Friday, November 21, 2008

A case of rakyat subsidising the government ?

Gov't should profit from low fuel prices, says Shahrir

The government is justified to earn revenue from the recent drop of global oil prices as it had given out subsidies when prices were high, said Domestic Trade and Consumer Affairs Minister Shahrir Abdul Samad.

Speaking to Malaysiakini in Parliament yesterday, he said the government can make a profit if local fuel prices remain at RM2 per litre and global crude oil prices hover at around US$55 per barrel.Stressing that consumers were also benefiting from current low prices, he added, "Motorists have got some money in their pocket, which is the RM625 rebate we have given out."Shahrir said the government will start earning revenue with the help of the Automatic Pricing Mechanism (APM), where all costs are fixed, including the profit margins of oil companies and petrol station operators.
"Thus the oil companies will never make money beyond what we set because we control their margins.

"The rest (of the profits) will be taken by the government, which is a fairer system," Shahrir said."The question now is whether the government plans to give away (the money).

"We gave it away in the form of subsidies when prices were high, so it's only fair that the government makes some money now when prices are low."
The minister also explained that petrol stations will not be able to profit from the current low prices as they get a fixed margin of 12 sen per litre."If the retail price is higher than the market price, it is the government that benefits because we have taken care of their margins. If the prices are low, petrol stations will still enjoy the same margins," he said.Shahrir, however, said the decision to earn revenue has not been made as the government has yet to set a floor price for fuel, in which prices are not allow to go lower than a set level.

The issue will be discussed in an economic council meeting on Dec 1. The minister had earlier said he favoured a floor price of RM1.92 per litre.Subsidy policy remainsTwo days ago, Shahrir revealed that the government had stopped paying petrol subsidies since Nov 1 when global crude oil prices dipped below US$65 per barrel."At the price today, which is at RM2 (per litre), there is no subsidy and we do not have to pay.

"The subsidy is not going to be abolished, it is just that we have stopped subsidising (at the moment)," he told reporters.He also said the subsidy policy will remain as the government is still giving out subsidies for diesel and liquefied petroleum gas (LPG) as well as a petrol rebate for motorists."Don't forget we give direct cash benefit to the motorists through the rebate. So we are still giving the subsidy, but there is no subsidy at the pump level," he explained.

Shahrir’s statement was a departure from what the deputy prime minister-cum-finance minister had stated in his Budget 2009 winding-up speech on Nov 4. Najib Abdul Razak had then said that the government would maintain a 30-sen fuel subsidy at the pumps. Global oil prices have already fallen substantially when he made the speech in Parliament.
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