Malaysian Oil – The story from independent perspective

From the international herald tribune. I like it as it’s quite unbiased and impartially written.

KUALA LUMPUR: Since the first tin prospectors trekked through malarial jungles here almost two centuries ago, much of Malaysia’s riches have come from the ground, whether scraped up by miner’s picks or harvested from the rubber and oil palm trees that burrowed their roots in the fertile soil.

But nothing quite beats the bonanza that the country has reaped over the past decade from its oil and natural gas buried offshore.

On Thursday, Malaysia’s national oil company, Petronas, announced record revenue of 184.1 billion ringgit, or $52 billion, for the year that ended March 31.

That is 10 percent higher than in 2006 and triple the level of seven years ago.

The pretax profit of 76 billion ringgit is equivalent to about $870 for every citizen of Malaysia, which has a population of 25 million.

As Asia looks back on the decade since the financial crisis that began in 1997, it is increasingly clear that oil revenue played perhaps the most crucial role in rescuing the Malaysian economy from the financial meltdown that bankrupted companies and sent the government deep into deficit.

Taxes and royalties from oil and gas now amount to 35 percent of Malaysian government revenue, up from about 10 percent a decade ago.

The government cushioned the blow of higher energy prices with fuel subsidies that pushed prices well below market levels.

Gasoline in neighboring Thailand is 60 percent more expensive than in Malaysia.

Petronas also sells natural gas to private power plants here at rates four times cheaper than the world market price.

But as memories of the crisis fade, the cushion from oil money has now become a crutch. In a country that produces everything from Brooks Brothers shirts to Intel computer chips, the subsidies reach deep into the economy and come with a heavy cost.

Taxi fares are relatively cheap, the electricity bills of factories and households are low compared with neighboring countries, and members of the Volvo- and Mercedes-driving upper class save hundreds of dollars a year in fuel costs.

Last year alone the Malaysian government, together with Petronas, spent about 27 billion ringgit on fuel subsidies, three times the amount it spent on education and health combined.

The government is also subsidizing its neighbors. Because of the artificially low prices, about 10 percent of the nation’s diesel and gasoline is smuggled into Thailand, the Philippines and Singapore, according to a 2005 government estimate.

Perhaps more worrying, at the current rate of oil use, Malaysia will soon consume more fuel than it produces.

“If demand continues to grow at 4 percent per annum we will become a net importer by 2010,” Hassan Marican, president and chief executive of Petronas, said at a news briefing Thursday.

Petronas already imports natural gas from Vietnam and Indonesia, which it then sells at the subsidized prices to consumers and private utility companies at a staggering cumulative loss since 1997 of 58.2 billion ringgit.

“We are becoming more and more dependent on imported gas, which we have to pay for at market price,” Hassan said.

Cheap fuel discourages conservation, critics say, and makes it difficult to adopt more expensive but cleaner alternatives like solar energy. Gasoline is cheap here even by standards in the United States: the equivalent of $2.10 per gallon, or about 55 cents per liter.

The average price per gallon in the United States is 40 percent higher, at about $2.98, according to the U.S. Department of Energy.

“You have to look at the long term,” said Zainal Aznam Yusof, an adviser to the National Implementation Task Force, a government planning body. “The government must have some sort of plan to reduce the extent and comprehensiveness of subsidies in the whole economy.”

Malaysia’s federal government received 52 billion ringgit from petroleum taxes and royalties last year, five times more than it received from income taxes. Analysts worry about how the government will finance itself once oil revenue declines.

The government has raised the price of some types of fuel cautiously and gradually over the past few years, only putting a small dent in the subsidies.

My verdict: We have been pampered too long under subsidy mentality and we almost forget that the subsidy is a privilege that we will not enjoy it forever. What we have to do now is to change our lifestyle, don’t overspend, don’t get in debt and don’t use flashy cars..

I will discuss more on how to adjust our lifestyle in my next post…Until then,adios…

Published by hazremi

Born in 1984. From Kelantan... Degree in IT from Multimedia University,Cyberjaya... Have 2 years working exp at Astro,Malaysia Airports Berhad and Panasonic R&D Malaysia... Now,happily ever after in government PTD services... add me in friendster ,

8 thoughts on “Malaysian Oil – The story from independent perspective

  1. i’ve got some information regarding our old fuel price and the new fuel price..There is a comparison between both them..I will post it in my next update.

  2. Maybe it is time the government lift the oil subsidy, but it must ensure that it has a proper planning to make sure that when the subsidy is lifted, it does not give a sudden rise in the country inflation…

    Maybe the government could formulate a proper planning for removal of the fuel subsidy, table it and discuss it in the parliment before arriving at the decision to finally lift the oil subsidy….

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