Economists doubt fuel prices can go lower

 freemalaysiatoday.com

G Vinod | January 13, 2011

 

Even at RM1.90 per litre, Malaysia's fuel price is still considered the cheapest among oil-exporting countries.

PETALING JAYA: Several economists cast doubt over views presented by two academicians that Malaysia can lower its fuel prices to as low as 30 sen per litre.
Professor Hamid Yeop and economist Amir Hussin Baharuddin on Monday said that as a petroleum-producing nation, Malaysia rakes in higher profits due to the rise in oil prices.
They said most oil-producing nations fixed their domestic oil prices lower than the international market price, and Malaysia can also easily follow suit.
“A research in 2008 showed that while world fuel prices are determined by market forces, in Malaysia, prices are not adjusted accordingly and has never fallen,” they told a Malay daily.
Economist Yeah Kim Leng said the government has in fact moved to adjust domestic oil prices, citing the two separate schemes for RON95 and RON97 fuel.
“While the RON97 price is determined by the global oil market, the government is subsidising between 30 and 40 sen per litre for RON95,” said Yeah.
He added that currently, Malaysia’s RON 95, which is sold at RM1.90 per litre, is still ranked among the top 20 cheapest in the world.
“Countries that offer RON95 prices for less than a ringgit per litre are among the world’s top oil- producing countries with huge oil reserves.
“However, our oil reserve only stands at 0.3 % of the world’s oil reserves compared with 29% for Saudi Arabia.”
He said that Malaysia’s higher returns from soaring fuel prices are channelled into the oil and gas industries.
“The government, therefore, would still need to fork out money to subisidise its domestic oil prices,” said Yeah.
He agreed with the government’s recent subsidy rationalisation move, saying it would not only help the government to cut cost but also promote energy efficiency among consumers.
To alleviate the burden of the lower-income group due to the fuel price hikes, Yeah suggested that the government channel subsidies directly to this group.
“The government is working on a mechanism to help them. Currently, only the middle- and the higher-income groups are benefiting from the subsidies,”he said.
Market trend
Another economist, Cheong Kee Cheok, of Universiti Malaya, cast doubts on the two academicians’ research findings.
“The market price for petrol (unsubsidised) is made up of the cost of extraction and the cost of bringing what is extracted to the market as petrol.
“The extraction, refining and transport costs have to be added on even if oil companies do not make profits from doing all these. I hope the professors took into account all this in their research.”
He added that he was unconvinced by the argument that other oil-producing nations charge their consumers very low prices as justification for Malaysia to lower its domestic fuel prices.
“Take, the US, a major oil-exporting nation. It sells its domestically made cars cheapers than we do. Any economist must know that the point is how we manage our limited resources,” said Cheong.
Asian Strategy and Leadership Institute chairman, Ramon Navaratnam, said oil prices in Malaysia should move in tandem with the international market trend.
“It is basic supply and demand (situation). Malaysia has lower fuel prices due to its subsidies and the two experts cannot expect Petronas to sell fuel domestically at cost price if that was what they meant.
“In addition, you cannot increase subsidies anymore as the government needs to tackle its budget deficit which currently stands at nearly 6%.
“The best way to offset soaring petrol prices from affecting the lower-income group is to provide better infrastructure funding for the lower-income group,” said Ramon.
“The government should channel subsidies to provide better housing, healthcare, education and public transport.”