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Sunday, May 29, 2011

Inflation deemed still manageable

Thestar: Saturday May 28, 2011


WHILE there's fear that subsidy cuts would burden consumers heavily and inflation could spike up, this could be more perception than reality.

Yeah ... ‘It is the bottom 40% who earn less than RM1,500 per month that we should be concerned about.’
In fact, economists and industry observers generally feel that the situation may still remain manageable for most Malaysians.
For one, Dr Yeah Kim Leng, chief economist at RAM Ratings Bhd points out that 60% of Malaysian households, on average, earn more than they spend.
“So they have a buffer to protect against rising prices. It is the bottom 40% who earn less than RM1,500 per month that we should be concerned about,” he says.
Consumers, particularly in this income group will have to respond to the changing prices by adjusting their spending patterns, paying for only the essentials, Yeah says.
For others, the effect of higher prices may dissipate quickly as they get used to it, he says.
AmResearch Sdn Bhd senior economist Manokaran Mottain agrees with Yeah, saying that Malaysians would still be able to manage price increases even after the next round of subsidy removal essentially for the price of RON95 petrol, diesel and liquefied petroleum gas provided the prices of goods and services do not spiral as a result.
“Here is where the authorities must ensure that prices are not simply raised,” he says.
S.M. Mohamed Idris says consumers just need to manage their finances better to cope with future subsidy reductions.
Consumer Association of Penang president S.M. Mohamed Idris says consumers “just need” to manage their finances better to cope with future subsidy reductions.
He believes that the Government should lessen subsidies and channel the funds saved from subsidies into addressing the transportation and housing needs of the country.
Manokaran says subsidy rationalisation is inevitable, given the current strong commodity price levels and their impact on the Government's budget.
In his latest economic report, Manokaran says if the Government wants to maintain prices at current levels, an increase in subsidies would mean a reduction in other expenditures, be it operating or development.
The Government may introduce austerity measures to operating expenditure, such as reducing ministries' expenses like overheads and promoting fiscal prudence.
However, trimming development expenditure especially will be detrimental to economic growth and welfare of the country.
In this context, the Government has no other option other than to introduce a gradual cut in subsidies, according to Manokaran.
Malaysian Rating Corp Bhd chief economist Nor Zahidi Alias says subsidy removals will undoubtedly affect consumer spending especially if such measures lead to widespread increases in the prices of consumer goods.
Still, it must be done as the rising cost of global commodities has placed a significant burden on the Government's coffers and thus become a compelling reason for the Government to review its subsidy policies.
Manokaran says Malaysian will still be able to manage price increases.
Subsidy rationalisation efforts can be best introduced initially for non-food products which have been highly subsidised across the boards, for example fuel.
“As for food items, the removal of subsidies has to be done very gradually as it affects the poorest segment of the population,” he says.
In its economic update, Kenanga Research says it is “definitely supportive” of the original plan espoused by the Performance Management and Delivery Unit also known as Pemandu which entails a gradual removal of subsidies via periodic fuel hikes.
“This would remove price distortions, market distortion and inefficiencies caused by artificially low prices, besides reducing a significant impediment to the global competitiveness of Malaysia's manufacturing sector,” the research outfit says.
Fuel remains the biggest component of the Government's subsidies and the current price of global crude oil at above US$100 per barrel is estimated to cost the Government RM18.3bil this year in fuel subsidy, higher than the RM10.2bil set aside for Budget 2011.
“Given that crude oil prices would remain high or above US$100 per barrel, we reckon that fuel subsidy alone could exceed RM20bil by next year as the strengthening of the ringgit and higher petroleum revenue may only partially offset the rising subsidy,” says Kenanga in its update.
The research house is projecting budget deficit to reach 6% of gross domestic product (GDP) this year from 5.6% in 2010, against the Government's hopes of shrinking it to 5.4% of GDP this year.
Malaysia's inflation remains relatively lower than its Asian counterparts at 3.2% year-on-year growth in April, compared with China's latest figure of 5.3%, India's 8.8% and Indonesia's 6.16%.
Yeah says this is largely because of the fuel subsidies and price-controlled items such as cooking oil which is paid from the cess contributed by the oil palm producers.
Charges for several essential services such as transport fares for buses, taxis, school buses and trains, are also subject to price control, thus holding down any unreasonable price hike by businesses and vendors.
Yeah says the central bank in its annual report last year, estimated that the full impact of the RON95 price adjustment last year amounted to a 0.1 percentage point of the Consumer Price Index (CPI) the gauge of inflation levels, increase while the price adjustments for the other controlled items such as sugar, diesel, liquified petroleum gas and cigarettes amounted to less than 0.05% points.
In the first subsidy rationalisation programme on July 16 last year, the price of RON95 and diesel went up by 5 sen per litre while sugar and liquefied petroleum gas were raised by 25 sen and 10 sen respectively, resulting in total savings of RM779mil for the Government.
Based on this data, Yeah expects that a gradual pace of subsidy reduction will result in between half to a full percentage point increase in the CPI this year.
Bank Negara said in March that inflation on the whole would range between 2.5% and 3.5% this year, after assuming that some subsidies would be rationalised. Last year, inflation stood at an average of 1.7%.
Related Stories:
Government needs to urgently address the country's fiscal deficit
No shortcut to solving subsidy issue
Coping with higher cost of items
Shop smart how to rein in the spending

