Malaysians seem to forget that Malaysia’s economy is a heavily subsidized one. Not only is oil heavily subsidized, but so are other commodities such as flour, sugar, rice and cooking oil. A subsidized economy where prices of goods are artificially kept low can not be maintained over the long haul. The most limited of resources is money, and since money is limited, it should be put to good use to derive an optimum impact to the economy.

A Fair Price for Oil

As the world’s population grows larger, and a country increases its wealth, so does the demand for energy. So high has the demand in energy particularly oil that the cost of it touched an all time high of $147 per barrel.

This had severely impacted many economies and ultimately eroded the net disposable income of many people. The rise in inflation due to the increases in price of oil has had a domino effect on every single sector and industry that largely depended on it as fuel for its vehicles, power generation, and manufacturing.

Many analysts had pointed that strong demand from China pushed oil prices to the heavens. In tandem with that, commodities such as palm oil, soy and wheat and raw materials such as steel, concrete and copper too reached all time highs.

There are many who claim that speculation and manipulation of oil supply and demand in the international market was the main reason driving the absolute absurdity in the oil price.

Whatever the reason is or was, the effects of rising oil price per barrel had finally bared its toll on us back at home. As prices touched an all time high, the Malaysian government rose petrol prices at the pump by 41% on 5th June. The effects of a 41% hike came reeling in with the inflation rate hitting an all time high of 8.5% in the months ensuing it.

But what’s more interesting to note is that after touching an all time high in June, oil touched an new low of about $32 in November. This new low is something not seen in many years!

Politicians in Malaysia are quick to use the fuel price as an issue to gain political mileage. Take for example Lim Kit Siang proposal to give out RM6,000 annually to poor families. And just where will the money come from? You guessed it! From Petronas’ profits. But now, that the price of oil has dipped and is hovering around $40-$50 per barrel, how does he propose to continue such a populist and unrealistic manifesto?

I’ve never agreed to his suggestion. I find that the suggestion is irresponsible and serves no good to the nation or the poor. First, a company is established to generate profits. A company that does not intend to generate profits is an NGO or a welfare organization. Petronas is not a welfare organization. It is a company responsible to manage the oil resources in the country and to generate profits that would benefit the nation through taxes that it pays to the government, the creation of jobs and flourishing businesses. The company needs money to ensure that it continues to grow and has enough to invest abroad and expand its presence both locally and globally.

Lim’s suggestion to pay out RM6,000 annually is short sighted and is a selfish suggestion only aimed to get votes during the elections. It is unrealistic and utterly stupid to suggest such a thing. Besides, how can he help the poor get out of poverty by giving them money? A good Chinese proverb sums it up “Give a man a fish and he will eat for a day. Teach him how to fish and he will eat for a lifetime”.

Historically, the last time oil was hovering around $40-$50 per barrel, the pump price was about RM1.52. Today it’s RM1.80. Critics argue that the government is making RM0.28 per liter of fuel sold.

My stand? RM1.80 is fair. Demand and consumption of fuel then, is far more smaller compared to this day. We have more vehicles on the road and sea, more industries and factories that need electricity of which the primary source of fuel for electricity is diesel.

Malaysians seem to forget that Malaysia’s economy is a heavily subsidized one. Not only is oil heavily subsidized, but so are other commodities such as flour, sugar, rice and cooking oil. A subsidized economy where prices of goods are kept artificially low can not be maintained over the long haul. The most limited of resources is money, and since money is limited, it should be put to good use to derive an optimum impact to the economy.

As the government has been heavily subsidizing petrol and diesel through out all these years, it is only fair that the government taxes consumers for using petrol and diesel when crude oil price is low. The profits that the government makes through the sale of petrol and diesel can than be used to pay for subsidies for daily food staples and commodities as well as improving the public transportation system.

A lower fuel price would not help reduce carbon emissions from vehicles and other industries. It will only spur it as people become complacent and less attuned to critical green issues. Green initiatives will probably get less attention as the need and the pressure is not present to drive home the message that the world is on a brink of  an ecological crisis! -IAG