Global Malaysians Forum: Is US$60 a barrel here to stay?

PETALING JAYA: A cabinet committee chaired by Prime Minister Datuk Seri Abdullah Ahmad Badawi will on Monday decide on Petroliam Nasional Bhd's (Petronas) proposal to raise gas prices. Likewise in the US, the Federal Open Market Committee had its meeting on Tuesday to set the interest rate trend.

A party broke out on the Wall Street after the US Federal Reserve announced an interest rate cut. The Dow Jones Industrial Average soared over 3%, which in turn, fuelled a share price rally worldwide. Everyone was happy. But critics say slashing interest rates will only inflate the bubble in the US financial markets by making money easily available for portfolio investments. It isn't a panacea.

Will the cabinet committee be as accomodating as the US Federal Reserve, given that nobody likes price hikes, except when it comes to share prices? Some analysts reckon the meeting would be a non-event, as the authorities may postpone the decision for various reasons. Many described this as a tough decision and a politically-sensitive issue. Some argued against the reason for rocking the boat since Petronas is making record earnings on surging crude oil prices that have hit above US$80 per barrel. Having enjoyed a pre-tax profit margin of 42%, the national oil company can pretty well afford the subsidy.

Last year, Petronas forked out RM15bil to subsidise natural gas. It has paid nearly RM50bil since 1997 in gas subsidies. The RM50bil is not chicken feed, but can such a huge sum be put to better use by removing the subsidy?

Malaysia has the world's biggest rubber glove manufacturing industry, which is flourishing, thanks to subsidised gas, among other factors. The gas price subsidy allows glove makers to generate heat at a much lower cost compared with using fuels such as electricity or coal, whose prices have risen substantially. Cheap gas is also a blessing to the food and beverage business, an important segment in the tourism industry. Both industries earn good foreign income and create jobs. In a way, the gas subsidy is powering economic growth.

But, on the flip side, cheap gas has also attracted low-end energy-intensive industries to Malaysia. And this has raised concerns about over-consumption. Worse still, there are no incentives for energy conservation, even as the supply of fossil fuel is depleting rapidly. It's a matter of time when Malaysia becomes a net importer of oil and gas, although this is unlikely to happen at least in the next two decades. But will it be too late to develop a mechanism that would provide subsidy to those who deserve it?

Perhaps this is a question that the cabinet committee and the rakyat should mull over.

THE Ministry of International Trade and Industry (Miti) is gathering feedback from various industries on the proposed cut in subsidy for natural gas. Datuk Seri Rafidah Aziz said the ministry is evaluating feedback from the industries before briefing the Cabinet committee chaired by Prime Minister Datuk Seri Abdullah Ahmad Badawi on the matter.She said the committee will look at how much of the rising global gas prices the Government can take on, and how much to pass on to industries and consumers.

"The balance must be as right as possible. It won't be perfect, but the Government would make it as right as possible for everybody," she told a news conference after officiating Schoeffel Flagship Store in Kuala Lumpur yesterday.

Last month, national oil corporation Petronas said it was pushing for an increase in gas prices as it has been subsidising nearly RM50 billion in the last 10 years for gas.The heavily subsidised gas price in the domestic market is about 70 per cent lower than the market price.Rafidah said the industries themselves are prepared for the possibility of the rollback of gas subsidies.They have been forewarned that they must be prepared for realistic domestic gas prices and to undertake necessary changes in their operations to get the most efficient use of gas.She said the industry is aware that the Government cannot be expected to subsidise the energy perpetually and without limit.

"This is what the Government is working towards, how much of the cost should the industry bear, and how much can the Government subsidise," she said. "It is time we have to be realistic." - By Hamisah Hamid

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KUALA LUMPUR: The Federation of Malaysian Manufacturers (FMM) denied on Wednesday that the manufacturing sector has received RM50bil in subsidies for natural gas over the past ten years. This is in response to a recent news report that implied that the manufacturing sector enjoyed the lion's share of the subsidies. FMM said in a statement that the majority of the subsidies are enjoyed by the power generation sector, which is the largest consumer of natural gas in the country. FMM said that the manufacturing sector is a small domestic consumer of natural gas.

"In recent years, natural gas is the preferred energy source in the manufacturing sector primarily because it is the most efficient for direct heating. Sectors considered as heavy users of natural gas are ceramics, oleo chemicals, glass, petrochemicals, rubber gloves and iron and steel.

"However, not all manufacturers have access to natural gas because the reticulation network is limited to those near the main pipeline along the coast or near power plants in the Peninsular, " said the statement.

It said that the conversion to use natural gas requires investment of millions of ringgit in equipment and infrastructure and once converted, a factory cannot switch back easily to use other fuels. The statement said that manufacturing sector only uses 11.6% of natural gas consumed domestically and that as of March 2007 only 637 manufacturers are customers of Gas Malaysia Sdn Bhd.