating the former is incredible. His first proposal is to reduce the electricity standby capacity from 40% to 20%. This is an interesting point. I myself have never thought of or heard of this idea. Anwar is very much prepared for this Debat (but I believe his opponent is just as prepared as him). Electricity is generated by burning fuel which in Malaysia consists mainly of petroleum and gas (a fact that Shabery's representative seems bizarrely unaware of) and all power plants throughout Malaysia will generate 40% more than the actual demand as standby. By reducing this standby to 20%, Anwar claims this can save up to RM 2 billion. He needs RM 5 billion to reduce the country's gasoline price to RM 2.20 by tomorrow.

Shabery's opening (I'm watching the clip over YouTube now) mentions the opposition's promise to reduce the fuel price before the election, which was at RM 1.92. Then he mentions that the price hike is not the government's fault but due to a global oil crisis (with crude oil price rising up to US$ 147.27 on 11 July, the current record).

The opening question was something like, the view of both panels that subsidy will be given to giant oil companies like ExxonMobil and Shell that have gasoline stations all over the country. Shabery had to answer first, and he mentioned about subsidy burdening the government to develop other areas. Then he gave his first horrible comparison, that is he mentioned countries like Norway and Finland, countries with very low corruption, also apply no subsidy and their countries are well developed. Anwar mentioned corruption because by reducing corruption, there should be more money for development and subsidy. If Malaysia chooses (and somehow miraculously succeeds) to become like Norway, abolishing corruption and subsidy altogether that would be better, but Anwar's point is if we can exterminate corruption, we can use the money for better purposes, regardless of whether it goes to subsidy or not.

Anwar gave a more direct response for Shabery to understand. He said Norway have a GDP ten times more than Malaysia. Then he went about the term 'subsidy', 'incentives' and 'bail-out' I mentioned just now.

Then the session where each representatives ask both panels a question. Here is where Shabery's representative looks like he thought power plants are irrelevant with oil. And then Anwar thanked him for the 'speech', because he said he was expecting a question.

The next question was from Anwar's representative to Shabery. His question was, during the previous fuel price hike, government saved 4.3 billion ringgit which the government promised to spend it on transportation. Until now only 800+ million is spent on transportation. This new price hike will save the government up to 13 billion ringgit, if the previous 4.3 billion is hard to be spent on the right direction, how will this 13 billion be spent? Shabery answered by mentioning subsidy should go to the right sectors and mentioning Malaysian rice is cheaper than Thai rice.

Then the pointless part (as I see) where representatives will ask their own panel. Anwar's guy asked him about Tabung Warisan but Anwar's answer seems more like answering Shabery's previous answer. He said inflation will still happen because the fuel price hike is so sudden. And he said the government should stop confusing kampung folks by saying the oil price increase is global. Malaysia is a net exporter of oil and the oil price increase will only benefit Malaysia instead of burdening the country.

The question Shabery's representative asked to him is even more ridiculous. He asked why Anwar keeps picking the oil issue and not other issues that the government has tackled like tax and housing. Shabery mentioned something about Malaysia being a tiny net exporter of oil, not even in the top 20. Well, if I were to reply, I would say it does not matter how big or tiny our export is, if we export, it means we are making money. And by small it is not a few ringgit, it is still billions of ringgit.

Then the jackpot question. Soalan cepu emas. Each panel gets to ask a question to his opponent. Anwar gave a very lengthy question, first by explaining don't compare to Venezuela and Iran, then by saying he is not demanding more money from PETRONAS, he is demanding money from the government's fund and to plug the holes that leaked the money. The question finally comes, asking why the government uses the media including the official media to twist the opposition's statement, which is why the fuel price hike is so sudden and why the national products are not handled efficiently to reduce hardship and forward development. Shabery's answer was full of personal attacks, mentioning the contracts are done by Anwar during his time in office (which was ten years ago, wow, the contract must be really long) and his deal with IMF during the 1997 crisis. He then mention about Venezuela and Iran giving huge fuel subsidies and yet having very high inflation.

His question to Anwar was, in 2015 Malaysia will become a net importer and probably having no more oil reserves. By that time would you want to raise the fuel price drastically, or just maintain the subsidy? Anwar asked back, who gave the numbers that by 2015 there will be no more oil for Malaysia. If he had read PETRONAS' report, it said that, "if there is no more oil wells found, then..." and Anwar finishes the sentence with, "bacalah bagi habis." Here is where he had to restate that he is attacking BN and not PETRONAS and if a parliament member could not understand that then that is worrying. He then hit back at the IPP deal he was earlier accused, saying he did not agree with it. Leaked diesel through smuggling and corruption are RM 800 million and then the government established a new crony company worth RM 100 million. Both combined to close to a billion. And the accusation that we live under the presription of IMF is a big fitnah to him.

Then the host gave the last question to both panels. To Anwar, why didn't he give these ideas now, instead of the talks of replacing the government. Anwar simply said he is not the Prime Minister, that is why he needs these sort of platform. In 2006, the rise of RM 0.30 caused a 6% inflation. Now not even one month into the RM 0.78 rise the country is experiencing 8% inflation. Shabery then repeated that the opposition's promise was before election which was RM 1.92 so it should be even cheaper than the RM 0.50 reduction Anwar is promising now. He said Anwar's representative was outdated by saying the price was US$ 70 back then (in 2006) now it is US$ 140. Now he is outdated. The price before the election was probably around US$ 110 or 120, and now it is US$ 140.

Then the roundup. Same thing, compacted. It was a good debate. It was entertaining for me. And I think any neutral could see whose the better one of the two.

Maybe you guys want to buy my butanol plant plan?