Archive for July, 2008

Fuel Price Hike in Malaysia – Justified?

by on Jul.04, 2008, under Posts

This is an interesting topic that has been bugging Malaysians as much as crime and corruption here.

I have tried to reduce the drama and grammatical errors but none of it is written by me. There are areas which I do not agree with or find doubtful, which I have highlighted in italics.

Enjoy!

—start—
What is never mentioned in mainstream media like NST/TheStar/Utusan/BH are these facts….

Malaysian Per Capita Income USD 5000 VS Singaporean Per Capita Income USD 25000

The Star made a comparison of prices in Thailand, Singapore and Indonesia.

For Thailand it is quoted at RM3.90/litre, however are they aware that in Thailand new cars are cheaper than Malaysia by RM10,000? They pay only one life time for their driving license? No renewal fee after that? Also that goes for road tax as well? And did The Star report that you can drive all the way from Hadtyai to Bangkok on a six lane highway without paying any tolls?

Here in Malaysia you have to pay yearly renewal for road tax, driving license and tolls, tolls, tolls!!!

For Singapore, how can you quote RM5.20? Please quote in Singapore Dollars because they are earning in Sing Dollars. You might as well say Europeans are paying RM10/litre. RM5.20/litre = S$2.20/litre, still cheaper than Malaysia in view of the fact that Singapore is not a crude oil exporter. Are you saying that you fill up petrol in Singapore by paying Ringgit?

In economics, dollar to dollar must be compared as apple to apple. Not comparing like durian in Malaysia is much cheaper than durian in Japan! Of course, Japan is not durian producer! Comparing Malaysian durians with Thailand durians would make more sense!

For Indonesia we might say it is cheaper there at RM2.07/litre but compare that to their level of income!

Now, let us compare the price with oil producing countries:

  • UAE – RM1.19/litre
  • Eygpt – RM1.03/litre
  • Bahrain – RM0.87/litre
  • Qatar – RM0.68/litre
  • Kuwait – RM0.67/litre
  • Saudi Arabia – RM0.38/litre
  • Iran – RM0.35/litre
  • Nigeria – RM0.32/litre
  • Turkmenistan – RM0.25/litre
  • Venezuela – RM0.16/litre
  • Malaysia – RM2.70/litre

RM 2.70!!! Individual perspective:

As of last month, a Toyota Vios would cost about RM89,000. In the international market, a Toyota Vios is about USD19,000 or RM62,700 (using the indicative rates of USD1 = RM 3.30). That makes Malaysian Vios owners pay an extra RM26,300.

This RM26,300 should be cost of operations, profit and tax because the transportation costs have been factored in to the USD19,000. RM26,300/ RM625 petrol rebate per year translates to a Vios being used for 42.08 years.

I do understand that the RM 625 is a rebate given by the Malaysian Government, but it also means that one has to use the Vios for 42.08 years just to make back the amount paid in taxes for the usage of a foreign car. Would anyone use any kind of car for that long?

Now with these numbers in front of us, does the subsidy sound like one or does it sound like a penalty? This just seems to be a heavy increment in our daily cost of living as we are not only charged with high car taxes but also with a drastic increase in fuel price.

With all the numbers listed out, I urge all Malaysians to join me in analyzing the situation further.

Car taxation is Government’s profit, fuel sales is Petronas’ (GLC) profit which also translates into Government’s profit. The Government may ridicule us Malaysians by saying look at the world market and fuel price world wide. Please, we are Malaysians, we fought off the British, had a international port in the early centuries (Malacca), built a home to a racially mixed nation and we are not stupid!!!

We know the international rates are above the USD 130/barrel. We understand the fact that the fuel prices are increasing worldwide and we also know that major scientists are still contradicting one another on why this phenomenon is happening. Some blame Bush and his plunders around the world and some blame climate change and there are others who say petroleum sources are getting scarce.