Saturday, May 28, 2011

Gas price review long overdue

Now there are rumuor spreads about  Malaysia is going to import gas (LPG/LNG) starts next year. It is said that the gas reserve will only adequate until 2014, but now it shows oppositely. 

What is going on? Do we run out of gas or what? Currently our country  specific in Peninsular are using in ratio of 58% LNG, coal (37%) and hydro (5%) for electricity generation [ Bab 6 : Minyak Gas dan Tenaga, ETP reference book]. The subsidized gas is also used by independent power producer (IPP) to produce electricity for our country. From the data below it is showed that Malaysia is at rank 8 for natural gas export. Not bad at all!!

Why we have to import gas early than expected? Is it due to the growth of power demand and no new well found? Or due to gas already chartered by Japan to contra the loan that had been given (rumour source)??? I hope this is not true...

What ever it is,  we will face great impacts later or sooner from the revise petrol price and electricity tariff. What should we do? Do by changing the ruler will solve this matter? Yes, I believe so, with a proper management of country wealth, people will get more benefits and slow the depletion of gas reserve.

Then what can we do now, since it is impossible to change now? For a moment we should conserve energy and making its more efficient. How? I will share in the next post how we can save energy and reduce our electricity bill as well.. So we need to change now and built green-culture into ourself.

Total natural gas exported in cubic meters (cu m).

country (cu m) Date of Information
1 Russia
2 Norway
2009 est.
3 Canada
2009 est.
4 Algeria
2008 est.
5 Qatar
2008 est.
6 Netherlands
2009 est.
7 Indonesia
2008 est.
8 Malaysia
2008 est.
9 United States
2009 est.
10 Australia
2009 est.
11 Nigeria
2008 est.


