money

PUTRAJAYA, Feb 26 – Production and operations costs of most of the industries in Malaysia can be adduced as “artificial cost” as a big chunk of the cost element is the subsidy borne by the government, according to experts.

Actually, manufacturers should feel “embarrassed” when announcing that they have made a profit when the reality is that a major portion of their costs had been absorbed by the government. They should be ashamed if they lose money even with the government subsidies.

Take gas, for instance. A good number of industries are now switching to gas to power their manufacturing processes due to the lower price of gas (compared with diesel) while both fuels are subsidised by the government. The only difference is the amount of total subsidy.

The subsidised gas price for the power sector is RM10.70 for per Million British Thermal Unit (MMbtu), heavy consumers RM15.35 per MMbtu and Gas Malaysia Sdn Bhd RM11.05 per MMbtu. Unsubsidised price or current market price for gas for the energy sector is RM41.16 per MMbtu, heavy consumers RM56.20 per MMbtu and Gas Malaysia RM42.35 per MMbtu.

Subsidised diesel price for public transport and fishermen is RM38.65 per MMbtu or RM1.43 a litre and pump price RM45.95 per MMbtu or RM1.70 a litre. Market price for diesel is RM55 per MMbtu.

Looking at the figures, the industrial sector can surely differentiate the subsidised gas price they have been enjoying all these while.

Government subsidy target groups like fishermen will surely “shake their heads” upon seeing the very low subsidy they are receiving, compared with the industrial sector.

The government is estimated to bear over RM20 million in financial burden this year for gas subsidy alone and this “hidden cost” will continue to surge in years to come if gas prices are subsidised continuously.

Unfortunately, cumulative subsidy at around RM7 billion initially five years ago was enjoyed only by certain segments of the indutrial sector but not the people from all strata of society.

The bulk of the industries may pretend to be unaware that they have been actually inefficient in gas and diesel consumption. They seem to take the easy way out by switching to gas to take advantage of the cheaper energy, thanks to government subsidy.

Buying gas at market prices should jolt them up to boost energy efficiency and maximise their resources to minimise costs and improve competitive edge.

Under the Gas Sales Agreement, the gas supplied by Petronas, the national oil corporation, is based on medium fuel oil (MFO) price.

It is public knowledge that global oil price in the world market was on the upward trend throughout last year, resulting the same trend for MFO. MFO was sold around US$72 per barrel in December last year as compared with US$37 per barrel in March last year.

The higher the MFO price, the higher is the subsidy apportioned by the government for gas-powered industries.

Hence, the government is further burdened to increase the subsidy amount following spiralling demand from certain industries.

Petronas is said to be facing “supply hitches” following abrupt rise in demand for gas to the extent of exceeding its supply capacity.

Tenaga Nasional Bhd is also facing problems getting gas supply from Petronas, compelling the power utility giant to convert some of its electricity generation plants to be coal-powered.

Maybe it is time for the government to set prices of MFO, gas, diesel and coal based on market prices in order for local industries to have more choices for their fuel supply.

With that, reliance on gas will not be that high and hence, there will not be much difference in fuel price. This will pave the way for industries to opt for other sources of fuel if the demand for gas cannot be met.

A wide range of fuel will ease the “pressure” on the burgeoning demand for gas whose reserves are fast depleting. In conclusion, a prudent policy and pre-emptive measures adopted by the government and Petronas will help sustain the nation’s gas reserves for the future generation. – Bernama