Rising crude oil prices : Government in a quandary

KUALA LUMPUR March 4 - The Russia-Ukraine war is a tragedy for all humankind costing lives and property.

However, as the saying goes - one person's bane is another person's fortune.

As a direct consequence of the war, crude oil prices surged and still climbing to an all-time high of US$110 per barrel.

This is in direct contrast when crude oil prices dived as low as US$20 per barrel in 2014.

Undoubtedly, national oil corporation Petronas will benefit the most after being pressured to its core for the past seven years.

Economists said for every US$1 dollar increase in oil prices, the government is set to rake in a revenue of US$300 million in petro-dollars.

This will augur well for Putrajaya who is set to receive up to RM20 billion or more in oil royalty from Petronas.

However, not all is hunky dory.

On the converse, the government will have to bear the enormous pressure of oil subsidies.

Although on one side the government is reaping high profits, but on the flip side it has to shoulder the mounting burden of subsidies.
 

Subsidies can only be abolished through political will

It is a pity that the government is raking in astronomical profits only to cough up RM20 billion in yearly subsidies.

AIMST vice chancellor Datuk Dr John Antony Xavier said for every US$1 increase in oil prices, the Government stands to earn US$300 million in additional revenue.

"However, the government has to equally fork out two thirds out of that amount or roughly RM20 billion to pay for the subsidies," Xavier told DagangNews.com.

It is time for the government to do away with subsidies and it can only do that through political will.

Subsidies is a thing of the past to win the rakyat's political vote which in this day and age of social media, does not work anymore.

It is time for the government to discard subsidies.

It is only strangling the government, benefitting the T20 while not reaching the targeted B40.

Furthermore, investors do not like subsidies as it distorts the market.

Investors are miffed with subsidies as they cannot compete on a level playing field.

Thus, it is better to jettison subsidies and prevent investors - locals and foreigners alike from leaving the country.

Subsidies also burdening the palm oil industry

Similarly, the meteoric rise of crude palm oil prices to RM8,000 a tonne has also put the government in a conundrum.

At RM8,000 a tonne, palm oil producers are laughing all the way to the bank.

But on the converse, it costs more to produce cooking oil.

Due to this, the government has to subsidise cooking oil prices so that the rakyat can afford it.

"Even fertiliser prices have gone up and the government is also subsidising.

The government must do something to end the subsidies. It is not workable anymore.

"The government cannot go on subsidising forever," said a chicken supplier Zamzuri Ahmad. - DagangNews.com