Snippets on Petrol Hike.

05-06-2008: Highlights of new fuel subsidy structure
Compiled by Surin Murugiah

Restructuring of petrol and diesel subsidies:

• Effective June 5, 2008, petrol prices will increase by 78 sen and diesel by RM1 per litre to RM2.70 and RM2.58 respectively.

• For owners of private vehicles with engine capacity of up to 2,000cc, and pickup trucks and jeeps of up to 2,500cc, an annual cash rebate of RM625 for each vehicle.

• For owners of private motorcycles with engine capacity of up to 250cc, annual cash rebate of RM150 for each bike.

• The cash rebates, in the form of money order, will be given to the vehicle owners when they renew their road tax effective July 1. The rebates will cover vehicles with road tax from April 1, 2008 to March 31, 2009.

• For owners of cars and motorcycles excluded from the cash-rebate category, effective June 1 their vehicle road tax will be reduced as follows:

a) Owners of private petrol and diesel vehicles with engine capacity of more than 2,000cc will have the road tax reduced by RM200.

b) Owners of private motorcycles of engine capacity of more than 250cc will have the road tax reduced by RM50, subject to a minimum road tax of RM2.

There is no change in the prices of liquefied petroleum gas (LPG) and natural gas for vehicles (NGV), with LPG at RM1.75 per kg and NGV at 63.5 sen per litre.

Streamlining diesel subsidies for transportation operators, fishermen and vessel owners:

• Currently, fishermen buy diesel for RM1 per litre and vessel owners buy at RM1.20 per litre. Government has streamlined price of diesel at RM1.43 for all three categories effective June 5, 2008.

• The price will not jeopardise transportation companies under the fleet card system because they will continue to enjoy the petrol and diesel subsidies at this price.

• The government has agreed to pay in cash a portion of the difference between the old and new prices to fishermen and vessel owners, as follows:

a) Payment of RM200 cash monthly to every owner and crew of Malaysian-owned vessels registered with the Fisheries Department.

b) Payment of incentives to vessel owners at the rate of 10 sen per kg of fish landed by approved fishing vessels at fish landing centres in the country.

The Malaysian Fisheries Development Authority will manage the above payments. In addition, operators of river passenger boats will be given cash payment of 10 sen per litre based on an approved quota.

Prices of gas supplied by Petroliam Nasional Bhd in Peninsular Malaysia beginning July 1, 2008

• For the electricity sector, the price will be increased from RM6.40 per mmBtu (million British thermal units) to RM14.31 per mmBtu.

• For industrial sector consumers using less than two mmscfd (million standard cubic feet per day), the price fixed by Gas Malaysia Sdn Bhd (GMSB) will be raised from RM9.40 per mmBtu to RM24.54 per mmBtu.

• For industrial sector consumers using more than two mmscfd, the price of gas supplied by Petronas will be raised from RM11.32 per mmBtu to RM32.56 per mmBtu.

• Special assistance to be given to consumers of GMSB gas, that is, for the category of small and medium enterprises. These consumers will enjoy a lower gas tariff rate.

• Consistent with the sustainable energy policy, Petronas will reduce the subsidy for the electricity sector progressively in line with the current market price, up to the 15th year, when the level reaches the market price.

• The subsidy for the industrial sector will be reduced progressively in line with the market price, up to the 11th year, when the level reaches the market price.

• In announcing the new electricity tariff, Tenaga Nasional Bhd (TNB) would have to bear the increase in the price of coal in the global market.

• Government has approved a new electricity tariff structure to enable TNB to absorb the fuel cost for gas and coal.

• Price of liquefied petroleum gas for cooking and natural gas for vehicles remains unchanged at RM1.75 per kg and 63.5 sen per litre respectively.

New electricity tariff:

• The new tariff structure, effective July 1, 2008, will apply to all domestic, commercial and industrial consumers in Peninsular Malaysia only and a new structure will be announced soon for those in Sabah and Sarawak.

• In line with the government’s desire to safeguard as much as possible the welfare of the low- and medium-income group, the new electricity tariff structure will not affect consumers who use less than 200kWh per month, with the electricity bill estimated to be RM43.60.

IPP and palm oil producers:

• IPPs to be levied 30% windfall tax on audited return on assets in excess of 9% threshold.

• Palm oil millers to pay windfall tax in place of cess as follows effective July 1 –

a) for Sabah and Sarawak, 7.5% for every tonne of CPO which is more than RM2,000

b) for Peninsular Malaysia, 15% for every tonne of CPO which is more than RM2,000

• Cooking oil prices to remain the same as proceeds of windfall tax will used to fund cooking oil subsidies

• The levy rate for palm oil producers in Sabah and Sarawak is much lower as they also need to pay the state government tax.

05-06-2008: Lim: Fuel increase will burden poor

PENANG: Penang Chief Minister and DAP secretary-general Lim Guan Eng, who is now on a business networking trip in Korea, has expressed grave concerns over the federal government’s decision to increase fuel prices.

In a statement yesterday, Lim said the fuel increase would be a burden to the poor.