Again we go back to numbers to be more straight forward.

1 barrel = 159 litres x RM2.70/litre = RM429 or USD134

On one hand, we are paying the full cost of one barrel of crude oil with RM2.70 per litre but on the other hand the crude oil only produces 46% of fuel.

Malaysia sells crude oil per barrel at USD130 and buys back fuel per barrel at USD134. And not forgetting, every barrel of fuel is produced with two barrels of crude oil. 1 barrel crude oil = produce 46% fuel (or half of crude oil), therefore 2 barrel crude oil = approximately 1 barrel fuel. In other words, each time we sell 2 barrels of crude oil, equivalently we will buy back 1 barrel of fuel.

Financially, Malaysia sell 2 barrels of crude oil @ USD130/barrel = USD260 = RM858 then, Malaysia will buy back fuel @ USD134/barrel = RM442/barrel. Thus, Malaysia earn net extra USD126 = RM416 for each 2 barrels of crude sold/exported vs imported 1 barrel of fuel!!! (USD 260-134 = USD 126 = RM416).

So, where is the extra USD126/barrel income being channeled to by the Malaysian Government?

Another analysis:

1 barrel crude oil = 159 litres.
46-47% of a barrel of crude oil = fuel that we use in our vehicles
46% of 159 = 73.14 litres
RM 2.70/litre x 73.14 litres = RM197.48 of fuel per barrel of crude oil

This is only 46% of the barrel, mind you. Using RM3.30 = USD1, we get that a barrel of crude oil produces USD59.84 worth of petrol fuel (46% of a barrel). USD59.84 of USD130/barrel turns out to be 46% of a barrel as well.

Another 54% consists of bitumen, kerosene, and natural gases and others. This makes a balance of USD 70.16 that has not been accounted for.

Where is the subsidy if we are paying 46% of the price of a barrel of crude oil when the production of petrol/barrel of crude oil is still only 46%?

In fact, we still pay for this as they are charged in the forms of fuel surcharge by airlines and road taxes for the building of roads (because they use the tar/bitumen) and many more but let us just leave all that out of our calculations.

As far as I know, only the politicians who live in Putrajaya and attend their Parliament meetings in Kuala Lumpur (approximately 60km+) are the ones to gain as they claim their fuel and toll charges from the taxpayers’ money.

It is so disappointing to see this happen time and time again to the Malaysian public, where they are deceived by the propaganda held by the politicians and the controls they have over the press.

Which stupid idiot economist equates rebates for rich or poor with the engine capacity of the vehicles? An average office clerk may own a second hand 1300cc Proton Iswara costing RM7,000 (rebate = RM625) while a Datuk’s children can own a fleet of 10 new BMW, Audi and Volvo cars all less than 2000cc but costing RM2 millions and getting a total rebate of RM625 x 10 = RM6,250!

Misleading concept of subsidy:

The word “subsidy” has been brandished by the Barisan Nasional (BN) Government as if it has so generously helped the rakyat and in doing so incurred losses. This simple example will help to explain the fallacy:

Example:

Ahmad is a fisherman. He sells a fish to you at $10 which is below the market value of $15. Let’s assume that he caught the fish from the abundance of the sea at little or no cost. Ahmad claims that since the market value of the fish is $15 and he sold you the fish for $10, he had subsidised you $5 and therefore made a loss of $5.

Question: Did Ahmad actually make a profit of $10 or loss of $5 which he claimed is the subsidy?
Answer: Ahmad makes a profit of $10 which is the difference of the selling price ($10) minus the cost price ($0 since the fish was caught from the abundance of the sea). There is no subsidy as claimed by Ahmad.

The BN Government claims that it is a subsidy because the oil is kept and treated as somebody else’s property (you know who). By right, the oil belongs to all citizens of the country and the Government is a trustee for the citizens. So as in the above simple example, the BN Government cannot claim that it has subsidised the citizens!
—end—

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