Saturday, May 24, 2008

fuel subsidy to be cut soon

23-05-2008: Fuel subsidy to be cut ‘soon’

SINGAPORE: The government is finalising a holistic review of the fuel subsidy programme where “sharp measures” are to be introduced to ensure the financial aid goes directly to the poor and deserving.

Second Finance Minister Tan Sri Nor Mohamed Yakcop said the reform on the subsidy plan, which would be announced “in a couple of months”, would do away with “blunt subsidy measures” and instead introduce “sharp measures”. He alluded that with the “sharp measures” in place, the subsidy bill could be reduced without compromising on its objectives of alleviating the suffering of those in need.

In reply to a question at an investor conference organised by CLSA here, Nor Mohamed estimated that the subsidy bill could reach about RM53 billion this year, at the present price of oil. Yesterday, crude oil price rose to a record above US$135 (RM438.75) a barrel in New York after US stockpiles unexpectedly dropped. Oil price has risen 19% this month.

Meanwhile, Bloomberg reported Nor Mohamed as saying that the government wants to introduce a new petroleum subsidy arrangement “as soon as possible’’ to reduce the bill significantly.

Malaysia’s inflation rate is at a 14-month high, and voter dissatisfaction with rising prices contributed to the government’s worst election result in March. Still, the cost of the handout deprives state oil company Petroliam Nasional Bhd, or Petronas, of funds as the country runs out of oil reserves.

“We cannot give it all away as subsidies,” Nor Mohamed told reporters. “This income from Petronas will not last forever. By 2014, we could be a net importer of oil.’’
A spokesman for Petronas did not immediately reply to a message left on his phone or to an email.

The cost of keeping domestic natural gas, petrol and diesel prices artificially low in 2007, including direct subsidies and taxes foregone, was RM35 billion, the government has said.
Surging fuel costs may also make it harder for Prime Minister Datuk Seri Abdullah Ahmad Badawi to narrow the government’s budget deficit to 3.1% of gross domestic product this year.
The cost of providing fuel subsidies was the biggest problem facing the country and inflation was not a “major issue”, Nor Mohamed said.

Inflation is likely to exceed 3% this year, he said. Consumer prices rose 3% in April from a year earlier on rising food costs. The central bank forecast in March inflation would average 2.5% to 3% this year.

The government this month eased import restrictions on steel and capped the price of more types of rice to contain inflation.

It may consider imposing a “windfall tax’’ to curb inflation, Domestic Trade and Consumer Affairs Minister Shahrir Abdul Samad said on Wednesday. Nor Mohamed said yesterday he wasn’t aware of the windfall tax proposal.

The Prime Minister, facing calls from some of his own party members to step down, has avoided increasing local fuel costs so far this year even as record oil prices force the government to pay more in subsidies to keep pump prices low.

Instead, the government said in April it may introduce more expensive petrol that isn’t subsidised as much as lower-grade fuel to reduce its subsidy costs.

Nor Mohamed didn’t give details on the new subsidy arrangements, saying the mechanism still needs to be worked out.

BERITADARIGUNUNG: The fuel, the food and the belt, as Nor and Shahrir are looking beyond their plates.