“The fuel increase is both economically inefficient and socially unjust in that it does not deal with the basic problems of increasing productivity and energy conservation.

“It does not ensure that fuel subsidies fulfil the intended objective of helping the poor but instead benefit the rich,” he said.

Lim said the government should ensure that rich companies and individuals did not benefit equally as the poor in the revamped fuel subsidy scheme. “So long as rich companies continue to enjoy such fuel subsidies, especially the independent power producers, the fuel increase will be seen as both pro-rich and punishing the poor,” he added.

05-06-2008: Fuel price hike favours ringgit relative to bonds
by Sharmila Ganapathy

KUALA LUMPUR: Malaysian government bonds, which have been experiencing weaker prices and rising yields of late, are expected to bear the brunt of the fuel and electricity price increases, analysts said.

“It was a bit of a shocker that the petrol price went up by 78 sen. However, the reaction will be felt more on bonds and swap rates rather than the ringgit,” CIMB Investment Bank Bhd interest rate and currency strategist Suresh Kumar Ramanathan told The Edge Financial Daily.

The ringgit ended lower against the US dollar yesterday ahead of the government’s announcement of the new fuel subsidy scheme, falling for the second day running this week.

At 5.35pm, the ringgit was trading at RM3.2425 against the greenback compared with Tuesday’s close of RM3.2230, according to data compiled in Bloomberg. On Monday, the ringgit closed at RM3.2215.

Prime Minister Datuk Seri Abdullah Ahmad Badawi announced that petrol price would go up by 40%, or 78 sen, to RM2.70 per litre while diesel would cost 63%, or RM1, more at RM2.58 per litre. He said the move would save the government RM4 billion in subsidies a year.

The higher fuel prices would likely raise inflation this year to between 4% and 5%, Abdullah said.

“Given the turn of events, the ringgit range trading mode will be in place with buyers on the weak side, but this will not necessarily alter the currency appreciation plan for the end of the year,” he added, saying that the currency would remain range-bound until September, after which it would start appreciating again.

He said that with inflation expected to edge higher as a result of the fuel price hike, swap rates and yields on government bonds were expected to widen and accordingly, raise spreads against the US dollar rates.

On Tuesday, Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz said that the central bank would not use the ringgit as a monetary policy tool and would let the market determine the direction of the currency.

“With the recent turn of events causing swap rates and bond yields to go up, this actually favours more ringgit strengthening,” Suresh added.

Prices of 3-year and 5-year benchmark government bonds have declined into this week, as investors braced for higher domestic inflation from the already-anticipated fuel price increase.

The price of 3-year bond dropped by 30 sen to 100.3500 while 5-year bond fell 60 sen to 97.5000 yesterday from the day before.

The yield on 3-year notes, meanwhile, rose 10 basis points to 3.72% while 5-year note yield gained 13 basis points to 4%. The one-year interest rate swap, meanwhile, increased to 4.08% from 3.955% on Tuesday, according to Bloomberg.

05-06-2008: Wake up to prudent spending
The Edge Financial Daily Says

THE 78 sen increase in the price of petrol that is effective immediately takes Malaysia firmly into the era of energy-driven inflation that is already hurting economies in the rich and poor worlds alike.

There is little that can be done about the demand pressure that has pushed crude oil prices to record levels, without dampening growth in the emerging global powerhouses of China and India, and the other populous economies besides.

For Malaysia, the greater need is for a new sense of purpose in husbanding the nation’s resources, reducing wastage and encouraging efficiency in the major growth engines that are driving the economy.

Naturally, there will be massive knock-on effects from the 40% jump in pump prices since the last adjustment, as these punishing energy costs are transferred downstream to the consumer. Clearly too, fuel-dependent industries including transport, freight and power generation will experience wrenching adjustments as their markets react to the new cost equations. These would no doubt be compounded by the impending revision of electricity tariffs, which would directly impact business costs.

Marginal players will be swallowed by the widening abyss of operating costs, pushing demand and sentiment downwards in a harrowing spiral before the tailspin bottoms out. The only prudent thing to do is to get into survival mode, grit one’s teeth and hang in there for the ride.

Public disaffection at the rising cost of living will need to be ably managed to contain the political fallout from the inevitable belt-tightening that will hit most badly the masses who are least able to cope.

Unfortunately, the new sense of impoverishment that will grow among the struggling classes is likely to largely sweep away the government’s well-meaning attempts to cushion the pain arising from the rising energy costs through direct cash rebates.

Given the sharp edge of resentment that tends to grow within working class households at the seemingly hopeless task of stretching a meagre budget, evidence of unwarranted spending of public funds can become rather inflammatory. It is at times like these that much sensitivity needs to be displayed in eschewing mammoth expenditures on prestige projects that have little relevance to the basic needs of the vast majority.

Indeed, the astute political leader would seize this opportunity to correct the mistakes of the past by reviewing prestige projects of questionable utility. Now is the time to embrace a new pragmatism in the economic management of the country, trimmed of the culture of rent-seeking, inflated project costs and the opaque award of contracts for major public works.

A failure to grasp the nettle at this juncture may cost a heavy political price.