Thursday, 5 June 2008

My take on the Fuel Price Increase

xxx Rancangan Tergendala Sebentar xxx
(Normal programme of "All About Shean Wenn" will resume after this)

While the common British conversations are usually centred around the weather, football and politics (ok, I may be overtly simplistic here, and there are possibly many educated, intelligent, aristocratic Brits out there who talk about more important issues, but since I don’t know ANY brits, I am just generalising), the common “coffeeshop” talk amongst Malaysians these days would surely be about today’s (5 June 2008) fuel price hike.

Time and time again the topic will crop up – and it is very common to hear disgruntled and dissatisfied citizens complaining about how this could happen “when we are the main producer of petroleum”.

I don’t blame the majority. I was once clueless as well. Over the years, and after working in two major oil companies, I have come to understand more* about this.

Hence, I will reproduce an e-mail/article which I wrote to jeffooi regarding this subject 3 years ago. It may very well be (an) outdated (article), but it might just shed some light on this subject (I hope it does). I have quoted in my email, some comments by a few commentators on (credits given). It was published almost verbatim by jeffooi, but anonymously (requested by me). Any comments from these readers are clearly highlighted and does not represent my own opinion ;)

-----Start of article ------

I have to agree with some of the viewers that the masses (ie the Malaysian Public) do not understand APM (Automatic Pricing Mechanism) enough to make comments about the rising pump price.

Everytime the M'sian government increase pump price, they have no choice but to do that as the subsidies (coming from the Goverment) amount to RM-billions each time the crude oil prices go up a dollar/barrel. Basically, in laymen term: Everytime we pump petrol, the government "pays us" to use it. Subsidies are (were) given historically to help the poor but sadly it might not be viable anymore. Which is why most countries do not practice subsidies. And that is the reason some developing or third world country (ie China/Indonesia/Malaysia) practising fuel subsidies will see a strain in the government's funds. As limeuu and chez1978 point out, "Sudsidy of any kind is bad, as it skews reality, and causes stresses in control systems. This is most obviously apparent in the way Singaporeans and Thais come across the borders for petrol. Less visible will be the smuggling activities." For example, for every foreigner (ie: not Malaysian taxpayer) that pumps petrol in Malaysia, our Malaysian goverment is "paying out" about 40sen/litre (assuming limeuu's calculation is right, note : the rate in 2005) to them. Smuggling activities hurt us (The M’sian cistizens/tawpayers and the Malaysian government) evenmore, and will impact our currency (see below for context).

When smuggling (of petrol) activities happen, the losing party is the government (translation: taxpayer’s money) and government's funds means it is coming from the taxpayer. In UK, the government taxes petrol usage (by way of fuel tax), so as opposed to people of Malaysia, the public has to "pay" the government for using petrol/diesel. It is just like how VAT works for other products.

Again, Chez hits it right to say that "There is only one way the fuel price can go with the removal of subsidies, UP. We have been spoilt with the subsidy mentality and failure to understand how the pricing works, including ridiculous arguments like why we can't have cheaper petrol/diesel because we have them raw materials in our backyard. "

For more context of the impact of rising crude oil prices to the Asian Economies, go to (Article written in 2005)
"Indonesia, where consumers pay just 24 cents a litre at the pump for petrol, is expected this year to spend almost $14bn (£7.6bn) - or a third of central government expenditures - on fuel subsidies. Jakarta's stalling over price rises has helped undermine its currency, the rupiah, which is down 11 per cent against the US dollar this year, and confidence in the 11-month-old government of President Susilo Bambang Yudhoyono." -Quoted from

Anyway in my opinion, the longterm solution is (and has always been) cutting energy dependent on petroleum/crude oil and instead use renewable resources. One of the methods of doing so is increasing the usage of the public transport system.. but as we know it, Malaysia (or our Government) has a long way to go in terms of improving the public transportation system. But that is another topic for another day.

My 2sen's worth.

-----End of article ------

The latest FT article on this fuel price hike is available here :

Footnote (*) :

I am not an economist, an oil/energy analyst/expert and all opinions (except those clearly credited) are that of my own. Some may not be accurate or it is too simplistic, therefore allow some discrepancies and further research may be necessary on the reader’s part.

1 comment:

Praveen said...

Nice summary. People will have to also factor in the 600+ rebate that the government is offering come July. You won't hear much about this until people start cashing in and buying flat screen TVs with their "riches".


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