Wednesday, June 11, 2008
fuel hike facts
Most people have asked me about the fuel hikes and I have explained this scenario to many people, including supporters of the hike, simply because their reasons were wrong. In the past week, I have talked to friends who work for Petronas and Exxon Mobil who don't seem to know how the oil pricing works. Personally, I think those people need to be shot, but that is a story for another day.
People (namely the lying opposition leaders) have been questioning why Malaysia, as a net exporter of oil cannot afford subsidies, since the inflated price of oil should inflate the profits of this country. Being a net exporter of oil is irrelevant in our case for many reasons:
While Wan Azizah may be right about countries like Venezuela selling petrol for RM0.16 per litre, she does not consider many things. Heck, she probably did, but conveniently forgot to tell you guys about it. Theoretically, if the oil from the ground belongs to the people, so you could charge them the cost price for you to extract the oil from the ground, process it, and deliver it to the petrol stations. Personally, I am against this type of socialism (we will come to that later), but THEORETICALLY, it is possible.
However, we have different oil companies operating in this country. You can look at the pump stations and we are spoilt for choice. Shell is the market leader with about 35% of the market share. Petronas holds about 30% of the market share, while the rest are made up of Esso, Mobil, Caltex and BHP. This essentially means that 70% of the money is going to foreign oil companies - which does not make any sense. If Petronas held 100% of the market share, then at least the profits would be pumped back into the government and to the people. In my opinion, what needs to be done is to completely remove all the subsidies and allow all the oil companies to compete in a free market.
Going back to the issue of socialism in Venezuela's case, it would totally depend on which angle you are looking from. From the point of view of the Average Joe on the street, it would be absolutely fantastic to have to pay next to nothing for petrol. Hugo Chavez's populist policies scores him brownie points with his people, but are bad for his national oil company, PDVSA.
What he is doing is essentially what Anwar Ibrahim is proposing we do to Petronas.
When he first came into power, PDVSA was a growing giant with enormous potential. At that time they were producing some 4.5 million barrels per day (bpd) with a growth potential of 6 million bpd (numbers vary depending on which source you believe). When he took power, he channeled a huge chunk of PDVSA's funds into the country, halting a lot of their major projects. Some 20,000 PDVSA staff went on strike to demand Chavez's removal and call for early elections. Chavez responded by sacking each and everyone of them.
No company, no matter how well run can afford to replace 20,000 staff in a blink of an eye, so PDVSA struggled and today, even though they are still churning in billions of dollars of profits, they claim they are producing 3.5 million bpd. OPEC puts their figure closer to 3 million bpd (again, the numbers vary depending on the source, but the point is still the same). And as long as Chavez continues pouring in the money to his social project to gain popularity with his people, the oil company will continue declining until it can no longer contribute toward the nation.
We have seen that very same thing happen with Pertamina, Indonesia's National Oil Company. In the 70's they were huge, contributing to some one fifth of Indonesia's GDP. Years of mismanagement (granted there was a lot of corruption) and populist policies have literally destroyed the company. Up until recently Indonesia was a member of OPEC who wasn't actually an oil exporting country.
We have gas processing plants and oil refineries that are getting older and older and cost more to maintain. Inflation in the industry is bordering on ridiculous. 6 months ago, I purchased a particular item for work for a certain fee. Two weeks ago, I needed the same item for another equipment and I found the price had jumped 60%. The largest oil company in the world, Exxon Mobil posted a $39 billion profit in 2006. Despite the 80% jump in global oil prices, their profits for 2007 increased by a mere 2.5% to $40 billion.
10 years ago in school, we were told that Malaysia only has about 19-20 years of oil left. Today we still have 19 years of oil left in our lands. This is because you keep exploring new areas to look for oil. It is a simple rule of any business that you need to keep reinvesting your profits to sustain your business.
If Anwar Ibrahim does as he proposes, he will be extremely popular in the short term but will destroy this country in the long run.
I also followed this up with a couple of related articles:
A Socialist Story, Part 1
A Socialist Story, Part 2
Do read them for a better understanding of our dilemma.
The only things people want to hear are:
1) Their salaries will be increased by 357%.
2) Water and electricity is free.
3) All food items will cost no more than RM1 per packet or kilo or piece.
4) Petrol will be priced at 20sen a liter.
Anything else will not interest the "rakyat jelata".
Ooooh this food sucks, let's try the other restaurant, see if it's okay. If it's not okay we won't come back again.
That is utter madness.
And no, it's not utter madness. :)
I guess, the point is, the consequences as well as revision of expectations and subsequent behaviour in the case of choosing restaurants is a lot smaller and quicker than choosing the government.
Where a lot more damage could be done in each five years. So much more care should be reserved in picking a government and trying to shape that government, and even this is an understatement.
If the "rakyat" can't cope with RM2.70 then I would think a lot of people are going to have a heart attack when the retail pump price rises to RM4.
I read another article recently that looks at rising cost of living versus stagnant wages. I will post it here when I can find the URL.
"We can get the average inflation number down by killing wages so much that other parts of the economy have falling wages and prices."
Don't panic yet, there is a bit more to that quote than what I c&p.
Check the last section of the interview, re inflation vs downturn effects.
put that together with the income tax paid (27%), which is high for a country with hospitals, schools and universities like ours, and you start to wonder, where exactly is all this money going?
if you want to talk about populist decisions, why not talk about how our cigarettes are dirt cheap compared to singapore, australia. at least if you increase the price of cigarettes, less people will die of lung cancer.
dont be stupid. our tax money is disappearing. most people are upset because the price is going up, without looking deeper into this. i did not see any of the "benefits" of the previous price hike, and i am sure as hell not going to see any benefits this time.
it is people like you who give ammunition to these pro-govt freaks such as vincent in a situation where they really should be crawling into their caves and hiding.
i'm saying that because vincent stays in selangor, votes in selangor. I know cos I've known him for a super long time.
so vince akakkaka - i knew you didn't like bn cos you think they suck, and you told me you don't like pr also because you feel they suck too. but i didn't know hahahha that you're actually pro-pr.. i mean, according to anony's rationalising, that is.