Thestar: Monday May 23, 2011

KUALA LUMPUR: There is a long overdue review of heavily subsidised natural gas price as demand for cheap gas in Malaysia is far outstripping supply, analysts said. If this market-distorting situation is not corrected by the Government soon, they said Malaysia would run out of gas reserves which could affect future generations.
As it is, the Government continues to subsidise gas by as much as 71% to 77%, which means lost opportunities for the country and the economy is not being cost efficient.
This is because the billions of ringgit used to heavily subsidise gas could have been used for socio- economic development projects such as public amenities, roads, schools and other services.
There is a need to gradually move gas prices to reflect international market prices as gas prices in Malaysia are among the cheapest in the region and cheaper compared with alternative fuels.
As a result, many consumers have shifted their consumption of energy from other fuels such as diesel, liquefied petroleum gas (LPG) and fuel oil to natural gas.
This has resulted in an imbalance with demand outstripping supply at a rapid pace.
There is also a misconception that Malaysia has lots of gas re-serves to be used for power when the actual situation is that there is real concern over gas reserves as they are finite.
Malaysia is now getting 36% of its natural gas supply outside Malaysia at a higher price but sold to the power and non-power sectors and industries at highly-reduced prices.
These price distortions to the economy, which are taking a toll on the country’s finances, need to be rectified soon by rationalising and reducing subsidies as the situation is increasingly untenable.
The local supply of natural gas is insufficient as demand has escalated 400% over the past 10 years from 2000 for customers using less than two million standard cubic feet per day (mmscfd) and about 160% for customers using more than two mmscfd while the country’s gas reserves are fast depleting at an annual rate of 12%.
The last gas price revision by the Government was in March 2009, at a discount of 50%. The prices ranged from RM15.35 per million British thermal units (mmBtu) to RM10.70 per mmBtu with the obligation to review every six months but that did not happen.
Since the last revision, the price of medium fuel oil (MFO), a reference index from which gas is priced on, had risen over 100%.
This has led the Government to bear the cost of heavier subsidies as the price of energy continues to increase in global markets.
On the local scene, the power sector, which has been subsidised since 1997, consumes about 55% of the gas needs and a large part of the balance by the industry which has been subsidised since 2002.
The Government has subsidised the price of gas to the power sector by as much as 77% or RM10.70 per mmBtu and to the industries at an average 73% or between RM15.35 to RM11.05.
Based on a simple calculation, for every RM10, the Government will have to subsidise between RM7.70 and RM7.30, which is already a burden, bearing in mind the fact that imported gas is bought at international market prices.
The Malaysian public and industries have been enjoying the benefits of subsidies for so long but the world scenario has changed and the days of cheap energy are gone.
Like it or not, the subsidies which have become a burden to the Go­­vernment are very much due for a relook.
Industries have benefited im­­mensely, enjoying double subsidies in the form of cheap gas and subsidised electricity while receiving other government incentives.
Having relied on cheap gas for their production, there is no incentive for companies to adopt and adapt to new technologies and find new ways to become efficient.
But a gradual removal of subsidies is expected to induce industries to seek more efficient technologies for their processes.
It is understood that some of the industry players do not mind the market rates but expect any move towards that end to be undertaken in a gradual manner.
Since 1997, the Government spent RM131bil in oil and gas subsidies and the amount is increasing since the gas usage gets bigger while higher MFO prices has caused the situation to be not sustainable in the long run.
As of now, Malaysia is getting natural gas from the Natuna field in Indonesia, the Malaysia-Thailand Joint Develop­ment Area and also from Vietnam.
Malaysia’s share of gas supply from Vietnam is almost exhausted, which means an additional burden on the government to look for new sources.
It is understood that Petronas would be importing LPG by next year to cater to increasing demand, which is rather costly at about RM40 per mmBtu.
The people have to dispel the misconception that gas is always there and readily available.
In reality, Malaysia is a small player and the country’s oil and gas reserves are small.
If gas continues to be subsidised, then Malaysia is not optimising its resources when the reserves should be kept for future generations.
Ideally, the price of gas should be at market rates, which would then attract other companies to import gas and liberalise the market.
By spurring the gas trade, players can import cheaper gas from abroad, unlike the current situation where players are not willing to come on board as they would not be making any money competing against subsidised gas.
It is understood that Petronas will have its regasification plant ready by next year whereby other companies can import LNG and regasify to sell to the industries.
Malaysia, eventually, will attract investors who can add higher value to the gas industry and generate greater income and spur the economy in the process. — Bernama

Thursday, May 26, 2011

Fuel subsidy to be reviewed if oil prices reach US$110-US$120 per barrel

Inconsistency annoucement by c... goverment ministerssss....

"Ha! Ha! Ha! Ini harta Ahmad Albab yang punya...... Ahmaaaad Albaaaab! Ha! Ha! Ha! PLINK!!!!!!"

In another term I think.... "Ha! Ha! Ha! Ini Petroleum Ana yang punya......  Anaaaaaa Punyaaaaaa!!!! Kah! Kah! Kah!.... Engkau satu.... aku dua.... engkau satu.... aku dua, tiga, sepuluh......". This is the best formula for subsidy cut...

Thestar: Thursday May 26, 2011 MYT 2:08:00 PM

PETALING JAYA: The government will review the fuel subsidy if oil prices reaches between US$110 and US$120 per barrel, says Deputy Finance Minister Datuk Donald Lim Siang Chai.
The government yesterday decided to maintain the prices of RON95 petrol, diesel and liquefied petroleum gas (LPG) for the time-being. "We know at this juncture, a lot of other things have also increased, including food prices and housing. So the government decided not to increase (fuel prices," he told reporters after opening Standard Financial Planner Sdn Bhd's new office here today.
Besides, the decision was also based on declining oil prices from US$110 per barrel, as of April, to just above US$100 per barrel, at present, Lim said, adding that the government was closely monitoring the crude oil market.
He said if oil prices continued to spiral, the government would have to spend more on subsidies, which in turn, could lead to a higher deficit and affect economic growth.
"When we (the government) planned the budget for this year, we were looking at oil prices hovering between US$85 and US$90 per barrel.
"Of course if it (oil price) drops below US$100 per barrel, then the government is not likely do anything because we can still find ways to overcome it. But if it goes beyond US$110, then we have to consider (some measures) as it could affect economic growth," Lim said.
Although, people can continue enjoying the fuel subsidy, Lim also advised then to be prudent. Asked whether there could be an increase in electricity tariff rates, Lim said the National Economic Action Council would meet tomorrow to discuss and decide on the issue.
On Malaysia's economic outlook in the second quarter, Lim believed the country would be able to register a better growth of 4.6% amid rising foreign direct investments. - BERNAMA

