Thursday, 5 June 2008

Price Hikes

I am sitting here at Alexis Great Eastern Mall and pondering today's new petrol price. RM2.70 per litre is more than I personally expected but I suspect it is less than what the price will be in the coming months. So what do we do?

My conversation this morning with my daughter Krystyn, over another matter that is fait accompli was interesting. She was her usual mature self; she said we just have to handle it. How true! Couldn't have said it better myself! Yet, the implications of petrol prices are far greater than just cost per kilometre. What of the other resultant price increases? But Krystyn was right actually; just handle it. How we handle it is what counts and we begin to handle it by handling our perception and attitude.

This brings to mind my conversation with a buddy Fauzi two days ago as we anticipated the petrol price hike and its effects on an already increased cost of living. Being a typical finance man he opines that incomes will rise to meet those escalations as they have throughout recorded economic history. Our Tun Che Det seems to be saying the same thing albeit with a different slant.

For salaried persons regardless of capability, they will not be able to work for less and push factors will ultimately determine how employers cope with getting jobs done at higher cost. As for dejobbed individuals like yours truly, the bottomline would be to do more work or to get more for the work that I do. Doing more work is not the best option. Afterall, we each have a limited 24 hours in a day and trying to do more would surely mean shortening the number of total days we have left!

Doing better work would definitely be the attitude to take! Better work or better way of doing work to ensure the premium that makes cost for "reasonable living" a non-issue. The faint hearted will surely cringe at this thought but we shan't go into what the meek can or cannot do! Forgive the pun but I really cannot afford to go there.

What about measures like lifestyle change that our two current champions in government like to preach but not practise. I say, fcuk lifestyle change before it fcuks you. If anything, we need to improve our lifestyles by trying to improve our living standards regardless of how bleak the outlook. Outook is afterall merely a perception. Having said that, it's time to get back to work!

Post scriptum

Some interesting views trawled from the www regarding the same:

1. Our very own oilman turned airline man, Datuk Seri Idris Jala has this to say in The Star today:

Thursday June 5, 2008

Idris: There’s no global fuel shortage

ISTANBUL: There is no shortage of oil in the world and its present price level was driven up by unreal speculation, said Malaysia Airlines managing director and chief executive Datuk Seri Idris Jala.

He said the present oil price at over US$135 was unrealistic and based on certain global events that might have caused a shortage of supply.

“These people (speculators and hedge funds) buy oil futures and say that this or that event may cause an oil shortage.

“Not very long after this, people react to this and by then the message would be ‘there is a shortage of supply’ even though there is none,” Idris told the international media here at the close of the 64th International Air Transport Association annual general meeting.

IATA, which is an association of legacy full service airlines with over 200 members, had issued a statement at the end of its meeting that the industry was now in a state of an emergency because of the fuel price crisis.

Idris was a former senior executive with Shell Plc based in London and the Hague for almost 20 years. While there, he had headed various departments, including business development.

Speaking as a former oilman, Idris said there were two ways to see whether there was an oil shortage.

“First, look at the oil tankers at sea. If they are not moving and just floating out at sea, that means they have no crude or processed oil to transport. That is not happening and that means there is no shortage.

“Second, go to the petrol stations. If there are long queues, that means there is a shortage. Again, this is not happening and this can only mean there is more than enough supply.

“As an ex-oilman, I tell you there is no shortage.”

Idris pointed out that certain analysts and financial companies that produced reports about the shortage were also oil futures traders.

Asked what he thought was the fair value of crude oil at present, Idris replied: “US$40.”

He also criticised speculators and hedge funds, saying that he did not trust anything that he could not touch.

“I always believe in the brick and mortar – something I can touch. These people are trading with nothing.

“Many years ago, we at Shell had wanted to buy Enron. I was leading the team then and we hired over 60 consultants to study how a company with no oil fields, refineries or gas stations could make so much money.

“One of the consultants tried to convince me to recommend to the Shell bosses to buy Enron but I said no because I could not touch what they were trading in,” Idris said in the one-hour briefing for the media about MAS’ performance and future.

He only expressed his opinion on the oil crisis after being asked by several journalists.

Idris was proven right on Enron because the so-called energy company collapsed four years ago under massive accounting fraud.

2. Blogger "Another Brick In The Wall" has a few thoughts to share:

Thursday, June 05, 2008

Oil Price Hike: It’s Not The Best of Effort, Pak Lah

The extract of June 4th, 2008 Reuters report, “Malaysia revamps energy price system, risks backlash” reads below:

PUTRAJAYA, Malaysia, June 4 (Reuters) - Malaysia announced on Wednesday a broad overhaul of its energy price system, sharply raising fuel and gas prices but taxing palm oil and power producers in a move that would drive inflation to a 10-year high.

The reforms would save the government 13.7 billion ringgit ($4.23 billion) but risk further stoking public anger against Prime Minister Abdullah Ahmad Badawi, already fighting for his political survival.

Petrol prices would rise 41% (78 sen higher) to 2.70 ringgit a litre and diesel 63 percent to 2.58 ringgit from Thursday, Abdullah said, in a reform that would eventually lift Asia's second-cheapest pump prices to market rates.

Power distributor Tenaga Nasional's tariffs would go up by as much 26 percent while the price of gas supplied by state oil firm Petronas to the power sector would be more than doubled, he said.

"We try our best," Abdullah told reporters in the country's administrative capital near Kuala Lumpur...

Abdullah doesn’t seem to understand many things, does he? It is not the best of effort.

