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Monday, 27 October 2014

Petroleum price drop below Malaysia subsidy level

Early this month, the Malaysia government made a surprise move to cut subsidies for fuel sold at local pump stations. The move resulted in RON95 petrol and diesel prices rising 20 sen per litre to RM2.30 and RM2.20, respectively.

AmResearch estimate that the breakeven of the global crude oil price is at an average of USD84.80 per barrel if RON95 remains at RM2.30 per litre without government subsidy.

Credit Suisse concurs that if oil prices were to stay at around US$80 to US$83 per barrel on a sustained basis, the government’s petrol and diesel subsidy bill should be eliminated completely in 2015, even without further fuel subsidy reform by the Malaysian Government.

On 25 Oct 2014, The Star reported that Brent crude oil, the benchmark price for products in Europe and Asia, for instance, was quoted at US$84.71 per barrel on Wednesday.

The crony who lobby for petrol subsidy rationalisation mechanism might afraid that the project will be abolish.

Last week, Deputy Finance Minister Datuk Ahmad Maslan still talk about the mechanism. It stir debate among public and NGO (Like FOMCA etc) on how to define high income earner.

Actually, if petroleum price drop below subsidy level of USD84.80. Government able to abolish subsidy and follow market rate. Public can enjoy lower price level of international petrol price.

Then government can abolish the petrol subsidy rationalisation mechanism project and do not required to spend money on the implementation of the mechanism. The debate on who is high income earner become meaningless.

Government use to reduce subsidy when price is increasing, this is foolish and cause the down fall of Abdullah Badawi government in 2008.

In fact , Government should reduce subsidy or abolish it during the falling of petroleum price rather than the other way round. There will be less opposition and resistent during the price fall rather than price increasing.

New York Times columnist Thomas L Friedman stated that oil crash is US secret wars on Russia as US wants its Ukraine-related sanctions against Russia to have more bite. 

Characteristically, Russia has sniffed an American-led plot, with articles in the government press recalling how a sudden and sharp increase in Saudi production in 1985 caused prices to drop so low that the Soviet economy folded, followed by the Soviet state.

This mean the price drop might be prolong and Malaysia government should take this opportunity to abolish subsidy to let market force to determine petroleum price and let the public to enjoy the benefit of low petroleum price immediately.

Malaysia government also do not required to pay crony to develop and expensive biometric and Mycard petrol subsidy rationalisation mechanism.

Update : Hasan Malek: No more RON95 petrol, diesel subsidies from Dec 1

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