Tuesday, May 24, 2011

Inflation is still a concern - Malaysia

"Inflation rise? No! No! We have a measure and new economy transformation now take place... Inflation won't affect the country, don't worry.. The next measure is to rise electricity tariff and to cut so called subsidy including the rising of RON95 sooner won't affect the majority...  Who say we won't cut subsidy to make sure the sustainable of country economy development....", said The Kindergarten Finance Minister at Kampungku Tadika...


Thestar: Tuesday May 24, 2011

KUALA LUMPUR: Inflation may accelerate, should there be more cuts to the fuel subsidy or hike in electricity tariffs.
Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz said the inflation rate would be revised upwards, depending on price increases.
Malaysia’s inflation rate rose to a 24-month high of 3.2% year-on-year in April after a 3% increase in March.
A rise in inflation, of between 3% and 3.5%, has been priced into the central bank’s projections, Zeti told reporters yesterday following the launch of “Leading Voices,” a new global thought leadership platform by the International Centre for Leadership in Finance (ICLIF)
However, the country’s diversified economy is now better able to withstand inflationary pressure compared with the period prior to the July 2008 price peak for crude oil. Prices then had reached US$147 per barrel compared with today’s US$97 to US$98.
“We’ll not be immune to price increases but the impact will be less as we’ve enhanced efficiencies in the economy,” Zeti, also ICLIF chairman, said.
Economists expect inflation to pick up in the second half of the year as subsidies continue to be further rationalised.
The expected hike in electricity tariffs this week, according to analysts, would likely be in the vicinity of 5% to 10%.
With the costs of subsidies rising this year to over RM20bil from RM10.3bil last year, more cuts in subsidies would be in the offing with even a review of RON 95 petrol, currently retailing at RM1.90 per litre.
AmResearch senior economist Manokaran Mottain said in a report dated May 19 that the need to assist economic recovery and fund Economic Transformation Programme projects would likely pressure the central bank to keep the benchmark overnight policy rate (OPR) at 3% for the rest of the year.
Bank Negara last raised the OPR by 25 basis points on May 5. The central bank also increased the statutory reserve requirement by 100 basis points to 3%.
“Inflation will likely accelerate further in the near term due to the recent rise in global crude and food prices as well as the Government’s plan to implement the subsidy rationalisation programme.
“With the subsidy cut already factored in the central bank’s inflation estimate of 2.5% to 3.5%, we do not expect any policy review in the monetary policy, especially the OPR in the short-term,’’ he said.
In his latest report, Manokaran said if the government wants to maintain prices at current levels, an increase in subsidies would mean a reduction in other expenditures, be it operating or development.
The Government may introduce austerity measures to operating expenditure, such as reducing ministries’ expenses like overheads and promoting fiscal prudence.
However, trimming development expenditure especially will be detrimental to economic growth and welfare of the country. In this context, the Government has no other option other than to introduce a gradual cut in subsidies.
Despite lower commodity prices currently, the policy-tightening cycle in Asia was not over yet, said Hong Kong-based Societe Generale SA fixed income strategist Chong Wee-Khoon.
Economic fundamentals and growth data in emerging Asia were still strong and upside price pressure remained acute, he said.
“Strong credit and lending growth warrants further monetary and liquidity tightening, both in terms of reserve requirements and policy rate hikes, even if food and commodity prices level off in the coming months, as the base effect kicks in,” Chong said.
On another note, Zeti said the central bank had not discussed with the Finance Ministry over nominations to the International Monetary Fund’s (IMF) managing director post after incumbent Dominique Strauss-Kahn resigned following his recent arrest.
She said the trend of a European heading the IMF would most likely continue.