And, he got the the cheek to put up a 62nd UMNO Anniversary banner at PWTC that reads, "Kita Sentiasa Prihatin Kepada Rakyat" or something to that effect.

For one, Pak Lah lied.

Secondly, why can’t the people benefit as a net oil exporter? What so sinful about high expenditure? Can’t there be a creative way to not account as subsidy? Don't tell me we can't have cheap oil.

Third, the talk of removing subsidy for development needs does not jive. Who will benefit up-front from these economic corridors? Why must these developments be based on abnormal oil profit? Why must there be these economic corridors, in the first place?

Geez, such incompetence! Can we have a truly qualified Finance Ministers, not Economic Faculty reject and gambler of colossal losses? A Domestic Trade and Consumer Affair Minister that is merely a good talking burung tiung, but turn out to be a disaster when given responsibility.

This is just not about politics, the people need to have confidence in the ability of its leader to communicate, creatively handle problems and soften the blow to the people.

He Lied Again!

In the recent General Election, people can still remember the Prime Minister denied he is dissolving Parliament and actually dissolved it the next day.

Yesterday, the mainstream newspapers put up headlines that fuel prices would be up in August. Shahrir, in is usual twisted of talking, can the fine print in the report is consistent in saying it is fuel subsidy that would be totally withdrawn in August.

By midnight last night, oil prices were raised by a hefty 78 sen and when the words leaked in the evening, there was a mad rush for the petrol stations.

Basically, Pak Lah lied again! Shahrir lied!

People Still Can’t Get It

The fact that international oil prices have been on the rise has not gone unnoticed by the people. No one really believed Anwar’s General Election claim that he could reduce oil prices by 10 sen.

For the common people, it is illogical that we can’t continue to have cheap oil. Malaysia may have the one of the lowest in the region but comparing to the other oil producing nations, we have the highest! The comparative prices were circulating by SMS throughout the General Election campaign.

With subsidy about to be totally withdrawn, it is unthinkable for the common people for us to not benefit from cheaper oil and be paying international market price meant for oil importing nations!

The immediate issue that clings in the mind of many now is that Abdullah said and repeatedly said that we can’t afford a higher subsidy. It seems he claim, which reluctantly have to be taken in good faith, subsidy has taken up a third of expenditure.

Remember that he said the money is needed for development.

Malaysia is a net oil exporter and earns 250 million ringgit a year in revenue for every $1 rise in crude prices. Petronas is making extraordinary unexpected profits in the multibillions. Last year alone, was in the tune of RM70-80 billion, compared what it used to be RM10-20 billion.

Anwar’s argument that the Government can afford it makes sense to the common people.

How are we to dispute his simplistic logic that went well with the common people that the people are made to suffer for sake of development that only benefits the few?

Since oil revenue are extraordinary or out of the normal profit, Government can’t depend on it to be included in their development budget.

Pak Lah announced economic corridors in the billions, trillions and gazillions, knowing so well we do not have that kind of money.

With everything channeled to and through GLCs, which the normal businessmen aren’t accessible and only the Tingkat 4 linked project brokers are able to, how are the UMNO party people to defend against Anwar’s allegation?

A Matter of Accounting

Subsidy or no subsidy, it is a matter of accounting. We can retain cheap fuel for the consumers without having to resort to subsidy at all.

For one, retail oil prices are calculated based on international spot oil prices added the various cost and profit margin plus subsidy. As an oil producer, we could instead replace the international market price with cost of production plus profit margin.

With the technology today, there is no more the striking oil by sheer luck any more. Exploration cost can be controlled and technology has enable to reduce the probability of missing.

In one trip to Dungun, this blogger was told that in the oil business, payback period does not wait for years, even six months is unusually long. That is the reason, time is the essence and cost is immaterial in the oil & gas supply support business.

The cost of oil is actually next to nothing, after all it is god given for Malaysia. We can have cheap oil. Thus, why is it sinful for the people to directly benefit from cheap oil prices?

Think about this, while the people are to suffer from expensive oil, the export driven industries and IPPs have been making billions from preferential fuel prices. The beneficiaries are the foreign shareholders of these PLCs, foreign providers of good and services, fat cat billionaire-shareholders, and GLC power brokers.

Is that fair and just, Accountant Amir-shame?

Alas, the government already pretty much decided that it will use global market rates for fuel in August.


The manner the oil hike is handled is very careless.

The political economic structure of this country is dependent on these subsidies to share the benefit of the bounty with the people. Inflation is kept and controlled at minimal to ensure rising prices do not cancel out the growth achieved.

It a foregone conclusion that the hike in energy - fuel and electricity, and basic food prices – cooking oil, rice, sugar and flour, will have a devastating impact and at its worst a possible runaway inflation.

Inflation this year could be between 4% and 5%, the highest rate since 5.3 percent in 1998. Inflation last year was 2 percent. By the end of the year, interest rates will raise.

Shahrir had earlier said the fuel subsidy would cost the government as much as 56 billion ringgit this year based on current crude oil prices, or about a third of government expenditure in 2008.

Let’s not talk of the devastation of this new reform policy based free market approach, but just ponder with everything about meeting up to global benchmark and market, will we still have control on the direction of our economy?

If you could appreciate that the answer is no, beyond the cancelled crooked bridge, fall of Pulau Batu Puteh, WPI, strategic military manouvre, etc, this is another hegemonic policy of neo-colonialism.

And, it is masked beautifully under such jargons like free market, market determined, global competitiveness, efficiency, risk to return, quantifiable return on social policies, etc.

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