Tough decision on proposal to hike gas price

  • Business
  • Saturday, 22 Sep 2007

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.  

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